WONG MING WAI v. TSUI KAM MING t/a TUNG TAI CONSTRUCTION CO.

1997, H.C.A.No. 8846

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 8846 OF 1997

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J U D G M E N T

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Introduction

1. The Plaintiff sues the Defendant for a sum of HK$1.2 million being the amount of a dishonoured cheque. The Defendant resists the claim on two grounds. The first line of defence is that he has paid a total sum of HK$1.13 million to the Plaintiff (through the Plaintiff's agents) in full and final settlement ("the factual defence"). The second line of defence is that even if the Defendant should fail on his first line of defence, the Plaintiff's claim is unenforceable in law because it contravenes s. 24 of the Money Lenders Ordinance, Cap. 163 ("the legal defence").

The Burden of Proof

2. Mr. Cheng for the Defendant accepted that the burden of proof was on the Defence to establish the two lines of defence. I have borne this in mind when deciding this action.

The Factual Defence

3. There are two major areas of dispute in relation to this line of defence:-

(a) whether the amount lent to the Defendant was HK$1 million (HK$800,000 by cheque and HK$200,000 in cash) or HK$800,000 (by cheque) only;

(b) whether the Defendant has paid HK$1.13 million to the Plaintiff.

4. These factual issues will be set out in more detail below.

(a) The Plaintiff's Case

5. The Plaintiff testified as follows:-

(a) he was a construction sub-contractor;

(b) in about August, 1994, his friend Mr. Tsui Pak Ning ("Tsui") introduced him to the Defendant;

(c) Tsui told him the Defendant was also a sub-contractor and the Defendant had cash flow problem;

(d) Tsui told the Plaintiff the Defendant wanted to borrow HK$1 million from the Plaintiff for a short period of time;

(e) they met in a restaurant in Yuen Long on 26 August, 1994 and the Plaintiff brought with him a cheque and cash of HK$200,000;

(f) in the said restaurant, the Plaintiff handed over to the Defendant the cheque in the sum of HK$800,000 and cash of HK$200,000;

(g) the Defendant agreed to pay interest of $200,000 and to repay the money in 4 months' time;

(h) the Defendant gave the cheque the subject matter of this action to the Plaintiff. It was post-dated 20 December, 1994;

(i) about a month after the cheque fell due, the Plaintiff presented the cheque but it was dishonoured;

(j) the Plaintiff tried to find the Defendant by telephone but the Defendant could not be found;

(k) not having received any repayment from the Defendant, the Plaintiff instituted this action against the Defendant.

(b) The Defendant's Case

6. The Defence called 3 witnesses:-

(a) the Defendant;

(b) DW2 Chui Chi Leung, the Defendant's brother;

(c) DW3 Fung Man Tung Kenny.

7. The Defendant's testimony can be summarized as follows:-

(a) he now works as a supervisor of construction work;

(b) he does not dispute having borrowed money from the Plaintiff;

(c) he did so because he was about to participate in an investment plan with his friend Ng Chi Man also called Simon Ng ("Ng");

(d) the investment plan involved the purchase of two real properties, one in North Point and one in Tsuen Wan;

(e) unfortunately, one of the other partners decided to withdraw from the plan and the Defendant therefore needed to contribute more than originally planned;

(f) when the Defendant told Tsui about this, Tsui introduced two people to him: the Plaintiff and a Mr. Leung Nin Chee ("Leung");

(g) on 26 August, 1994, the Defendant, the Plaintiff and Tsui met in Yuen Long;

(h) the Plaintiff gave the Defendant a cheque in the sum of HK$800,000 during the meeting. It was agreed the Defendant would have to repay HK$1.2 million and a post-dated cheque was to be given by the Defendant;

(i) the loan period was agreed to be 3-1/2 months. However, the Defendant gave himself a few more days and post-dated his own cheque to 20 December, 1994;

