FLEXI CREDITS LTD v. WONG CHI KIT CLEMENT

HCA 738/2022

[2022] HKCFI 2228

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 738 OF 2022

________________________

BETWEEN

________________________

________________________

D E C I S I O N

________________________

Introduction

1.  This is the plaintiff’s application to restore its summons filed on 23 June 2022 for mareva injunction and ancillary disclosure order.

2.  The summons first came before Deputy High Court Judge Douglas Lam, SC on 30 June 2022. Because of inadequate notice, the judge dealt with the application on an ex parte basis. At the end of the hearing, he refused to grant the injunction. However, at the plaintiff’s request, he adjourned the summons to give it an opportunity to remedy the problems which the judge had identified and restore the application if deemed fit: [2022] HKCFI 2052 at para 21. I shall adopt the terms used in that decision below.

3.  The restored summons came before me on the summons day last Friday. I adjourned it to today for the plaintiff to file further affidavit evidence. The defendant was absent last Friday and is also absent today.

4.  Having reviewed the latest evidence, I am satisfied that the threshold for mareva injunction is met.

Basis of the restored hearing

5.  I am satisfied the restored hearing can properly proceed on an inter partes basis.

6.  The summons was served on the defendant on 28 June 2022 by leaving at his three last known addresses, including the residential addresses stated in the Loan Agreements, his bank statements and his employer’s return, and his school address. The summons has not been returned to date. Further, on 12 July 2022, which was two clear days before the hearing last Friday, the 2^nd affirmation of Mr Ka and notice of that hearing was served on those three addresses.

7.  Having reviewed the latest affidavits of service, I am satisfied that notice of last Friday’s hearing was properly brought to the attention of the defendant. Today’s hearing is a continuation of last Friday’s hearing.

Good arguable case

8.  I have before me, first, the 2^nd affirmation made by Mr Ka, in which he tried to explain how the interest rate of 48.00006% had come about for the 1^st Loan Agreement and why the loan should not be regarded as extortionate. He also confirmed that the plaintiff has now abandoned the claim based on the contractual rates stipulated in the 1^st to 5^th Loan Agreements, ie 48.00006% (under the 1^st Loan Agreement) and 48% (under the 2^nd to 5^th Loan Agreements). Instead it now only claims interest on the outstanding loans at the judgment rate of 8%.

9.  The plaintiff’s evidence is unopposed. Mr Ka’s explanation is in any event plausible.

10.  I therefore accept the plaintiff’s explanation that the rate of 48.00006% came about from the arithmetic calculations in the Excel spreadsheet used by the plaintiff when it consolidated all of the outstanding sums under various previous loans advanced to the defendant. The plaintiff had all along had no intention to charge anything over 48%. In any event, the additional 0.00006% over the statutory threshold imposed a small additional amount of interest of only $0.24 per month.

11.  In the circumstances, I consider that the plaintiff has a good arguable case that the 1^st Loan Agreement was not extortionate. Furthermore, on the premise that its claim is now based on an interest rate of 8%, it has a good arguable case that the court may reopen the transaction to allow the plaintiff to seek repayment on that basis. On the whole, I am satisfied that it has demonstrated a good arguable case on its claim under the Loan Agreements.

Assets within Hong Kong

12.  I have also before me the 3^rd affirmation of Mr Ka, which was filed with the court just this morning. Copies of three documents are exhibited. First, a copy of the defendant’s letter to the school dated 18 February 2022 tendering his resignation effective on 1 June 2022. The copy was given by the defendant to the plaintiff’s staff on 31 May 2022 when the 5^th Loan Agreement was entered into. Second, a copy of a letter from the plaintiff’s solicitors to the Education Bureau dated 5 July 2022. Third, a reply letter from the Education Bureau dated 8 July 2022 stating the following:

“Please be informed that Mr. WONG had submitted the withdrawal application for his provident fund benefits in mid-June 2022 and the payment has been made to him.”

13.  On the basis of the contemporaneous documents, which are unchallenged, I am satisfied that the defendant has assets within Hong Kong.

Real risk of dissipation

14.  Lastly, I come to the requirement of real risk of dissipation.

15.  Previously and up to 31 May 2022, the plaintiff had been in regular contact with the defendant via telephone and Zoom meetings to discuss his debt situation and settlement plan. The last contact was on 31 May 2022 when the 5^th Loan Agreement was entered into. On that occasion, the defendant said that he had already had his last official day with the school and was awaiting the release of his pension.

16.  However, after that date, the plaintiff has been unable to get in touch with the defendant despite repeated attempts, including text messages, telephone calls and sending of couriers to his last known addresses.

17.  Furthermore, in June 2022, the plaintiff presented a cheque for payment, which had been drawn by the defendant and previously given to the plaintiff as security for the loan. The cheque was dishonoured.

