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HCA 561/2014
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 561 of 2014
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| BETWEEN |
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FREEWAY FINANCE COMPANY LIMITED |
Plaintiff |
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and |
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LAI SAU KEI |
1st Defendant |
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LEE MAN WAI |
2nd Defendant |
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YONG KIM KUI |
3rd Defendant |
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| Before: Master Lai in Chambers (open to public) |
| Date of Hearing: 23 January and 20 July 2015 |
| Date of Judgment : 28 June 2016 |
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D E C I S I O N
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INTRODUCTION
1. This is an application for judgment under Orders 83A and 88 of the Rules of High Court (the “RHC”) for money judgment against all the defendants in respect of two loans and for possession order against the 1st defendant for two properties at Tsun Fat Street, namely 1st floor of 6 Tsun Fat Street (the “1st Property”) and 1st floor of 8 Tsun Fat Street (the “2nd Property”) (collectively the “Properties”).
2. The plaintiff is and was at the material times a money lender. The plaintiff’s case was that by two loan agreements dated 25 March 2011 (the “1st Agreement”) and 28 September 2011 (the “2nd Agreement”) (together “the Agreements”), the plaintiff as lender lent to all the defendants as borrowers the sums of $2,800,000 (the “1st Loan”) and $200,000 (the “2nd Loan”) respectively (together “the Loans”). The Loans were secured by a legal charge dated 25 March 2011 on the Properties (the “Legal Charge”) executed by the 1st defendant as mortgagor in favour of the plaintiff as mortgagee.
3. The Loans were short term loans. They were repayable one month after their respective drawdown dates together with interest accrued at 48% per annum. The 1st Loan was drawn down on 25 March 2011. The 2nd Loan was drawn down on 28 September 2011. The defendants failed to repay the Loans on their respective contractual due dates. The defendants had paid interest on the 1st Loan and the 2nd Loan up to 24 October 2013 and 27 October 2013 respectively.
4. On 31 March 2014, the plaintiff issued the writ herein to claim for repayments of the Loans together with accrued interest and to enforce the Legal Charge.
5. All the defendants filed their acknowledgements of service of the writ with the court on 16 April 2014 stating that they did not intend to contest the plaintiff’s claims.
6. The plaintiff took out a summons on 25 April 2014 (the “Summons”) under Orders 83A and 88 of the RHC to seek money judgment against all the defendants and possession order for the Properties against the 1st defendant. The plaintiff filed an affirmation of Ms Chan Lai Ka Amy (“Ms Amy Chan”) on 25 April 2014 (“Chan’s Affirmation”) and an affirmation of Mr Joseph Leung Kwok Kin on 30 June 2014 (“Leung’s Affirmation”) to support its application.
7. The 2nd defendant filed an amended acknowledgement of service with the court on 28 August 2014 in which the 2nd defendant changed her stance and stated that she intended to defend the claims against her. The 1st defendant also filed an amended acknowledgment of service to the same effect with the court on 29 August 2014. The 3rd defendant had not amended her acknowledgment of service.
8. Both of the 1st and 2nd defendants filed their respective affirmations in opposition on 1September 2014 (respectively called “D1’s Affirmation” and “D2’s Affirmation”). The 1st defendant filed a further affirmation in opposition on 22 September 2014 (“D1’s 2nd Affirmation”). The 3rd defendant also filed an affirmation on 25 September 2014 (“D3’s Affirmation”).
9. In reply, the plaintiff filed an affirmation of Mr Eddie Chan Chung Yee (“Mr Eddie Chan”) on 21 October 2014 (“CCY’s Affirmation”), two further affirmations of Ms Amy Chan on 21 October and 25 November 2014 (“Chan’s 2nd Affirmation” and “Chan’s 3rd Affirmation” respectively) and an affirmation of Ms Fong Yee Ling Eleanor (“Ms Fong”) on 25 November 2014 (“Fong’s Affirmation”).
THE DEFENDANTS’ CASES
10. Both the 1st and the 2nd defendants claimed that they were not borrowers of the Loans but only guarantors of the 3rd defendant who was the only borrower. Both the 1stand 2nd defendants claimed that they executed the documents for the Loans under undue influence of the 3rd defendant and that the documents had not been explained to them before they executed the same.
11. The 3rd defendant did not dispute that she had borrowed from the plaintiff but disputed the amount of the Loans and the amount of outstanding.
THE 1ST DEFENDANT’S CASE
12. The 1st defendant was born in Mainland. She came to Hong Kong in 1987. The Properties were owned by her and her husband as joint tenants. After her husband passed away in 2009, the 1st defendant became the sole owner of the Properties. The 3rd defendant was her cousin.
13. The 1st defendant said that in 2010, the 3rd defendant was in financial difficulty and in need of money for her sister’s medical expenses. The 3rd defendant wanted to borrow from a finance company and the finance company required a person owning landed property as her guarantor before it would consider granting a loan to the 3rd defendant. The 3rd defendant asked the 1st defendant to be her guarantor. The 1st defendant at first refused the 3rd defendant’s request but the 3rd defendant repeatedly requested her and kneeled before her. The 1st defendant said that the 3rd defendant had previously assisted her and her husband by lending money to her husband for business use. This gave the 1st defendant a lot of psychological pressure which she could not resist. She said that she agreed to act as the 3rd defendant’s guarantor for the Loans under the 3rd defendant’s undue influence.
14. The 3rd defendant brought the 1st and 2nd defendants to the plaintiff’s office on several occasions regarding the loan matter. They were attended either by a Mr Cheung or a Ms Yuen of the plaintiff. On each occasion, the 1st defendant was asked to sign certain documents. The documents were not read out or fully explained to her. The 1st defendant said that some of the documents were even in blank.
15. Before the 1st defendant signed the documents, she was told by Mr Cheung and/or Ms Yuen that the documents were for the purpose of assisting the 3rd defendant to get the loans. The 1st defendant would be the guarantor for the 3rd defendant’s loans and the plaintiff would only sue the 3rd defendant for recovery of the loans. The 1st defendant signed the documents as guarantor only. The plaintiff would extend the loan repayment schedule if the 3rd defendant failed to meet the repayment schedule. The plaintiff would never claim any interest in the Properties and the 1st defendant would not be responsible for the loans unless the 3rd defendant passed away.
16. In reliance on the aforesaid words of Mr Cheung and/or Ms Yuen, the 1st defendant signed some documents at the office of the plaintiff’s then solicitors, ie C Y Chan & Co, in the same building.
17. The 1st defendant did not dispute that she had signed the Legal Charge but said that the content of the Legal Charge had not been read out or explained to her. She did not know that she had signed the Legal Charge as the mortgagor and borrower. She believed that she was only the guarantor. She signed the Legal Charge under the 3rd defendant’s undue influence and in reliance on the aforesaid words of Mr Cheung and/or Ms Yuen.
18. The 1st defendant contended that she had never been advised and given an opportunity to seek independent legal advice before signing the loan documents.
19. The 1st defendant said that all loan moneys were used by the 3rd defendant and she had not used any part of the Loans.
20. The 1st defendant alleged that the plaintiff had not delivered to her a copy of all documents signed by her.
21. The 1st defendant also contended that the rate of interest charged on the Loans at 48% per annum was extortionate and asked the court to re‑open the Agreements to vary the contractual interest rate.
THE 2ND DEFENDANT’S CASE
22. The 2nd defendant’s case was that the 3rd defendant was her cousin who was more than 10 years senior than her. She respected the 3rd defendant very much. As the 3rd defendant had taken care of her and financially supported her when she first came to Hong Kong in 1969 from Indonesia, she treated the 3rd defendant as her benefactor.
23. In early 2010, the 3rd defendant approached the 2nd defendant and asked the 2nd defendant to act as the 3rd defendant’s guarantor for the 3rd defendant’s borrowing for investment in Indonesia. The 3rd defendant guaranteed to the 2nd defendant that the 3rd defendant would repay the borrowing. The 3rd defendant told the 2nd defendant that the 1st defendant would charge two properties to the plaintiff as securities and there would be no risk for the 2nd defendant.
24. The 2nd defendant said that she agreed to act as the 3rd defendant’s guarantor out of fear and respect. She knew that the 3rd defendant had two rich sons owning properties. As the 1st defendant would also charged two properties as securities, the 2nd defendant accepted the 3rd defendant’s analysis that she would expose to no risk in acting as the 3rd defendant’s guarantor. She acceded to the 3rd defendant’s request.
25. The 2nd defendant first went to the plaintiff’s office in February 2010 with the 1st and 3rd defendants to sign documents. They were received by a Mr Cheung and a Ms Yuen. They were asked to sign various documents, most of them in English. No one had explained the content of the documents to them but she remembered hearing Mr Cheung said that the 3rd defendant was the borrower. Mr Cheung had also mentioned about interest and repayment schedule. No one told the 2nd defendant that she had obligation to repay.
26. They were then brought to a solicitors’ firm in the same building to sign further documents. They were received by a Mr Chan who had said something to them but the 2nd defendant could not remember the content now. Her impression was that because she was a guarantor, she had to sign the documents together with the others. She did not recall Mr Chan explaining the content of the documents to them before their signing.
27. They then returned to the plaintiff’s office when the 1st defendant collected the cheques for the loan proceeds on behalf of the 3rd defendant. Throughout the whole process, the 2nd defendant was not advised to seek independent legal advice.
28. The 2nd defendant alleged that the plaintiff had not provided to her copies of the documents for the Loans signed by her. She only received copies of some documents from the 3rd defendant in July 2014 which were provided by the plaintiff to the 3rd defendant.
29. From February 2010 to March 2011, she had attended the office of the plaintiff and the aforesaid solicitors’ firm several times upon requests of the 3rd defendant to sign further documents. The 3rd defendant told the 2nd defendant that the borrowings were for the 3rd defendant’s investment or medical expenses of the 3rd defendant’s sister.
30. The 2nd defendant said that she had not received any money out of all the borrowings from the plaintiff and all the monies were used by the 3rd defendant.
31. The 2nd defendant said that only in August 2014 when she obtained legal advice, she then knew that the documents she had signed were not guarantees but loan agreements.
32. Her case was that the documents signed by her were not guarantees as she understood. She signed the documents under the undue influence of the 3rd defendant and she was misled by the 3rd defendant.
33. The 2nd defendant also raised the issues that she had not been shown the Chinese form of the documents signed by her and the plaintiff also had not provided her with copies of the note or memorandum of the Agreements and the summary of Parts III and IV of the Money Lenders Ordinance (Cap 163) (the “MLO”) as required by section 18 of the MLO.
