SKYLINE CREDIT LTD v. LEUNG HING CHUNG

HCA 639/2016

[2019] HKCFI 169

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 639 OF 2016

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JUDGMENT

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1.  This is a money lender’s action, pursuant to Order 83A of the Rules of the High Court, Cap 4A, for recovery of the principal sum of HK$1,800,000 with interest of a loan (the “Loan”) advanced by the Plaintiff as lender to the Defendant as borrower, pursuant to a loan agreement dated 16 December 2015 (the “Loan Agreement”).

2.  The Plaintiff is and was at all material times a registered money lender under the Money Lenders Ordinance, Cap 163 (“the Ordinance”).

3.  The Loan Agreement provides, inter alia, that:

(1)  The Loan and interest thereto shall be repaid by 12 monthly instalments, the 1^st to 11^th instalments of which are for interest only at HK$41,400.00 each and the 12^th instalment of which is for the repayment of the principal amount and interest at HK$1,841,400.00. The 1^st instalment shall be payable on or before 15 January 2016 and the subsequent instalments shall be payable on or before 15^th day of each succeeding months. The 12^th instalment shall be payable on or before 15 December 2016. (Clause G of the First Schedule to the Loan Agreement).

(2)  The rate of interest charged on the Loan is 27.6% per annum (Clause G of the First Schedule to the Loan Agreement).

(3)  The place of negotiation of the Loan was stated in Clause J of the First Schedule to the Loan Agreement as Unit 9A&B, 4^th Floor, Block A, Hung Hom Commercial Centre, Nos 37-39 Ma Tau Wai Road, Hung Hom, Kowloon, Hong Kong (the “Plaintiff’s Office”).

(4)  The borrower offered no security for the Loan. (Clauses C and H of the First Schedule to the Loan Agreement).

4.  The Plaintiff’s case is that the Defendant failed to pay the 2^nd instalment on 15 February 2016.

5.  On 10 March 2016, the Plaintiff issued and served the Writ and the Statement of Claim in the present action on the Defendant claiming for payment of:

(1)  the principal and interest in the total sum of HK$1,917,054.25 as at the date of the Writ;

(2)  further interest on the sum of HK$1,800,000.00 at the rate of 2.3% per calendar month, i.e., 27.6% per annum from 11 March 2016 and thereafter until full payment.

THE DEFENDANT’S CASE

6.  The Defendant was, and still is:

(a)  a civil servant and the sole breadwinner of his family with a wife and two children. His monthly salary was HK$20,305.

(b)  the registered owner of a property known as Flat 7 on 14/F of Block B, Cheong Shing Court, 20 Wah Ming Road, Fanling, New Territories, Hong Kong purchased from the Housing Authority (the “Property”). The Property was first mortgaged to Nanyang Commercial Bank but the legal charge was released in January 2015. 

7.  In December 2015, the Defendant was indebted to:

(1)  Once Finance Limited (“Once Finance”) for a loan of HK$600,000 which he borrowed on 8 July 2015. The loan was for a term of 8 months at a monthly interest payment of HK$12,000 and the principal was payable at the end of the 8^th month; and

(2)  United Asia Finance Limited (“United Asia”) for a loan of HK$250,000 which he borrowed on 21 September 2015. The loan was for a term of 84 months at a monthly interest payment of HK$6,169, part of which had been repaid in December 2015.

8.  The Defendant’s evidence was that on or about 10 December 2015, a Chinese male with the surname Chan (“Mr Chan”) called his mobile phone and represented to him that he was calling from Nanyang Commercial Bank and could offer concession package for a mortgage loan against the Property up to a term of 288 months. The said Mr Chan was able to tell the Defendant his personal particulars and previous mortgage details with Nanyang Commercial Bank. The Defendant was interested as he would like to redeem the loans with Once Finance and United Asia.

9.  Mr Chan then referred the Defendant to Lamto International Business Limited (“Lamto”) and said that it was a subsidiary of Nanyang Commercial Bank.

10.  On 11 December 2015, Mr Chan called and asked the Defendant to attend the office of Lamto where the Defendant was attended to by one Mr Gary Ho. Mr Gary Ho then offered the Defendant a mortgage loan of HK$1,800,000 for a term of 288 months on condition that the Defendant would first obtained an intermediate loan of HK$1,800,000 for a term of one year to improve his credit portfolio from a money lender which turns out to be the Plaintiff.

11.  For this intermediate loan:

(1)  HK$650,000 would be paid to Once Finance;

(2)  HK$270,000 would be paid to United Asia;

(3)  HK$49,680 (HK$1,800,000 x 2.3% x 40% x 3) being 3 months’ interest would be retained;

(4)  HK$18,000 to Lamto as handling fee;

(5)  $50,000 to the Defendant as his living expenses;

(6)  $762,320 to Lamto as insurance money to secure the subsequent mortgage.

12.  In other words, for a loan of HK$1,800,000, the Defendant would only obtain HK$970,000 (HK$650,000 + HK$270,000 + HK$50,000) and have to pay 27.6% annum interest on the sum of HK$1,800,000. He also had to pay HK$8,000 as legal fee out of the HK$970,000 obtained. So the actual amount he received was HK$962,000.

13.  The Defendant did ask Mr Gary Ho how the sums of HK$49,680 and HK$762,320 were arrived at. Mr Gary Ho explained by giving him a hose of figures which the Defendant found confusing and did not understand. Believing that Mr Gary Ho was helping him to solve his financial problems, the Defendant did not pursue the matter further.

14.  On 14 December 2015, the Defendant attended Lamto’s office again with income proof and other relevant documents. Mr Gary Ho told the Defendant that the market value of the Property was about HK$2,500,000 and the premium payable to the Housing Authority was about HK$750,000. Mr Gary Ho further told the Defendant that if he was to deposit the net balance of HK$1,017,680 (HK$1,800,000 – HK$782,320), the monthly instalment would be HK$5,033 for 288 months which was attractive to the Defendant.

15.  After the meeting on 14 December 2015, Mr Gary Ho telephoned the Defendant to attend a law firm and bring along with him title deeds and relevant documents of the Property.

16.  On 16 December 2015, the Defendant attended Lamto’s office. After Mr Gary Ho checked the title deeds and other documents brought by the Defendant, the Defendant was escorted by a female staff to the office of Messrs. KB Chau & Co., a firm of solicitors (“KB Chau”).  Mr Gary Ho asked the Defendant to see Lau Wing Sze of KB Chau.

17.  At the office of KB Chau, the Defendant first met Lau Wing Sze but was told that the Defendant’s case was handled by Mr Lau Chiu Ting (“Mr Lau”), a conveyancing clerk. The Defendant was brought to see Mr Lau in a room where the Defendant signed some documents. The Defendant asked for copies of the documents he signed, but was told that the finance company would provide him with copies which they never did.

18.  After that, the Defendant was led to and left in a conference room where Mr Justin Ng, the marketing manager of the Plaintiff, came in and briefly explained the contents of the documents to him. Mr Justin Ng told the Defendant that the loan was in the sum of HK$1,800,000 at the interest rate of 2.3% per month for a term of 12 months. Monthly interest payment was HK$41,400 for the first 11 months and on the 12^th month, the Defendant had to repay the principal of HK$1,800,000 plus the last instalment also at HK$41,400.

19.  This is consistent with the Defendant’s understanding or experience with such sort of short terms loans with such sort of interest. The monthly interest of HK$41,400 mentioned by Mr Justin Ng was different from what Mr Gary Ho had told him, namely, HK$16,560 per month. Mr Justin Ng explained to the Defendant that the monthly rate of interest was calculated on the basis of 2.3% per month which was correct. According to the Defendant, since he had already signed the documents, and believing that Lamto would deduct part of the loan, he did not ask any more questions.

20.  Amongst the documents signed by the Defendant, there was in fact another loan agreement (Contract No LA-T002-12-2015) under the letterhead of the Plaintiff in standard form. In this loan agreement, it is provided, inter alia, that:

“11.  In the event of default of payment by the Borrowers and without prejudice to all our other rights under the said Loan Agreement, we as the Lender reserve all rights to charge default interest at the rate of 4% per month on the outstanding loan and overdue interest (if any).

12.  The Lender has the right to count every three months or the borrower’s financial status/reports and property assessment report. If the assessment result is not satisfactory to the Lender, the Lender can then demand immediate full repayment of the entire remaining unpaid balance of this loan, without giving any further notice.

