YIP KIN KWAN KENNETH v. RICH WELL FINANCE LTD

HCA 2181/2016

[2020] HKCFI 456

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2181 OF 2016

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J U D G M E N T

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A.  INTRODUCTION

1.  The Plaintiff, Yip Kin Kwan Kenneth (“Mr Yip”), was and is one of the two registered owners of Flat C, 1^st Floor and Car-parking Space No. 24 on the Lower Ground Floor 1, Shing Loong Court, No. 13 Dragon Terrace, Hong Kong (the “Property”). The other co-owner of the Property is his wife, Yan Mei Kuen Jackey.  They became the registered owners of the Property by an assignment dated 18 April 2011 (the “Assignment”).  The Defendant, Rich Well Finance Limited (the “Moneylender”), is a licensed money lender in Hong Kong.  The Third Party, K.B. Chau & Co. (A Firm) (the “Firm”) is a solicitors’ firm in Hong Kong.

2.  Mr Yip lost his HKID card in 2014.  On or about 24 December 2015, apparently, an imposter, Mr X, made use of his lost HKID card (and other false information and documents) to take out a HK$5,500,000 loan with the Moneylender (“Loan”) secured by a second mortgage over Mr Yip’s one half interest in the Property (“2^nd Mortgage”).  The Loan was approved by the Moneylender, and it instructed the Firm to prepare the relevant legal documents to be executed by Mr X.  Mr X signed the relevant legal documents at the Firm’s office on 24 December 2015 and received a net sum of HK$5,432,400.  The fraud was discovered in early March 2016 after small sums had been repaid.  Although the Moneylender could trace the proceeds of the loan to some bank accounts, the bulk of the monies were gone and could not be recovered.

3.  Mr Yip sued the Moneylender to have the 2^nd Mortgage annulled; the Moneylender in turn sued the Firm as Third Party alleging that it was responsible for the loss of the Loan monies.  Mr Yip and the Moneylender have on the first day of trial agreed that judgement be entered in favour of Mr Yip in the Main Action, on the basis that the Moneylender will pay Mr Yip’s costs.  The question of the basis of taxation of such costs was argued between Mr Yip and the Moneylender on the last day of the trial, and the decision thereon will be given at Section C of this Judgment.

B.  CLAIM BY THE MONEYLENDER AGAINST THE FIRM

4.  There does not appear to be any doubt that the Moneylender has been defrauded, and that it has suffered a loss.  The main issue in the Third Party Action is whether the Moneylender, having accepted that Mr Yip did not receive the Loan monies, can establish that its loss was caused by any negligence on behalf of the Firm.  It is effectively saying that the Firm should have spotted the fraud, even though the Moneylender itself met Mr X in person, checked his HKID card, obtained various background and identification documents from him, and (evidently being satisfied with this information) approved the Loan.  The Firm’s position is that it did all it was required to do in the circumstances, and that it was incumbent on the Moneylender to verify the identity of the borrower.  The Firm also says that the Moneylender was itself negligent in failing to spot the fraud when it approved the Loan to Mr X. 

B1.  The Facts

B1.1  Application and approval of the Loan

5.  The Moneylender claims that, on or about 21 December 2015, an agent called Mr Don Ng referred a potential client to Mr Eric Cheng of the Moneylender, and provided the following documents:

(1)  A copy HKID card showing the name of Mr Yip and no. XXXXXXX(X) (masked in this Judgment to protect the personal data of Mr Yip) with date of issue on 17 March 2004;

(2)  A copy name card of Kenneth Yip, Marketing Manager of Nan Yang Trading Co with an office address and telephone numbers;

(3)  A copy of Demand for Rates and Government Rent dated 30 October 2015 issued to Mr Yip and his wife regarding the Property;

(4)  A copy of Annual Statement of Instalment Loan Account dated 19 April 2015 for the period between 1 April 2014 and 31 March 2015 issued by HSBC to Mr Yip and his wife regarding the Property;

(5)  A copy letter dated 8 November 2015 issued by Ms Emily Lau on behalf of Nan Yang Trading Co certifying that Mr Yip was employed as its Marketing Manager with a basic salary of HK$150,000 per month;

(6)  A copy bank statement issued by HSBC for the months of October, November and December 2015 to Mr Yip and his wife.

6.  Ms Wong Wing Mei Cherry (“Ms Wong”) of the Moneylender was assigned to deal with the matter.  It appears that the Moneylender did a land search confirming that Mr Yip and his wife were the registered owners of the Property.  Ms Wong apparently could get hold of Mr X by calling Nan Yang Trading Co.  The Moneylender also obtained a valuation of the Property verbally.

7.  On 22 December 2015, the Moneylender approved the Loan to be secured by the 2^nd Mortgage over the Property.  Ms Wong then called Mr X to attend its office and the Firm to execute all necessary documents on 24 December 2015.

B1.2  Instructions to the Firm

8.  At 10:52 am on 23 December 2015, Ms Wong emailed to Ms Yiu Man Chu Candy (“Ms Yiu”), a legal executive working in the conveyancing department of the Firm, the following message: “…tmr drawdown (11:00am) Yip Kin Kwan Kenneth instruction…”.

9.  The letter of instructions attached to the email was signed by Mr Tsoi Wing Hong Patrick (“Mr Tsoi”) (who was an Assistant Branch Manager of the Moneylender) (the “Letter of Instructions”).  It provided that:

“Upon delivery of the relative title deeds and satisfactory title investigation, please prepare a Instruction to prepare a ½ 2^nd Mortgage, Execution of Irrevocable Power of Attorney and Letter of Surrender, Notice of Severance of Joint Tenancy in our favour of our Company, Rich Well Finance Limited on the following terms…”

The mortgagor and borrower were stated to be Mr Yip (with HKID No. XXXXXXX(X)).  The loan amount was HK$5,500,000.  The interest rate was 22% per annum subject to market fluctuation and overdue interest would be capitalized.  The interest of HK$100,833.00 shall be repaid by 12 months and the principal sum of HK$5,500,000 shall be repaid on or before 12 month of drawdown.

10.  At 11:25 am on 23 December 2015, Ms Wong emailed to Ms Yiu a copy of the land search of the Property.

11.  At 12:23 pm on 23 December 2015, the Firm ordered a copy of the Assignment from the digital database of the Land Registry.

12.  On the same day ie 23 December 2015, Mr Tsoi and Mr Andrew Gaw, the sole director of the Moneylender, signed a drawdown letter authorizing the transfer of HK$5,442,400 (after deducting HK$55,000 as set-up fee and HK$2,600 as valuation fee) to the designated account of the Firm. 

13.  A cheque issued by the Moneylender in the sum of HK$5,442,400 was deposited into the Firm’s account at 10:25 am on 24 December 2015.  By email at 10:33 am on 24 December 2015, Mr Tsoi attached a copy of the deposit slip and informed Ms Yiu that the set-up fee was HK$55,000 whereas the valuation fee was HK$2,600.  The Firm issued a receipt at 10:58 am on 24 December 2015 accordingly. 