THE 3RD DEFENDANT’S CASE
34. The 3rd defendant admitted that she had borrowed from the plaintiff but said that she had only borrowed a total of $2,400,000 (not $3 million as claimed) from the plaintiff. She claimed that she was the only borrower and the 1st and 2nd defendants were her guarantors. The 3rd defendant said that she had made various repayments to the plaintiff throughout the years and she did not know how much remained outstanding. She also complained that the interest charged was unreasonably high and asked for further time for her to get funding to repay the plaintiff.
THE PLAINTIFF’S CASE
35. The plaintiff claimed that it had lent the Loans to all the defendants. The Loans were to be repaid one month after their respective drawdown dates together with interest accrued thereon at the rate of 48% per annum. The defendants only paid interest on the 1st Loan up to 24 October 2013 and paid interest on the 2nd Loan up to 27 October 2013. The defendants had not repaid any parts of the principal of the Loans.
36. The plaintiff claimed repayment of the principal of the Loans together with interest accrued on the 1st Loan from 25 October 2013 onwards and interest accrued on the 2nd Loan from 28 October 2013 onwards both at the contractual rate of 48% per annum. The plaintiff also claimed default interest at 48% per annum on outstanding unpaid accrued interest instalments.
37. In CCY’s Affirmation, Mr Eddie Chan, the principal of C Y Chan & Co and the plaintiff’s then solicitors preparing the Legal Charge, stated that when his firm received instructions from the plaintiff to prepare the Legal Charge, he had also prepared a notice of advice to seek independent legal advice in Chinese for the defendants’ execution after their perusal (the “Notice on Legal Advice”). (See p 202 of the Hearing Bundles)
38. Mr Eddie Chan recalled that he attended the defendants when the Legal Charge was signed. He said that the defendants signed the Legal Charge in his presence after he had interpreted the Legal Charge to them.
39. Mr Eddie Chan said that he had asked the defendants to read the Notice on Legal Advice and a summary of the main terms of the Legal Charge (the “Mortgage Summary”) (see p 203 of the Hearing Bundles), both in Chinese, carefully. The defendants had read and signified their agreement before they signed both documents.
40. Ms Amy Chan in Chan’s 2nd Affirmation pointed out that at the time of signing documents for the Loans, the defendants had also signed notices on risk of mortgage dated 25 March 2011 and 28 September 2011 (the “Notices on Mortgage Risk”) (see pp 185‑186 of the Hearing Bundles) in the presence of the plaintiff’s then solicitors.
41. Ms Amy Chan in Chan’s 3rd Affirmation stated that the defendants had borrowed a total of eight loans from the plaintiff since February 2010. The Loans were the last two.
42. Ms Fong in Fong’s Affirmation said that she was the “Ms Yuen” referred to in the affirmations of the 1st and 2nd defendants. She said that her colleagues called her “Yuen” (pronunciation in Chinese equivalent to “Circle”) which carried the opposite meaning of her surname “Fong” (pronunciation in Chinese equivalent to “Square”).
43. Ms Fong had been a loan officer of the plaintiff since November 2004. She said that in each and every loan handled by her, she would read out the loan documents in Chinese and interpreted the English loan documents to the customers before concluding the transactions.
44. Ms Fong said that the defendants were customers of the plaintiff since 2010. All borrowings of the defendants from the plaintiff were handled by her except two borrowings. She had read out the loan documents to the defendants in Chinese and interpreted the English loan documents to them before concluding the transactions. Immediately after documents were signed by the defendants, a copy of the documents would be given to the defendants for their reference and retention.
45. Ms Fong said that all the three defendants were borrowers. As they did not have a bank account in their joint names, instructions in Chinese were prepared for them in accordance with their instructions as to how the Loans should be split. She produced loan application documents signed by the defendants dated 8 February 2010 (the “Application Form”) (see pp 177‑180 of the Hearing Bundles) when they first borrowed from the plaintiff. Ms Fong said that the three defendants kept rolling‑on borrowing money from the plaintiff since 8 February 2010. They were asked to sign fresh loan agreement each time upon borrowing money from the plaintiff.
DISCUSSION AND FINDINGS
Whether the 1st and 2nd defendants were borrowers?
46. The plaintiff’s evidence was that the defendants had been its customers since 8 February 2010 and they had borrowed altogether eight loans from the plaintiff, the Loans being the last two. The defendants did not dispute that they had financial dealings with the plaintiff since 2010. Land search on the Properties showed that the 1st defendant had charged the Properties to the plaintiff for the first time on 8 February 2010. The 1st defendant had subsequently created further charges on the Properties in favour of the plaintiff on 24 February 2010, 7 September 2010, 12 October 2010, 3 December 2010, 1 February 2011 and 25 March 2011, the last one being the Legal Charge. (See pp 172‑175 of the Hearing Bundles)
47. The 3rd defendant admitted she was a borrower but the 1st and 2nd defendant denied that they were borrowers in these financial dealings but contended that they were only guarantors.
48. In the Application Form, which was bilingual, the 1st defendant was named as “Applicant” (“申請人”) whereas the 2nd and 3rd defendants were named as “Joint‑applicant” (“聯合申請人”). All the defendants had signed on this bilingual Application Form. Ms Amy Chan had pointed out in Chan’s 3rd Affirmation that the Application Form was signed on 8 February 2010, ie when the defendants borrowed from the plaintiff for the very first time. This was confirmed by the date appeared on p 180 of the Hearing Bundles and the aforesaid land search records. If the 1st and 2nd defendants only acted as guarantors for the 3rd defendant, they would not have signed as the applicant or the joint‑applicant on the Application Form.
49. The Application Form included a Chinese handwritten confirmation signed by all the defendants (the “Chinese Confirmation”). (See p 179 of the Hearing Bundles) In the Chinese Confirmation it was stated that:
「當本人等向亨運財務有限公司 [ie the plaintiff] 借款後，本人等不得私自再以上述兩個物業 [ie the Properties] 作抵押或以任何形式向其他銀行或財務机 [sic] 構或人士等等借款，除非事前取得亨運財務有限公司之書面同意。」
50. The Chinese Confirmation clearly stated that all the defendants were borrowers when they first borrowed from the plaintiff in February 2010. In the Chinese Confirmation, the 1st defendant’s eldest daughter [李玉貞] was named as the contacting person [联 (sic) 絡人]. Contacting person for the borrowing side of a loan transaction will usually be the borrower or his/her representative. If the 3rd defendant was the only borrower, it would be strange to have the 1st defendant’s daughter named as the contacting person for the loans. No explanation had been offered by the defendants. This arrangement suggested that the 1st defendant was the leading borrower instead of a guarantor.
51. This view is also supported by the 2nd defendant’s evidence when she stated in paras 15 and 17 of D2’s Affirmation that all cheques for the loans proceeds in respect of all the loans borrowed from the plaintiff were collected by the 1st defendant in the presence of the other defendants. If the 1st defendant was a guarantor and not a borrower, there was no reason why the cheques for the loan proceeds would be collected by the 1st defendant all the times despite the fact that the alleged sole borrower (ie the 3rd defendant) was on all occasions present there. The 1st defendant in her two affirmations both filed after D2’s Affirmation offered no explanation.
52. The Application Form also included a Chinese statement (the “Chinese Statement”) signed by all the defendants. All the defendants signed at the column of “borrower” (〝借款人〞) instead of “charger” (〝抵押人〞) or “guarantor” (〝擔保人〞) (see p 180 of the Hearing Bundles). If the 2nd and 3rd defendants were guarantors instead of borrowers, they would have signed at the column of “guarantor” (〝擔保人〞) in the Chinese Statement which column was located just below their signatures.
53. The plaintiff had issued three cheques for the 1st Loan and one cheque for the 2nd Loan. All the defendants signed the drawdown instructions dated 25 March 2011 for the 1st Loan and the drawdown instructions dated 28 September 2011 for the 2nd Loan as “borrower” (〝借款人〞) (see pp 182‑183 of the Hearing Bundles).
54. One of the drawdown cheques for the 1st Loan was made payable to the 1st defendant and the whole 2nd Loan was drawn down by a cheque made payable to the 1st defendant. These were plainly in contradiction to the 1st defendant’s case that she was only the guarantor for the 3rd defendant in respect of the Loans. Yet the 1st defendant offered no explanation for these cheques being issued to her. Her counsel boldly submitted that this was one of the reasons why this matter had to go to trial so that the 1st defendant would have the opportunity to explain for that. Such submission, I must say, is mostly unattractive.
55. In the Notices on Mortgage Risk dated 25 March 2011 (ie the drawdown date of the 1st Loan) and 28 September 2011 (ie the drawdown date of the 2nd Loan) signed by all the defendants as “borrower” (〝借款人〞) and witnessed by Mr Eddie Chan as solicitor, the defendants confirmed the following to the plaintiff:
「... 本人等以上述兩個物業 [ie the Properties] 作抵押向貴公司 [ie the plaintiff] 多次借款。本人等亦確認貴公司已多次向本人等〔特別是賴秀姬 [ie the 1st defendant] 〕勸解借貸風險、還款力等等，但本人等仍然要求貴公司再加借貸款，本人等深信有能力還款予貴公司。另賴秀姬與李文慧 [ie the 2nd defendant] 及楊欽葵 [ie the 3rd defendant] 正在申辦一筆財產，總值港幣數億元以上，因此需要多次借款申辦。」
56. In the Notices on Mortgage Risk, all the defendants admitted that they had repeatedly borrowed from the plaintiff using the Properties as securities. All of them were admitted being borrowers. The Notice on Mortgage Risk dated 25 March 2011 further stated that:
「賴秀姬同意於2011年2月1日無條件遷出物業〔A〕 [ie the 1st Property] ，封存該物業〔A〕之鎖匙交由貴公司保管。未得貴公司書面同意，賴秀姬〔或家人或任何人士等等〕不能擅自進出該物業〔A〕。...