It is hereby expressly declared that the agreement for the loan was negotiated and completed at Unit 9A&B, 4/F, Block A, Hung Hom Commercial Centre, 37-39 Ma Tau Wai Road, Hung Hom…” (Emphasis added.)

21.  Mr Cheng for the Plaintiff submitted that the Plaintiff is not enforcing the terms of this agreement but the Loan Agreement as set out in paragraphs 1 and 3 above. It is not clear to this court why the Defendant had to sign two loan agreements on the same day save perhaps to comply with the requirements of the Ordinance. 

22.  After signing the documents, the Defendant was informed that three cheques were issued:

(1)  HK$270,000 to United Asia;

(2)  HK$650,000 to Once Finance;

(3)  HK$872,000 to the Defendant; and

(4)  HK$8,000 would be deducted as legal fee.

23.  Mr Justin Ng then handed the 3^rd cheque to the Defendant and told him that KB Chau would settle the debts owed to United Asia and Once Finance which it did, and the Defendant also handed the title deeds and documents of the Property to Mr Justin Ng.

24.  On their way out of the conference room, they met a female introduced by Mr Justin Ng to the Defendant as a director of the Plaintiff who turned out to be the only witness of the Plaintiff in this case, Yau Hoi Yan Simmy.

25.  The Defendant then met the female staff of Lamto downstairs of KB Chau’s office and was brought to Hong Kong and Shanghai Banking Corporation’s (“HSBC”) head office in Central to deposit his cheque into his saving account. The whole of HK$872,000 was withdrew in cash right away. The whole process had taken him a bit of time as there was a long queue.

26.  When the Defendant handed Mr Gary Ho the sum of HK$872,000 in cash, Mr Gary Ho gave the Defendant HK$50,000 as living expenses as previously promised. Mr Gary Ho also told the Defendant that out of this sum of HK$872,000, HK$762,320 would be deposited with Nanyang Commercial Bank as insurance or security, and they would apply to the Housing Authority for mortgage permission within 3 months.

27.  Mr Gary Ho then asked the Defendant to sign a services agreement with Worldwide Commercial Company Limited (“Worldwide”) by telling him that Worldwide was the parent company of Lamto. Under this services agreement, the Defendant agreed to:

(1)  authorised Worldwide to arrange for a mortgage loan of HK$1,800,000;

(2)  pay 1% administrative fee, namely, HK$18,000, to Worldwide;

(3)  pay HK$49,680 as interest for 3 months for the loan;

(4)  pay HK$762,320 as insurance premium; and

(5)  the sum of HK$762,320 be refunded to the Defendant in cash within 7 working days after completion of the mortgage loan.

28.  Between 16 December 2015 and 25 January 2016, the Defendant kept trying to contact Mr Gary Ho to ask about the progress of the mortgage from Nanyang Commercial Bank. Failing to get any positive response, the Defendant went up to Lamto’s office and found that it had been vacated and closed.

29.  The Defendant has since reported the matter to the Hong Kong Police under report No TST RN16005014 and the same is still under investigation.

30.  The Defendant’s primary case is the Plaintiff, Lamto and Worldwide colluded together to charge or receive interest or remuneration or reward in the form of security money, insurance premium, share of repayment, administrative fee, handling fee from the Defendant in contravention of sections 2, 24(1), 27(3) and 29(10) of the Ordinance.

31.  By reason of such collusion, the effective rate of interest  that the Plaintiff charged the Defendant well exceeded 60% per annum. As such, the Loan Agreement is unenforceable under sections 24(1) and (2) of the Ordinance.

32.  The Defendant also submitted that the Loan Agreement is illegal and unenforceable for the reasons as set out in paragraphs 22-28 of his Re-Amended Defence:

“22.  In contravention of section 7 of MLO, the Defendant had not attended the office of the Plaintiff and the Defendant only met the staff of the Plaintiff once in Messrs. K.B. Chau & Co. office for explaining and signing of the Loan Agreement and other documents incidental thereto.

23.  In contravention of section 18(1) of the MLO, the Plaintiff failed to deliver to the Defendant, within 7 days after the execution of the Loan Agreement, a note or memorandum in writing of the agreement made in accordance with subsection 2 of section 18 of the MLO, and renders the Loan Agreement unenforceable.

24.  In contravention of section 18(2) of the MLO, the requisite note or memorandum in respect of the Loan Agreement, if any, has not set out the true rate of interest charged on the loan of HK$1,800,000, the date of making the agreement and the date of making the loan.

25.  In contravention of section 21 of the MLO, the Defendant was required to give at least month advance notice in writing for early repayment or each partial payment, and that the Defendant had to pay 3 monthly interests before early repayment or partial repayment was allowed.

26.  In contravention of section 22 of the MLO, the Defendant had to pay default interest at the rate of 4% per month on the outstanding loan and overdue interest, and the Plaintiff, in case the financial assessment of the Defendant was not satisfactory to the Plaintiff, could demand immediate full payment of the entire remaining unpaid balance of the loan without giving any further notice.

27.  In contravention of section 27(1) and 27(3) of the MLO, the Defendant was required to pay the Plaintiff and/or persons acting for the Plaintiff HK$8,000 as legal cost, HK$18,000 as administrative fee, HK$49,680 as interest for the first 3 months, and HK$762,320 as insurance premium in relation to the negotiation of the Loan.

28.  In contravention of section 6 of Unconscionable Contract Ordinance, the Defendant was required to give at least one month advance notice in writing for early repayment or each partial payment and payment of 3 monthly interest before early repayment or partial repayment was allowed.”

THE PLAINTIFF’S CASE

33.  The Plaintiff’s case is set out in its Reply to Re-Amended Defence. The following pleas are material:

“5….The Plaintiff had no connection or communication with, and/or knowledge of the alleged Mr. Chan and/or Lamto International in all material times.

21….The Defendant visited the Plaintiff’s office for discussion and submission of supporting documents before the signing of the Loan Agreement…

22A….The Defendant never brought along or handed any title deeds of the Property to Mr. Justin Ng. The Defendant never mentioned or disclosed to the Plaintiff about any mortgage loan from NYC Bank…

24….The Defendant’s personal particulars and the information of the Property were received by the Plaintiff via facsimile transmission and provided by the Defendant before 16 December 2015. The Defendant met Mr. Justin Ng at the Plaintiff’s office twice before 16 December 2015. The Defendant first met Mr. Justice Ng at the Plaintiff’s then office at 409A, 4/F, Block A, Hung Hom Commercial Centre, Kowloon on 14 December 2015 during which the Defendant provided documents necessary for the loan application to the Plaintiff. The Defendant further met Mr. Justin Ng at the said Plaintiff’s then office on 16 December 2015 for confirming the loan arrangement before attending the office of Messrs. K. B. Chau & Co.” (Emphasis added.)

ANALYSIS

34.  The key factual issue in this case is whether there was collusion between Lamto and the Plaintiff in procuring and/or causing the Defendant to enter into the Loan Agreement.

35.  If there was no collusion, then, save for consideration under sections 7, 18, 21 and 22 of the Ordinance and section 6 of Unconscionable Contract Ordinance, Cap.458, it is basically the end of the Defendant’s case. Indeed, Mr Ho’s submission is that the Defendant’s primary case is collusion.

Legal Principles in relation to Collusion

36.  As in the case of conspiracy, one seldom has direct evidence of collusion. What the court needs to be satisfied is that, from the evidence, the parties were acting in concert and playing the same game. The court is entitled to rely on overt acts of the parties involved and established facts to draw inferences in order to make a finding of collusion.

37.  In HKSAR v Wong Kwok Wai (2013) HKCFAR 191, Tang PJ at §11 said:

“11.  I agree. On such a charge, the question to ask and answer is whether the persons who are said to have acted in collusion were playing the same game. It should not be made more complicated.”

38.  Bokhary NPJ at §§6-8 said:

“6.  The conviction was based on two irresistible inferences: firstly, that all the persons and companies who dealt with the borrower were acting in concert and, secondly, that the applicant was colluding with a money lender in the making of the demand for $3,600.

7.  It was open to the Magistrate to conclude, as he in effect did, that the demand was part of a dishonest and surreptitious enterprise which was meant to – and did – extract money from the borrower.

8.  The points of law said on the applicant’s behalf to arise go to the meaning of collusion. No such point really arises. It is plain in the circumstances that the applicant and the moneylender were acting in concert and surreptitiously in a dishonest enterprise to extract money from a victim. Whatever else may or may not be within the meaning of “collusion” under s.29(10), the applicant and the moneylender’s conduct certainly is fairly and squarely within that meaning.”