B1.3  Mr X attended the Moneylender’s office on 24 December 2015

14.  At about 11 am on 24 December 2015, Mr X attended the office of the Moneylender and signed a number of documents.  Ms Wong met with Mr X and claims that she had checked his HKID card and originals of the documents previously provided.  She compared the picture on the HKID card with Mr X and was satisfied that they look similar. 

15.  First, Mr X signed a Loan Application Form dated 22 December 2015 (the “Loan Application”). It was witnessed by Mr Tsoi.  The Loan Application Form states that Mr X was introduced by an agent called “Eric”.  Mr X applied for a 12-month fixed term loan in the sum of HK$5,500,000.  The purpose of the Loan was “生意周轉”.  He gave an HKID card no. XXXXXXX(X).  He stated that he was married, he lived at the Property for 10 years and was living with his wife and two children.  He did not give any personal telephone number.  He stated that he was a marketing manager of one Nan Yang Trading Co at Room E, 17/F Thomson Commercial Building, 8 Thomson Road, Wan Chai, Hong Kong with an office telephone no 25675775.  He stated that he had worked there for 5 years and was earning HK$150,000 a month.  He indicated that the Property was subject to a first mortgage for a loan in the sum of HK$2,000,000 granted by HSBC; and by then, the outstanding principal sum was HK$451,738.  For “credit reference”, he provided the names and telephone numbers of his wife and his father.

16.  Mr X also signed:

(1)  a 2^nd Mortgage Loan Agreement (Loan Agreement No: LN000184) (the “Loan Agreement”) with Memorandum of Agreement as required under the Money Lenders Ordinance;

(2)  a declaration on various matters including that all information and documents provided (for example, HKID card copy) were true and correct (the “1^st Declaration”);

(3)  a second declaration on various other matters (the “2^nd Declaration”);

(4)  a privacy statement;

(5)  a document dated 24 December 2015 authorizing the Moneylender to issue 3 cheques: HK$2,600 to the surveyors for valuation fee; HK$55,000 to the Moneylender as upfront fee; and HK$5,442,400 to the Firm as the balance of the Loan; and

(6)  a repayment schedule showing the particulars of repayments.

17.  On the Loan Agreement, as well as the 1^st and 2^nd Declarations, the signatory was identified as the “Holder of Hong Kong Identity Card No. XXXXXXX(X)”.

B1.4  Mr X attended the Firm’s office on 24 December 2015

18.  In the early afternoon at about 1 pm on 24 December 2015, Mr X attended the Firm.  Ms Yiu states that she checked the HKID card produced by Mr X and did not find anything unusual. Mr X looked similar to the person in the photograph on the HKID card.  At that meeting, Mr X behaved normally.

19.  Ms Yiu then explained to Mr X the documents to be executed.  After that, she asked Mr X to sign on a specimen signature page.  Mr X signed twice on that page.  Ms Yiu then checked his specimen signature against the signatures on documents signed at the Moneylender’s office as well as that on the Assignment.  She found them to be similar.

20.  After that, Mr X signed the following documents covered by the Letter of Instructions:

(1)  a Notice of Severance (the “Notice of Severance”);

(2)  the 2^nd Mortgage;

(3)  an irrevocable power of attorney (the “Power of Attorney”); and

(4)  a letter of surrender.

21.  Ms Yiu witnessed the signature on the Notice of Severance, the 2^nd Mortgage and the Power of Attorney.

22.  On the Notice of Severance, the signatory was identified as the “Holder of Hong Kong Identity Card No. XXXXXXX(X)”.  On both the 2^nd Mortgage and the Power of Attorney, it was stated that it was signed sealed and delivered by:

“the Borrower (who having been previously identified by production of Hong Kong Identity Card No. XXXXXXX(X)) in the presence of [Ms Yiu].”

23.  Mr X also signed a letter of undertaking given to the Moneylender and the Firm dated 24 December 2015; a letter dated 24 December 2015 acknowledging that no consent had been obtained from HSBC regarding the execution of the 2^nd Mortgage; a declaration dated 24 December 2015 that he had not paid any handling fee, agent fee, etc; a letter of instruction to register the Notice of Severance dated 24 December 2015.  On these documents, the signatory was also identified as Mr Yip with HKID No. XXXXXXX(X).

24.  Mr X also signed an “Important Declaration” dated 24 December 2015 acknowledging that the Firm were the solicitors acting for the Moneylender, and that he did not see the need for independent legal advice. 

25.  At 13:37 on 24 December 2015, the Firm conducted an online bankruptcy search on Mr Yip with the Official Receiver’s Office, which confirmed that there was no outstanding bankruptcy petition or any approved individual voluntary arrangement concerning Mr Yip.

26.  After all necessary documents had been executed, Ms Yiu delivered a cheque issued by the Firm in the sum of HK$5,432,400.00 in favour of Mr Yip to Mr X (the “Cheque”). Mr X acknowledged receipt thereof.  According to a Completion Statement and an invoice, a sum of HK$10,000 had been deducted as legal costs of the Firm.

27.  After the meeting, by a letter dated 24 December 2015, the Firm informed the Moneylender that the 2^nd Mortgage and Notice of Severance had been duly executed by the Mortgagor/Borrower in escrow pending its decision on their advice.  The Firm advised that:

(1)  The Property was subject to a first mortgage to HSBC; and hence, the Moneylender’s right as a mortgagee and right of priority would rank after HSBC.

(2)  All the relevant title deeds and documents were then kept in the safe custody of HSBC; and the Firm did not have a chance to go through the title investigation and a good title to the Property could not be proved.  However, the record shown in the Land Registry in respect of the Property was in good order.  According to the record of the Assignment, it appeared that the Mortgagor/Borrower was one of the registered owners of the Property.

(3)  The Moneylender was asked to consider whether it would proceed with the transaction as per the Instructions.  If it decided to proceed, the Moneylender should credit the Firm’s designated account for the sum of HK$5,442,400 (after deducting 1% set up fee and HK$2,600 as valuation fee).  The Firm also stated that it would then arrange the original 2^nd Mortgage and Notice of Severance to be registered at the Land Registry; and would send them to the Moneylender for safe custody after registration.

The Firm enclosed (a) the specimen signature of the Mortgagor/Borrower, (b) copy HKID card of Mr Yip, (c) copy updated land search of the Property and (d) copy bankruptcy search. This letter was apparently issued as a matter of formality in accordance with past practice as the monies had already been released to Mr X by then.

28.  There is a copy of that letter bearing the chop of the Moneylender, acknowledging receipt thereof.

B1.5  Events after 24 December 2015 and discovery of the fraud

29.  The surveyors issued a fee note and a receipt for HK$2,600 to the Moneylender on 5 January 2016.  It appears that the valuation was only done on 28 December 2015.

