KONEW FINANCE LTD v. LAM PING FUI ERIC AND ANOTHER

DCCJ 1286/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1286 OF 2001

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J U D G M E N T

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1. This is my judgment after careful consideration of the circumstances. The plaintiff is a registered money lender and the plaintiff claims against the defendant for the recovery of a loan and accrued interest under two loan agreements.

2. The defendants entered into a loan agreement with the plaintiff on 13 February 1998 for the loan of $200,000 at an interest rate of 3.2 per cent per month and agreeing to repay the sum of $6,400 monthly.

3. This loan was secured by a second mortgage on the defendant's property at Flat B, 16th floor, 128 Broadway, Mei Foo Sun Chuen in Kowloon, hereinafter referred to as "the said property". I shall refer to this loan agreement as "the first loan agreement".

4. The defendant paid a total of $84,600 in monthly payments up to May 1999 under the first loan agreement.

5. In May 1999, the plaintiff discovered that the said property had been repossessed by the 1st mortgagee and was subsequently sold.

6. The parties then negotiated on the repayment of the loan and, upon the 1st defendant's promise to repay upon his impending retirement when his retirement fund would give him such sufficient money to repay the loan, the parties entered into a second loan agreement on 7 May 1999.

7. The loan on the second agreement was for $216,000, although no further money was paid to the defendant by the plaintiff.

8. The interest rate specified in that second loan agreement dated 7 May 1999 is 3.5 per cent per month, which is equal to 42 per cent per annum, with the monthly repayment sum of $7,560 payable from 6 June 1999 until the whole loan was repaid.

9. The whole sum was to be repaid within 6 months and it is further specified that should the defendants default on their monthly repayment, then the whole loan would become immediately repayable.

10. Under the second loan agreement, the defendants paid the total sum of $58,700 in monthly payments up to 2 December 2000. However, since that date, the defendants failed to pay any further repayments to the plaintiff.

11. The plaintiff now claims against the defendants for the payment under the statement of claim under a writ of summons against the defendants issued on 19 January 2001 for $216,000, the loan under the second loan agreement and $92,500 in interest accrued up to the date of the issue of the writ. It further claims interest at 42 per cent per annum from 7 January 2001 until the date of repayment of the loan.

12. The defendants filed a defence and resisted the claim of the plaintiff. Meanwhile, the 2nd defendant was declared a bankrupt on 5 June 2001.

13. At the trial originally fixed for hearing on 21 November 2002 before Deputy Judge T So, the defendants were absent. The Deputy Judge ordered the plaintiff to serve the 1st defendant in writing, at both his office address and his last known address, which was a residential address.

14. A further order was made for the plaintiff to serve or write to the Official Receiver as far as the 2nd defendant is concerned, as judgment against the 1st defendant may affect the interest of the 2nd defendant according to the Deputy Judge's order.

15. At today's hearing I have been shown letters from the plaintiff's solicitor to the 1st defendant at both his last known residential address and his office address. The office address service was not effected for the letter was returned because the address was said to be incomplete.

16. It is, however, apparent that service on the 1st defendant's last known residential address is in full compliance with the views of the court in that this is the address that the 1st defendant put down in his notice to act in person.

17. The Official Receiver was also duly informed of the date of the hearing and the Official Receiver has indicated by letter and replied that he is not going to appear or take any steps in these proceedings, as far as the 2nd defendant's interest is concerned, for the Official Receiver does not wish to incur further costs.

18. In the defence filed by the defendants, the defendants admitted to have received a sum of $190,000 only and admitted further that they have paid monthly payments under the second loan agreement of $58,700.

19. At today's hearing, the plaintiff admitted that both the first and second loan agreements failed to comply with section 18 of the Money Lenders Ordinance, Cap.163, in that both have failed to specify the loan in words and have specified in figures only.

20. Further, two, the rate of interest charged on the loan was expressed as a rate per cent per annum or the rate per cent per annum represented by the interest charged as calculated in accordance with schedule 2 of the Ordinance.

21. And, three, a declaration as to the place of negotiation and completion of the agreement for the loan.

22. Further, the plaintiff in the first agreement infringed section 27 of the Money Lenders Ordinance by charging expenses or a handling fee of $4,000, which has been made illegal under section 27 of the Ordinance.

23. Furthermore, clause 5 of the first agreement purported to contract out the jurisdiction of the court in the following terms:

"Interest payable under this deed shall be paid but notwithstanding that the lender may have obtained any judgment against the borrower and shall be paid at the aforesaid monthly rate as well before and after and notwithstanding any such judgment."

24. Clause 6 of the second loan agreement is in similar terms, although it was written in Chinese.

25. The plaintiff's solicitor, in his submission today and the plaintiff in the evidence filed by witness statement of PW1, Mr Lee, and affirmations filed by Mr Lee, claimed that no prejudice has been caused to the defendants in spite of their failure to comply with section 18 of the Money Lenders Ordinance.