39.  In Famous Zone Electronics Ltd v Hongkong and Shanghai Banking Corp Ltd [1998] 3 HKC 723, Sakhrani J. at 727F-G said:

“It is plain that collusion as used in O 17 does not necessarily connote anything sinister on the part of the applicant. In Mureietta v South American etc Co Ltd (1893) 62 LJQB 396 it was held that collusion in the sense in which it is used in the Order does not necessarily involve anything morally wrong. As Wills J said at 397:

Colluding may be said to be an equivalent for playing the same game.”

40.  In Ever-Long Finance Ltd v Yeung Wah Leung [2017] 1 HKLRD 500, Deputy Judge Simon Ho at §§86-93 said:

“86. The word “collusion” under s.27(3) and (4) of MLO would no doubt need to be construed in its own statutory context against the whole of the Ordinance with its objective and intent in mind. One key purpose of MLO is clearly to protect the borrower from having to borrow money from others at excessive or extortionate interest rates. If one lends or offers to lend at an effective rate of interest exceeding 60% per annum (as specified in s.24) would commit an offence, and the loan agreement together with any collateral security would become illegal and unenforceable irrespective of whether the lender is a money lender or not. Section 25 is also enacted to protect a borrower from being subject to an extortionate loan transaction. Under s.25(2)(a), a transaction is extortionate if it requires the debtor or his relative to make payment which are grossly exorbitant. Under s.25(3), a loan transaction with effective rate of interest exceeding 48% per annum is also presumed to be extortionate. Under s.25(1)(b), the court if satisfied there is evidence of the transaction being extortionate, may reopen the transaction to do justice between the parties having regard to all the circumstances.

87.   The long title of the Ordinance also expressly provides that:

To provide for the control and regulation of money lenders and money-lending transactions, the appointment of a Registrar of Money Lenders and the licensing of persons carrying on business as money lenders; to provide protection and relief against excessive interest rates and extortionate stipulations in respect of loans; to provide for offences and for matters connected with or incidental to the foregoing; and to repeal the Money-lenders Ordinance 1911 (Emphasis supplied.)

88.   Given the above proper perspective, it is clear to me that the purpose and design of s.27(3) and (4) is chiefly to prevent the aforesaid statutory protection afforded to a borrower from being stripped away or otherwise compromised by not only the money lender but also by any other related persons as mentioned therein in receiving costs, charges, expenses (other than stamp duties or similar charges), remuneration or reward from the borrower in addition to the interest charged by the money lender. Just like interest, these various sums (irrespective of whatever label given) are essentially the borrower’s costs of borrowing from the money lender.

89.   In this light, the “persons in collusion with the moneylender” as mentioned under s.27(3) and (4) should be construed in such manner so far as its literal meaning and statutory context permit to enable the aforesaid statutory protection being effectively implemented.

90.   Coming back to the guiding test of “playing the same game” as expressed by Tang PJ in Wong Kwok Wai to decide whether the person concerned has acted in collusion with the money lender against the aforesaid statutory backdrop, such person would appear to be one who identifies its interests with the money lender’s rather than the borrower’s. In my view, to qualify as the collusion under s.27(3) and (4), it would be sufficient for such person and the money lender to co-operate with each other to do or abstain from doing some act(s) with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice. I take this to be the essence of the term “collusion” as appeared in s.27(3) and (4) to meet with the statutory intent and purpose, and in accordance with the test of “playing the same game” as expressed by Tang PJ in Wong Kwok Wai.

91.   Mr Lau contends that “collusion” here means “conspiracy”, and the defendant must demonstrate there had been a prior agreement between the moneylender and the financial intermediary (ie Hong Kong Construction in this case) to extract the consultancy fee from him. Mr Lau further submits that no evidence of such agreement can be discerned from Bonnie’s affirmation.

92.   With respect, I do not accept such submission because “collusion” in the statutory context of the MLO is in my view a wider concept than “conspiracy”. Proving “Conspiracy” is one of the ways to prove “collusion”, but that should not be the only way. Trickery may take different forms and the collusion under s.27(3) and (4) should not be so narrowly construed as Mr Lau contends, otherwise it would unnecessarily hamper the effectiveness of s.27(3) and (4) in protecting the borrower under the statutory framework of MLO.

93.   The conventional usage of “collusion” does not appear to be so confined as Mr Lau contends either. It seems to me that the natural and ordinary meaning of the term “collusion” under s.27(3) and (4) is broad enough to cover “co-operation between parties to deceive or otherwise to do harm to others”.”

Approach to Evaluation of Evidence

41.  In Fung Sau Mui Janne v Fung Wing Tong, HCMP 798/2016, unreported, 3 October 2018, at §§13-14, I set out the proper approach as to the assessment of witnesses’ credibility. Basically, the court has to determine whether a party’s case is inherently plausible or implausible; whether a party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable.

42.  I am of the view that inherent probabilities and consistency with contemporaneous documentary evidence are two important acid tests in assessing whether a party’s case is to be believed or not.

43.  Further, in EPI Environmental Technologies Inc & Another v Symphony Plastic Technologies plc & Another [2005] 1 WLR 3456, Peter Smith J at §74 said:

“I add a few of my own precautions. (i) First, it is essential to evaluate a witness’s performance in the light of the entirety of his evidence. Witnesses can make mistakes, but those mistakes do not necessarily affect other parts of their evidence. (ii) Second, witnesses can regularly lie. However, lies themselves do not mean necessarily that the entirety of that witness’s evidence is rejected. A witness may lie in a stupid attempt to bolster a case, but the actual case nevertheless remains good irrespective of the lie….”

EVALUATION OF EVIDENCE

44.  The Plaintiff’s only witness is Madam Yau Hoi Yan Simmy (“Madam Yau”). The Plaintiff had not called Mr Justin Ng to give evidence. The Defendant gave evidence for himself. Having heard the evidence, I am of the view that the Defendant’s evidence is to be preferred. I do not find Madam Yau’s evidence believable for a number of reasons.

45.  First, I find it inherently improbable that the Defendant had directly contacted the Plaintiff and asked for the grant of the loan in question. Madam Yau told this court that Mr Justin Ng related to her that it was the Defendant who, on his own initiative, made an unsolicited call to the Plaintiff. I find this hard to believe. First, Mr Ho, for the Defendant, correctly pointed out that from the Defendant’s telephone records which he obtained from his telephone company, it can be seen that the Defendant did not make any outgoing telephone calls to the Plaintiff’s office and/or to Mr Justin Ng. Secondly, I find it also hard to believe that if the Defendant had indeed contacted the Plaintiff directly, there would still be a need for him to have any dealings with Mr Gary Ho and Lamto.  Indeed, the telephone records show that the Defendant made calls to Lamto and Mr Gary Ho instead. Thirdly, there was no record of the Defendant’s attendance of the Plaintiff’s Office. Madam Yau’s evidence was that the Defendant’s details had been recorded in a piece of paper but that piece of paper has since been destroyed. 

46.  Therefore, I reject Madam Yau’s evidence as set out in paragraph 5 of her witness statement which reads:

“In December 2015, the Defendant approached the Plaintiff for a loan of HK$1,800,000.00 by phone call to my staff, Mr. Justin Ng. The terms and conditions were briefly mentioned and agreed with the Defendant on the phone.” (Emphasis added.)

47.  In Madam Yau’s oral evidence, her case was that the Loan Agreement was only concluded when the Defendant faxed back the application form for the Loan. This oral testimony does not sit well with her written evidence that the Loan Agreement was concluded on the phone.

48.  Secondly, paragraph 5 of her witness statement also stated that:

“The Defendant was invited to visit the Plaintiff’s office for discussion and submission of supporting documents. I met the Defendant at the Plaintiff on a day before 16^th December 2015.”

49.  During her oral testimony, Madam Yau said that by “a day before 16 December 2015”, she meant 15 December 2015. Mr Ho, for the Defendant, put it to her that if indeed she meant 15 December 2015, it would not have been difficult for her to clearly state the precise date rather than to leave it vague. Be that as it may, even if this court were to accept Madam Yau’s evidence, it is in any event inconsistent with the Plaintiff’s own pleaded case. Paragraph 24 of the Plaintiff’s Reply to Re-Amended Defence reads:

“The Defendant first met Mr. Justice Ng at the Plaintiff’s then office at 409A, 4/F, Block A, Hung Hom Commercial Centre, Kowloon on 14 December 2015 during which the Defendant provided documents necessary for the loan application to the Plaintiff. The Defendant further met Mr. Justin Ng at the said Plaintiff’s then office on 16 December 2015 for confirming the loan arrangement before attending the office of Messrs. K. B. Chau & Co.” (Emphasis added.)