(j) before his cheque was due for payment, the Defendant paid the Plaintiff HK$100,000 in early November, 1994 ("the Nov 94 payment"). He did so because the Plaintiff and Tsui called him and said the Plaintiff owed Leung that amount. The Defendant asked Ng to issue a cheque of HK$100,000 and this was given to Leung who collected it for the Plaintiff in a restaurant in Shatin in early November, 1994;

(k) after the debt was due for payment but 1 or 2 days before his cheque matured, the Defendant telephoned the Plaintiff and requested to postpone the time for payment. The Plaintiff asked the Defendant to talk to Tsui as the Plaintiff had left the matter to be dealt with by Tsui;

(l) after the Defendant's cheque was due, the Plaintiff asked Tsui to press for payment from the Defendant. As the Defendant was unable to sell the two properties, he was unable to pay. The Defendant asked for further time to pay. All along, the Plaintiff asked the Defendant to talk to Tsui about these matters;

(m) on 26 January, 1995, Ng issued a cheque of HK$200,000 and gave it to Tsui in partial repayment of the debt ("the Jan 95 payment"). At that time, the Defendant was in the mainland and he asked Ng and DW3 to represent him to attend a meeting where the Plaintiff was also not present and was represented by Tsui;

(n) in about March, 1995, Ng acting for the Defendant paid HK$30,000 to Tsui acting for the Plaintiff ("the Mar 95 payment"). Ng told the Defendant that the Plaintiff was also present at the time;

(o) later, the Defendant discussed with the Plaintiff about repaying the balance of the debt. The North Point property was in the joint names of the Defendant and Leung's son. The Plaintiff agreed to accept the Plaintiff's share as payment of the remainder of the debt (HK$870,000). After discussion, the Plaintiff agreed to accept HK$800,000 in full and final settlement of the remainder of the debt;

(p) the Defendant decided to sell the property in North Point only because of this agreement to pay a lesser sum. Since the North Point property was in joint names, the Plaintiff asked the Defendant to transfer his share to Leung's son;

(q) the Defendant did so and HK$800,000 was paid to the Plaintiff in about July, 1995 ("the Jul 95 payment");

(r) based on the above, the Defendant considered he had fully repaid the Plaintiff;

(s) the Defendant asked Tsui to return his cheque but Tsui claimed the cheque had been lost;

(t) in about June or July, 1996, Tsui asked the Defendant to repay the Plaintiff's debt and later the Defendant received letters of demand from the Plaintiff and his solicitors.

8. The gist of DW2's testimony is as follows:-

(a) in July, 1995, he represented the Defendant to collect HK$190,460 from a solicitors' firm;

(b) this amount was the balance of the price from the sale of the North Point property;

(c) he identified two cheques, one of which was drawn in favour of Tsui for HK$75,000.

9. DW3 testified as follows:-

(a) he now works as a supervisor of construction works;

(b) he has known the Defendant since about 1988 and they were close friends;

(c) he was asked by Ng to go to the meeting on 26 January, 1995. When he arrived with Ng, he saw Tsui;

(d) they waited for the Plaintiff to arrive. However, the Plaintiff failed to turn up;

(e) Tsui's pager received a message which said that the Plaintiff was not free to come and the money should be handed to Tsui;

(f) shortly later, Ng received a telephone call on his mobile phone from the Plaintiff which in effect confirmed the pager message;

(g) Ng then issued a cheque of HK$200,000 in Tsui's name. This was because the Plaintiff said his wife needed cash and asked Tsui to take the money to his wife;

(h) Ng and DW3 asked Tsui to write a receipt which Tsui did. The piece of paper was taken out from Ng's pocket. Tsui, Ng and DW3 signed on it;

(i) Ng then took the original to photocopy and gave one copy to DW3. The original was kept by Ng.

(c) Credibility of Witnesses

The Defence witnesses

10. I do not accept the Defendant's testimony to be credible or reliable. The main reasons why I came to this conclusion are set out below.

