WANG WEICHEN v. PRAISE FORTUNE LTD

HCA 567/2020

[2022] HKCFI 1880

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 567 OF 2020

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DECISION

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THE APPEAL

1.  Upon the plaintiff’s application for summary judgment, Master Kenneth Lee ordered on 1 December 2021, among other things, that:-

(1)  Judgment be entered against the defendant in the sum of $4,000,000;

(2)  The defendant be given unconditional leave to defend in relation to the amount of interest to be paid;

(3)  50% of the costs of the application for summary judgment be paid by the defendant to the plaintiff, with certificate for counsel, to be summarily assessed and payable forthwith.

(“the Decision”)

2.  This is the defendant’s appeal against the Decision.

THE UNDISPUTED FACTS

3.  The following facts are undisputed:

(1)  The plaintiff and Mr Jiang Xin (“Mr Jiang”) have been classmates and friends since secondary school.

(2)  At the material time, Mr Jiang was a director and shareholder of the defendant.

(3)  On 16 August 2018, the plaintiff and Mr Vincent Wan (“Mr Wan”) (for and on behalf of the defendant) signed a document (described therein as a loan agreement) (“the Signed Loan Agreement”) which provided that:

“現因借款人 Praise Fortune Limited公司日常運營需要向貸款人王偉晨 (HKID: xxxxxxx(x)) 借款港幣陸佰萬元整(港幣 6,000,000)， 借款種類為現金或支票，借款日期如表格所示，最晚還款日期為2018年11月16日，按時一次性償還清借款加利息。借款利息為：5% (月利率)，特立此舉為憑。”

(4)  On 16 August 2018 and 20 August 2018, the plaintiff paid the defendant the total sum of $6,000,000.

(5)  On 15 November 2018, the defendant paid the plaintiff back for $2,000,000.

PARTIES’ RESPECTIVE CASES

4.  The plaintiff’s case against the defendant is straight-forward, in that pursuant to the Signed Loan Agreement, the plaintiff had lent $6,000,000 to the defendant at the interest rate of 5% per month, and that the defendant had only repaid $2,000,000 of the principal.  The plaintiff therefore claims herein for the balance of the principal in the sum of $4,000,000 together with the interest accrued.

5.  On the other hand, the defendant alleged that despite the execution of the Signed Loan Agreement, parties had no intention to enter into any binding loan agreement as such.  It was said that:

(1)  At the material time, Mr Jiang was the Chairman of a publicly listed company – Pan Asia Environmental Protection Group Limited (“Pan Asia”).

(2)  In or about early August 2018, Pan Asia was in the course of acquiring 51% interest in a company known as Prospectous Harvest Finance Limited (“Prospectous Limited”), which in turn wholly owned Shandong Rongxiang Technology Company Limited (“Shandong Limited”).

(3)  Having been told by Mr Jiang that Shandong Limited’s business had great potential (in that “the investment period could be as short as three months and the return should be no less than 5%”[1]) but that it was in need of working capital, the plaintiff told Mr Jiang that he was interested in investing $6,000,000 in Shandong Limited.

(4)  The total sum of $6,000,000 was therefore paid by the plaintiff to the defendant in August 2018 for the said investment purpose.

(5)  As the plaintiff was worried that his wife might not allow him to do the said investment, he told Mr Jiang that “he would prepare a simple note, that is, the Signed Loan Agreement, so that the plaintiff could tell his wife that the money were to be used as a loan to the defendant.  The plaintiff assured Mr Jiang that the Signed Loan Agreement was not binding and would not take any effect, and that it would never be used against Mr Jiang or the defendant.”[2] The defendant only instructed Mr Wan to execute the Signed Loan Agreement on such a basis.

(6)  At the end of the day, despite the acquisition of 51% interest in Prospectous Limited, Pan Asia could not get any profit out of the operation of Shandong Limited, and as a result, Pan Asia decided to sell its interest in Prospectous Limited back to the original vendor.

(7)  As a result, the plaintiff’s investment in Shandong Limited failed totally.

(8)  “Feeling sorry for having mentioned Pan Asia’s proposed acquisition to the plaintiff and the losses the plaintiff has suffered as a result […], Mr Jiang, although not under any obligation whatsoever, caused the defendant to issue a cheque in the sum of HK$2,000,000 to the plaintiff on 15 November 2018 with a view to reducing the plaintiff’s losses”[3].