50.  When being confronted with the Plaintiff’s own pleaded case which was confirmed by Madam Yau’s signature to the Statement of Truth, Madam Yau’s evidence was that the Plaintiff made a mistake on its pleadings. Mr Ho, for the Defendant, submitted that the Plaintiff changed its case because just before the trial, Madam Yau applied to file a supplemental witness statement which this court allowed. In the said supplemental witness statement, Madam Yau relied on a facsimile which was dated 15 December 2015 which on its face tends to support the Plaintiff’s case that the Defendant did attend the Plaintiff’s office on 15 December 2015.

51.  Secondly and importantly, Madam Yau’s case as set out in her supplemental witness statement that she personally met the Defendant on 15 December 2015 is totally discredited by the Defendant’s attendance record and his leave record. His leave record shows that he did take leave on 14 and 16 December 2015 but not on 15 December 2015. His attendance record shows that on 15 December 2015, he signed in for work at 8:37 am and signed out at 5:30 pm. Madam Yau’s evidence was that she met the Defendant at about 3 or 4 pm and he went to the Plaintiff’s office only once.

52.  Mr Cheng for the Plaintiff, submitted that the Defendant might have secretly left his office on 15 December 2015 and the attendance record is not conclusive evidence that the Defendant did not leave his office on 15 December 2015. Mr Cheng submitted that there was no column for any entry for staff to sign in or out during working hours of the day. With respect, I disagree. I find it inherently improbable that the Defendant applied for leave for 14 and 16 December 2015, but deliberately chose not to apply for leave for 15 December 2015.

53.  Further, it is also inherently unlikely that the Defendant would have left his office at about 2:30 pm or 3 pm to travel from his office in Shatin to the Plaintiff’s office in Hung Hom and then back to his office without catching the notice of his colleagues and/or supervisors.

54.  Still further, I do not find it unusual that there was no column for any entry for staff to sign in or out during working hours. Staff were supposed to be working during working hours.  

55.  I therefore, on balance, find that there was no meeting between Madam Yau and the Defendant on 15 December 2015 in the Plaintiff’s Office. It follows that the Plaintiff could only have reached the Defendant as a borrower through the introduction or cooperation of an intermediary, which was Lamto in the present case.   It also follows that there must be some prior communication between the Plaintiff and Lamto which the Plaintiff tried to disown in its pleadings. Accordingly, I find paragraph 5 of the Plaintiff’s Reply to Amended Defence that “[t]he Plaintiff had no connection or communication with, and/or knowledge of the alleged Mr. Chan and/or Lamto International in all material times” unbelievable. The said evidence is thereby rejected. 

56.  I find that the Defendant’s evidence that he was referred to the Plaintiff for the Loan by Lamto is credible. His evidence is supported by his WhatsApp exchanges with Mr Gary Ho and his own telephone records. His evidence was that he was not told who the money lender would be and only met Mr Justin Ng at the office of KB Chau on 16 December 2015. Mr Ho, for the Defendant, submitted that it does not make sense for such an intermediary to let the borrower approach the money lender directly. Lamto was supposed to make a profit by providing the service of sourcing a money lender to its clients. If one had been in Lamto’s position, one would never have provided the identity or contact information of the designated money lender to clients who might approach the money lender directly. I agree.

57.  Thirdly, I do not accept Madam Yau’s evidence that “each loan application had been carefully assessed by the Plaintiff’s loan approval staff before a loan was granted” (Paragraph 4 of Madam Yau’s witness statement) convincing. First, it appears that this “loan approval staff” was Madam Yau herself. Secondly, this court finds it hard to believe that the Plaintiff could grant a loan with monthly repayment obligation of HK$41,400 when it knew full well that the Defendant’s monthly salary was only HK$20,305. It is quite clear to this court that the Plaintiff knew full well that the Defendant would not be able to make the repayment and yet granted the Loan to him. This can hardly be said to be the result of a careful assessment.

58.  Madam Yau then said that she expected that the Defendant would obtain refinancing from the Property. However, this does not make sense as on her own evidence, the Defendant would need a few months in order to obtain refinancing and in the meantime, the Defendant would not be able to service his monthly repayment of HK$41,400. 

59.  From the Defendant’s WhatsApp communications with Mr Gary Ho, it does show that Mr Gary Ho did tell the Defendant that as far as his monthly repayment was concerned, Lamto’s accounting department would liaise with the Plaintiff internally. 

60.  Mr Ho, for the Defendant, submitted that when the Defendant defaulted in his repayment obligation on 15 February 2016, a letter before action was issued on 1 March 2016 and the writ in this action was served on 11 March 2016. This does not sit well with Madam Yau’s evidence that as the Defendant could use the Property to obtain refinancing, the Plaintiff would adopt a flexible and lenient attitude in the first few months of the Loan. 

61.  Fourthly, the cheque of HK$872,000 issued by KB Chau to the Defendant was a HSBC cheque marked “A/C Payee Only”. According to Madam Yau, the fund of HK$1,800,000 was transferred to KB Chau at about 11 am on 16 December 2015 which was before the Defendant attended KB Chau’s office at about 2 pm. The Plaintiff did not state that it had asked for the Defendant’s bank accounts information. However, the Defendant said that he did pass on his bank accounts information to Lamto. I am of the view that the only way in which the Plaintiff could have obtained the Defendant’s bank account information was from Lamto.

62.  Madam Yau said that the Plaintiff did not inform KB Chau how to split the cheques. It was entirely up to KB Chau. Mr Ho, for the Defendant, submitted that the Defendant never requested a cheque from HSBC. The Plaintiff and KB Chau never asked the Defendant what bank account he had except that the Defendant was asked by Mr Gary Ho to provide his bank statements which were copies of his saving passbook with HSBC. KB Chau issued cheques of Public Bank (Hong Kong) Fanling Branch when it refunded the HK$28,373 to the Defendant, and when it paid off the Once Finance’s debt of HK$636,000, the United Asia’s debt of HK$252,000 and the sum of HK$3,300 to Messrs. So, Ho & Co.

63.  Mr Ho, for the Defendant, submitted that it was not a sheer coincidence that save and except the cheque to the Defendant was a HSBC cheque, the other cheques issued relating to the same transaction were all Public Bank cheques. The reason KB Chau had to use a HSBC cheque to pay the Defendant and not one of Public Bank or any other bank for that matter was to facilitate a scam. If a Public Bank cheque had been issued to the Defendant, the cheque would have to be deposited into the Defendant’s HSBC account which would have to be cleared. No cash could be withdrawn immediately. Perhaps given the overnight to think about it and given the chance to discuss the matter with others, like his wife, the Defendant might have second thoughts about handing over cash to Mr Gary Ho. Mr Ho submitted that this was a deliberate act on the part of KB Chau, not a coincidence, to facilitate the scam.

64.  Mr Ho also referred this court to the judgment of Deputy District Judge C. To in Gain Wealth Global Credit & Investment Ltd. v Lam Hau Kay DCCJ 2610/2015, unreported, 19 July 2018 where the learned Judge at §106 said:

“…The practical effect is that when Peter escorted the defendant to the bank to cash the latter cheque, the defendant could pass the cash to Peter immediately. It saves Peter the trouble and risk of waiting for another one or two days before the cheque is cleared, and the uncertainty of what the defendant may do with the money after going back home and re-reading what he had signed earlier. The plaintiff’s special treatment of the $313,000 cheque greatly facilitated Four Edges’ charging of the sum right there and then.”

65.  It is Madam Yau’s evidence that KB Chau was the Plaintiff’s solicitors. I find it hard to believe that KB Chau would have taken instructions other than from the Plaintiff as to how the sum of HK$1,800,000 should be paid and to which parties. The Defendant certainly did not give instructions to KB Chau as it was not disputed that the Defendant went to KB Chau’s office on 16 December 2015 for the first time. There was no prior communication between the Defendant and KB Chau. On the Plaintiff’s case, it did not give instructions to KB Chau. KB Chau could not have dreamed up the distribution of the HK$1,800,000 by itself. The only remaining candidate is Lamto.

66.  But why would KB Chau take instructions from Lamto on how many cheques to issue? I am of the view that the irresistible inference is that KB Chau knew that the Plaintiff and Lamto were acting in concert. It appears to me that KB Chau did facilitate the collusion.

67.  Talking about KB Chau, I find the conduct of KB Chau merits investigation. This also relates to the issue about the title deeds of the Property.