30.  By letter dated 6 January 2016, the Firm informed the Moneylender that the 2^nd Mortgage had been registered at the Land Registry. 

31.  On 22 January 2016, the Moneylender received the first repayment in the sum of HK$100,833 by cash deposit.

32.  On 22 February 2016, the Moneylender received two sums of HK$20,000 and HK$80,900 in cash respectively.  Mr Tsoi called the mobile number provided by Mr X but no one answered.  When he called the number of Nan Yang Trading Co, he was told by a lady that he had got the wrong number.

33.  By letter dated 1 March 2016 sent by post, the Moneylender demanded that Mr Yip repay the outstanding principal and interests as he had failed to pay outstanding instalments despite repeated reminders.  Mr Tsoi states that the agent told him that the two sums paid on 22 February 2016 were repayments for the Loan.

34.  By letter dated 3 March 2016, upon completion of registration at the Land Registry, the Firm sent the 2^nd Mortgage and the Notice of Severance to the Moneylender for safe custody.

35.  Upon receiving the demand letter issued by the Moneylender, Mr Yip reported the matter to the police and made a police statement at 14:10 on 5 March 2016 at the Wanchai Police Station.  He stated that he was a property consultant.  He received the demand letter on 4 March 2016.  He called the Moneylender at noon on the same day.  Ms Wong answered the call.  He told Ms Wong that he had not borrowed any money from the Moneylender.  Ms Wong asked whether he was the owner of two telephone numbers, and he said no.  Ms Wong then said that the person in charge would contact him later.  At about 4:31 pm on that day, Mr Tsoi called him.  He repeated that he had not borrowed any money.  At about 5:45 pm on that day, he reported the matter to the police.  He did a land search at about 11 am on 5 March 2016.  He downloaded a copy of the 2^nd Mortgage.  He said the signature on page 26 of the 2^nd Mortgage was not his.  Hence, he reported the matter to the police again.  He said further that he had lost his HKID card in about June 2014. 

36.  By email at 14:56 on 7 March 2016, Mr Tsoi sent to Ms Yiu a copy of HKID No. XXXXXXX(X) issued on 17 March 2004.

37.  In the morning on 8 March 2016, Ms Wong and Mr Tsoi, with their solicitors from Messrs Kong & Tang, went to the Firm to meet Mr Yip and his solicitor.  Mr Yip produced his HKID card.  The issue date was different from the copy in the Moneylender’s possession, though the photographs looked similar but not identical.  Ms Wong said Mr Yip was not the person who attended the Moneylender’s offices on 24 December 2015 to apply for the Loan.

38.  The Moneylender also reported the matter to the police.  At about 19:00 on 8 March 2016, Mr Tsoi made a police statement at the Central Police Station. 

39.  By letter dated 8 March 2016, the Firm asked Hang Seng Bank to provide a copy of the cleared Cheque. At 4:07 pm on 10 March 2016, Hang Seng Bank faxed a copy of the Cheque to the Firm, which showed that it was paid to an account at Standard Chartered Bank.

40.  On 11 March 2016, the Moneylender commenced proceedings and obtained an ex parte injunction in HCA 653/2016 against “A Male Claimed to be ‘Yip Kin Kwan Kenneth’” (amended to “A Male holding the bank account No.35089059860 maintained with Standard Chartered Bank (Hong Kong) Limited”).  The injunction was continued on 18 March 2016.

41.  On 14 March 2016, Mr Yip’s solicitors asked the Moneylender’s solicitors to discharge the 2^nd Mortgage.  In reply, on 15 March 2016, the Moneylender’s solicitors stated that, at the meeting on 8 March 2016, Ms Wong only confirmed that Mr Yip’s image did not correspond with the HKID copy now being kept by the Moneylender; and she did and could not confirm whether he was the one signing the documents on 24 December 2015; Ms Yiu also could not recall.  On 16 March 2016, Mr Yip’s solicitors said that Ms Wong had said Mr Yip was not the one she had met.  On 17 March 2016, the Moneylender’s solicitors replied further. 

42.  On 17 March 2016, Standard Chartered Bank disclosed 21 pages of documents which showed that:

(1)  On 11 December 2015, a person claiming to be “Yip Kin Kwan Kenneth” applied to open an account and signed the name “Vincent” on the application form.  He gave the HKID No. XXXXXXX(X) with the support of a photocopy of the HKID card.  He gave an address at 1/F, 65 Soy St, Mongkok with the support of a statement issued by Hang Seng Bank.  The registered owner of this address was one Ip Siu Ping.

(2)  The Cheque was cleared and paid into the account on 24 December 2015.

(3)  On 28 December 2015, two bearer cheques in the sum of HK$2,400,000 and HK$3,000,000 were signed by “Vincent”.  They were then cleared and paid into a China Construction Bank Account No. 11752627.

(4)  On 29 December 2015, HK$33,000 was transferred out of the said account.

43.  On 5 April 2016, the Moneylender commenced proceedings and obtained an ex parte injunction in HCA 875/2016 against “A person holding the bank account number 11752627 maintained with China Construction Bank (Asia) Corporation Limited”.  The injunction was continued on 15 April 2016.

44.  On 26 April 2016, Mr Yip made another police statement.  He was shown a copy letter issued by Nan Yang Trading Co dated 8 November 2015; he said he had never worked there.  He was also shown a copy HKID No. XXXXXXX(X) issued on 17 March 2004.  He said that was not the one held by him as the present one was issued on 20 June 2014.  He had reported loss of the previous one to the police and applied for a new one at that time.  He was shown a copy bank statement issued by HSBC; he said he had never seen it and he never had such an account.  He also said that he had never seen or signed the 2^nd Mortgage.

45.  On 10 May 2016, Mr Yip’s solicitors gave final notice to demand the Moneylender’s solicitors to, inter alia, discharge the 2^nd Mortgage.  On 17 May 2016, the Moneylender’s solicitors rejected the demand.

46.  On 29 July 2016, Ms Yiu made a police statement.  She said she received instructions from Mr Tsoi on 22 December 2015.  She proceeded to prepare the documents.  She was then informed that the borrower would attend the Firm to sign the documents at 1 pm on 24 December 2015.  Mr X claiming to be Mr Yip arrived at about 1 pm.  She checked the HKID card produced by him: it bore the name “Yip Kin Kwan” and no. XXXXXXX(X) which matched with the information provided by the Moneylender.  The borrower also looked similar to the photograph on the HKID card.  She then instructed her colleague to do a bankruptcy search which did not reveal any problem.  She then explained the legal documents to Mr X, who then signed the documents.  Mr X signed on one of the documents twice claiming that when he signed for the first time “一時手滑”.  After that, she handed the Cheque to Mr X and Mr X then left.  She proceeded to register the legal documents.  On 28 March 2016, Mr Tsoi and Mr Yip came to the Firm.  The HKID card produced by Mr Yip showed the same number but was issued in 2014 (rather than 2004).  She was not sure whether Mr Yip was the person she met on 24 December 2015. 