11. First, save as to the Jan 95 payment, there was no record or document evidencing any of the alleged payments. The Defendant agreed in cross-examination that HK$100,000 was a substantial sum to him. I find that:-

(a) it is inherently implausible the Defendant could agree to part with such large sums of money without obtaining any proof of receipt. This was particularly so when all the alleged payments were made not to the Plaintiff directly but to some third parties;

(b) the authenticity of the receipt for the Jan 95 payment is suspicious, the original was inexplicably absent and the payer, Ng, did not testify. I attach no weight to this document;

(c) it is astonishing that no record or other document evidencing payment (for example, bank statements) was available to substantiate the alleged payments.

12. Secondly, the other parties involved in the alleged payments, such as Ng, Leung and Tsui all failed to testify. When the Defendant was cross-examined on this point, he explained that Tsui could not be found and Ng refused to be a witness. No explanation was given as to why Leung did not testify.

13. According to the Defendant's allegation, the money paid on his behalf belonged to either the Defendant or the Plaintiff. If payment was not received by the Plaintiff, the natural inference must be it had been dishonestly appropriated by someone, most probably Leung or Tsui. Yet there was no evidence the Defendant considered reporting the matter to the police or in fact did so. If the Defendant did not report to the police, there was also no evidence to explain why he decided not to.

14. Lastly, the Defendant agreed when it was put to him he had not repaid any money to the Plaintiff whether directly or indirectly. I might not have put so much weight on such an admission when considering his credibility had it been the only evidence against the Defendant. Combined with the foregoing matters, however, this admission can and should be relied upon as a factor militating against his allegations.

15. The testimony of DW2 is neutral and is not relevant to the factual dispute between the parties.

16. I also find DW3 not a credible or reliable witness. When he was questioned about the copy receipt for the Jan 95 payment, he claimed that the original he kept was the photocopy made by Ng. There were black horizontal lines on this copy which were created by creases on the original document. He first said these were caused by his folding the photocopy (after it was given to him by Ng). I observed that he then took a look at the (original) copy document placed before him. He then changed his answer and said the original piece of blank paper (later to become the receipt but kept by Ng and not produced in Court) was folded and then unfolded after it was taken out from Ng's pocket.

17. According to DW3, Ng still proceeded to pay despite the non-appearance of the Plaintiff at the meeting on 26 January, 1995. DW3 said in effect he could not explain why Ng did so because he was not the one who issued the cheque. I find this to be unbelievable. DW3 was the Defendant's close friend. He was chosen by either Ng or the Defendant (there is a discrepancy over this point between the Defendant and DW3) to attend the meeting. I can only infer one of the purposes for his presence was to protect the Defendant's interest. It is surprising that there was no discussion between DW3 and Ng as to whether to postpone the meeting, or to contact and seek instruction from the Defendant first when the Plaintiff did not appear. Instead, Ng decided to give the cheque to Tsui without the Defendant's specific instruction. Ng could not have been instructed by the Defendant to do so earlier. Otherwise, there would have been no need for the Plaintiff to call Ng during the meeting.

18. The only area where the Defendant may be telling the truth was about the length of the loan period. He testified that the loan period was 3-1/2 months. The loan was advanced on 26 August, 1994 and the Defendant's cheque was dated 20 December, 1994. The Defendant explained that he inserted that date to give himself a few more days to pay. The date on the Defendant's cheque is more consistent with the Defendant's testimony than the Plaintiff's. However, since the Defendant's version is generally unbelievable, I find it unsafe to rely on this part of his testimony.

The Plaintiff

19. I find the Plaintiff to be credible and reliable when he testified that he lent a total of HK$1 million to the Defendant. Mr. Cheng for the Defendant suggested that the Plaintiff inflated the loan by HK$200,000 so as to avoid the provisions of s. 24 of Cap. 163. I do not understand how that could be achieved unless the loan period was 4 months and not 3-1/2 months.