惟貴公司例行巡查時發現賴秀姬違反協議未得到貴公司書面同意非法擅自闖進該物業〔A〕，賴秀姬亦直認非法擅自闖進該物業〔A〕，現本人等再次承諾及保證不會再未得貴公司書面同意，賴秀姬〔或家人或任何人士等等〕不能擅自進出該物業〔A〕。並要求貴公司再次安排封存該物業〔A〕之鎖匙並交由貴公司保管。
貴公司可於任何時間將此文件註冊於物業〔A〕及物業〔B〕 [ie the 2nd Property] 之田土登記冊作記錄，而賴秀姬亦承認貴公司於物業〔A〕及物業〔B〕佔有田土權益。
若本人等於2011年4月24日或之前仍未能清還本金加利息，賴秀姬同意由該日起，該物業〔A〕貴公司可全權處理並可自由開鎖進出並安排拍賣及任何協約賣出及交吉該物業〔A〕之一切事宜。...
賣樓所得款項將用作清還欠款予貴公司，並於扣除所有律師費、拍賣費等等後，若有餘款，將退回予賴秀姬。若仍有不敷，貴公司有權向本人等追討。」
57. The Notice on Mortgage Risk dated 28 September 2011 had identical provisions except that the repayment date stated in the penultimate paragraph was 27 October 2011 instead of 24 April 2011. The Notices on Mortgage Risk plainly contradicted the 1st defendant’s case that “I [the 1st defendant] would not be responsible for the loan unless the 3rd Defendant passed away. The Plaintiff would never claim any interest in the 1st and 2nd Flats [the Properties] unless the 3rd Defendant passed away.” (See para 16(e) of D1’s Affirmation)
58. The Notices on Mortgage Risk were not standard loan documents of the plaintiff. They were not in English and were not in small prints. They were specifically drafted to deal with these particular borrowings of the defendants. The defendants did not dispute that they had signed the Notices on Mortgage Risk and none of them had raised any dispute on the content of the Notices.
59. The bare assertions of the 1st and 2nd defendants that they were only guarantors but not borrowers for the Loans were not supported by any documentary evidence but instead were contradicted by clear words in various contemporaneous Chinese documents signed by them. Such assertions of the 1st and 2nd defendants were simply incredible. I have no hesitation to reject their contentions. I find that all the defendants were borrowers for the Loans.
THE UNDUE INFLUENCE DEFENCE
60. The 1st and 2nd defendants’ cases were that they acted as guarantors for the 3rd defendant under undue influence of the 3rd defendant. With my above finding of the 1st and 2nd defendants being the borrowers, their undue influence contention falls away. I shall nevertheless deal with their undue influence contention in the context of their being borrowers of the Loans to see if they entered the loan transactions under undue influence.
61. In Royal Bank of Scotland v Etridge (no 2) [1998] 4 All ER 705 Stuart‑Smith LJ said at 711f‑j that:
“5. Cases of undue influence are now classified in three categories. Class 1 consists of cases of actual (or express) undue influence. In these cases it is necessary for the complainant to prove affirmatively that she entered into the impugned transaction not of her own free will but as a result of actual undue influence exerted against her. Class 2 consists of cases of presumed undue influence. In these cases it is sufficient for the complainant to establish the existence of a relationship of trust and confidence between her and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused the relationship in procuring her to enter into the impugned transaction. ...
6. The necessary relationship can be established in either of two ways. Class 2A consists of certain well‑known relationships which are by presumption of law irrebuttably treated as relationships of trust and confidence. Class 2B consists of other cases where the complainant establishes by affirmative evidence that she was accustomed to repose trust and confidence in the wrongdoer.”
62. To rely on the defence of undue influence, the 1st and 2nd defendants have to either prove actual undue influence (Class 1) or raise a presumption of undue influence (Class 2).
63. The 1st defendant’s only evidence of undue influence was set out in para 11 of D1’s Affirmation as follows:
“In about 2010, the 3rd Defendant was in financial difficulty and in need of money for her elder sister’s medical expenses. She would like to apply for loan from finance company. She told me that it was the requirement of the finance company that she had to provide a guarantor (who owned landed property) before the finance company would consider granting her a loan. At first, I refused the 3rd Defendant’s request. However she repeatedly asked me to be her guarantor by kneeling before me. The 3rd Defendant has assisted my husband and me by lending money to my husband for business use. This gave me a lot of psychological pressure which I could not resist. Under the 3rd Defendant’s undue influence, I agreed let her we [sic] name as her guarantor.”
64. Leaving aside for the moment that I had rejected the 1st defendant’s evidence on her case as guarantor for the Loans and would also reject her aforesaid evidence. Putting the 1st defendant’s undue influence case to the highest, the 1st defendant was saying that the 3rd defendant was her cousin who had previously lent money to the 1st defendant’s husband for business use and that the 3rd defendant had asked her for help by kneeling before her.
65. The evidence adduced by the 2nd defendant to support her claim of undue influence was set out in paras 3 and 4 of D2’s Affirmation as follows:
「3. 本人於1952年出生，祖藉 [原文如此] 廣東梅縣，早前在印尼接受教育，至中學一年級便停學，只懂印尼文，完全不懂英文，中文亦只有小學程度。
4. 我大約在1969年離開印尼，到香港定居。本案第三被告人楊欽葵是我的表姐，她年長我十幾年，由於我成長於傳統家庭，對她十分尊重，加以我初到港時得到第三被告悉心的照顧及經濟支持，我視她為我的恩人。」
66. I have also rejected the 2nd defendant’s evidence that she was a guarantor of the 3rd defendant for the Loans. I also rejected her evidence on how she was under the 3rd defendant’s undue influence to act as the 3rd defendant’s guarantor. Putting the 2nd defendant’s case of undue influence to the highest, the 2nd defendant was also premised on the 3rd defendant being her cousin and was more than 10 years senior than the 2nd defendant. The 2nd defendant treated the 3rd defendant as her benefactor as the 3rd defendant had taken care of the 2nd defendant and financially supported the 2nd defendant when the 2nd defendant newly arrived at Hong Kong in the late sixties. The 2nd defendant also said that she respected and feared of the 3rd defendant.
67. The facts alleged by the 1st and 2nd defendants (ie their relationship with the 3rd defendant, their age difference, the help provided by the 3rd defendant to them, etc) were far from evidence sufficient to establish express undue influence. In the words of DHCJ Poon (as he then was) in Bank of China (HK) Ltd v Wong Yuk Ping & Anor [2003] 1 HKLRD 1 at 17J: “Actual undue influence is an equitable wrong committed by the dominant party against the other which makes it unconscionable for the dominant party to enforce his legal right against the other. It is typically some express conduct overbearing the other party’s will,” The facts alleged by the 2nd and 3rd defendants did not support a plea of express undue influence.
68. In this case, the 1st and 2nd defendants relied on their relationships with the 3rd defendant to alleged undue influence from the 3rd defendant on them. The 3rd defendant was the cousin of the 1st and 2nd defendants. Their relationship does not fall within any of the special classes in which the law will presume a relationship of trust and confidence. In such case, to establish a plea of undue influence, the 2ndand 3rd defendant have to prove facts supporting a presumption of undue influence.
69. Furthermore, this is a case when the alleged undue influence did not come from the plaintiff but from a co‑defendant.
70. In Li Sau Ying v Bank of China (Hong Kong) Ltd [2005] 1 HKLRD 106, Lord Scott of Foscote NPJ identified four requisite elements before the impugned transaction would be set aside on the ground of undue influence. They are:
(1) The existence of a relationship of trust and confidence;
(2) The impugned transaction was procured by undue influence, ie by an abuse of the trust and confidence reposed in the dominant party by the subservient party;
(3) The lending institution was put on inquiry as to the possibility of undue influence; and
(4) The lending institution has failed to take reasonable steps to satisfy itself that there was no undue influence.
71. His Lordship reiterated at 121A‑C that:
“34. ... hope that in future cases, where undue influence has to be proved but where the relationship between the parties is not a relationship that falls within Slade LJ’s Class 2A category, the parties will concentrate on whether the evidence justifies the inference that, on a balance of probabilities, the impugned transaction was procured by undue influence, that is to say, by an abuse by the allegedly dominant party of the trust and confidence reposed in him by the allegedly subservient party. ...”
72. As pointed out by Warren J in Fladgate Fielder v Smith [2005] All ER (D) 264 (May), to raise the presumption of undue influence in such case it was necessary to establish two prerequisites, namely a relationship of trust and confidence between the parties and that the transaction called for an explanation. Ordinary, unexceptional transactions of everyday occurrence will not be caught.
73. In the Wong Yuk Ping case HCDJ Poon expressed the following view at 17A‑C that:
“48. The primary question is whether in a particular relationship with its own characteristics between two persons, one has acquired over another a measure of influence or ascendancy of which the ascendant person then takes unfair advantage: Royal Bank of Scotland Plc v Etridge (No 2) [2001] 3 WLR 1021 at para 8. When approaching this fundamental question, I respectfully agree with the observation of Mr Recorder Ma in Bank of China (Hong Kong) Ltd v Wong King Sing [2002] 1 HKLRD 358 at p 366H‑J, that one has to apply a large degree of common sense when assessing the relevant evidence.”
74. Borrowing the words of Mr Recorder Ma SC (as he then was) in Bank of China (Hong Kong) Ltd v Wong King Sing & Ors [2002] 1 HKLRD 358 at 380G‑H: “Respect and admiration for a person is not to be equated with that degree of reliance or dominance that is required for the Class 2(B) presumption to arise.”
75. His Lordship further pointed out at 370D‑G that:
“47. In Class 2(B) cases, the complainant has first to show that:
(a) he placed trust and confidence in the influencer or that the influencer had acquired an ascendancy or domination over him; and
(b) the transaction cannot be readily explicable by the relationship of the parties.
See Royal Bank of Scotland Plc v Etridge (No 2) [2001] 3 WLR 1021 at p 1030 para 14, p 1032 para 21.”
76. The burden rested on the complainant in the first place to raise a presumption in his favour that the transaction was brought about by undue influence. The matters alleged by the 1st and 2nd defendants even if accepted did not establish a relationship between the 1st and/or 2nd defendants and the 3rd defendant whereby the 3rd defendant had acquired over the 1st and/or 2nd defendants a measure of influence, or ascendancy, of which the 3rd defendant then took unfair advantage. Furthermore, as I have found that the 1st and 2nd defendants were also borrowers of the Loans, these transactions were not transactions called for an explanation.
77. The 1st defendant said that she had initially refused the 3rd defendant’s request and the 3rd defendant had to knee before her to beg for her help. The 2nd defendant referred to the securities provided by the 1st defendant, the wealth of the 3rd defendant’s sons and her belief of no risk involved to explain for her entering into the transactions. The evidence adduced by the 1st and 2nd defendants does not justify the inference that the transactions for the Loans were procured by undue influence (even if a relationship of trust and confidence has been proved).