26. It has been submitted to me that these were technical breaches only and that the court has a discretion to enforce the agreement to such an extent as the court considers equitable subject to such modifications under section 18(3) of the Ordinance.

27. It has been further submitted by the plaintiff's solicitor, Mr Lui, that no prejudice has been caused to the defendants because the defendants understood both the English and Chinese language and they have read the agreements before the agreements were signed.

28. According to the terms of section 18(3) of the Money Lenders Ordinance, clearly the court has such a discretion and may make such modifications as it sees fit under the circumstances.

29. As to the infringement of section 27 of the Money Lenders Ordinance, the plaintiff has conceded to deduct $4,000 from the loan of $200,000 for PW1, Mr Lee, admitted to have only paid over $185,250 after deduction of the first month's interest of $6,400 and $4,350 solicitors' charges for the execution of the second mortgage deed and a further deduction of $4,000 of handling charges by the plaintiff.

30. The plaintiff now concedes that it is seeking to recover $196,000 of the loans originally extended under the first agreement.

31. This concession has, obviously, completely changed the loan amount set out in the two loan agreements because, according to the table of calculations submitted by the plaintiff's solicitor, Mr Lui, the reduction of the loan to $160,000 has reduced the interest payable and the loan amount under the second agreement to $203,985 after deducting the 38.4 per cent per annum interest under the first loan agreement.

32. The plaintiff now claims that it is entitled to recover $196,000 in principal of the loan granted and a total of $245,030.86 in interest up to 21 November 2002, or an interest of $87,765.28 up to the date of writ at 42 per cent per annum as interest under the second agreement and also under clauses 3 and 6 of the second agreement, clause 6 being identical to clause 5 of the first agreement.

33. The two loan agreements have clearly failed to comply with the requirements of the Money Lenders Ordinance in many ways, not only that section 18 was not fully complied with, the plaintiff had charged handling charges or expenses, which is prohibited by section 27 of the Ordinance; and further, they attempted to contract out of the court's jurisdiction in the charging of the rate of interest after judgment. This last infringement I find to be an obvious abuse of the court process.

34. The plaintiff seeks to enforce the agreement in these courts, on the one hand, yet informs the court, in another breath, that it does not have to comply with the court's order.

35. I have considered the judgments in the two cases cited to me. The High Court case HCCL79/1999, a judgment by his Honour Judge Wang in chambers, date of judgment 15 June 2000, in the case of Orix Asia Limited v Grant Forward Industrial Limited & Others.

36. Clearly, the case is not from the same section of the Money Lenders Ordinance, although it is a case on the Money Lenders Ordinance; it relies on section 20 of that Ordinance, applicable to surety. Wang J mentioned in obiter that non-compliance under section 18 of the Ordinance has much more lenient consequences and that, under section 18(3), the court has a substantial discretion notwithstanding the non-compliance of section 18(1).

37. The second case is a District Court judgment of my brother Judge Lok on an appeal from Mr Registrar Au Yeung, and the date of judgment 1 June 2001, where my brother Judge Lok allowed the enforcement of the five loan agreements despite the non-compliance of section 18 of the Money Lenders Ordinance.

38. Considering the background of the present case, the infringement or non-compliance of the Money Lenders Ordinance is much wider than it seems from the case before my brother Judge Lok in DCCJ17916 and the other three cases in his judgment of 1 June 2001 in that not only section 18 was not complied with, there's been infringement of section 27 and the contracting out by the two loans agreement clauses 5 and 6 respectively.

39. After careful consideration of the background of this case, and the wordings of the two loan agreements, and after taking also into consideration the defence filed by the defendants admitting to have received the loan of $190,000 and the payment of $58,700 under the second loan agreement, and after considering the evidence of Mr Lee and the production of the total monthly payments under the two loan agreements made by the defendants, I am prepared to allow the enforcement of the repayment of the loan principal itself.

40. This is an exercise of my discretion under section 18(3) of the Money Lenders Ordinance and because, in view of the infringement or non-compliance of section 18(1) and (2) of the Money Lenders Ordinance, in fact, I have found the two loan agreements to be outrageously drafted.

41. However, I consider that it is equitable for the plaintiff to recover the principal of the loan which the defendants admitted to have received.

42. However, I would disallow the interest charged under the two loans agreement and I shall allow the payment by the defendants of $84,600 under the first loan agreement and the payment of $58,700 under the second loan agreement, making a total of $143,300, to be treated as the defendants' repayment of the loan principal.

43. I shall allow interest to be charged from the date of the issue of the writ to the date of judgment at half judgment rate and thereafter at full judgment rate until full payment.

44. As the plaintiff has been successful in recovering the loans, I shall allow costs to the plaintiff to be taxed if not agreed.