68.  Fifthly, there is an important issue in relation to the Plaintiff’s demand for the return of the title deeds of the Property. It is the Defendant’s case that on 16 December 2015, he hand delivered the title deeds of the Property to Mr Justin Ng of the Plaintiff. Hence, the Defendant, through his solicitors demanded the Plaintiff to return the title deeds. The Defendant’s demand was not successful prior to the trial.

69.  I find Madam Yau’s evidence on this issue unbelievable. It was only in her oral testimony that she gave evidence that the title deeds are with the Plaintiff. It was also her evidence that she knew the Plaintiff has no right to keep the title deeds. It is a serious matter to hold on to someone else’s title deeds without good reasons. Her explanation was that, instead of being delivered by the Defendant to Mr Justin Ng, the title deeds were redeemed from Once Finance and the Plaintiff did not know what to do and had to consult its lawyers. I do not find this explanation convincing. There was nothing to prevent the Plaintiff from returning the title deeds to the Defendant and make it clear that the return of the title deeds was without prejudice to its position that it did not obtain the title deeds from the Defendant but from Once Finance.

70.  Further, the consultation with the Plaintiff’s lawyers did not result in any concrete steps taken by the Plaintiff to return the title deeds to the Defendant. When being crossed-examined about her knowledge of the Defendant’s solicitors’ letters dated 6 January 2017 and 25 July 2017, Madam Yau first said that she did not pay attention to those letters and therefore did not follow up. Later she said that if the Plaintiff’s solicitors was required to handle this matter, they would know how to do so.  She also said that she did not ask the Plaintiff’s solicitors why they have not replied the Defendant’s solicitors for over six months. In the letter dated 25 July 2017, it was stated that:

“Please let us have your reply within the next 7 days, failing which we expressly reserve the right to complain to the competent authority including Law Society and regulator for Money Lenders’ license and take such appropriate actions if and when so advised.”

71.  Madam Yau’s evidence was that there was a conference with the Plaintiff’s solicitors on this matter but there were no follow up actions after the conference.  With respect, I find this hard to believe.

72.  Indeed, what happened was that, after about four months later, the Plaintiff’s solicitors issued a letter dated 17 November 2017 which stated, inter alia, that:

“According to our instructions, the alleged delivery of title deeds and documents never in fact happened and was a mere fabrication by the Defendant. The Defendant never delivered any title deeds and documents to Mr. Justin Ng, whether in the alleged manner or at all. The Plaintiff has wasted substantial time in uncovering the Defendant’s fabrication which was obviously made with an ulterior motive.

Given its conclusion that the Defendant has made a fabrication, the Plaintiff is not prepared to make any further response on the matter unless and until the Defendant is willing to buttress his allegation by way of an affirmation which shall set out the full details of the alleged delivery of title deeds and documents, including but not limited to:

(a) The date and time of the alleged delivery;

(b) The exact location of the alleged delivery, e.g. in which part of the office of Messrs. K.B. Chau & Co.,

(c) The person(s) present and/or in the vicinity when the alleged delivery was made;

(d) The conversation(s) made (if any) at the time of the alleged delivery;

(e) The duration of the alleged delivery;

(f) The manner in which the alleged delivery was made, e.g., whether the Defendant went through the title deeds and documents with the recipient one by one or just in one bundle;

The Defendant should also exhibit any written acknowledgment of receipt in connection with the alleged delivery of the title deeds and documents in the affirmation.”

73.  What is surprisingly missing in this letter is the undisputable fact that the Plaintiff then had obtained custody of the title deeds from KB Chau. I find this a very unconstructive way to resolve the dispute.

74.  On 7 December 2017, the Defendant’s solicitors replied and stated, inter alia, that:

“We trust that such reply is sufficient and given that our client had already signed the Statement of Truth in his Re-Amended Defence and Witness Statement respectively, we shall not entertain your request to give out the particulars by way of affirmation, which had already been mentioned in the said pleading and Witness Statement.”

75.  Yet, the Plaintiff still refused to disclose to the Defendant that it has obtained the title deeds from KB Chau and did not return the same to the Defendant until it was ordered by the court after the conclusion of evidence in this trial.

76.  It is fair to say that throughout the correspondences, the Plaintiff did give the Defendant and indeed this court an impression that there was a dispute as to whether the Defendant did deliver the title deeds to Mr Justin Ng and given the Plaintiff’s case is that the Defendant did not deliver the title deeds to Mr Justin Ng, the Plaintiff did not and could not have such title deeds.

77.  It is regrettable that the Plaintiff adopted such an unreasonable stance. When being cross-examined, Madam Yau said that she was also concerned that if the title deeds were returned to the Defendant, the Defendant would use them to raise more finance and thus prejudice the Plaintiff’s position. This clearly shows that the Plaintiff had wrongly and deliberately withheld the Defendant’s title deeds without good reasons. I do not find the various reasons given by Madam Yau for not responding sensibly to the Defendant’s repeated demands for the return of his title deeds credible.

78.  Still further, I find it hard to fathom why KB Chau would have delivered the title deeds to the Plaintiff. On the Plaintiff’s case, the title deeds were delivered by Once Finance to KB Chau upon repayment of the loan the Defendant borrowed from it. There is no reason why KB Chau would not have returned the title deeds to the Defendant but instead passed them on to the Plaintiff. I also find Madam Yau’s evidence that KB Chau simply stored the title deeds in its office without returning it either to the Defendant or the Plaintiff and it was only upon the Plaintiff’s enquiry that KB Chau delivered the title deeds to the Plaintiff very hard to believe. First, there was no good reason for KB Chau to safe keep the title deeds for anyone for free but with potential liabilities. Secondly, when KB Chau was alerted to the fact that it was safekeeping the said title deeds, there was no reason for KB Chau to pass the title deeds to the Plaintiff.

79.  I shall also mention that when solicitors for the Defendant wrote to KB Chau to ascertain from it whether it received the title deeds from Messrs. So, Ho & Co., solicitors for Once Finance, KB Chau did not reply.

80.  Sixthly, Mr Ho submitted that the Plaintiff obtained the application documents from Lamto, which shows that they were acting in collusion. Paragraph 24 of the Plaintiff’s Reply to Re-Amended Defence stated:

“The Defendant’s personal particulars and the information of the Property were received by the Plaintiff via facsimile transmission and provided by the Defendant before 16 December 2015.”

81.  By letter dated 14 August 2017, the Defendant’s solicitors requested that:

“Pursuant to Order 14 rule 10(1) of the Rules of High Court, we hereby send this notice to you, by way of service, to demand you to produce true copies of the facsimile transmission mentioned in paragraph 24 of the Reply within the next 7 days, failing which we shall apply an appropriate order in the Case Management Conference on 12^th September 2017.”

82.  On 17 November 2017, the Plaintiff’s solicitors replied and stated, inter alia, that:

“…We now enclose a batch of documents which were either received by the Plaintiff via facsimile transmission or provided by the Defendant for your attention. The Plaintiff did not keep record of whether a particular document was received by fax or by hand, and the Plaintiff cannot recall the mode of receipt for each document given the long time lapse. The enclosed documents represent a full set of the documents which were referred to in paragraph 24 of the Reply to Amended Defence and which were kept in the Plaintiff’s files.” (Emphasis added.)

83.  The first page in the full set of the documents is an application form signed by the Defendant but dated 16 December 2015. This shows that the application form was only signed on 16 December 2015. The Plaintiff’s case is that the original of this document was lost by its previous solicitors, Messrs H Y Leung & Co.

84.  Mr Ho, for the Defendant, submitted that at the bottom of the 29 pages of documents disclosed, there is a faint line extending from the left to around or beyond the centre of the page. Mr Ho put it to Madam Yau that there was a time and page print-out at the bottom of the page and that line at the bottom was the result of a floppy job trying to cover up the same or similar time and page print-out on these documents. The insinuation is that these documents were faxed by Lamto to the Plaintiff and the Plaintiff had to hide this to meet the Defendant’s “agent point”.

85.  Mr Ho further submitted that a fax copy of the application form which was only disclosed in Madam Yau’s supplemental witness statement does show the print-out which contains these words and figures: “15/12/2015 18:36 #156 P.003/017”.  This indicates that there were a total of 17 pages. Madam Yau has not disclosed the whereabouts of the other 16 pages.

