LAW SHU KEUNG STEPHEN TRADING AS GOOD FORTUNE FINANCE CO v. CHAN YIM WAI AND ANOTHER

HCMP 1870/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1870 OF 2011

(ON AN INTENDED APPEAL FROM DCCJ NO. 5436 OF 2007)

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BETWEEN

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D E C I S I O N

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Hon Cheung JA (giving decision of the Court) :

1.  On 31 December 2010 the defendants applied to set aside a judgment that was entered against them by the plaintiff on 12 November 2009 by reason of their default in filing acknowledgment of intention to defend the plaintiff’s claim. The Registrar of the District Court refused the application. On appeal, Deputy Judge K Lo dismissed the appeal. The Judge also refused to grant leave to appeal. The defendants now renew their application before this Court.

2.  By a loan agreement dated 6 March 2007, the plaintiff lent $250,000 to the defendants to be repaid by 120 monthly instalments at $6,962.63 per month commencing from 6 April 2007.  The defendants failed to pay any of the instalments.  The plaintiff issued the writ against them on 8 December 2007.  After obtaining the default judgment, the plaintiff on 9 December 2009 obtained a charging order nisi against the defendants’ flat in a Housing Authority estate.  The charging order absolute was obtained on 6 January 2010. 

3.  The defendants’ case as framed before the Registrar was that when the plaintiff granted the loan (‘the second loan’), part of the money was to be used to repay a previous loan (‘the first loan’) that the 1^st defendant had obtained from another finance company, namely, Fu Tat Finance Company (‘Fu Tat’).  The defendants contended that the plaintiff was aware that the first loan was tainted with illegality in that the interest charged for the first loan was over 113% which exceeded the specified rate of 60% per annum in Section 24 of the Money Lenders Ordinance (Cap. 163).  This defence was different from the defendants’ case as contained in their affirmations filed in support of their application to set aside the default judgment, namely, the transaction relating to the second loan was illegal because the plaintiff obtained a security of the second loan on the mortgage of the defendants’ Housing Authority flat .

Relevant Principles

4.  1)      The defendants accepted that the judgment was obtained regularly.  The Court has to consider the following factors in the application to set aside a regular judgment :

(1)   Length of the delay,

(2)   Reason for the delay,

(3)  Is there a real or reasonable (which is synonymous) prospect of success of their defence?

(4)  Prejudice to the plaintiff if the judgment is set aside.

2)  Leave to appeal will only be granted if the appeal has a reasonable prospect of success or there are some other reasons in the interests of justice for the appeal to be heard.

3)  The appellate court in considering an appeal from the exercise of discretion (as the Judge had done in the present case) is not to exercise the discretion afresh but to see whether the discretion had been wrongly exercised on recognized principles, such as the tribunal taking irrelevant matters into account or ignoring relevant matters.

The delay and explanation

5.  There was a long delay of about one year.  The explanation for the delay was that the defendants were troubled by creditors and they left their flat and moved to a rented property in order to avoid them.  They were not aware of the judgment until they intended to sell the flat.  This explanation is not credible because even if they did not live in the flat there was no reason why they could not ask someone to collect mails from the flat or from its post box.  The plaintiff had served them with written demands for repayment. 

Merits

6.  It is clear that the defendants were not able to show that they have a meritorious defence.  Their case is that, despite the first loan being said to be $120,000, the 1^st defendant only received $105,000 from Fu Tat because $15,000 was returned to Tat Fu immediately.  Eventually they had to repay $134,848 to Fu Tat when they obtained the second loan from the plaintiff.  The difference between $134,848 and $105,000 was $29,848 which was in fact interest charged by Fu Tat.  The defendants stated that the 1^st defendant was unable to repay the first loan and he went to Fu Tat to ask for a fresh loan.  A staff there persuaded him to borrow more money from the plaintiff.  He was told by that staff that the plaintiff and Fu Tat were owned by the same boss.  When the 1^st defendant attended the plaintiff’s office, a staff there told him that she had heard of his story and the plaintiff was prepared to lend $100,000 to him and the loan due to Fu Tat would be transferred to the plaintiff.  The 2^nd defendant was asked to borrow the second loan as well.  After the defendants signed the loan documents the plaintiff’s staff told them that it would charge them a handling fee of $10,000.  The 1^st defendant was given a cash cheque of $100,000 which he cashed and he gave $10,000 to the plaintiff.

Issue of credibility

7.  Inevitably the Court has to assess the credibility of the defendants’ case.  The loan agreement with Fu Tat showed that the interest charge was 30% and the 1^st defendant acknowledged in the loan agreement that he had received $120,000.  There was no documentary support that he actually only obtained $105,000.  The defendants’ contention that the 1^st defendant received a cash cheque of $100,000 from the plaintiff was refuted by a written authorisation to the plaintiff by which the defendants asked the plaintiff to issue three cheques, namely,

1)   $134,848 to Fu Tat,

2)   $450 to David Y W Man & Co. Solicitors,

3)   $114,702 to them.

8.  Apart from saying in his second affirmation that the cash cheque of $100,000 he mentioned in his first affirmation was likely to be the cheque of $114,702, the 1^st defendant did not explain why he had failed to disclose in his first affirmation the written authorisation and the three cheques that were issued to them.  The Judge must be entitled to assess the credibility of the defendants’ case on the first loan in the light of what the 1^st defendant had said about the second loan he received from the plaintiff.  The 1^st defendant further did not say what he did with the $105,000.  If he had deposited the money into his bank account then there must be entry in his bank statements showing that he only received $105,000.  None was produced.

9.  As to the payment of $134,000 to Fu Tat the written authorisation stated it was for payment of the service charge of Fu Tat.  The plaintiff explained that it was actually a settlement on the 1^st defendant’s behalf of his debt owing to Fu Tat. The cheque to David Y W Man was a payment made by the plaintiff on behalf of the 1^st defendant of the solicitors’ fee to discharge the first loan between the 1^st defendant and Fu Tat.

Knowledge of the plaintiff

10.  The defendants contended that the plaintiff had not refuted the allegations of what the 1^st defendant was told by the staff of Fu Tat and the plaintiff.  This goes to the issue of whether the plaintiff had knowledge of the illegal nature of the first loan.

11.  The case as then presented by the defendants in the affirmations was not in respect of the knowledge the plaintiff of an earlier illegal loan.  They only made known of their stand before the Registrar.  Hence if the plaintiff had chosen to focus in its affirmation on the case as presented by the defendants, it is not something that could be used against it.  What is more important is that the defendants could not show that the two companies are connected.  Even if the plaintiff had used the same firm of solicitors as Fu Tat, this will not advance the matter.  The fact that the plaintiff knew $134,000 was paid to Fu Tat does not mean that it also knew Fu Tat had charged excessive interest when the loan agreement indicated otherwise and there was no indication that the plaintiff was aware then the 1^st defendant had only received $105,000.  The defendants had not demonstrated how the interest of $113% was calculated.  In the circumstances the Judge must be entitled to conclude that the defendants had failed to show a real prospect of success of their defence.

Conclusion

12.  The defendants failed to show in the present application that the Judge’s exercise of discretion was wrong.

13.  In the circumstances leave to appeal must be refused.