78. The 1st and 2nd defendants failed to prove the existence of a relationship of trust and confidence between the 3rd defendant and the other two defendants. They also failed to prove that the transactions were procured by an abuse of the trust and confidence (which had not been proved) allegedly reposed in the 3rd defendant by them. As I have found that all the defendants were borrowers for the Loans, I do not see that the transactions for the Loans were transactions called for an explanation. In the Notices on Mortgage Risk all the defendants represented to the plaintiff that: 〝另賴秀姬與李文慧及楊欽葵 [ie the defendants] 正在申辦一筆財產，總值港幣數億元以上，因此需要多次借款申辦。〞 I do not see that the plaintiff was put on inquiry as to the possibility of undue influence when the three defendants had been borrowing together from the plaintiff for eight times in less than two years for their stated specific purpose. In the circumstances of this case, there was no requirement in law requiring the plaintiff to take reasonable steps to satisfy itself that there was no undue influence. The Notice on Legal Advice prepared by the plaintiff’s then solicitors and signed by the defendants when they executed the Legal Charge only showed that the plaintiff had applied abundant caution in conducting its lending business.
79. In the case of a wife guaranteeing the obligation of a husband, Lord Hobhouse of Woodborough put the following questions to be answered by the court in Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 at 819H:
“(1) Has the wife proved what is necessary for the court to be satisfied that the transaction was affected by the undue influence of the husband? (2) Was the lender put on inquiry? (3) If so, did the lender take reasonable steps to satisfy itself that there was no undue influence?”
80. In this case, the questions to be answered by this court are:
(1) Have the 1st and 2nd defendants proved what is necessary for the court to be satisfied that the transactions were affected by the undue influence of the 3rd defendant? The answer is in the negative.
(2) Was the plaintiff put on inquiry? The answer is again in the negative.
(3) If so, did the lender take reasonable steps to satisfy itself that there was no undue influence? The answer is in the affirmative.
81. The fact that undue influence is raised does not necessarily entail the action having to go to trial. Judgment may be entered without the need for trial as in the case of Hang Sang Bank Ltd v Leung Shui Chung (unrep., DHCJ Carlson, HCMP 1784/2008, 28 January 2010) which was upheld by the Court of Appeal in CACV 43/2010 (unrep., 4 August 2010). With the aforesaid answers to the questions proposed by Lord Hobhouse of Woodborough, I am of the view that the 1st and 2nd defendants’ plea of undue influence is bound to fail and the raising of such plea by the defendants in this case does not entail the action having to go to trial.
THE MLO DEFENCE
82. The 1st and 2nd defendants also relied on breach of the MLO to defend the plaintiff’s claim against them.
ALLEGED BREACH OF SECTION 18 OF MLO
83. The 1st and 2nd defendants alleged that the plaintiff was in breach of section 18(1) of the MLO in not providing them with a copy of the note or memorandum of agreement for the Loans as well as a summary of Part III and Part IV of the MLO.
84. Section 18(1) of the MLO provides that:
“(1) No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless –
(a) within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and
(b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part [ie Part III] and Part IV as may be prescribed,
And no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.”
85. Mr Wong for the 2nd defendant submitted that there was no evidence from the plaintiff to show that the memorandum required by section 18 of the MLO had ever been prepared and given to the defendants for signature.
86. The plaintiff had produced the Agreements signed by the defendants as exhibits “CLKA‑4” to Chan’s Affirmation. (See pp 153‑156 of the Hearing Bundles) The Agreements had contained all the particulars required by section 18(2) of the MLO. None of the defendants had disputed their signatures on the Agreements. The aforesaid contention of Mr Wong was wholly devoid of merits. In Strong Offer Investment Ltd v Nyeu Ting Chuang [2007] 10 HKCFAR 529 Chan PJ stated at 539 I-540B that:
“... All that s.18 requires is that there must be something in writing so that the borrower can know all the terms and conditions of the loan. It matters not whether they are contained in one document or more than one document. If a contract contains all the terms and conditions of the loan, as is usually the case, it is as good as anything and clearly meets the requirements of the section. It would be absurd to ask for another note or memorandum to set out all the terms and conditions again just to satisfy the requirements. Such construction is inconsistent with the letter and spirit of s.18.”
87. The 1st and 2nd defendants complained that the plaintiff had not given them copies of the Agreements with a summary of Parts III and IV of the MLO in breach of section 18 of the MLO which rendered the Agreements unenforceable.
88. In para 25(a) of D1’s Affirmation, the 1st defendant stated that she was advised by her legal adviser that it was improper for the plaintiff not to deliver to her a copy of all documents signed by her (emphasis added). Nowhere in the 1st defendant’s two affirmations filed herein did the 1st defendant specify which documents had not been given to her. The MLO does not require a money lender to deliver to the borrower a copy of all documents signed by the borrower.
89. In para 15 of D2’s Affirmation, the 2nd defendant stated that:
「原告人的負責人及陳律師均沒有把任何我有份簽名的文件副本交給我。」
90. The 3rd defendant did not raise any complaint on non‑provision of documents. In fact, the 2nd defendant had in D2’s Affirmation stated that the 3rd defendant had provided the 2nd defendant with copies of some documents. (See para 11 of D2’s Affirmation) However, the 2nd defendant did not set out in D2’s Affirmation all the documents provided to her by the 3rd defendant.
91. The plaintiff’s case was that immediately after documents were signed by the three defendants, a copy of the signed documents would be given to the defendants for their reference and retention. (See paras 5 and 6 of Fong’s Affirmation)
92. It can be seen that each of the defendants had a different case in respect of provision of copies documents signed by them. The 1st defendant’s case was that she was not provided with copies of all documents signed by her without specifying which documents had not been provided to her. The 2nd defendant’s case was that she had not been provided with copies of any documents signed by her. The 3rd defendant did not complain of non‑provision of documents.
93. If the plaintiff had provided copies of documents to the 3rd defendant, there was no reason why the plaintiff would have failed to provide copies documents to the 1st and 2nd defendants. Furthermore, the defendants had borrowed a total of eight loans from the Plaintiff since early 2010. The defendants had already borrowed six loans from the plaintiff before the Loans. The 1st and 2nd defendants had had many opportunities to ask the plaintiff to provide them with copies of documents signed by them. If the plaintiff had kept on requiring them to sign documents without providing copies of the signed documents to them, the 1st and 2nd defendants would not have borrowed so many loans from the plaintiff.
94. As pointed out in para 50 above, in the Chinese Confirmation, the eldest daughter of the 1st defendant was named as the contacting person for the defendants’ borrowings. This had to be nominated by the 1st defendant. The 1st defendant would have discussed and informed her family members or at least her eldest daughter of these borrowings from the plaintiff. None of the evidence adduced suggested that the eldest daughter of the 1st defendant was with the defendants when they attended signing of documents at the offices of the plaintiff or the plaintiff’s then solicitors. In such case, the 1st defendant had to provide copies of the documents signed by her to her eldest daughter before her daughter could act as the contacting person in respect of the loans.
95. In the aforesaid circumstances of this case, I find that the 1st and 2nd defendants’ bare assertions of non‑provision of copies of signed documents are incredible and unbelievable.
96. The Agreements signed by the defendants had incorporated a summary of Parts III and IV of the MLO in Chinese. If copies of the Agreements had been provided to the defendants, the plaintiff had complied with the provisions of section 18 of the MLO.
97. I see no merit in the defendants’ contention on breach of section 18 of the MLO.
ALLEGED EXTORTIONATE INTEREST
98. The 1st defendant contended that the interest rate charged by the plaintiff on the Loans was extortionate. (See paras 7 and 8 of D1’s 2nd Affirmation) The 3rd defendant complained in D3’s Affirmation that the interest rate was too high.
99. The only matter referred to in D1’s Affirmation to support her aforesaid contention was that the interest charged on the Loans was 48% per annum.
100. Clause 1 of the agreements for the Loans provided that:
“Interest will be paid by the borrower to the lender at the rate of 4% per calendar month (ie 48% per calendar year) on the principal sum of the loan over the term of the loan. Interest shall be charged at the aforesaid agreed rate on such principal sum of the loan and/or interest thereon and/or overdue interest both before and after commencement of legal proceedings by the lender against the borrower(s) and after judgment obtained by the lender against the borrower(s) for recovery of the principal sum of the loan and/or interest thereon and/or overdue interest from the due date(s) for payment until payment in full”
101. It is clear from the aforesaid provision that the interest rate charged on the Loans was 48% per annum. Mr Cheng for the 1st defendant contended that the effective interest rate was 60.1% which contravened section 24 of the MLO. Mr Cheng set out the calculation of his so call “effective interest” in para 13 of his skeleton as follows:
“Where interest is paid on a monthly basis and not on a yearly basis, the effective interest is said to be approximately 12.68% per annum when 1% interest is payable monthly (the formula is 1 plus 1% ie, 1.01 to the power of 12 and minus 1). Thus, in our case, the effective rate is actually 1.04 times itself 12 times and minus 1 = 60.1% per annum.”
102. It can easily be seen that Mr Cheng has fallen into the error of calculating the interest by using the formula for monthly compound interest when nowhere in the Agreements provided for charge of monthly compound interest on the Loans. In fact, Mr Cheng referred to the discussion on the term of “Compound Interest” in Wikipedia in support of his contention. The fact that the plaintiff had sought to claim interest on overdue sums (which might itself be accrued interest), which was provided for in the Agreements and allowed by section 22 of the MLO, would not have the effect of increasing the contractual interest rate. As stipulated in para 1 of Schedule 2 of the MLO, interest allowed under section 22 of the MLO will not be taken into account when calculating the effective rate of interest under the MLO. The aforesaid contention of Mr Cheng is totally misconceived.
103. When Mr Cheng contended that interest at the rate of 4% per calendar month was not equivalent to 48% per annum, he failed to appreciate the difference between repayment by instalments consisting of both principal and interest elements and payment by instalments of only interest element during the term of the loan. The instalment payments for the Loans in this case were interest only payments. Mr Cheng’s contention is again misconceived.
104. Schedule 2 of the MLO set out the formula for calculating the true annual percentage rate of interest which is the “effective rate” defined in section 2 of the MLO and the relevant interest rate for the purpose of section 25 of the MLO.