(9)  The total sum of $6,000,000 paid by the plaintiff to the defendant was therefore not a loan.

(10)  Even if there were any loan, the Signed Loan Agreement is extortionate by virtue of section 25 of the Money Lenders Ordinance (Cap.163, Laws of Hong Kong) (“the Ordinance”) in that the effective rate of interest stipulated therein exceeds 48% per annum, and therefore the Court should reopen the transaction.

LEGAL PRINCIPLES

Summary Judgment

6.  The principles are trite and undisputed.

7.  In Li Chuen Kwai v. Po Lam Construction Development Limited (HCA 2376/2013, unreported, 24 September 2014), it was held that:-

“11. As far as the plaintiff’s claim is concerned:

(1) An application for summary judgment must be supported by an affidavit verifying the facts on which the claim is based [Order 14, rule 2(1), Rules of the High Court].

(2) The Statement of Claim must be good and complete in itself; any defect or omission in the Statement of Claim cannot be corrected or supplemented by the plaintiff’s affidavit. If the defect is one of substance, the application for summary judgment will be dismissed [see: Hong Kong Civil Procedure 2014 at Practice Note 14/1/5].

(3) This means that an Order 14 application has to proceed on the case as pleaded, and it is those facts (as pleaded) which have to be verified on affidavit.

(4) Where the assertions in the plaintiff’s affirmation constitute a material deviation from the plaintiff’s pleaded case, the plaintiff will have failed to verify his claim as pleaded, and summary judgment should not be granted [Lin Jan v Long Xiaobo, HCA 1516/2012 (Judgment dated 4/09/2013)].

(5) Equally, summary judgment will not be granted where the plaintiff’s affidavit evidence is materially different from and inherently inconsistent with his/her case in the Statement of Claim [see: Sin Yuk Hung v Sin Tung San, HCA 474/2013 (Judgment dated 18/12/2013)].

12. As far as the defendant’s defence is concerned:

(1) The defendant shoulders the burden to satisfy the court that he has a real or bona fide defence (ie that there are triable issues), or that there ought for some reason to be a trial of the plaintiff’s claim.

(2) However, a complete defence need not be shown. The defence set up need only show that there is a triable issue or question or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law and no possibility of a real defence on the question of fact.

(3) Although the mere assertion in an affidavit does not, ipso facto, provide leave to defend, the court will not embark upon a mini‑trial of the action on paper and leave to defend will be granted unless the defence raised is so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that the defence is a sham.

(4) The test is not whether the defendant’s assertions are to be believed, rather it is whether those assertions are believable, ie capable of being believed. If so, the defendant must have leave to defend.

(5) Whether the defendant’s assertions are believable is a question that should be answered not by taking those assertions in isolation bur rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.”

8.  In Ju Yan Di Emperory Genesisy v Yau Wai Han [2015] 1 HKLRD 822, 827, Cheung JA held that:-

“14. It is well-established that the burden on the defendant in a summary judgment application is to show that he has a credible defence and he must condescend to give particulars of his defence. However, this does not mean that once the plaintiff invokes the application and irrespective of the strength of his case, the defendant bears all the burden of showing that there are triable issues in the case. This is because the starting point in a summary judgment application is that it should only be invoked when there is no defence to the claim. This means that the plaintiff must in the first place demonstrate that the defendant has indeed no defence. This requirement is further recognised in the procedural rules which mandate the plaintiff to state his belief in the verifying affidavit that there is no defence to the claim. This requirement must be kept in proper perspective when assessment is made of the strength of the application, otherwise there is a danger that the attention will be focused solely on what the defendant has said without consideration at the same time of the basic premise of the plaintiff’s claim or its inherent strength and weakness…” (Emphasis added)

Appeal against Master’s decision

9.  In relation to an appeal brought against Master’s decision, it is well established that such an appeal is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time.  The judge will give the weight it deserves to the previous decision of the Master, but he is in no way bound by it.  The judge in chambers is in no way fettered by the previous exercise of the Master’s decision. (Hong Kong Civil Procedure 2022, Volume 1, paragraph 58/1/2).