B1.6  Commencement of these proceedings

47.  On 23 August 2016, Mr Yip commenced these proceedings.  He sought a declaration that the Notice of Severance, the 2^nd Mortgage and Loan Agreement all dated 24 December 2015 are null and void; an order that the registration of the Notice of Severance and 2^nd Mortgage at the Land Registry be vacated; damages to be assessed; interests; and costs. 

48.  By letter dated 20 January 2017, Mr Yip’s solicitors invited the Moneylender to admit liability. By letter dated 25 January 2017, the Moneylender rejected the request on various grounds including that there were third party proceedings.

49.  By letter dated 30 January 2018, Mr Yip’s solicitors asked the Moneylender again to agree to the entering of judgment.  On 19 April 2018, they repeated the request.  On 19 September 2018, they asked again. 

50.  Mr Yip made an affirmation on 23 March 2018 confirming that he was unsure whether the HKID card issued on 17 March 2004 was authentic; he never received an Annual Statement of Instalment Loan Account dated 19 April 2015 issued by HSBC, or a Demand for Rates and Government Rent for the period of October to December 2015; he did not hold Hang Seng Bank account no. 363-268726-668.  He also produced a copy of his present HKID card and a true copy of demand note for rates issued for the period of October to December 2015.

51.  On 24 September 2019, in reply to interrogatories administered by the Firm, Mr Tsoi made an affirmation stating that the amounts remaining in the account with China Construction Bank (Asia) Corporation Limited were in the sums of HK$594,191.18 and US$8,648.11; the authorised signatory was Huang Yan Fang; the account holder was M6GO Merchandising Limited; and that the Moneylender has not recovered any sum.

52.  In the Moneylender’s opening lodged on 24 December 2019, the Moneylender confirms that it would not seek to dispute Mr Yip’s case that he had not signed the 2^nd Mortgage and other documents.

B2.  The Issues in the Third Party Action

53.  The Moneylender’s case against the Firm is pleaded in the Amended Third Party Notice dated 21 June 2018.  The Firm’s defence is pleaded in its Re-Amended Defence.

54.  As submitted by the Firm, the burden of proof is on the Moneylender to prove:

(1)  The scope of duty owed by the Firm to it;

(2)  That the Firm breached such duty;

(3)  Such breach caused or contributed to the Moneylender’s loss; and

(4)  The amount of such loss.

55.  If the Firm is found liable, the burden of proof will be on the Firm to prove that the Moneylender was contributorily negligent, and to what extent, the amount of loss and damage should be reduced.

B3.  Scope of Duty owed by the Firm

56.  In his oral opening, counsel for the Moneylender confirmed that he would no longer rely on sub-paragraphs (a), (b) and (e) in paragraph 12 of the Amended Third Party Notice, where the Moneylender pleaded the scope of duties allegedly owed by the Firm.  However, he would continue to rely on the remaining sub-paragraphs, namely, (c), (d), (f), (g) and (h).  They are:

(1)  To take all reasonable steps to ensure that the 2^nd Mortgage and all relevant documents were duly and properly executed (§12(c));

(2)  To check and verify the authenticity of the identity of the signatory of Mr X in signing the 2^nd Mortgage and all related documents by carrying out customary searches and enquires including the duties as provided in Law Society’s Circular 09-233 (PA) dated 6 April 2009 and 09-341 (PA) dated 11 May 2009 and the Practice Direction referred thereto, in particular, obtaining address proof as confirmed by documents such as a recent utility bill or bank statement (the “Law Society’s Circulars and Directions”) (§12(d));

(3)  To detect or recognise any irregularities or discrepancies in the title deeds and documents in relation to the identity and authenticity of Mr X and his signatures (§12(f));

(4)  To properly advise the Moneylender of any matters or circumstances that might give rise to queries over any irregularity, identity and/or authenticity of Mr X (§12(g)); and

(5)  To properly safeguard any money paid by the Moneylender to the Firm in relation to the Loan, and not to release any money to any person not lawfully entitled thereto (§12(h)).

57.  Having said that, even up to now, the Moneylender has still failed to provide any basis for, and explain clearly, its assertion that the Firm owed such wide-ranging duties in the context of a second mortgage.

58.  The Firm accepts that it owes a mortgagee client certain duties, but denies that the scope of duties owed by it to the Moneylender was as wide as the Moneylender alleges.

59.  To begin with, as Oliver J held in Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 at 402H:

“The extent of his duties depends upon the terms and limits of that retainer and any duty of care to be implied must be related to what he is instructed to do.”

60.  The express retainer was contained in the Letter of Instructions.  It should be interpreted in accordance with general principles of contractual interpretation (Dymocks Franchise Systems (China) Ltd v Norton Rose Fulbright Hong Kong [2019] 3 HKLRD 742 at 762, §79).  In particular, one must bear in mind the context.

61.  It is often said that, in law, context is everything.  It is crucial to consider the context of this case in order to, first, discern the scope of duties owed by the Firm to the Moneylender and; second, determine whether there was any breach of such duties.

B3.1  What the Moneylender usually did

62.  The Moneylender is a subsidiary company of Solid Gold Investment Ltd.  It obtained a money lender licence in 2012.  It was engaged in the business of providing mortgaged loans (including second mortgages).

63.  Generally, potential clients would be referred to the Moneylender by agents, which included both individuals and companies.  Mr Tsoi accepted that the Moneylender would expect the agents to introduce reliable or trustworthy clients.

64.  Money lending is a competitive business.  In promoting its business, Mr Tsoi emphasized that the Moneylender’s application and approval procedure for loans has to be, and had been represented to be, fast and convenient.  It was unnecessary for an applicant to make an application in person; it could be done through agents, or submitted by email, fax, WhatsApp, or made online.  The application could be processed within 1 to 2 days; and in any event, within one week.

65.  At the material time, Mr Tsoi confirmed in evidence that the Moneylender did not have any written procedures on how its staff should go about verifying a borrower's identity or ability to repay.  While Mr Tsoi said that there was a “common practice”, it is clear that the practice was a loose one.

66.  Generally speaking, for an application of a “second mortgage” loan, an applicant would be asked to provide the following information and documents:

(1)  proof of identity (by copy HKID card or travel document);

(2)  contact details;

(3)  proof of occupation (a business card would suffice but, if possible, by bank statements and/or tax returns);

(4)  address proof (by banks statements or utility bills, preferably, for the most recent 3 months);

(5)  the particulars of the property to be mortgaged;

(6)  the principal loan amount and the outstanding sums due under the first mortgage (by relevant bank statements); and

(7)  the amount of loan intended to be borrowed and the intended use of the loan (for example, for repayment of other loans with higher interest rates).