105. In Kwok Ying Lung v Ko Chu Hung [2001] 3 HKC 480 the Court of Appeal held that under section 18(2) of the MLO, the rate of interest charged could be stated in one of two ways, either an actual rate or a deemed rate. Where the rate of interest was stated as an actual rate of interest or capable of being so expressed, then the court would not have to resort to Schedule 2 of the MLO which schedule was used to ascertain the deemed rate. Lord Denning in Askinex Ltd v Green [1969] 1 QB 271 at 282B‑E used the following example to illustrate a case of an actual rate of interest:
“... To illustrate the first alternative (a) [ie the actual rate], I would take the case where a moneylender makes a loan of £24,000 repayable over 10 years at £200 a month, and meanwhile interest to be payable at the rate of 25 per cent per annum on the balance outstanding from time to time. Under such a contract, the principal is reduced by £200 a month. So the interest gets less each month. The interest payable for the first month is £500 (25 per cent per annum on £24,000 for one month). The interest payable for the second month is £495 16s 8d (25 per cent per annum on £23,800 for one month). And so on. The interest is reduced by £43s 4d(25 per cent per annum on £200 for one month). The total sum payable for interest over the 10 years comes to £30,250. That is the “interest charged on the loan”. But it is capable of being expressed in terms of an actual rate per cent per annum, namely, 25 per cent per annum. The moneylender satisfies the statute by expressing the interest as 25 per cent per annum.”
106. In the case before me, the total interest payable during term of the 1st Loan (being one month only) was $112,00 and the total interest payable during the term of the 2nd Loan (again being one month only) was $8,000. These were interest charged on the Loans. They were capable of being expressed in terms of an actual rate of interest per cent per annum, namely 48% per annum. Such rate would be accepted by the court as the effective rate of interest for the Loans for the purpose of section 25.
107. Lord Denning had also set out in the Appendix to his judgment in Askinex Ltd v Green (supra) the formula for the calculating the “deemed rate” as follows:
2,400A ÷ P (n+1)
Where:
P = the principal,
A = the total amount of interest
n = the number of months over which the principal and interest are repayable by equal monthly instalments.
108. Applying the aforesaid formula to the 1st Loan, the deemed rate was: 2,400 x 112,000 ÷ 2,800,000 x (1 + 1) = 48.
109. Applying the aforesaid formula to the 2nd Loan, the deemed rate was: 2,400 x 8,000 ÷ 200,000 x (1 + 1) = 48.
110. Both the actual interest rate and the deemed interest rate for the Loans was 48%. There is no room for Mr Cheng to argue that the interest rate of the Loans exceeded 48%.
111. The fact that the interest rate is 48% per annum for a loan will not by itself render the transaction extortionate. Section 25(3) of the MLO provides that:
“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 exceed 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; ... ” (Emphasis added)
112. The interest rate has to exceed 48% (not at 48%) per annum before the statutory presumption of extortionate transaction will be engaged. To rely merely on the interest rate being 48% per annum to allege breach of section 25 of the MLO will not succeed. The 1st defendant’s aforesaid contention accordingly fails.
NO EXPLANATION OF THE CONTENT OF DOCUMENTS SIGNED AND NO INDEPENDENT LEGAL ADVICE
113. The 1st and 2nd defendants complained that the documents signed by them were not explained to them before their signing and they had not been advised to seek independent legal advice. They raised the plea of non est factum.
114. In D1’s Affirmation, the 1st defendant made the following complaint:
“4. I was educated up to primary 4, I do not know the English language. I only have a fair knowledge of simplified written Chinese due to my educational background in Mainland China.”
“14. The 3rd Defendant brought the 2nd Defendant and me to the Plaintiff’s office on several occasions regarding the loan matter. We were then attended either by Mr Cheung or Ms Yuen of the Plaintiff.
15. At each occasion, I was asked to sign certain documents, the same have not been read out nor fully explained to me. Some of the documents were even in blank.”
“19. I confirm that the contents of the said Legal Charge have not been read out nor explained to me. I did not know what a [sic] the said Legal Charge was before signing it.”
“23. The loan arrangement was against my interest, Messrs C Y Chan & Co was along [sic] acting for the Plaintiff in preparing the loan documents in favour of the Plaintiff against my interest.
24. I have never been advised to seek independent legal advice before signing the loan documents. Moreover, I have never been given the opportunity to seek independent legal advice at all.”
115. The 2nd defendant also made similar complaint in D2’s Affirmation when she stated that:
「3. 本人於1852年出生，祖藉 [原文如此] 廣東梅縣，早年在印尼接受教育，至中學一年級便停學，只懂印尼文，完全不懂英文，中文亦只有小學程度。
13. 我大約在2010年2月初首次陪同第三告人[原文如此] 及第一被告人到原告人位於 ... 的辦公室簽署文件。原告人的負責人張先生及袁小姐接見我們，把多份文件給我們簽名，我記得大部份是英文。在簽名前，沒有人把文件交給我閱讀，亦沒有人向我解釋文件內容，我只聽到張先生說第三被告人借款，有提到利息及還款時間等，有關內容我已記不起。在過程中，張先生及袁小姐從沒有說過我要負責還錢，所以我很放心，依照指示在多份文件上簽名。
14. 在原告人辦公室簽署文件後，張先生指示一位助手立即帶我們到同一大廈6字樓的一間律師行再簽文件，由一位陳律師接見。陳律師只很簡單的向第一被告人說了一些話，內容我已記不起。我的印象是我作為擔保人，在形式上要一同簽名。記憶中陳律師未有向我解釋文件內容，我只跟著其他被告人一齊簽名。
15. 在手續完成後，我們再回到原告人辦公室，由第一被告人代第三被告人領取支票。原告人的負責人及陳律師均沒有把任何我有份簽名的文件副本交給我。在整個過程，從沒有人提醒我有權選擇聽取獨立法律意見後才簽署文件。
17. 我每次到原告人辦公室及陳律師面前簽文件的過程，和我在以上第13至15段所述的情況，均大致相同。」
116. The 3rd defendant made no complaint on these issues.
117. The plaintiff’s case was that the documents had been explained to the defendants.
118. Mr Eddie Chan in CCY’s Affirmation stated that the defendants signed the Legal Charge in his presence after he had interpreted the document to them. They had also read the Notice on Legal Advice written in Chinese advising them to seek independent legal advice and the Mortgage Summary also written in Chinese before they signed on the aforesaid Notice and Summary.
119. In Fong’s Affirmation, Ms Fong stated that:
“5. In each and every loan case handled by me, I will read out the loan documents in Chinese and interpreted the English loan documents to the customers before concluding the transactions. Immediately after documents were signed by the 3 defendants, a copy of thereof would be given to the Defendants for their reference and retention.
6. The 1st, 2nd & 3rd Defendants were all the customers of the Plaintiff, except the loans applications made by the Defendants on 12 October 2010 and 28 September 2011, I was responsible to attend to them in the loan transaction since 2010. I have read out the loan documents in Chinese and interpreted the English loan documents to the 3 Defendants before concluding the transactions so as to let them know the terms of the loan and their liabilities as the borrowers and mortgagor. Also, Immediately [sic] after documents were signed by the 3 defendants, a copy thereof would be given to the Defendants for their reference and retention. In the case of the Defendants herein, they were given by us the copy of: Instruction in Chinese duly signed by them, Loan Agreement, acknowledgment receipt of the cheques. In the loan application made on 8 February 2010 a copy of Undertaking was given to the Defendants in addition to the hereinbefore‑mentioned documents. The copy of Legal Charge, Notice of Independent Legal Advice and Summary of Chinese transaction of the main terms of the Legal Charge would be given to the Defendants by solicitors acting for us in preparing the Legal Charge.”
120. Ms Amy Chan, the loan processing officer of the plaintiff, also stated in Chan’s 3rd Affirmation that:
“12. I also recall that in each and every loan case handled by me and my colleagues, we have read out the loan documents in Chinese and interpreted the English loan documents to the Defendants before concluding the transactions. ...”
121. In D2’s Affirmation, the 2nd defendant admitted that Mr Cheung of the plaintiff had mentioned to the defendants about interest and repayment schedule. She further admitted that she could not now recall the content of what Mr Cheung had told them. It was clear from the 2nd defendant’s aforesaid admission that Mr Cheung had explained the transactions to the defendants, only that the 2nd defendant could not remember the full content.
122. The 2nd defendant also admitted in D2’s Affirmation that Mr Eddie Chan had said something to the 1st defendant but she could not now remember the content. She recollected that Mr Eddie Chan had not explained the content of the documents to them. If the 2nd defendant could not now remember the content of what Mr Eddie Chan had said to them, how could she recollect that Mr Eddie Chan had not explained the content of the documents to them?
123. In D1’s Affirmation, the 1st defendant also admitted that Mr Cheung and/or Ms Yuen had told them something before she signed the documents. However, the 1st defendant did not say that Mr Cheung and/or Ms Yuen had told them about interest and repayment schedule as the 2nd defendant recalled but that:
“16. Before I signed the documents, the Plaintiff’s Mr Cheung and/or Ms Yuen simply told me and emphasized to me that
(a) The documents are for the purpose of assisting the 3rd Defendant to get the loan.
(b) I would be the guarantor for the 3rd Defendant’s loan.
(c) The Plaintiff would only sue against the 3rd Defendant for recovery of the loan.
(d) I signed the documents as the guarantor of the loan only.
(e) The Plaintiff would simply extend the loan repayment schedule in case that the 3rd Defendant failed to meet the repayment schedule. I would not be responsible for the loan unless the 3rd Defendant passed away. The Plaintiff would never claim any interest in the 1st and 2nd Flats unless the 3rd Defendant passed away.”
124. For reasons set out in the earlier part of this decision, I have found that the 1st defendant’s contention of she being only the guarantor of the Loans was incredible. If the 1st defendant was one of the borrowers, Mr Cheung or Ms Yuen of the plaintiff could not have said the things stated in para 16 of D1’s Affirmation to the defendants. If they had said anything to the defendants, it would be those as admitted by the 2nd defendant or as deposed to by Ms Fong and Ms Amy Chan as aforesaid.
125. I have also found that copies of documents signed by the defendants had been provided to them. Not all the documents signed by the defendants were in English. Some of them as I have referred to in the earlier part of this decision were in Chinese. (See pp 179‑180 [the Chinese Confirmation and the Chinese Statement], 185‑186 [the Notices on Mortgage Risk] and 202‑203 [the Notice on Legal Advice and the Mortgage Summary] of the Hearing Bundles) Some of them bilingual, such as the Application Form. (See pp 177‑178 of the Hearing Bundles) Others (such as the Agreements and the Legal Charge) had their main terms been summarized in Chinese. (See pp 153‑156 and 203 of the Hearing Bundles).