THE DEFENDANT’S ARGUMENTS

10.  Mr Kee argued on behalf of the defendant that it has two lines of bona fide defence:-

“(1) There are factual disputes concerning the parties’ intention in entering into the Loan Agreement. The Loan Agreement was only used as a disguise by P so that he could tell his wife that the money was a loan advanced to D and was not used for any investment purpose.

(2) The effective interest rate of 60% per annum charged under the Loan Agreement is extortionate under s.25 of the Money Lenders Ordinance. The court may exercise its discretion and declare it not extortionate after having regard to all the circumstances of the Loan Agreement. However, this should be decided at trial and not be determined in a summary judgment application: Yu Tai Hing Company Limited v Teresa Cheung (formerly known as Teresa Bee) (unreported, HCA 5453/2001, 27 August 2002, at §§10-11.”[4]

DISCUSSION

The Signed Loan Agreement

11.  There is clearly a factual dispute on the circumstances under which the Signed Loan Agreement was signed.  I have warned myself that the Court should not embark upon a mini‑trial of the action on paper.  Be that as it may, having considered parties’ submissions and the evidence placed before the Court, I hold the view that the defendant’s factual assertion in relation to the Signed Loan Agreement is totally incredible, for the following reasons:

(1)  The defendant has failed to condescend into particulars of the so-called investment arrangement.  For example:

(i)   When Mr Jiang told the plaintiff that the expected rate of return was 5%, was it 5% per month, or per 3 months, or per any other period?

(ii)  While Mr Jiang told the plaintiff that “the investment period could be as short as three months and the return should be no less than 5%”, what the agreed arrangement would be if the investment was not as smooth as expected?

(2)  In his affirmation, Mr Jiang had not explained at all why the $6 million was paid to the defendant[5] if the money was meant to be an investment in Shandong Limited.

(3)  The alleged investment arrangement is unsupported by any document.  No matter whether the sum of $6 million was injected into Shandong Limited under the name of the plaintiff or not, one would expect that there should at the very least be some documents evidencing the investment (for example, the deposit slip of the plaintiff’s monies into the account of Shandong Limited).  However, none has been produced herein.

(4)  The only documents produced in support of the defendant’s case are some public announcements made by Pan Asia which prove that Pan Asia had indeed acquired 51% interest in Prospectous Limited and that it had subsequently sold such interest back to the original vendor.  However, this is neither here nor there.  These announcements cannot shed light on whether the plaintiff had agreed to make any investment in Shandong Limited as alleged.

(5)  The defendant’s case is not only unsupported by documents, it is contradicted by various WeChat conversation records placed before the Court:

(i)    On 27 September 2018, the plaintiff asked Mr Wan for the first time when he could get back his money.  When Mr Wan replied that it would be in around mid-November, the plaintiff requested to be paid as soon as possible, which Mr Wan agreed.  If the plaintiff’s money was paid pursuant to any investment agreement with an investment period which “could be as short as three months” as alleged, it is very odd indeed for the plaintiff to start asking for his money back after just around 1½ month.  What is more surprising is for Mr Wan to agree to this request without referring to the expected investment period;

(ii)   The plaintiff urged Mr Wan for payment again on 2 November 2018.  Mr Wan replied: “我們正在安排，希望這周還給你! 事情有點不順，請見諒!”. If the agreed investment period would be “as short as 3 months”, there was no reason why Mr Wan should apologise to the plaintiff;

(iii)  On 10 December 2018, the plaintiff sent a draft document to Mr Wan and asked for his view thereon.  This document is entitled “還款保證”, in which it was stated that:

“借款人 Praise Fortune Limited因公司日常運營於2018年8月16日向貸款人王偉晨 (HKID: xxxxxxx(x)) 借款港幣陸佰萬元整 (港幣 6,000,000)，借款利息為：5% (月利率)，借款種類為現金或支票，借條最晚還款日期為2018年11月16日。

借款人已於2018年11月20日還款港幣2,000,000，由於借款人現金流出現問題，需要延遲歸還其他本金和利息，截止12月16日，利息共計港幣1,100,000 […]

借款人現保證以下還款時間 […]”

This draft document referred to the $6 million as a loan rather than an investment. It also mentioned about “interest” rather than “return on investment”. 