20. I also accept the Plaintiff's testimony that he had not been paid by the Defendant.

21. However, I do not accept the Plaintiff's testimony that the length of the loan period was 4 months.

22. In his evidence in chief, the Plaintiff testified on this aspect as follows:-

"He [the Defendant] undertook that he would pay an interest of $200,000 to me and the repayment would be made in 4 months. He gave me this cheque on the spot [referring to p. 1 of the Plaintiff's Bundle of Documents]. It was post-dated to 20 December [1994] about 4 months later.".

No further explanation was given as to why the Defendant's cheque was dated a few days earlier than the end of the 4-month period. No sensible reason for doing so can be inferred from the circumstances.

23. In cross-examination, this was what the Plaintiff said about this:-

"Q: You received a cheque from the Defendant that was dated 20 December, 1994?

A: Yes.

Q: At the time when you borrowed [sic] [lent] the money to the Defendant, you intended by that date you could receive the $1.2 million, is that true?

A: Yes.

Q: But on that day you did not deposit the cheque into your account? on 20 December, 1994?

A: Right.

Q: You waited until 14 February, 1995. That is about, nearly 2 months afterwards?

A: Yes.

Q: Why?

A: Because he had telephoned me telling me not to deposit the cheque. Besides that, at that time, I was busily at work and I appreciate that both he and I were sub-contractors and he's introduced to me by Tsui Pak Ming who acted as sort of a guarantor and also we were friends.

Q: So you're saying it's the Defendant telephoned you asking you to delay depositing the cheque?

A: Yes.

Q: When was it?

A: I can't recall the exact date. It's a short time after the cheque was due."

24. The Plaintiff did not say in cross-examination that the loan was not yet due for payment. Instead, his answer was to the contrary. Further, the reasons he gave for not presenting the cheque earlier were in effect that:-

(a) the Defendant asked for further time to pay;

(b) the Plaintiff was busy;

(c) Tsui was a guarantor and therefore there was no need to press for immediate repayment;

(d) he was willing to give the Defendant indulgence since he regarded the Defendant a friend.

These reasons showed that the loan was due for repayment by the date of the Defendant's cheque, that is, 20 December, 1994.

25. Taking into account the date inserted in the Defendant's cheque as well as the above answers of the Plaintiff, I do not accept the Plaintiff's testimony that the loan period was 4 months from 26 August, 1994.

(d) Findings of Fact

26. I make the following findings of fact:-

(a) the amount of loan was HK1 million;

(b) the loan agreement was made on 26 August, 1994;

(c) under this agreement, the amount repayable by the Defendant was HK$1.2 million and was secured by the Defendant's cheque;

(d) the loan was repayable on 20 December, 1994, several days less than 4 months from 26 August, 1994;

(e) the Defendant did not repay the loan.

27. I rejected the testimony of both the Plaintiff and the Defendant in relation to the length of the loan period. The finding that the loan was repayable on 20 December, 1994 was an inference I made based on the date appearing on the Defendant's cheque in the absence of other evidence.

The Legal Defence

28. As stated above, the Defendant relied on s. 24 of Cap. 163 as a further line of defence. S. 24 reads:-

"(1) Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.

(2) No agreement for the repayment of any loan or for the payment of interest on any loan and on security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).

... ".

29. Mr. Cheng contended that even if the Plaintiff's case be accepted, the effective rate of interest would exceed the 60% per annum limit under s. 24(1) of Cap. 163.

30. On the other hand, Mr. Allen for the Plaintiff argued that the Defendant cannot rely on this line of defence because:-

(a) contrary to the usual practice in criminal prosecutions for lending at an excessive interest rate in the magistrates' court, no expert evidence was adduced to prove the effective rate of interest;

(b) there was otherwise no evidence of what was the amount of interest, or the effective rate of interest;

(c) in any event, the loan was only repayable after 4 months and therefore the rate of interest did not exceed 60% per annum.

(a) The Loan Period

31. As I have found earlier under the heading "Findings of Fact", the length of the loan period was from 26 August, 1994 to 20 December, 1994. It was a period of less than 4 months. Mr. Cheng said there were 117 days in that period (inclusive of both dates). Mr. Allen did not challenge that statement.