126. I have pointed out in para 50 above that the 1st defendant had named her eldest daughter as contacting person for the defendants’ borrowings. The 1st defendant’s eldest daughter was 28 years old as at September 2014. (See para 9 of D1’s Affirmation) She was 25 years old in 2011. The 1st defendant stated in D1’s Affirmation that her eldest daughter was working in Australia as at September 2014. It is reasonable to expect that the eldest daughter of the 1st defendant would have reasonable knowledge of English. She could also help to explain the English documents to the defendants.
127. As pointed out by DHCJ G Lam SC (as he then was) in Wing Hang Credit Limited v Hui Chun Kit Benjamin & Anor (unrep., HCMP 732/2009, 3 November 2011) that:
“94. A person can only rely on the plea of non est factum if he was not careless in signing the document in question. It is for the person relying on the plea to prove that he took care. The opposite party bears no burden of proof of want of care: Gallie v Lee, supra, p.1019E per Lord Hodson, 1027B‑C per Lord Wilberforce.
95. The standard of care in this context has necessarily to be subjective. It must take account of the actual attributes of the signer. But as Lord Wilberforce, referring to persons who are illiterate, blind or lacking in understanding, stated in Gallie v Lee, supra, at p.1027E‑F, the law “will require of signers even in this class that they act responsibly and carefully according to their circumstances in putting their signature to legal documents”.”
128. If the 1st and 2nd defendant had taken care before signing the documents for the Loans which were their seventh and eighth dealings with the plaintiff, they would have fully understand the content of the documents signed by them for the Loans even without explanation from the plaintiff’s staff and solicitors. In this case, if the 1st and 2nd defendants did not know what they had signed, it was because they did not care. Even if I were to accept their evidence stated in their affirmations, there would have been such want of care on their parts in the execution of the documents for the Loans as to preclude them from relying on the plea of non est factum.
129. Litton NPJ had expressed in Bank of China (Hong Kong) Ltd v Fung Chin Kan & Another [2002] 5 HKCFAR 515 at 533 the view that:
“... generally speaking, when a person signs a legal document, he or she is bound by the act of signature: As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.”
130. As pointed out by Ribeiro PJ in Ming Shiu Chung & Others v Ming Shiu Sum & Others [2006] 2 HKLRD 831 at 855‑856:
“... Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”
131. The 1st and 2nd defendants sought to rely on misrepresentation, non est factum and undue influence to disown the Agreements signed by them. However, they had only had bare assertions contradicted by contemporaneous documents to support their cases.
132. The Notice on Legal Advice dated 25 March 2011 signed by the defendants in the presence of Mr Eddie Chan clearly stated that:
「有關上述物業與亨運財務有限公司〔Freeway Finance Company Limited〕的按揭，本人及／或本公司在律師清楚解釋及明白按揭文件，本人及／或本公司在此的角式及法律責任，兩份授權文件的內容，法律意義及程序及知悉可聽取獨立法律意見才簽署。本人及／或本公司了解貴行只代表亨運財務有限公司，縱使本人及／或本公司在此需支付貴行的費用。此外，本人及／或本公司了解已由亨運財務有限公司提供及明白此按揭的條款，有關的細節，附帶文件內容及已了解貸款全由亨運財務有限公司直接支付本人及／或本公司或指定公司／人仕。本人及／或本公司在冷靜，清楚了解，沒有威迫利誘，及清楚了解本人及／或本公司的責任條件下簽署。」
133. I agree with Mr Cheng for the 1st defendant that the aforesaid Notice was a standard type of acknowledgement prepared by lawyers for their protection and part of the content of the Notice might not be relevant to the Loans or the Legal Charge. However, this will not affect its function of informing the defendants that they were entitled to seek independent legal advice. Even if the documents were not explained to them before they signed the same, the defendants had ample opportunities to read them after they had received copies of the documents which I have found that copies of the same had been provided to them. Bearing in mind that the Loans were the 7th and 8th loans borrowed by the defendants from the plaintiff and at each time similar documentation was signed, the defendants should be fully aware of and understand their right to independent legal advice and the contents of the documentations for the Loans signed by them.
134. These complaints of the 1st and 2nd defendants were bare assertions and contradicted by contemporaneous documents. I see no substance in these contentions of the 1st and 2nd defendants.
135. Furthermore, as the learned author of Chitty on Contracts, Vol 1, (32nd edition, 2015) pointed out in para 8‑136 that a contract will not be set aside merely because the aggrieved party did not have independent advice and the consideration was inadequate. It must also be shown that the other party engaged in unconscionable conduct or an unconscientious use of power. The other party must have behaved in a morally reprehensible manner which affects his conscience. The defendant’s allegations are far from establishing the necessary threshold of unconscionable conduct which requires the interference of the court. I shall further discuss below the defendants’ complaint of the unconscionable conduct of the plaintiff.
UNCONSCIONABLE BARGAIN
136. The 2nd defendant contended that the Loans were unconscionable bargains and the relevant loan agreements were subject to the Unconscionable Contracts Ordinance (Cap 458) (the “UCO”).
137. In para 8‑133 of Chitty on Contracts (supra), the learned authors pointed out that:
“The doctrine of unconscionable bargains seems to be limited in three ways. The first is that the bargain must be oppressive to the complainant in overall term; the second that it may only apply when the complainant was suffering from certain types of bargaining weakness; and the third that the other party must have acted unconscionably in the sense of having knowingly taken advantage of the complainant.”
138. Mr Wong for the 2nd defendant submitted that the agreements for the Loans were unconscionable both in common law and under the UCO. He relied on the following grounds to substantiate his contention:
(1) The plaintiff was in a much stronger bargaining position than the defendants and was able to use standard form loan agreements pre‑drafted predominantly with the plaintiff’s interests in mind and without consulting the borrower. (Ground 1)
(2) The plaintiff carries on business as money lender while the defendants are unsophisticated ladies with little formal education. There is no evidence that the defendants had prior experience in executing loan documents and borrowing from money lenders. (Ground 2)
(3) The defendants were unable to read and understand the Agreements and the Legal Charge as they are legal documents written in English. (Ground 3)
(4) As to the Agreements, notwithstanding that the second page is in Chinese, the plaintiff chose to fill out the page in English, and asked the defendants to sign thereon. Also the provisions therein are printed in small fonts that discourage reading. (Ground 4)
(5) The plaintiff’s staff had not read out the contents of the loan documents to 1st and 2nd defendants before they put down their signatures. (Ground 5)
(6) The 1st and 2nd defendants had not received independent legal advice before they committed to the Agreements and the Legal Charge. (Ground 6)
(7) The interest rate for the Loans at 48% per annum is just at the borderline over which a loan will be presumed to be extortionate by legislation. (Ground 7)
(8) The principal sum of $3,873,349 now claimed by the plaintiff is 4.8 times of the loan amount requested for in the initial application, ie $800,000. The defendants had entered into 8 separate loan agreements within 1½ years from the initial application. (Ground 8)
(9) Both the 1st and 2nd defendants said that the plaintiff’s staff had instructed them to sign on blank documents. (Ground 9)
139. I shall deal with the aforesaid grounds put forward by Mr Wong one by one briefly below.
140. The learned editor of Snell’s Equity (33rd edition, 2015) put the test for unconscionable transactions at para 8‑042 as follows:
“It is clear that there is no general equitable jurisdiction to relieve B [ie the complainant] from a transaction simply on the grounds that it is substantively unfair, or simply because its terms are favourable to A as a result of the parties’ inequality of bargaining power. In order to obtain relief, therefore, B must show that the requirements of a particular ground of relief, such as undue influence, or the specific unconscionable transaction doctrine, have been met. As regards the latter doctrine, there seem to be three key requirements. First, B is suffering from a particular kind of vulnerability; second, the terms of the transaction are oppressive to B; and third, A knowingly took advantage of B’s vulnerability. The doctrine can therefore be seen as preventing A’s insisting on a right as against B where to do so would involve A’s benefiting from a knowing exploitation of B’s vulnerability.”
141. The fact that the plaintiff was in a stronger bargaining position than the defendants and was able to use standard form loan agreements pre‑drafted by the plaintiff is true to most of the lending business conducted by financial institutions. I do not see that this fact in itself will render the transaction unconscionable whether in common law or under the UCO. Lord Templeman delivering the judgment of the Privy Council in Boustany v Piggott (1995) 69 P&CR 298 at 303 agreed with submissions by counsel in that case that unequal bargaining power or objectively unreasonable terms are no basis for interference in equity in the absence of unconscientious or extortionate abuse of power.
142. In the Australian case, Mason J (as he then was) explained the doctrine of granting relief on the basis of unconscientious dealing in Commercial Bank of Australia Ltd v Amadio & Anor (1982‑1983) 151 CLR 447 at 461‑462 as follows:
“Historically, court have exercised jurisdiction to set aside contracts and other dealings on a variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of “unconscionable conduct” is usually taken to refer to the class of case in which a party makes unconscientious use of his superior power or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, ...
... Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest.
... the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstances is placed at a special disadvantage vis‑à‑vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word “disadvantage” by the adjective “special” in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.”
143. Lending business conducted by the plaintiff as a money lender is subject to the MLO which has various provisions governing terms of lending by a money lender. The bargaining position and the standard form contract of the plaintiff have in fact to certain extent been restricted by the MLO. I see no “special” disability or situation of disadvantage on the part of the defendants in this case. Ground 1 is rejected.
144. The defendants might have received little formal education. However, this does not mean that they were unsophisticated ladies as described by Mr Wong.
145. The 1st defendant came to Hong Kong in about 1987. She had been in Hong Kong for about 23 years before she first borrowed from the plaintiff in 2010. Her husband was doing business in Hong Kong. Apparently, her husband’s business was quite successful when they were able to purchase the Properties in August 2000 in full cash in the total sum of $1,400,000 without mortgage finance. She had nominated her eldest daughter, who subsequent went to work in Australia, as contacting person for their borrowings from the plaintiff. Her younger daughter was a nurse. Although her husband had already passed away when the 1st defendant started to borrow from the plaintiff, the 1st defendant would still be able to seek assistance from her daughters who are well‑educated.