(iv)  The above draft document must have come as a surprise to Mr Wan if the defendant’s case is true.  However, not only Mr Wan did not query the wordings of the draft document, he had sent the same to Mr Jiang for his comment. Although at the end of the say the parties did not sign this document, the fact that there was negotiation on the terms thereof, in my view, is sufficient to show that the defendant’s case is incredible.

(v)   In reply to the said draft document, Mr Wan asked: “利息可以少算點嗎?”. There were subsequently a lot of conversations on the negotiation of interest. These, again, plainly show that the defendant’s case is unbelievable.

(vi)  The plaintiff had also asked Mr Jiang when he could be repaid by WeChat.  However, in none of the conversation did Mr Jiang ever say that the defendant was not obliged to make any repayment to the plaintiff because it was his own investment in Shandong Limited that failed. 

(vii) It is also evident that Mr Wan had put forward various repayment proposals for the plaintiff’s consideration even up to shortly before the commencement of this action.  He had never alleged that the plaintiff should be responsible for his own failed investment in Shandong Limited, nor did he say that the defendant was not obliged to make any payment to the plaintiff.

(6)  The only conversation which the defendant’s counsel relied on in support of the defendant’s assertion is the question raised by the plaintiff on 8 August 2018 (i.e. before the money was paid by the plaintiff to the defendant) when he asked “是固定5% 的收益是不”, and Mr Jiang’s answer “收益我保證你5%”.  It was argued that if they were discussing about entering into a loan agreement, they would have used the term “利息” rather than “收益”.  In my view, the use of the term “收益” does not necessarily mean that there was any investment. In any event, the situation has been made clear by the discussions between the plaintiff and Mr Jiang on one hand and between the plaintiff and Mr Wan on the other hand referred to above.

(7)  Before the Signed Loan Agreement was executed on 16 August 2018, the plaintiff had already made clear to Mr Jiang in his WeChat message sent on 8 August 2018 at around 8:52pm that: “老婆說本金保證就可以啊”.  If the whole purpose of the Signed Loan Agreement was to show to the plaintiff’s wife that the $6 million was lent to the defendant, there is simply no reason why the “sham” agreement had to provide for the payment of any interest at all, not to mention an interest at such a high rate.

Whether the Signed Loan Agreement is extortionate

12.  It cannot be disputed that the rate of interest stipulated under the Signed Loan Agreement is 60% per annum.

13.  Section 25 of the Ordinance provides that:

“(1) Subject to section 24(2), where—

(a) proceedings are taken in any court by any person (whether a money lender or not) for the recovery of any money lent or the enforcement of any agreement or security in respect of any loan; and

(b) subject to subsection (3), there is evidence which satisfies the court that the transaction is extortionate,

the court may reopen the transaction so as to do justice between the parties having regard to all the circumstances, and, for that purpose, make such orders and give such directions in respect of the terms of the transaction or the rights of the parties thereunder as the court may think fit.

(2)  […]

(3) Any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate; but except where such rate exceeds the rate specified in section 24(1), the court may declare that any such agreement is not extortionate for the purposes of this section if, having regard to all the circumstances relating to the agreement, the court is satisfied that such rate is not unreasonable or unfair.

(4) In determining whether a transaction is extortionate for the purposes of this section, regard shall be had to such evidence as is adduced concerning—

(a) interest rate prevailing at the time it was made;

(b) the factors mentioned in subsections (5) and (6); and

(c) any other relevant considerations.

(5) Factors applicable under subsection (4)(b) in relation to the debtor include—

(a) his age, experience, business capacity and state of health; and

(b) the degree to which, at the time of entering into the transaction, he was under financial pressure, and the nature of that pressure.

(6) Factors applicable under subsection (4)(b) in relation to the lender or other person by whom the proceedings are taken include—

(a) the degree of risk accepted by the lender, having regard to the nature and value of any security provided;

(b) his relationship to the debtor;

(c) whether or not a specious cash price was quoted for any goods or services included in the transaction; and

(d) where one or more other transactions are to be taken into account, the question how far any such other transaction was reasonably required for the protection of the debtor or the lender, or was in the interest of the debtor.

[…]”

14.  The defendant argued that, pursuant to section 25(3) of the Ordinance, the Signed Loan Agreement is presumed to be extortionate.