(b) The Portion of Interest

32. I do not agree with Mr. Allen's submission that there was no evidence regarding the amount of interest. First, there was direct evidence from the Plaintiff's testimony (quoted above under "Credibility of Witnesses") that the Defendant would pay an interest of HK$200,000 to him.

33. Secondly, the interest element can be arrived at by simple arithmetics of deducting from the amount repayable (HK$1.2 million) the amount lent by the Plaintiff (HK$1 million). The definition of "principal" and "interest" pursuant to s. 2 of Cap. 163 has the same effect:-

(a) "principal" is defined as "in relation to a loan, means the amount lent";

(b) "interest" according to the section "... includes any amount (by whatever name called) in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan.".

34. Insofar as is necessary, I will make a further finding of fact that the amount of interest payable for the loan in question was HK$200,000.

(c) The Effective Rate of Interest

35. Mr. Cheng calculated the rate of interest to be 62.39% per annum. This was arrived at by the following calculation:-

(200,000 ÷ 1,000,000) ÷ 117 x 365 = 0.6239 x 100% = 62.39%

36. I consider that this calculation accords with s. 2(2) of Cap. 163 which states:-

"For the purposes of this Ordinance, where by an agreement for the loan of money the interest charged on the loan is not expressed in terms of a rate, any amount paid or payable to the lender under the agreement (other than simple interest charged in accordance with the proviso to section 22) shall be appropriated to principal and interest in the proportion that the total amount of principal bears to the total amount of the interest, and the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2 shall be deemed to be the rate of interest charged on the loan." (italics supplied).

37. I therefore accept the rate of interest calculated by Mr. Cheng to be the effective rate of interest per annum for the loan in question.

(d) The Need for Expert Evidence

38. Mr. Allen contended at first that expert evidence is invariably needed in all cases where the issue of excessive interest rate is raised.

39. I asked Mr. Allen whether expert evidence is still necessary in the following hypothetical case. A loan of HK$1 million was lent on 1 January, 1997. There was an agreement HK$2 million was to be repaid on 1 January, 1998. There was also an express agreement HK$1 million out of that HK$2 million was interest. Mr. Allen conceded that expert evidence may not be necessary in such an obvious case. At the end, Mr. Allen amended (quite rightly in my view) his initial argument by contending that whether expert evidence is required depends on the circumstances of each case.

40. The last submission of Mr. Allen must be correct. Expert evidence is needed because "the opinions of skilled witnesses are admissible wherever the subject is one upon which competency to form an opinion can only be acquired by a course of special study or experience": see Phipson on Evidence (1990) 14th ed., para. 32-07 text to n. 42; see also Cross and Tapper on Evidence (1995) 8th ed., p. 556 text to n. 3. If the matter is one which the jury (or a single judge sitting also as a jury) is capable of deciding independently, there is no room for expert evidence to be adduced. Thus, it was said: "If the subject under investigation does not require specialist knowledge, expert evidence will be excluded": see 17 Halsbury's Laws of England 4th ed., para. 83 text to n.11.

41. I consider that the facts of this case relating to the effective rate of interest to be such a straight-forward case it can be determined without resorting to an expert. I therefore find it unnecessary for the Defendant to adduce expert evidence in order to establish this line of defence.

Conclusion

42. I find that the effective rate of interest in this action exceeded that allowed under s. 24 of Cap. 163. For this reason, neither the loan, the interest or the security given for the loan is enforceable. The cheque sued upon herein was given by way of security for the loan. The Plaintiff's claim is therefore unenforceable and should be dismissed on this ground.

Costs Order Nisi

43. There is no apparent reason why a costs order nisi should not be made pursuant to R.H.C. Ord. 42 r. 5B(6) or why costs should not follow the event. Costs of this action are to be paid by the Plaintiff to the Defendant, to be taxed if not agreed. The Defendant is legally aided and his own costs are to be taxed in accordance with the Legal Aid Regulations.