67.  Upon receiving these information and documents, apart from reviewing them, the Moneylender would do a land search and obtain a valuation of the property (by email first, to be followed by a report).  It would also verify the applicant’s income (presumably, to confirm his ability to repay).  However, the applicant would simply be asked to verify or confirm the information they themselves provided, and the Moneylender would take them at their word.

68.  The Moneylender would sometimes do on-site inspections.  However, it would not do so if it was inconvenient; for example, if the applicant was merely a co-owner of the property, or if the property was occupied by a tenant.  It would not do so if the applicant did not consent to an onsite inspection.  The same applies even if the property was jointly owned, and the borrower is just one of the co-owners.  The Moneylender was clearly prepared to dispense with this requirement quite readily.

69.  The Moneylender would sometimes obtain an independent credit report from entities like TransUnion. But, as the applicant’s consent was required, it would depend on whether the applicant was willing to provide such consent.

70.  If the loan application was approved, the Moneylender would arrange for the applicant to attend the offices of the Moneylender first and then the offices of its solicitors to sign the relevant documents.  Usually, the Moneylender would put the solicitors in funds first so that the net amount of the loan could be released to the borrower by the solicitors as soon as the legal documents had been signed.

B3.2  What happened in this case

71.  In this case, Mr Tsoi said that, on 21 December 2015, Mr Eric Cheng of the Moneylender received a referral from an agent called Mr Don Ng.  Mr Ng had been acting as the Moneylender's agent for a few months by then; and there did not appear to be any problem with him.  It is unclear whether and what due diligence was done on the agent.

72.  Mr Ng, on behalf of Mr X, provided to the Moneylender through Mr Cheng copies of 6 documents:

(1)  A copy HKID card as proof of his identity;

(2)  A business card setting out his job title and contact details;

(3)  A copy Demand for Rates and Government Rent for the period of October to December 2015 concerning the Property as address proof;

(4)  A copy Annual Statement of Instalment Loan Account setting out the amount of the principal loan and outstanding sums under the first mortgage;

(5)  A copy letter issued by the applicant’s employer, Nan Yang Trading Co, certifying his income; and

(6)  Copies of bank statements for the months of October, November and December 2015 as address proof and evidence of repayment of the first mortgage loan.

73.  Ms Wong was responsible for conducting the preliminary review.  She also conducted a land search and obtained a valuation of the Property.  The valuation was allegedly provided by email (although no such email has been disclosed) followed by a report on 28 December 2015, which explains the date of the bill and receipt issued by the valuer.

74.  It appears that Ms Wong had spoken to Mr X on the phone.  However, Mr Tsoi did not know the details. Although Ms Wong had made a witness statement on 27 September 2017 after she left the Moneylender’s employment, she refused to come to court to give evidence when Mr Tsoi called her shortly before the trial.  The Moneylender does not know her address.  Her witness statement is, therefore, not in evidence.  While she had made a police statement on 27 July 2016, the content of her statement could not be and has not been tested by cross examination.  Nevertheless, Mr Tsoi confirmed that Ms Wong had not expressed to him any concern about the information and documents provided by the applicant. 

75.  Ms Wong had not met Mr X in person at that stage.  She had not reported to Mr Tsoi that she had attempted to speak to Mr X’s superior ie the person signing the employer’s letter.

76.  The Moneylender had not arranged any on-site inspection of the Property.  Mr Tsoi said that Mr Cheng had asked Mr X through the agent, Mr Ng, but was told that an inspection could not be done as Mr X was only a co-owner of the Property.  Mr Tsoi believed, though did not know for sure, that the other co-owner was Mr X’s wife.  He knew that the Property was purportedly for self-use.  He said the husband may not want the wife to know that he was going to borrow money.  In any event, the Moneylender did not insist on any inspection.  The Moneylender also did not ask the valuer to do any inspection for the purpose of assessing the market value of the Property.

77.  Mr Tsoi could not remember whether they had asked Mr X to provide an independent credit report. In any event, it is clear that none was obtained by the Moneylender.

78.  Based on the valuation, the Moneylender calculated the amount that it would be prepared to lend by a simple arithmetical exercise.  It would be based on the LTV (loan-to-value) ratio, which should not exceed 70%.  In this case, it would be a sum of not more than 70% of one half of the value of the Property (after taking into account outstanding sums under the first mortgage).

79.  Ms Wong reported to Mr Tsoi and indicated to him that all things were in order.  After reviewing the matter, Mr Tsoi himself also found the matter to be in order.  He then reported the matter to his boss ie Mr Andrew Gaw who was the sole director of the Moneylender.  Mr Tsoi accepted that he would not have approved the application if he found anything problematic.  At that time, he did not see any query concerning the identity of Mr X.

80.  The Moneylender agreed to lend HK$5,500,000.  The LTV ratio was 62%.  This suggests that the market value of the Property as assessed by the valuer should be around HK$18 Million (ie HK$5,500,000 ÷ 62% x 2).  The LTV ratio of 62% was well below the acceptable ratio of 70%.  Furthermore, the Moneylender charged an effective interest rate of 22% per annum.  The total amount of interest payable was HK$5,500,000 x 22% = HK$1,210,000.  This explains why the monthly repayment instalment for the 12-month loan period was HK$100,833 (as HK$100,833 x 12 = HK$1,210,000).  The principal loan amount should be repaid at the last instalment as well.  On the basis of these figures, it is apparent that the Moneylender was operating a highly lucrative business. 

81.  The loan application was made on 21 December 2015; it was approved on 22 December 2015, within a day (before the Moneylender even met Mr X in person).  It was indeed very fast.  Appointments were then made with Mr X to sign the relevant documents on 24 December 2015 at the offices of the Moneylender and the Firm.  Mr Tsoi confirmed that the Moneylender wanted to complete the transaction before the Christmas holiday.  Plainly, it was eager to complete a lucrative transaction as soon as possible.

82.  Only after the application had been approved did the Moneylender give instructions to the Firm.  Apart from a copy of Mr X’s HKID card, the Moneylender did not provide the Firm with any other document.  It was also well understood that the Firm would not do any title investigation as the title deeds were in the possession of the first mortgagee.  This is not disputed by the Moneylender (as confirmed by the Moneylender’s counsel and Mr Tsoi).

83.  Shortly after that, in the morning on 24 December 2015, the Moneylender also arranged funds to be transferred to the Firm.  In accordance with the usual practice, it was intended that money would be released by the Firm once the legal documents had been signed.

84.  The amount transferred to the Firm ie HK$5,442,400 had already deducted a set-up fee of HK$55,000 and a valuation fee of HK$2,600.  The set-up fee was in fact agency fee paid to Mr Ng, being 1% of the principal loan amount.