86.  I am of the view that these are speculative forensic points. Mr Ho has a better point that paragraph 2 of Madam Yau’s supplemental witness statement is inconsistent with paragraph 24 of the Plaintiff’s Reply to Amended Defence. In her supplement witness statement, Madam Yau for the first time deposed that on 15 December 2015, she personally met with the Defendant and the Defendant produced to her with the following documents to support his loan application:

(1)  Copy of his staff card;

(2)  Monthly salary statements of June, July and August 2015;

(3)  Hongkong & Shanghai Banking Corporation passbook;

(4)  Loan documents of United Asia Finance Limited;

(5)  Loan documents of Once Finance Limited;

(6)  TransUnion Credit Report. 

87.  The critical issue, in my view, is that given this court’s finding that there was no meeting on 15 December 2015 at the Plaintiff’s Office, it would be impossible for the Defendant to hand over the above documents to Madam Yau personally. The only way the Plaintiff could have obtained the documents set out in paragraph 86 above is that it obtained them from Lamto who was acting in concert.  That is the only plausible and irresistible inference and I so find.

88.  Seventhly, Mr Ho, for the Defendant, submitted that all the evidence relating to Mr Justin Ng is hearsay in nature. Further, this court should draw adverse inference against the Plaintiff for failing to call Mr Justin Ng as a witness. I do not find it necessary to do so because on the evidence, I have no difficulties in rejecting Madam Yau’s evidence. Overall, I also find the Defendant’s evidence credible.

89.  I find that the Defendant is a victim of a collusion between the Plaintiff and Lamto. Mr Justin Ng was the marketing manager of the Plaintiff. Whether he was remunerated on a commission basis is irrelevant. He obviously worked with Mr Gary Ho of Lamto to get the Defendant to go to KB Chau’s office to execute various loan documents. I accept the Defendant’s evidence that he first met Mr Justin Ng at KB Chau’s office on 16 December 2015. The only plausible reason why Mr Justin Ng could have obtained all the information about the Defendant for the execution of the Loan Agreement is that the same were passed to him by Lamto. They worked together to trick the Defendant. It is not a mere coincidence that both Mr Gary Ho and Mr Justin Ng were nowhere to be found. 

90.  Mr Cheng for the Plaintiff submitted that the documents disclosed by the Defendant were stamped with a “COPY” chop but the documents disclosed by the Plaintiff, save for one document, do not carry any “COPY” chop. It shows that the documents that the Plaintiff obtained did not come from Lamto but came from the Plaintiff directly. I am of the view that this is not necessarily correct.

91.  The Defendant’s evidence is that when he was asked by his solicitors as to what documents he had supplied to Lamto, as he did not keep a copy, what he did was to supply documents which, to the best of his recollection, were supplied to Lamto, and then applied a “COPY” chop to those documents. This explains why the documents he disclosed do carry a “COPY” chop but the documents the Plaintiff disclosed do not have a “COPY” chop. I find the Defendant’s evidence on this aspect plausible and believable.

92.  The same applies to the discrepancies in the number of pages of the Defendant’s disclosed bank passbook and salary statements. Mr Cheng, for the Plaintiff, submitted that given that the Defendant had forgotten about what he had supplied to Lamto, he should have disclosed all relevant documents. That might well be so with the benefit of hindsight.  However, this court cannot be too demanding on citizens who are not legally trained.

93.  Mr Cheng, for the Plaintiff, submitted that there might be a possibility that the Defendant was concurrently pursuing two loan applications, one with Lamto and one with the Plaintiff. I disagree. As I said earlier, there was no evidence that there were any direct contacts between the Plaintiff and the Defendant prior to 16 December 2015. The fact that Mr Gary Ho might have told the Defendant about two different principal sums, namely, HK$1,750,000 and HK$1,800,000 is neither here nor there. I accept Mr Ho’s submission that on the hand-written notes prepared by Mr Gary Ho, there was an entry by the Defendant “($1,800,000) 15/12” evidencing that on 14 December 2015, when Mr Gary Ho prepared the note, the intended loan was HK$1,750,000. However, the value of the Property had gone up afterwards, and hence the amount of the Loan was increased to HK$1,800,000.

94.  Mr Cheng, for the Plaintiff, also submitted that it is significant that the Defendant said he made calls to Mr Chan of Nanyang Commercial Bank for checking and follow up on 14 and 17 December 2015 respectively. Mr Cheng submitted that it shows the Defendant had taken reasonable caution and did not blindly trust Lamto, but that was never mentioned in his pleadings or witness statement. With respect, I disagree. Given that the Defendant was under the impression that Mr Chan was a staff of Nanyang Commercial Bank and Lamto was a subsidiary of Nanyang Commercial Bank, it was most natural for the Defendant to make follow up calls.

95.  Mr Cheng, for the Plaintiff, further raised the question why the Defendant did not call Mr Chan again after he found that Lamto’s office had closed down on 25 January 2016? Mr Cheng submitted that the only reasonable explanation is that the Defendant knew that the alleged Nanyang Commercial Bank number was a contact number of Lamto all along. The Defendant’s alleged communication with Mr Chan of Nanyang Commercial Bank never took place. Again, I disagree. It is most natural that when the Defendant discovered that Lamto’s office had been closed, he realized that he was a victim of a fraud. He then reported the matter to the Hong Kong Police. I do not see anything sinister in not calling Mr Chan again when the Defendant must by then realized that Mr Chan was a party to the fraud.

96.  Mr Cheng, for the Plaintiff, also submitted that it is unbelievable that the Defendant did not verify the identity of Mr Chan. I do not find that unbelievable. Victims of fraud are normally prone to trust others and with the benefit of hindsight, less than cautious.

97.  Mr Cheng, for the Plaintiff, has a stronger point on the Defendant’s case in relation to his demands for the return of the title deeds of the Property. The Defendant’s case was that he personally hand delivered the title deeds to Mr Justin Ng on 16 December 2015 in KB Chau’s office. This, on its face, does not sit well with the letter dated 17 December 2015 from Messrs. So, Ho & Co., to KB Chau which stated, inter alia, that:

“We also enclose herewith the relevant title deeds and documents as set out in the Schedule annexed hereto for your perusal. Kindly acknowledge receipt by signing and returning to us the duplicate copy in this schedule.

Please note that the said title deeds and documents are sent to you subject to your undertaking to hold the same to our order and returnable forthwith on demand pending completion.”

98.  Mr Cheng rightly submitted that the above letter cannot sit well with the Defendant’s case that he had personally delivered the title deeds to Mr Justin Ng on 16 December 2015. When being cross-examined on this, the Defendant’s evidence was that he was very certain that he did deliver the title deeds to Mr Justin Ng in KB Chau’s office. The schedule was in fact the schedule that he received from Nanyang Commercial Bank when he redeemed the Property. It was signed by him on 16 March 2015. He said that he received the title deeds from Messrs K M Lai & Li.

99.  Mr Ho for the Defendant submitted that there was no schedule annexed to the letter as discovered by the Plaintiff in its List of Documents. If the letter was correctly prepared by Messrs. So, Ho & Co and not a product of blindly adopting a standard format or template, and KB Chau did actually receive the title deeds as stated, there should be a schedule acknowledging receipt of the same by KB Chau and not by the Defendant. KB Chau has not produced such an acknowledgment of receipt and has not responded to an inquiry as to whether such an acknowledgement of receipt exists.

100.  Mr Ho also submitted that from the land search record of the Property, it is clearly shown that only a “Loan Agreement” was registered by Once Finance but not a mortgage. Indeed, the loan documentation with Once Finance did not anticipate a mortgage. There was no reason for the Defendant to pass the land title deeds to Once Finance. Hence, the letter probably just followed or adopted a standard form or template for a loan transaction where no security was provided by the borrower.

101.  With respect, I am of the view that the court cannot make such speculation. The letter is clear. It stated in no uncertain terms that Messrs. So, Ho & Co. had the title deeds. There is no good enough basis for this court to find that Messrs. So, Ho & Co was mistaken.

102.  Having said that, even if the Defendant lied on this aspect of the case, I am of the view that it does not affect the overall credibility of his case. Mr Cheng for the Plaintiff fairly agreed that a witness may lie on one or two matters, but that would not necessarily impact on the overall credibility of his case. The Defendant might have lied in a stupid attempt to bolster his case, but I am of the view that his actual case nevertheless remains good irrespective of the lie. 

103.  Similarly, I do not find that the fact that the Defendant could not offer a satisfactory answer as to why a credit report was required for a bankruptcy petition necessarily affects the overall credibility of his case.

104.  The Defendant’s evidence is not perfect. However, in general, I find the Defendant’s case to be credible. He is not astute and might have given evidence so as to bolster his case, but overall, his evidence is believable.