146. The 2nd defendant came to Hong Kong in 1969. She was in Hong Kong for more than 40 years before she started to borrow from the plaintiff in 2010. She had two sons. The 2nd defendant provided no information about her sons in D2’s Affirmation. However from the land search records exhibited to D2’s Affirmation, one can see that the 2nd defendant had purchased a property with her two sons in November 2012 at $5,600,000 without mortgage. The 2nd defendant’s family was not without financial resources. From D2’s Affirmation, one can see that the 2nd defendant was not an “unsophisticated lady”. In para 12 of D2’s Affirmation, the 2nd defendant stated that:
「第三被告人要求我簽個名做擔保人，向我保証她會還錢，更說她已安排她的好友賴秀姬〔即本案第一被告人〕提供兩套樓契給原告人，所以我做她擔保人完全沒有任何風險。由於我對第三被告人既敬且畏，加以我知道她兩名兒子均富有，擁有物業，而第一被告人又提供兩套樓契給原告人，所以我相信第三被告人的分折 [原文如此] ，相信做擔保人沒有風險，所以答應了第三被告人的要求。」
147. Although I do not accept the 2nd defendant’s evidence that she only acted as the Defendant’s guarantor, what she stated in D2’s Affirmation showed that the 2nd defendant would analyse the extent of the risk before she committed herself. The 2nd defendant was far from an “unsophisticated lady”.
148. The 3rd defendant only stated in D3’s Affirmation that she did not understand English. Both the 1st and 2nd defendants said that the 3rd defendant had taken care of them and financially assisted them when they first arrived in Hong Kong. The 2nd defendant said that the 3rd defendant had two wealthy sons and she respect the 3rd defendant very much. No evidence had been adduced to show that the 3rd defendant was an “unsophisticated lady”.
149. It was wrong for Mr Wong to say that the defendants did not have prior experience in dealing with money lenders when the Loans were already the 7th and 8th loans borrowed from the plaintiff (who is a money lender) since February 2010. When the defendants borrowed the Loans from the plaintiff, they were already experienced borrowers in borrowing from money lender.
150. I do not find Ground 2 advanced by Mr Wong supported by evidence available before me.
151. I have dealt with the contention that the defendants did not understand the Agreements and the Legal Charge because of their English language ability and do not propose to repeat myself here.
152. Although the Agreements were printed in small fonts, I am of the view that the printing sizes were still of reasonable sizes. Furthermore, none of the defendants had complained about the size of printing of the Agreements. Grounds 3 and 4 advanced by Mr Wong do not assist the defendants’ case.
153. I have also dealt with the 1st and 2nd defendants’ allegations that the content of the loan documents had not been explained to them and that they had not received independent legal advice. I shall not repeat myself. Suffice for me to say that their aforesaid contentions were not accepted. Grounds 5 and 6 put forward by Mr Wong also failed.
154. The interest rate charged for the Loans was at the top ceiling allowed by the MLO before the statutory presumption of extortionate transaction would be invoked. The fact remains that such interest rate was not prohibited by the MLO. If the interest rate is permissible under the MLO, such interest rate would not per se render the transaction unconscionable. Ground 7 advanced by Mr Wong does not assist the defendants.
155. In Ground 8, Mr Wong compared the amount claimed in this action being the aggregated amount of the Loans and interest accrued up to 23 April 2014 with the amount of the defendant’s first borrowing back in February 2010. This is a meaningless comparison serving no purpose. I do not see how such comparison would render the Loans become unconscionable bargains.
156. Mr Wong relied on two documents produced by the 2nd defendant to submit that the defendants were required to sign blank documents. The two documents produced by the 2nd defendant were an “application for mortgage loan” form and an “Undertaking” at pp 228‑234 of the Hearing Bundles.
157. The one page document at p 228 of the Hearing Bundles produced by the 2nd defendant was only part of the Application Form signed by the defendants. It was in fact the second page of the complete Application Form. The first page of the Application Form was produced by the 2nd defendant at p 236 of the Hearing Bundles. As there were three borrowers and each page of the form only had space for particulars of a maximum two borrowers, two pages of the same form had to be used in this case. The complete Application Form signed by the defendants was produced at pp 177‑180 of the Hearing Bundles. It shows that the documents produced by the 2nd defendants at pp 228 and 236 were part of the Application Form, only that the 2nd defendant chose to produce the two pages of a single document as two documents to create a misleading impression that p 228 was an independent incomplete document.
158. The only parts missing in the “Undertaking” produced by the 2nd defendant at pp 229‑234 of the Hearing Bundles were the date of the relevant loan agreement and the date of the “Undertaking” as well as the signature of the attesting witness. As the “Undertaking” and the relevant loan agreement were probably signed on the same day, the dates could only be filled in after the documents were signed. There was nothing sinister to have the defendants signing the “Undertaking” without those dates being filled‑in. Furthermore, the defendants would have signed the “Undertaking” before the signing of the attesting witness. Ms Amy Chan had explained in para 10(a) of Chan’s 3rd Affirmation the circumstances leading to copy of the “incomplete” “Undertaking” being given to the defendants as follows:
“I recall that the copy of Undertaking shown in the exhibit marked “LMW‑3” [pp 229‑234 of the Hearing Bundles] referred to in the Affirmation of Lee Man Wai affirmed on 29th August 2014 [D2’s Affirmation] was “incomplete” (ie with the dates, attestation and interpretation not yet filled in and signed by me) because at that time, one of the Defendants, who I cannot recall, was in hurry to go to the bank nearby to bank in. Therefore, copies of the said Undertaking were made in rush for one of the Defendants’ record after the Defendants had signed on it. However, I also recall that after the one of the defendants had finished her transaction in the nearby bank, she went back to the Plaintiff’s office to collect the “complete” Undertaking. There is now produced and shown to me marked “CLKA‑12” [pp 195‑200 of the Hearing Bundles] a copy of the “complete” Undertaking.”
159. The “completed” Undertaking was produced by Ms Amy Chan at pp 195‑200 of the Hearing Bundles. I do not accept the 1st and 2nd defendants’ contention that they were required to sign blank documents. Ground 9 contended by Mr Wong falls away.
160. Mr Wong relied on Hang Seng Credit Card Ltd & Other v Tsang Nga Lee & Ors [2000] 3 HKLRD 33 to submit that the UCO should apply to this case and the court should refuse to enforce the Agreements under the UCO.
161. Section 6(1) of the UCO provides a non‑exhaustive list of matters to be considered by the court which includes:
(1) the relative strengths of the bargaining positions of the consumer and the other party;
(2) whether, as a result of conduct engaged by the other party, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party;
(3) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services;
(4) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the other party or a person acting on behalf of the other party in relation to the supply or possible supply of the goods or services; and
(5) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the other party.
162. I have dealt with the points raised by Mr Wong on bargaining positions and the defendants’ understanding of the documents for the Loans. I have also dealt with the defendants’ complaint on the conditions of the contract in respect of the interest rate. The undue influence complained by 1st and 2nd defendants did not come from the plaintiff or a person acting on behalf of the plaintiff but from the 3rd defendant. The defendants had been paying the ceiling interest rate permitted by the MLO for the Loans. At that price, they could have acquired identical or equivalent loans from many other financial institutions. I do not see that the UCO assists the defendants.
163. The Tsang Nga Lee case also does not assist the defendants. In that case, the court was concerned with a specific contractual provision on liability to pay costs on indemnity basis. The court noted that costs to be awarded were always subject to the discretion of the court. The court found that the relevant contractual provisions were extremely wide and extended to all costs and expenses even those unreasonably incurred. Such a clause was capable of being applied unconscionably and left the consumer at the mercy of the other party. The court further found that the interest rates charged in that case amounted to 53.69% and 59.65% and were extortionate. Taking the matters referred to in section 6 of the UCO into account, the court found in that case that the relevant contractual provisions were unconscionable.
164. The case before me is very different from the Tsang Nga Lee case. The defendants were not complaining about a specific contractual provision being unconscionable but about the whole transaction. I have found that the interest rate charged in this case was not extortionate and section 6 of the UCO did not assist the defendants.
165. The defendants might have little education and little knowledge of English. However, the plaintiff had not knowingly taken advantages of the defendant’s vulnerability. I do not find that the bargains for the Loans were oppressive or that the defendants were suffering from a bargaining disadvantage. I have found that the 1st and 2nd defendants did not enter into the loan transactions with the plaintiff under undue influence. The defendants also failed to satisfy the court that the plaintiff had engaged in any unconscionable conduct. None of the grounds put forward by Mr Wong to contend that the Loans were unconscionable bargains was substantiated. This contention of the defendants fails.
OTHER ISSUES RAISED BY THE DEFENDANTS
166. I shall briefly deal with other issues raised by the defendants.
167. The 1st defendant took issue that information on daily interest of the Loans was deposed to by the plaintiff’s solicitor instead of by a staff of the plaintiff. The 1st defendant referred to Leung’s Affirmation which had only four paragraphs. The material paragraph was para 3 which stated that:
“According to the Plaintiff’s records which I verily believe to be true and correct, as at 23rd April 2014, the daily interest regarding the principal sum is HK$3,945.21 and the daily interest regarding the overdue payment is HK$868.00.”
168. The matters deposed to in Leung’s Affirmation were matters of simple arithmetical calculations. It makes no difference for that to be done by the plaintiff or by the plaintiff’s solicitors. The figures remain the same. The same were confirmed by Ms Amy Chan in Chan’s 3rd Affirmation. The point taken by the 1st defendant has no substance.
169. In D2’s Affirmation, the 2nd defendant alleged that she had moved out from her address stated on the writ (the “Old Address”) and had not received the writ and the Summons. She was informed by the 3rd defendant in April 2014 of these proceedings. The 3rd defendant took her to the court to file her acknowledgement of service of the writ. In her acknowledgement of service, she had stated her new address as her service address but the plaintiff still served subsequent court documents to the Old Address. Despite these complaints in D2’s Affirmation, the 2nd defendant made no application to set aside any previous service of documents on her.
170. The fact that a defendant is no longer residing at the address stated on the writ or that service was effected to an address other than the address for service does not per se render service of court documents ineffective. Order 2 rule 1(1) of the RHC provides that:
“Where, in beginning or purporting to begin in any proceedings or at any stage in the course of or in connection with any proceedings, there has by reason of any thing done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein.”
171. As no application has been taken out by the 2nd defendant on this issue of service, I do not have to go into this matter further. Nevertheless, I note that the 2nd defendant had notice of all steps taken in these proceedings and that she has been legally represented in these proceedings since 26 August 2014.