85.  Ms Wong received Mr X at the Moneylender’s office in the morning on 24 December 2015.  Mr Tsoi did not take part in the meeting although he was in the office.  He signed the documents presented to him by Ms Wong after the meeting.  Ms Wong did not say that there was any problem at all (including Mr X’s identity).  Mr Tsoi countersigned on the Loan Application, the Loan Agreement, the Moneylender’s offer letter, and the Memorandum of Agreement.  Mr X also signed a number of other documents on that occasion.  In these documents, Mr X was invariably identified by reference to the number of the HKID card that he had produced.

86.  In that afternoon, there was a phone conversation between Mr Tsoi and Ms Yiu.  Ms Yiu confirmed that the legal documents had been signed and the money had been released. After that, Ms Yiu sent to Mr Tsoi a letter by fax and by hand.  The letter was a standard form document.  Contrary to what Mr Tsoi asserted in paragraphs 13 and 14 of his statement, it could not be the case that the Moneylender relied on any advice contained in that letter before deciding to allow the Firm to release the money to Mr X.

87.  The amount released by the Firm to Mr X was HK$5,432,400 after deducting HK$10,000, being legal fees payable by the borrower, from HK$5,442,400.  The small amount of legal fees received by the Firm ie HK$10,000 (which is inclusive of HK$1,290 as disbursements) should be compared to the large amount of interest which the Moneylender intended to receive i.e. HK$1,210,000.

88.  As with Midland Bank plc v Cox McQueen [1999] PNLR 593, I agree the following factors are of crucial importance:

(1)  The retainer given to the Firm was in connection with the preparation and execution of 4 legal documents for a loan which the Moneylender, in its commercial judgment, had decided to make to its customer.  There were no specific instructions for the Firm to take steps to verify the borrower’s identity. 

(2)  Risks are always associated with entering into a mortgage transaction.  This is the type of risk for which a commercial body such as the Moneylender would and should make provision.

(3)  It was entirely a matter for the Moneylender to decide how to assess the degree of such risk, and whether it would accept the risk in any particular case.  In particular, it was up to the Moneylender to decide on the trustworthiness of the applicant, including how to verify the information provided by the applicant (including his identity) and whether it would be satisfied with the veracity of the representations made by the applicant.

(4)  For commercial reasons, and to ensure that loan applications would and could be approved as fast and convenient as possible, the Moneylender adopted very loose procedures in processing loan applications.  In this case, the Moneylender relied on the introduction of the agent, Mr Ng; and chose to accept basic information and documents provided by Mr X as well as his self-serving statements.  It did not take further steps to verify the information provided by Mr X (such as requesting further documents, performing a site inspection, and obtaining a credit report).  It was apparently satisfied and did not detect anything suspicious.

(5)  Ultimately, the Moneylender made the commercial judgment of approving the loan application.  Apparently, it decided that any risks involved were justified by the high return and acceptable LTV ratio.

(6)  When instructions were given to the Firm, the Moneylender had already made the commercial judgment of approving the loan application.

(7)  Solicitors, in general, are not required to take commercial risks, or make commercial judgment, of the nature mentioned above.  In this case, the Firm was retained in their professional capacity to provide legal services to the Moneylender ie to complete the legal formalities.  No express instructions were ever given by the Moneylender to the Firm (and it was not part of the retainer given) to take steps to verify Mr X’s identity.  In fact, the Firm never accepted that this formed part of its scope of work under the retainer, and that it is included in the low fees that it charged.

(8)  Judging a borrower’s trustworthiness does not concern legal knowledge or expertise possessed by solicitors exclusively.  In practice, the Moneylender was clearly in a much better position than the Firm to form a judgment as to Mr X’s trustworthiness (ie the credibility of his representations including that he was the real Mr Yip).  After all, Mr X was the client or customer of the Moneylender, but not that of the Firm.

(9)  In the circumstances, it was reasonable for the Firm to assume that the Moneylender had taken steps it deemed necessary and appropriate to verify the identity of Mr X before giving instructions to the Firm to prepare the legal documents.

B3.3  Conclusion on Scope of Duty owed by the Firm

89.  As the Firm emphasized in its submissions, the scope of its duty must depend on the terms and limits of the retainer agreement, and any duty of care implied must be related to what it had been instructed to do.

90.  It is beyond doubt that the express retainer was contained in the Letter of Instructions.  Upon a proper construction of that document, the Firm was instructed to prepare and arrange the execution of 4 legal documents ie the 2^nd Mortgage, the Notice of Severance, the Power of Attorney and the Letter of Surrender.

91.  I accept that the Firm’s duties would include tasks incidental to the carrying out of the said instructions ie doing a land search, preparing a cheque and releasing the money upon the execution of the legal documents, and registering the legal documents at the Land Registry.

92.  However, Mr Tsoi confirmed that the Firm had not given any express instruction to the Firm to check and verify the identity of Mr X, or to take any specific steps for such purpose. 

93.  The Firm was, of course, subject to the usual implied duty of care to exercise that reasonable degree of skill and care to be expected of a competent and reasonably experienced solicitor.  The Firm accepts that such usual implied duty governed the performance of tasks as instructed pursuant to the retainer agreement.  In short, the Firm was obliged to exercise reasonable skill and care in preparing and arranging the execution of the 4 legal documents.

B4.    Whether the Firm was in breach of duty

94.  The question is whether the Moneylender has proved that the Firm had failed to exercise reasonable care and skill in carrying out the instructions as stated above.

95.  In his oral opening, counsel for the Moneylender confirmed that he would no longer rely on sub-paragraphs (a), (b) and (e) in paragraph 30 of the Amended Third Party Notice.  The remaining alleged breaches are as follows:

(1)  failure to take all reasonable steps to ensure that the 2^nd Mortgage and all relevant documents were duly and properly executed by Mr Yip (§30(c));

(2)  failure to verify the identity of Mr X by carrying out customary searches and enquiries and to take steps as provided by the Law Society Circulars including obtaining address proof such as a recent utility bill or bank statement (§30(d));

(3)  failure to take step or further steps to verify the identity of Mr X by making comparison of his signature with the one in last Assignment dated 18 April 2011 (§30(dd));

(4)  failure to report to the Moneylender that Mr X had signed two signatures in the specimen signature of the drawdown letter dated 24 December 2015 (“Specimen Signature”) which are both inconsistent to the signature in the last Assignment (§30(ee));

(5)  failure to detect or recognise any irregularities or discrepancies in the title deeds and documents in relation to the identity and authenticity of Mr X and his signature (§30(f));

(6)  failed to properly advise the Moneylender of any matters or circumstances that might give rise to queries over any irregularity, identity and/or authenticity of Mr X when the circumstances required Mr X to sign on the Specimen Signature twice (§30(g));

(7)  wrongfully advised the Moneylender that the 2^nd Mortgage and the Notice of Severance were duly executed (§30(h)); and

(8)  wrongly released the balance of the Loan to Mr X who was not entitled to the said sum (§30(i)).