105.  Overall, taking all the evidence into consideration, I find that there was a collusion between the Plaintiff and Lamto to trick the Defendant into entering into the Loan Agreement. The Plaintiff and Lamto were playing the same game and cooperating with each other to enrich themselves at the expense and prejudice of the Defendant.

106.  Mr Cheng for the Plaintiff submitted that from the Company Registry, there was no trace of any relationship between the Plaintiff’s directors and shareholders and that of Lamto. I am of the view that this is irrelevant. It would be most unusual if they share the same shareholders and directors.

107.  Mr Cheng for the Plaintiff submitted that there was evidence from the Defendant that he had sent a few pages of the Loan Agreement to Mr Gary Ho upon his request by WhatsApp. Mr Cheng’s point was  that if the Plaintiff and Lamto were in fact playing the same game, it would be hard to explain why Mr Gary Ho would bother to ask for a copy of the Loan Agreement from the Defendant. He could obtain it from the Plaintiff directly. I disagree. It is equally plausible that Mr Gary Ho found it convenient and quicker to get the Loan Agreement from the Defendant. It is also plausible that Mr Gary Ho asked for the Loan Agreement from the Defendant as a tactic to stall the Defendant’s repeated demands for the payment of interest on his behalf to the Plaintiff. Mr Cheng’s submission is not the only irresistible inference to be drawn.

EFFECTIVE RATE OF INTEREST    

108.  Section 2 of the Ordinance provides:

“interest does not include any sum lawfully agreed to be paid in accordance with this Ordinance on account of stamp duty or other similar duty, but save as aforesaid includes any amount (by whatever name called) in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan.”

“principal, in relation to a loan, means the amount actually lent” (Emphasis added.)

109.  Section 24(1) and (2) of the Ordinance provides:

“Prohibition of excessive interest rates

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

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

110.  The Defendant’s case is very simple. The principal is the amount actually lent to the Defendant, namely, HK$1,800,000 minus (i) HK$49,680 (as 3 months interest retained) (ii) HK$18,000 (as Lamto’s handing fee) (iii) HK$762,320 (as insurance payment to Lamto) and (iv) HK$8,000 (as legal fees) equals to HK$962,000.  There was no dispute by Mr Cheng for the Plaintiff that the amount actually lent in this case is HK$962,000.

111.  Mr Ho submitted that interest under section 2 of the Ordinance includes the 27.6% contractual interest and any amount (by whatever name called) in excess of the principal, which amount has been paid in consideration of or otherwise in respect of a loan, namely (i) HK$49,680 (as 3 months interest retained) (ii) HK$18,000 (as Lamto’s handing fee) (iii) HK$762,320 (as insurance payment to Lamto) and (iv) HK$8,000 (as legal fees). The total effective rate of interest is therefore 114.71% (27.6% + HK$838,000/HK$962,000 x 100%).

112.  As the effective rate of interest exceeds 60%, the Loan Agreement is simply unenforceable. As such, the Plaintiff’s claims should be dismissed.

113.  The Plaintiff relies on section 27 of the Ordinance which provides:

“ (1)  Any agreement entered into between a money lender and a borrower or intending borrower for the payment by the borrower or intending borrower to the money lender of any sum for or on account of costs, charges or expenses (other than stamp duties or similar duties) incidental to or relating to the negotiations for or the granting of the loan or proposed loan or the guaranteeing or securing of the repayment thereof shall be illegal.

 (3)  Subject to section 33A(5), it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof.

 (4) If any money or money’s worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount or value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the money lender or a partner, employer, employee, principal or agent of the money lender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly) or may be recovered by the borrower from such person or from the money lender.”  (Emphasis added.)

114.  Mr Cheng for the Plaintiff submitted that pursuant to section 27(1) of the Ordinance, the legal fee of HK$8,000 should not be charged and should be deducted from the Loan. If section 27(3) of the Ordinance is engaged, namely, there was collusion between the Plaintiff and the intermediaries, the amount charged by the intermediaries, namely, HK$49,680, HK$18,000 and HK$762,320 should be set-off from the principal of the Loan pursuant to section 27(4) of the Ordinance. Hence, the effective rate of interest should be 51.64% (calculated by dividing the total contractual interest, namely, HK$496,800 with the Loan after the statutory set-off, namely, HK$962,000).

115.  It was submitted that the amount being set-off should not be taken as money being charged by the money lender and shall not be counted as interest pursuant to section 2 of the Ordinance. Otherwise, there will be double counting.

116.  A review of case law in this area shows that there are conflicting decisions on how the effective rate of interest is to be calculated after certain payments were found to be illegal under section 27 of the Ordinance, although the precise relationship between sections 2, 24 and 27 of the Ordinance and the underlying legal rationales have not been sufficiently analysed.

117.  In Easy Fortune Property Limited v Yung Chun Him, HCA 1484/2014, unreported, 12 August 2016, Recorder Pow SC (at §34) held that the HK$40,000 “set-up charge” received by persons colluding with the money lender in that case should be deducted from the principal.

118.  Most recently in Gain Wealth Global Credit & Investment Limited v Chan Suk Fong, HCA 77/2016, unreported, 21 December 2018, Deputy High Court Judge Sherrington rejected the argument of double counting (at §§98 and 99) and added the unlawfully charges to the contractual interest for the purpose of calculating the effective rate of interest under section 24 of the Ordinance (at §§100-101).

119.  On the other hand, there is a line of District Court cases which ruled that unlawful payments under section 27 of the Ordinance were to be excluded from the calculation of the effective rate of interest.

(1)  Ever-Long Finance Limited v Yeung Wah Lung (supra) involved an application to set aside a regular default judgment in respect of an unpaid loan. Deputy District Judge Simon Ho held (at §109) that there was no arguable defence that the consultancy fees (which offended section 27 of the Ordinance) paid to a person other than the money lender could form part of the interest after it was deducted from the principal, even if that person was found to be in collusion with the money lender. The Deputy District Court Judge ruled that section 27(4) of the Ordinance already provided for the legal sanction by allowing the defendant to set off such consultancy fee from the amount actually lent.

(2)  In Gain Wealth Global Credit & Investment Limited v Lam Hau Kay(supra) Deputy District Judge C To (at §116) followed Ever-Long Finance Limited v Yeung Wah Lung (supra) and held that since section 27(4) of the Ordinance had provided for a set-off for the borrower, the charge imposed by a third party (colluding with the moneylender) should not form part of the interest when the court considered section 24 of the Ordinance.

(3)  In Hong Kong Property Mortgage Limited v Ng Lai Ping Cathy DCCJ 3903/2015, unreported, 25 April 2018, Deputy District Judge C. Chow deducted the illegal charges of HK$197,120 from the principal under section 27(4) of the Ordinance. The court then arrived at the effective rate of interest by dividing the contractual interest, HK$344,407 (without adding to it the invalidated charges), by the deemed principal after deduction. Yet, the Deputy District Court Judge at §53 also referred to the definition of interest in section 2 of the Ordinance and expressed the view that the illegal charge of HK$197,120 “are in excess of the principal and have to be regarded as interest”.

(4)  In Law Shu Keung Stephen trading as Good Fortune Finance Company v Chan Yim Wai and Lam Lai Heung, DCCJ 5436/2007, unreported, 8 June 2011, Deputy District Judge K Lo accepted at §§18 and 28 that if a sum of HK$10,000 in total were charged contrary to section 27 of the Ordinance, it should be deducted from the principal. The sum did not appear to be included as interest when the court calculated the effective rate of interest under Schedule 2 and for the purpose of sections 24 and 25 of the Ordinance.

120.  I am of the view that, upon proper analysis, the correct legal position is that in calculating the effective rate of interest under sections 2, 24 and 25 of the Ordinance, the court has to take into account any amount, by whatever name called, in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan. The principal is the amount actually lent.   

121.  In the present case, the calculation is very simple. The amount actually lent was HK$962,000. The amount in excess of HK$962,000 that had been paid in consideration of or otherwise in respect of the Loan was HK$838,000. I have no doubt that this sum of HK$838,000, pursuant to section 2, has to be included as an interest element in the calculation of the effective rate of interest. Of course, on top of that, the Defendant also has to pay the contractual interest of HK$496,000.  

122.  To put it simpler, the Defendant borrowed HK$1,800,000 and he had to repay a total sum of HK$2,296,800 (HK$1,800,000 plus HK$496,800 (contractual interest)). In fact, the Plaintiff claims for “the amount of interest accrued due and unpaid is $117,054.25 as at 10^th March 2016 and further interest on the sum of $1,800,000.00 at the rate of 2.3% per calendar month (ie 27.6% per calendar year) from 11^th March 2016 and thereafter until payment” (See Paragraph 6(h) of the Statement of Claim).