15.  The stance taken by Mr Lam, the plaintiff’s counsel, in this regard is difficult to understand.  On one hand, he seems to have accepted that the presumption under section 25(3) of the Ordinance applies.  In his own words:

“P accepts that, per s25(3) of the MLO, the Loan Agreement contains a term which states the effective rate of interest as exceeding 48% per annum. Thus, there is a presumption for the purposes of s 25 that the transaction is ‘extortionate’.”[6]

16.  However, despite the above acceptance, he submitted that:

“47. Despite section G1[7] above, the more fundamental issue is that this Court does not have jurisdiction to re-open the transaction if the rate of interest does not exceed 48% in any event […]

48. In this regard, P brings to this Court’s attention that he has always been prepared to agree to settling at an interest rate lower than that stated in the Loan Agreement, i.e. even on which is below the 48% per annum. […]

49. In the interest of achieving the most cost and time effective solution to concluding these proceedings, P is prepared to lower the claimed interest rate to below 48% per annum (and make the necessary undertakings to amend its SOC and the Application, if required), if that would mean that P can be awarded the interest per the rate as fairly and reasonably determined by this Court. This would also avoid the unnecessary expense, injustice caused to P, and misuse of the Court’s resources to take the action to trial on simply the matter of interest alone.” (Mr Lam’s emphasis)

17.  With greatest respect, this argument is only stated to be rejected.  By this action, the plaintiff is seeking to enforce the Signed Loan Agreement, which is the “agreement” targeted by section 25(3) of the Ordinance.  It is not up to the plaintiff to say that he is now prepared to accept a rate less than 48% per annum so as to avoid the consequence as stipulated under section 25 of the Ordinance. 

18.  Hence, pursuant to section 25(1) of the Ordinance, the court may reopen the transaction so as to do justice between the parties.

19.  Relying on Yu Tai Hing Company Limited v Teresa Cheung (formerly known as Teresa Bee) (HCA 5453/2001, unreported, 27 August 2002), Mr Kee submitted that the issue concerning the reopening of the transaction should not be dealt with in a summary judgment application but at the trial.  In this regard, he did not limit his argument to the issue of interest.  He argued that the reopening of the transaction is also applicable to the principal.  It is therefore contended that the defendant should be granted unconditional leave to defend in relation to the entirety of the plaintiff’s claim. 

20.  On the other hand, Mr Lam submitted that there is no hard and fast rule that the Court must not exercise its discretion in a summary judgment application.  He invited the Court to make an order that the transaction should not be reopened, and grant Judgment in favour of the plaintiff for his whole claim.  As a fall back position, he urged the Court to grant at least a portion of the contractual interest, and give the plaintiff an option to pursue the remainder of the interest at the trial.

21.  I take the view that the questions of whether the transaction should be reopened, and if so, to what extent, are matters which should be decided at the trial.  It is entirely inappropriate for the Court to conduct a mini-trial on affidavit and decide on how to exercise its discretion under section 25 of the Ordinance.

22.  However, since the defendant has failed to identify any circumstances of the case which render it arguable that, to do justice between the parties, the defendant would not be held liable to repay even the outstanding principal in the sum of $4,000,000, I consider that any unconditional leave to defend should be granted only in relation to the interest payment.  There is no reason why the plaintiff should be asked to wait any longer for the repayment of the outstanding principal.

ORDER

23.  By reasons of the aforesaid, the defendant’s appeal is dismissed.

COSTS

24.  Costs should follow the event. 

25.  I make a cost order nisi that the defendant shall pay the plaintiff’s costs of and occasioned by this appeal.  The above order nisi shall become absolute in the absence of application to vary within 14 days hereof.

26.  The plaintiff’s costs shall be summarily assessed in lieu of taxation.  For this purpose, unless any application for variation of the aforesaid costs order nisi is made within time, the plaintiff shall lodge and serve his statement of costs within 7 days after the expiry of the said 14-day period, and the defendant shall lodge and serve its statement of objection within 7 days thereafter.  Summary assessment of the costs of the appeal will then be conducted on paper (no matter whether any statement of objection is lodged by the defendant within time) thereafter.  The costs assessed shall be payable by the defendant within 14 days after assessment.