96.  Although the Moneylender maintains that it would rely on all these remaining alleged breaches, as submitted by the Firm it is clear that the Moneylender’s case essentially boils down to two allegations:

(1)  Mr X signed twice on the specimen signature page;

(2)  There were material differences between Mr Yip’s signature on the last Assignment and the signatures on documents signed by Mr X on that occasion.

The Moneylender argued that Ms Yiu should have found these features to be suspicious; and should have warned the Moneylender accordingly and not released the money to Mr X.

97.  To begin with, Ms Yiu was an experienced legal executive or conveyancing clerk who had received tertiary education.  Before this case, and since about April 2014, she had been handling instructions given by the Moneylender.  Mr Tsoi confirmed that they did not see any problem with Ms Yiu’s performance.

98.  In considering the merits of the accusations made against Ms Yiu, I agree it is vital not to look at the matter with the benefit of hindsight, in particular, the subsequent discovery that Mr X was an imposter/fraudster.  It is always easy to be wise after the event; one can always say how things could have been done better.

99.  In assessing the credibility of Ms Yiu’s evidence, it is also necessary to bear in mind that her meeting with Mr X in the early afternoon on 24 December 2015 only lasted for about half an hour; and what she did at that meeting was part of her routine duties.  The incident took place a long time ago.  It is entirely understandable if she was unable to recall clearly all the details when giving her evidence.

100.  Ms Yiu said that, when she first met Mr X, in accordance with her usual practice, she asked Mr X to produce his HKID card.  She checked that the particulars of the HKID card produced by Mr X matched with those set out in the Letter of Instructions. Although she was not an expert, her usual practice was to check the security features of the HKID card, and to compare the photograph in the HKID card with the person she met.  She recalled a previous case in which the person looked very different from the photograph in the HKID card, which made it necessary for her to consult her superior.  There is no reason to doubt that she always undertakes this exercise seriously and cautiously.  On this occasion, she checked the HKID card produced by Mr X and did not find anything unusual; she also noticed that Mr X looked like the person in the photograph of the HKID card.  I accept these were her honest opinions and judgements at that time. There is no basis whatsoever to suggest that such opinions and judgments were unreasonable.  Indeed, the Moneylender has not levelled any criticism against Ms Yiu in this respect.  This is understandable because, apparently, the Moneylender had also checked the HKID card produced by Mr X and did not find anything suspicious.  It appears that the same HKID card was used to open a bank account with Standard Chartered Bank into which the Firm’s cheque was deposited.  It can also be assumed that the staff of Standard Chartered Bank did not find anything unusual with the appearance of the individual against the HKID card, when the bank account was opened.

101.  I agree this is an important point in the present case because Ms Yiu said that checking the HKID card has always been the main means by which she would verify the identity of the borrower.  It was reasonable for her to adopt such an approach.  First, in Hong Kong, this was indeed the general means to verify a person’s identity (for example, the court would verify the identity of a witness by asking him or her to produce his/her HKID card for inspection).  Second, in this case, on all relevant documents, the borrower of the loan had been identified by reference to the number of his HKID card.

102.  In these circumstances, in considering the reasonableness of the steps that Ms Yiu subsequently took, it is of utmost importance to bear in mind that, by then, she was already satisfied with the identity of the borrower (after checking his HKID card).  In addition, as mentioned, Ms Yiu was entitled to assume that the Moneylender did not have any query about the identity of Mr X (which was indeed the case); otherwise, it would not have instructed the Firm to arrange him to sign the legal documents.

103.  Ms Yiu invited Mr X to sign on the specimen signature page.  Although she seemed unable to recall the details clearly, she was adamant that it was Mr X who asked to sign again. That was why two signatures appeared on that page.  She stated in her statement that she did not think there was anything suspicious about that as it occasionally happened when executing documents.  She confirmed in re-examination that this had happened (though not very often) in relation to specimen signatures for second mortgages.  In cross examination, it had not been put to her that her opinion that there was nothing suspicious about that was either untrue or unreasonable.  It must be borne in mind that Mr Tsoi’s allegation, as stated in his statement, was that “It appears that K B Chau was also aware or noticed that the first signature (whichever that was) did not match or was different from the signatures of the Alleged Real Mr Yip, therefore, a second signature was required.”  I agree this assertion is no more than speculation on the part of Mr Tsoi, and is in any event factually untrue. It can also be noted that Ms Yiu had enclosed the specimen signature page to the letter dated 24 December 2015 to the Moneylender.  Mr Tsoi could not recall whether he had read the document.  Nevertheless, even a quick glance at the document would reveal that there were two signatures on that page.  Yet, Mr Tsoi did not raise any query.  It is clear that, as submitted by the Firm, the accusation made against Ms Yiu on this point is an afterthought and made solely (and opportunistically) with the benefit of hindsight.

104.  Ms Yiu said that she then compared the specimen signature (the one on the right) with the signature of Mr Yip on the Assignment.  It is true that she had not mentioned this point in her police statement.  She explained that the police showed her some documents and asked her questions; and her statement contained her answers. She explained the two signatures on the specimen signature page because that document had been shown to her.  However, the police did not show her the Assignment, or asked her any question about comparison of signatures on documents.  In answer to questions posed by the court, she said that the only purpose of obtaining the Assignment was to compare the signature thereon with the specimen signature, and there was no reason why, having obtained the Assignment in this case, she would not compare the specimen signature with that on the Assignment.  It was inherently probable that she would have followed her usual practice on this occasion.  I accept her evidence in this regard.

105.  As to whether the signature on the Assignment was materially different from the specimen signature, I agree it is wrong and unfair for the Moneylender to try to highlight some differences in isolation.  First, as Ms Yiu said, since she was not an expert, she could only look at the overall appearance of the signatures. Second, this was not a situation when a conveyancing clerk or solicitor is required to compare signatures on two different title documents for the purpose of investigating the title of a property where the signatory of those documents was not present.  Here, the signatory of the specimen signature was present; and his identity had already been verified (by production of his HKID card) to Ms Yiu’s satisfaction as stated above.  Third, the Assignment was signed by Mr Yip on 18 April 2011, which was some 56 months before 24 December 2015.  No two signatures by the same person would be identical; and it is hardly surprising that, in view of the lapse of time, there were some differences.  Ms Yiu said that there were occasions in the past when the borrower was simply unable to sign similarly as in the previous assignment.  Fourth, as she aptly observed, the Assignment was a public document.  Comparing signatures would unlikely to be an effective means to detect forgery as the imposter/fraudster would naturally try to imitate the signature as similarly as possible based on public documents available.

106.  In fact, Ms Yiu concluded at that time that Mr X’s specimen signature looked similar to the one on the Assignment.  I accept her opinion was not only honest but also reasonable in the circumstances.