172. The 2nd defendant referred to the Application Form which stated that the loan was for $800,000 to be repaid by 120 instalments. The 2nd defendant said that the plaintiff had unilaterally changed the repayment term.
173. Ms Amy Chan had pointed out in Chan’s 3rd Affirmation that the loan amount of $800,000 stated in the Application Form was the loan amount for the very first loan borrowed by the defendants from the plaintiff in February 2010 which had already been fully settled and was not the subject matter of this action. The aforesaid contention of the 2nd defendant was wholly misconceived.
174. Mr Cheng for the 1st defendant also mixed up the application for the first borrowing of $800,000 with the Loans which were the 7th and 8th borrowings by the defendants from the plaintiff. He submitted that there was “an ostensible and very crucial discrepancy” between the plaintiff’s claims herein and what showed on the Application Form. This contention of Mr Cheng was based on a false premise and had no substance at all.
175. Mr Wong devoted two sections of his skeleton to the defence of misrepresentation and non est factum. His contention on misrepresentation and non est factum was premised on the plaintiff representing to the 1st and 2nd defendants that they were only guarantors and the plaintiff would only sue the 3rd defendant for recovery of the Loans. With my findings that the 1st and 2nd defendants were also borrowers for the Loans and they fully understood the documents signed by them, Mr Wong’s aforesaid contentions fall away.
176. Mr Cheng representing the 1st defendant also put forward similar arguments in his skeleton under the heading of “mistake and misrepresentation”. For the same reasons, Mr Cheng’s contention also fails.
THE AMOUNT OF THE LOANS AND THE AMOUNT OF OUTSTANDING
177. The 3rd defendant alleged that the amount of the Loans was only $2,400,000 instead of $3,000,000 claimed by the plaintiff. Ms Amy Chan produced copies of four cheques, receipts of which were acknowledged by the defendants showing the total amount of the Loans drawn down by the defendants was $3,000,000. (See pp 182‑183 of the Hearing Bundles) The contention of the 3rd defendant on the amount of the Loans has no substance at all.
178. The 3rd defendant alleged that she had made various substantial repayments to the plaintiff and disputed the amount of outstanding claimed by the plaintiff. Ms Amy Chan had in Chan’s Affirmation exhibited as “CLKA‑6” a schedule setting out repayment records for the Loans and the plaintiff’s calculation of the accrued interest. The defendants (including the 3rd defendant) adduce no evidence to show that the plaintiff had missed out any repayments by the defendants in its records and calculation. I do not accept the 3rd defendant’s vague and unsubstantiated contention and accept the plaintiff evidence on amount of repayments by the defendants.
OUTSTANDING AMOUNT OF THE LOANS
179. The 1st Loan was repayable together with interest accrued one month after its drawdown date. Accordingly, the 1st Loan was repayable on 24 April 2011. The plaintiff’s evidence was that the defendants only paid $112,000 to the plaintiff on 21 April 2011 which was only sufficient to discharge interest accrued up to the contractual repayment date. The plaintiff had made various subsequent payments in different amounts from 18 May 2011 to 28 February 2014. The plaintiff applied these payments to firstly pay default interest accrued and then pay the interest accrued on the principal of the 1st Loan.
180. The plaintiff claims default interest on the basis that the defendants were liable to pay accrued interest every month after the contractual maturity date of the 1st Loan and treated the last day of each subsequent one month period as “due day” for such interest. If the defendants did not fully pay the monthly interest by the aforesaid “due day”, the plaintiff charged default interest on the outstanding amount at the rate 48% per annum for each day when such amount remain outstanding.
181. The relevant contractual provision is clause 2 of the 1st Agreement which provided that:
“Repayment of the principal sum of the loan will be made in one lump sum on the 24th day of April 2011 with interest payable in the meantime over the term of the loan on the principal sum of the loan by 1 equal monthly payments each of HK$112,000 payable on the 24th day of each month commencing on the 24th day of April 2011. ... If any of the principal sum of the loan and/or any interest thereon is overdue, overdue interest at the aforesaid agreed rate [ie 48% per annum] on such principal sum of the loan and/or such interest shall be paid by the borrower(s) to the lender from the due date(s) for payment until payment in full. Overdue interest shall be charged at the aforesaid rate both before and after commencement of legal proceedings by the lender against the borrower(s) and after judgment obtained by the lender against the borrower(s) for recovery of the principal sum of the loan and/or interest thereon and/or overdue interest from the due date(s) for payment until payment in full.” (Original underline)
182. According to clause 2 of the 1st Agreement there was only one monthly interest payment in the sum of $112,000 payable during the term of the 1st Loan. At the beginning paragraph of the 1st Agreement, it was expressly stated that the 1st Loan was “for a term of 1 month(s)”. According to the contractual term of the 1st Agreement, the principal in the sum of $2,800,000 and the contractual interest in the sum of $112,000 had to be repaid on 24 April 2011. The sum due and payable on 24 April 2011 was $2,912,000.
183. The defendants paid the sum of $112,000 to the plaintiff on 21 April 2011, ie three days before the contractual due day for payment. The 1st Agreement contained no provision for early repayment. Clause 10 of the 1 Agreement provided that:
“Payment(s) made by the borrower in excess of the monthly or periodic repayment shall not earn any interest but shall be applied towards reduction of the principal sum of the loan and interest thereon.”
184. The sum of $112,000 paid by the defendants to the plaintiff on 21 April 2011 was not payment in excess of the monthly or periodic repayment. In such case, clause 10 of the 1st Agreement was not engaged.
185. Section 21(1) of the MLO provides that:
“A borrower under any agreement for the loan of money by a money lender shall be entitled at any time by notice in writing to the money lender and the payment to the money lender of all amounts payable as principal by the borrower which are outstanding under the agreement, together with interest computed up to the date of such payment, to discharge his indebtedness under the agreement: ...”
186. Pursuant to the MLO, the defendants might make early repayment of the whole outstanding principal together with accrued interest at any time during the term of the 1st Loan. However, the amount paid by the defendant on 21 April 2011 was insufficient to repay the whole outstanding principal of the 1st Loan together with accrued interest. Section 21(1) of the MLO does not apply.
187. In such case, the plaintiff was entitled to keep the payment received on 21 April 2011 (ie $112,000) until 24 April 2011 before the plaintiff applied the same to settle the sum due and payable on 24 April 2011 (ie $2,912,000). After giving credit to such payment, the sum of $2,800,000 remained due and payable as at 24 April 2011. Default interest would be payable on this overdue amount from 24 April 2011 onwards at the rate of 48% per annum until payment pursuant to clause 2 of the 1st Agreement.
188. However, there was no provision in the 1st Agreement requiring the defendants to pay default interest every month. The defendants’ obligation to pay monthly interest only subsisted during the term of the 1st Loan and such term had expired on 24 April 2011. The defendants were contractually obligated to pay default interest on the overdue amount of $2,800,000 from its due day (ie 24 April 2011) until payment. The defendants had made various payments to the plaintiff since 24 April 2011. I agree that the plaintiff might first apply these subsequent payments to discharge interest accrued on the overdue amount until the date(s) of the relevant payments. Surplus in any payment should go to reduce the then overdue principal and further default interest would accrue on the reduced principal until next payment.
189. I do not accept the plaintiff’s contention that the defendants were liable to pay default interest every month and failure to pay monthly default interest would attract further default interest. There was no contractual provision in the 1st Agreement entitling the plaintiff to charge default interest on default interest. If there were such contractual provisions, it will amount to charging of compound default interest in breach of section 22(1) of the MLO.
190. The same applies to the 2nd Loan except that the principal sum was $200,000 and the contractual due date for repayment was 27 October 2011. The term of the 2nd Loan was also for one month from the date of drawdown. The defendants had paid the accrued interest in the sum of $8,000 on 27 October 2011 leaving the principal sum of $200,000 remained overdue after 27 October 2011. The defendants had also made various subsequent payments in respect of the 2nd Loan after 27 October 2011. Each payment would first discharge interest accrued on the then overdue sum to the date of payment. Surplus payment would be applied to reduce the principal and further default interest would be accrued on the reduced principal until the next payment date.
191. As the plaintiff’s current calculations of the outstanding amounts due from the defendants to the plaintiff in respect of the Loans were not in accordance with my above ruling, I direct the parties to work out the outstanding due from the defendants to the plaintiff following my above ruling. Judgment will be entered against the defendants in favour of the plaintiff for such outstanding sums. If the parties cannot agree within 21 days from the date of this decision on the amounts outstanding, I grant liberty for the parties to fix a hearing before me with 30 minutes reserved for determination of the amounts for the judgment.
CONCLUSION AND COSTS
192. I order that after the outstanding amounts are ascertained as aforesaid, judgment be entered forthwith against the defendants in favour of the plaintiff for such outstanding amounts together with a usual 28 days possession order against the 1st defendants in respect of the Properties. There shall be usual relief clause in the judgment with liberty to apply.
193. The plaintiff claims costs on indemnity basis. Clause 7 of the Agreements provided that:
“It is agreed that the borrower will be liable to the lender on a full indemnity basis for all legal costs, charges and expenses (such costs charges and expenses shall alternatively be taxed on the solicitors and own client scale) and all other disbursements charges and expenses which the lender may incur in enforcing the provisions of this Agreement against the borrower and in recovering from the borrower all or any sums payable hereunder.”
194. The plaintiff is contractually entitled to claim costs on indemnity basis. Costs are at the discretion of the court and the court will in the normal course of events give effect to the parties’ agreement. I see no reason in this case to deprive the plaintiff of its contractual entitlement. However, the plaintiff’s calculation of the outstanding amounts is not accepted by this court. Some costs had been incurred to deal with this issue. I am of the view that, in such circumstances it is fair that the defendants shall only be liable for 95% of the plaintiff’s costs. I make a costs order nisi against the defendants in favour of the plaintiff for 95% of the plaintiff’s costs for this action and this application (including all costs previously reserve) to be taxed, if not agreed, on indemnity basis, with counsel certificate.
195. The above costs order nisi shall become absolute after 14 days from the date hereof unless any party shall apply to vary it within this 14 day period.
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(Lai) |
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Master of the High Court |
Mr Wayne Hariman, instructed by Fung, Wong, Ng & Lam LLP, for the plaintiff
Mr James CC Cheng, instructed by Johnnie Yam, Jackey Lee & Co, for
the 1st defendant
Mr Wong Cho Lik, instructed by Raymond Chan, Kenneth Yuen & Co, for
the 2nd defendant
The 3rd defendant unrepresented and appear in person
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