123.  For this sum of $2,296,800 which the Defendant had to pay by the end of the term of the Loan, the actual amount that he received was HK$962,000. The net effect is that he borrowed HK$962,000 but has to repay a total sum of HK$2,296,800. The effective rate of interest is arrived at by dividing the total actual interest, namely, HK$1,334,800 with the actual amount lent, namely, HK$962,000 which gives an effective rate of interest of 138.75%.

124.  I am of the view that one starts the analysis by asking what is the effective rate of interest under sections 2, 24 and 25 of the Ordinance. In order to answer this fundamental question, section 27 of the Ordinance is not to be engaged. The definition of interest under section 2 of the Ordinance is very clear. It includes any amount (by whatever name called) in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan.

125.  I have no doubt that the definition of interest in section 2 of the Ordinance is cast in the widest possible terms in order to catch any payments which borrowers were made to pay to money lenders under various names or labels. The court looks at the substance not the form. In Kwok Ying Lung v Ko Chi Hung & Anor [2001] 3 HKC 480, Le Pichon JA at 490G-I said:

“The question of statutory interpretation is the meaning to be given to ‘the effective rate of interest’ in s 24 and, for that matter, s 25 of the Ordinance. Those sections are meant to strike down excessive interest rates. Given my view of the construction of Sch 2, the expression ‘effective rate’ when read literally by reference to its statutory definition, only agreements with a deemed rate calculated in accordance with Sch 2 would come within the purview of these sections. This clearly could not have been the intention of the legislature. Plainly, s 24 is meant to render unenforceable cases where the actual interest is stated and that exceeds 60%, for example, where simple interest is charged at 65% pa. That being so, the context requires that ‘effective rate’ used in s 24 (and s 25) be given a different meaning in cases where Sch 2 can have no application, ie, where the interest charged is capable of being expressed in terms of a rate. In such cases, ‘effective rate’ must mean the actual rate of interest per centum per annum.” (Emphasis added.)

126.  Interest is the cost of borrowing. If one were to ask the simple question of what the actual cost of borrowing the sum of HK$962,000 is in the present case, one gets the simple answer: HK$496,000 plus HK$838,000. There is no magic in it. One does not need to engage the set-off in section 27(4) in order to find out what the effective rate of interest is. The definition of interest in section 2 of the Ordinance is very broadly drawn and it includes the sort of charges, costs and expenses as described in section 27 of the Ordinance. However, one must not confuse a correct application of the definition of “interest” with the operation of a set-off under section 27(4) of the Ordinance.

127.  Similarly, it must be emphasised that in arriving at the sum of HK$962,000 as principal as defined under section 2 of the Ordinance, section 27(4) of the Ordinance is not engaged and the set-off thereof is not required.

128.  Section 24 of the Ordinance regulates the level of cost of borrowing (whether labelled as interest or otherwise). The bright line was drawn by the Legislature at 60%. Once it is decided that the effective rate of interest exceeds 60%, the entire loan (together with any agreement for interest or security), regardless of its size, is unenforceable. The court has no residual power to enforce the loan. This is to be contrasted with the court’s residual power to enforce a loan in contravention of sections 18(1), 22(1) and/or 23 where the court considers it to be equitable.

129.  While it might be said that the borrower would be getting a windfall, the stark consequences of breaching section 24 is clearly a policy choice made specifically to deter any lending at such extortionate rate.

130.  Further, under section 25 of the Ordinance, the court is given the power to reopen a transaction where the court is satisfied that it is extortionate. An effective rate of interest exceeding 48% gives rise to a presumption that the transaction is extortionate. Section 25 is hence, again, at least in part, directed at regulating the level of cost of borrowing.

131.  As far as section 27 of the Ordinance is concerned, I am of the view that the section gives additional and/or alternative remedies to borrowers when the requirements as set out therein are satisfied. Section 27 of the Ordinance does not give money lenders a statutory right to reduce the effective rate of interest under sections 2, 24 and 25 of the Ordinance. It was not enacted for the protection of money lenders. As a matter of construction, section 27 makes it illegal for a money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion (“Related Parties”) to demand or receive from the borrower any payment or remuneration whatsoever in relation to the procuring or obtaining of the loan, or the guaranteeing or securing of its repayment.

132.  Where any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) have been demanded or received in contravention of sections 27(1) and/or 27(3) of the Ordinance, the borrower has the following three options under section 27(4) of the Ordinance:

(1)  Set off the amount or value thereof against the amount actually lent;

(2)  Recover the amount or value thereof from the Related Parties; and

(3)  Recover the amount or value thereof from the money lender.

133.  Two points need to be highlighted. First, it is up to the borrower to elect whether to invoke his rights under section 27 and if so which option to pursue according to the circumstances of the case. One can well envisage a situation where the effective rate of interest is below 60% or even 48%, but the borrower finds it just and fair to invoke section 27(4) to pursue the options set out therein.

134.  Secondly, the wording of section 27(4), “… may be recovered by the borrower from such person or, …may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly)” mandates that the borrower has an option. The choice rests with the borrower. Money lenders do not have the right to invoke section 27(4) of the Ordinance to reduce the effective rate of interest.  Borrowers cannot be forced to invoke section 27(4) of the Ordinance which was enacted to give more protection and choices of recovery to them.

135.  In the present case, the Defendant has not even relied on section 27(4) of the Ordinance. Although the Defendant relied on section 27(1) and 27(3) of the Ordinance, he did not exercise his options under section 27(4) of the Ordinance, as such, I do not think section 27(4) of the Ordinance is even engaged. The court is not obliged to invoke section 27(4) of the Ordinance on its own motion for the benefit of money lenders. If the loan is enforceable, and there had been charges contravening section 27(3) of the Ordinance, all options under section 27(4) of the Ordinance would be open to the borrower. Where the loan is unenforceable, setting off under section 27(4) of the Ordinance would be meaningless to the borrower but the other two options remains open.  There is no double counting at all.

136.  Finally, as a matter of common and commercial sense, I am of the view that the Plaintiff’s contention will result in legal absurdities. Section 27 of the Ordinance only applies to and can only be contravened by money lenders (and Related Parties). Pushing the Plaintiff’s submissions to its logical conclusion, it would mean that money lenders could benefit from the set off provision in section 27(4) of the Ordinance and hence get themselves out of the prohibitions set out in sections 24 and 25 of the Ordinance (as the Plaintiff sought to do in the present case). However, ordinary lenders who are not money lenders as defined in section 2(1) of the Ordinance would not get such a benefit. If so, the law would be treating ordinary lenders more stringently than money lenders as defined under section 2(1) of the Ordinance. This does not make any sense to me.

137.  Another absurdity is as follows. If a money lender contravenes section 24 of the Ordinance, the subject loan will be rendered unenforceable (or in the case of section 25 will be subject to the court’s jurisdiction to reopen the transaction). However, if he or she is smart enough to collude with intermediaries, then he or she could invoke section 27(4) to reduce the effective rate of interest. I am of the clear view that there was no intention to encourage or promote collusion by the Legislature when enacting the Ordinance, in particular, section 27 of the Ordinance.  Section 27 is enacted to prevent money lenders from getting around the prohibitions under sections 2, 24 and 25 of the Ordinance by arranging for Related Parties to collect costs, charged and/or expenses on their behalf. Even when costs, charges and/or expenses were collected by money lenders’ intermediaries, the money lender can be made directly and personally liable for such sum under section 27(4) of the Ordinance. In other words, the law treats any such sum received by intermediaries as if it was received or charged by the money lender.

DISPOSITION

138.  For all the reasons stated above, I am of the view that the Loan Agreement is unenforceable. In the circumstances, I do not find it necessary to deal with sections 7, 18, 21 and 22 of the Ordinance and section 6 of the Unconscionable Contract Ordinance. Mr Ho for the Defendant did not pursue such points in his closing submissions. Accordingly, the Plaintiff’s claims are dismissed.

139.  I also make a costs order nisi that the Defendant is to have the costs of this action to be paid by the Plaintiff on a party to party basis, to be taxed, if not agreed. The costs order nisi will be made absolute unless the parties take out an application to vary the said costs order nisi within the said 14-day period.

140.  Finally, it remains for me to thank Mr Cheng for the Plaintiff and Mr Ho for the Defendant for their helpful assistance rendered to this court.