107.  Ms Yiu also said that she had compared the specimen signature with the signatures on various documents signed by Mr X at the Moneylender’s office, and found them to be similar.

108.  Ms Yiu said that she then explained the content of the documents one by one to Mr X before she asked him to sign on them.  The Letter of Surrender contained a mistake concerning the date of the 2^nd Mortgage.  She explained that she would explain the purpose of the documents to Mr X but not the details thereof word by word. The wrong date was clearly a clerical error caused by oversight, which is immaterial for the present purpose.

109.  Ms Yiu said that she did not compare the signature of Mr X on each of the documents signed by him with the specimen signature.  She still had the impression of the specimen signature in mind.  When Mr X signed on each and every document, she would observe whether the signature appeared to be similar to the specimen signature.  In fact, she found that to be the case.  I accept what she did was most natural and also reasonable.  It is unfair and unrealistic to suggest that she should have checked each and every signature on documents signed by Mr X against the signature on the Assignment.  And even assuming that anyone had done so, it would be reasonable to conclude that they looked similar in the circumstances.

110.  For all of the above reasons, I agree the Moneylender has failed to prove that the Firm had breached its duty to exercise reasonable care and skill as alleged or at all.  It follows that the Moneylender’s claim against the Firm must fail.

111.  Accordingly, the Moneylender’s claim against the Firm in the third party proceedings is dismissed.  I further order that the costs of the third party proceedings be paid by the Moneylender to the Firm, such costs are to be taxed (with a certificate for 2 counsel) if not agreed.

112.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same. 

C.  BASIS OF TAXATION OF PLAINTIFF’S COSTS

113.  On the first day of trial, by consent, judgment has been entered in favour of Mr Yip, the Plaintiff, with costs be to Mr Yip.  The only outstanding matter in the main action is upon what basis Mr Yip’s costs be taxed.  Mr Yip asks for costs of the proceedings including costs of and occasioned by the hearing on 10 January 2020 be taxed on an indemnity basis. 

114.  The relevant principles on costs on an indemnity basis have been set out in my Decision in Hau King Wai Keith & Ors v Hau Tak Cheung & Ors [2018] HKCFI 2250 at paragraph 8.  The often cited Judgment of the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 also sets out the relevant principles which the Moneylender does not dispute.

115.  Mr Yip also relies on the case of Wong Che (or Chee) Sing v Wong Wai Lung and Anr [2008] HKCFI 70 in which costs on an indemnity basis was awarded in a strikingly similar case involving a fraudster obtaining a loan from a bank.  In that case, the bank (D2) refused to vacate the registration of the mortgage and the plaintiff was forced to commence proceedings.  Solicitors responsible for the transaction was being sued as third party.  Ultimately, the bank settled with the third party and it was only until then did the bank withdraw its defence to the plaintiff’s claim and submit to judgment with costs.  The court awarded costs on an indemnity basis.

116.  I agree that the present case is in fact worse than the Wong Che (or Chee) Sing case in that the Moneylender plainly has no defence to Mr Yip’s claim but it nonetheless refused to submit to judgment until the last minute.

117.  This is a case where a fraudster, who made use of a lost HKID card of Mr Yip and several forged documents, successfully obtained a loan from the Moneylender using Mr Yip’s Property as security in December 2015.  The fraudster disappeared with the loan of over HK$5 Million.  When the Moneylender contacted Mr Yip, all parties involved met at a meeting on 8 March 2016 (see: paragraph 37 above) and the fraud was then immediately revealed when Ms Wong of the Moneylender confirmed, in the presence of everyone at the meeting, that Mr Yip was not the person whom she had dealt with for the loan application.  It is pertinent to note that Ms Wong was the only representative of the Moneylender who had met the fraudster in the loan application process on 24 December 2015 at the Moneylender’s office.

118.  Of importance is that Ms Wong’s said confirmation has never been retracted by the Moneylender.  It was unequivocally confirmed by the Moneylender both before and after the present proceedings were commenced, not only in evidence but also in the pleadings as well:

(1)  3 days after the said meeting and on 11 March 2016, the Moneylender commenced HCA 653/2016 and in the affirmation of Tsoi filed for the mareva injunction application, he affirmed that Ms Wong “recalled” that it was not Mr Yip who attended the Moneylender’s office when the loan agreements were signed.

(2)  A month later on 6 April 2016, the Moneylender commenced HCA 875/2016 and in another affirmation of Tsoi, he changed to say Ms Wong “confirmed” that it was not Mr Yip who had attended the Moneylender’s office on 24 December 2015. 

(3)  After the present proceedings was commenced and in its Third Party Notice and Defence, both filed in late November 2016, it was pleaded that Ms Wong “confirmed” that it was not Mr Yip who had attended the Moneylender’s office on 24 December 2015, and despite the admission, no other positive defence was raised.

(4)  A year later and in the witness statements of Wong and Tsoi filed in September 2017, Ms Wong’s confirmation that it was not Mr Yip who attended the Moneylender’s office on 24 December 2015 were repeated.

(5)  In the Defence and witness statement filed by the Firm, it was also confirmed that Ms Wong had said in the meeting in the presence of the representative of the Firm that it was not Mr Yip who attended the Moneylender’s office on 24 December 2015.

(6)  In March 2018, the Moneylender served interrogatories on Mr Yip in relation to the documents produced by the fraudster, which the Moneylender had in possession since the beginning; and Mr Yip gave answers on affidavit which the Moneylender has not sought to dispute thereafter.

119.  The present case is not one where a defendant contests the claim when he has a weak defence.  Nor is it the case where the evidence that strengthens the plaintiff’s case only came out at a later stage.  In these cases, it might be open for the defendant to argue that it was not unreasonable to contest the claim.  Rather, this is a case where from day one, the Moneylender’s own staff confirmed that it was not Mr Yip who attended the Moneylender’s office when the loan documents were signed. The Moneylender has never at any stage asserted or pleaded a positive case that Mr Yip was acting in collusion with Mr X.  Yet, the Moneylender put Mr Yip to strict proof of his claim.  In this case, the Moneylender has no defence at all.

120.  The Moneylender has unnecessarily and unreasonably kept Mr Yip in the entire proceedings for 4 years.  In all the circumstances of this case, I am of the view that it is entirely “appropriate” to order taxation of Mr Yip’s costs on an indemnity basis.

121.  Further, I agree that the Moneylender’s opposition to an indemnity costs order was unreasonable and therefore costs of and occasioned by the hearing should also be taxed on an indemnity basis.

122.  Accordingly, I order that the costs of the proceedings between the Plaintiff and the Defendant be taxed, if not agreed, on an indemnity basis including the costs of and occasioned by the hearing on 10 January 2020.

123.  Lastly, I express my gratitude to counsel for their helpful assistance in this matter.