18.  The plaintiff submits that on the totality of the evidence, the defendant has gone into hiding with a view to avoiding his indebtedness owed to the plaintiff. His sudden disappearance coincided with his receipt of the pension. This shows, the plaintiff submits, dishonesty on the defendant’s part. In the circumstances, the plaintiff contends that the court can draw the inference that the defendant intends to retain and/or dissipate the pension sum to avoid repaying his debt.

19.  It must be borne in mind that a mareva injunction is a draconian relief. It is not to be granted lightly. When granted, it interferes with a defendant’s ability to deal with his own assets as he wishes. The purpose of the mareva jurisdiction is not to provide a plaintiff with security for his claim, even when it appears likely to succeed. It is to restrain a defendant from evading justice by disposing of or concealing asset otherwise than in the normal course of business in a way which will have the effect of making it judgment proof.

20.  It is not intended to restrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling his assets, it will not be sufficient to show that such continued conduct would prejudice the plaintiff’s ability to enforce a judgment. Otherwise, it would require the defendant to change his legitimate behaviour in order to provide preferential security for the claim which the plaintiff would not otherwise enjoy. What must be threatened is unjustified dissipation.

21.  The burden is on the plaintiff to make out a solid basis for concluding that there is such a risk.

22.  The above principles are quoted from the judgment of Haddon-Cave LJ in Lakatamia Shipping Company Ltd v Toshiko Morimoto [2019] EWCA Civ 2203 at para 34, which was cited and generally confirmed by the Court of Appeal as applicable in Hong Kong in Convoy Collateral Ltd v Cho Kwai Chee [2020] HKCA 537 at paras 35 to 39.

23.  The Court of Appeal added that the evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk. A solid basis to support an inference of risk of dissipation is to be contrasted with unsupported or bare statements of fear which would carry little weight. The court needs to act on objective facts: see paras 40 and 41.

24.  Generally speaking, the fact that a borrower defaults on a loan and has since become uncontactable would not, without more, justify the grant of a mareva injunction against the borrower in favour of a lender. The purpose of a mareva injunction is not to provide security to the lender to which he is not otherwise entitled, even if it appears to have a good claim.

25.  What stands out in this case is that the evidence (which is unchallenged) shows that the plaintiff, the lender, had been in very frequent contact with the defendant on his loan situation. It appears to be much more regular and frequent than what is usual or typical in a money lender context. And, importantly, all along, the explicit expectation between the parties was that the defendant would very shortly receive a substantial pension sum upon his imminent retirement as a school vice-principal. And the plaintiff was looking to that pension sum as the defendant’s source of repayment. That was the reason why the plaintiff was willing to refinance the indebtedness since the 1^st Loan Agreement was entered into in December 2021. The 2^nd to 5^th Loan Agreements were entered into as a result.

26.  But just after the last loan was extended on 31 May 2022 on which occasion the defendant confirmed that he had in fact retired, he suddenly lost all contact. He failed to attend a pre-scheduled Zoom meeting on 6 June 2022 in which he was expected to give an update of his situation. The objective evidence shows that in the meantime, he had received his pension. Yet, he failed to make any repayment due under the loans.

27.  The undisputed and indisputable evidence is sufficient to point to a conclusion that the defendant is trying to evade repaying the substantial debt owed to the plaintiff when he was apparently in a position to do so. There is a solid basis, in my view, to draw such an inference. If no injunction is granted, there is a real risk that any judgment which the plaintiff may obtain will go unsatisfied.

28.  The present loan is an unsecured one. The plaintiff was fully aware that the defendant’s monthly income was not sufficient to repay the monthly instalments. By agreeing to extend and, subsequently, restructure the loan, the plaintiff was consciously taking on the commercial risk of the defendant defaulting.

29.  I am conscious that the purpose of the mareva injunction is not to improve the position of the plaintiff as an unsecured creditor to one with the security that the defendant’s assets will be frozen pending trial.

30.  However, the evidence before me demonstrates that the defendant is trying to conceal his pension from the plaintiff when this is the very asset from which the loan was anticipated by both parties to be paid off.

31.  My evaluation of the evidence is that there is a real risk that having concealed his asset, the defendant will dissipate it contrary to the parties’ prior common expectation. In my view, these are the special facts which make his likely concealment and dissipation illegitimate and unjustified. The plaintiff should be protected from such risk pending trial.

Balance of convenience

32.  The balance lies in favour of granting the order.

33.  To grant the injunction in the present case is not to put the plaintiff in a preferential position. Rather, it is to prevent the injustice that will follow if the defendant is allowed to conceal or dissipate the pension sum in the special circumstances of this case.

34.  To not grant the injunction, there is a high risk that there is nothing left for the plaintiff to enforce even if it obtains judgment, notwithstanding that the defendant has in fact received the substantial pension sum as anticipated.

Conclusion

35.  I make an order in terms of the draft lodged with the court earlier today with the changes which I have discussed with counsel to be incorporated.