黃偉成 v. 交通銀行股份有限公司

HCSA 30/2023

[2024] HKCFI 1902

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 30 OF 2023

(On appeal from Small Claims Tribunal Claim No 3908 of 2022)

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DECISION

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Introduction

1.  Pursuant to leave granted on 12 October 2023, this is the appeal of the claimant (“Mr Wong”) against the decision of the deputy adjudicator (the “Adjudicator”) made on 27 July 2023 in the Small Claims Tribunal proceedings SCTC 3908/2022 (the “Review Decision”).

2.  The relevant undisputed factual background had been summarized by Mr Anthony Chan SC and Mr Jeff Yau, Counsel for Mr Wong, based on the Chinese decision of the Adjudicator dated 2 March 2023 (the “Decision”) and the Chinese decision of another deputy adjudicator dated 16 November 2021 in another proceedings (SCTC 19453/2020 and SCTC 19454/2020) (the “IM Decision”) commenced by Mr Wong’s wife at the material time (“Mrs Wong”):

(1)  On 31 August 2014, Mrs Wong purchased a “55^th Anniversary” beauty package from Ingrid Millet Ltd (“IM”) (the “Service Agreement”). The Service Agreement consisted of 70 treatment units at the price of HK$40,000, which was settled under a loan agreement called an instalment payment plan (the “IPP”) whereby Mrs Wong agreed, inter alia, the defendant (“BoCom”) would advance HK$40,000 to IM while she would repay the same in instalments using her supplementary credit card.

(2)  According to the findings of fact of the Small Claims Tribunal (“Tribunal”) in the IM Decision, Mrs Wong signed the IPP in the following circumstances:

(a)  IM was in the possession of documents issued by BoCom concerning the IPP including, inter alia, blank forms of the IPP.

(b)  IM’s staff followed the instructions on a document issued by BoCom and rang a telephone number stated on that document to seek BoCom’s approval on the IPP.

(c)  When BoCom’s staff asked Mrs Wong over the telephone whether she understood the terms of the IPP, she said “no” and as a result BoCom refused to give the approval.

(d)  IM’s staff then told Mrs Wong that all she needed to do was to tell BoCom’s staff she understood the terms of the IPP, which were the same as before. IM’s staff rang BoCom again and when Mrs Wong was asked over the telephone whether she understood the terms of the IPP, she answered “understood” as IM’s staff requested.

(e)  Accordingly, BoCom gave its approval and Mrs Wong then appended 6 signatures to a copy of the IPP upon IM’s staff’s request.

(3)  In around September 2014, Mr Wong, who was the principal credit cardholder and liable for debts incurred on Mrs Wong’s supplementary card, found out about the purchase and disputed the sales practices employed by IM. He refused to settle the sum under the IPP and made several requests (on behalf of and with Mrs Wong’s authority) to BoCom to cancel the IPP and cease payment to IM, which BoCom refused.

(4)  At around the same time in 2014, and by January 2015 at the latest, notice of rescission of the Service Agreement was also given to IM.

(5)  On 11 March 2016, BoCom, despite having received notice of rescission of the IPP, deducted a sum of HK$49,815.24 (the “Sum”) from Mr Wong’s savings account maintained with BoCom including (a) a sum of HK$40,000 and (b) HK$9,815.24 being other charges arising therefrom.

(6)  On 16 November 2021, the Tribunal held (in the IM Decision) that, inter alia, the Service Agreement was vitiated by IM’s fraudulent misrepresentation (i.e. the omission by IM’s staff to disclose to Mrs Wong the material fact that one treatment may require consuming more than one treatment unit when a reasonable person would believe only one treatment unit would be required per treatment), which IM made to Mrs Wong to induce her to enter into the Service Agreement.

(7)  The Tribunal awarded to Mrs Wong the full price of the Service Agreement (HK$40,000), the remaining value of the expired upgraded treatment packages (HK$24,750) plus interest on such sums. However, the Tribunal refused to award the late payment interest and clearance fees incurred as a result of the IPP (HK$9,955.96 and HK$4,730).

(8)  IM paid the sum ordered in the IM Decision and did not appeal.

(9)  On 11 February 2022, Mr Wong commenced the present proceedings against BoCom in the Tribunal claiming for, inter alia, late payment interest, the clearance fees, miscellaneous charges and interest which BoCom had wrongfully deducted from him as a result of his refusal to settle the sum said to be due under the IPP.

(10)  The Adjudicator dismissed Mr Wong’s claim. On Mr Wong’s main argument that BoCom’s deduction was wrongful because the IPP was invalid as the Service Agreement had been rescinded, the Adjudicator held that the fraudulent misrepresentation by IM to Mrs Wong that vitiated the Service Agreement could not be relied upon to rescind the IPP.

(11)  On 2 March 2023, Mr Wong applied to review the Decision. Mr Wong relied mainly on the case of Durkin v DSG Retail Ltd [1]. In the Review Decision, the Adjudicator held that Durkin was inapplicable to the present case.

Ground of Appeal

3.  Mr Wong’s appeal against the Review Decision involves a question of law:

“The Adjudicator erred in law in rejecting [Mr Wong’s] claim that [BoCom] had on 11 March 2016 wrongfully deducted [the Sum] said to be due and owing to [BoCom] by virtue of the Credit Card Agreement and the IPP from the Mr Wong’s saving account maintained with [BoCom]:-

(1) The Adjudicator’s undisturbed finding of fact was that [Mrs Wong] signed [the IPP] for the sole purpose of financing a specific supply contract of goods and services, i.e. [the Service Agreement] from [IM]: Review Decision §18. Accordingly, he erred in law in that he ought to have found that in the class of contractual relationship whereby a credit agreement (such as the IPP) is entered solely to finance a specific supply contract (such as Service Agreement), the Court would imply in law a term (“Implied Term”) as a legal incident of the relationship concerned that the credit agreement’s survival is conditional upon the survival of the specific supply contract such that on the rescission of that specific supply contract for breach of contract and/or misrepresentation, that credit agreement would also be rescinded. See Durkin v DSG Retail Ltd [2014] 1 WLR 1148 at §§26 & 28 (Lord Hodge).

(2) Alternatively, the Adjudicator erred in law in that he ought to have implied in fact the Implied Term into the IPP. More particularly, the Adjudicator erred in law (see Review Decision §§14-21) in finding that the Implied Term (a) was not necessary to give business efficacy to the IPP; (b) was contradicted by the IPP’s express terms properly construed or (c) unreasonable and inequitable.

(3) Had the Adjudicator not erred in law as aforesaid, he would have concluded that [Mrs Wong] was entitled to and did validly rescind both Service Agreement and the IPP and accordingly [BoCom] was not entitled to deduct the Sum it did on 11 March 2016 as aforesaid, as such entitlement was predicated on the IPP, and it follows, [BoCom’s] said deduction constituted a breach of the Credit Card Cardholder Agreement between the [Mr Wong] and [BoCom] (the “Credit Card Agreement”) or alternatively, unjust enrichment at [Mr Wong’s] expense without any justification or defence.”

Durkin v DSG Retail Ltd and Anor

4.  Mr Wong relies heavily on the case of Durkin v DSG Retail Ltd and Anor[2]. In the UK Supreme Court case, the claimant had bought a computer by paying a £50 deposit and funding the remainder of the purchase price by entering into a debtor-creditor-supplier agreement with the bank within the definition of section 12(b) of the Consumer Credit Act 1974 (the “1974 Act”) . He had been told by the shop that he could return the computer if it did not have an internal modem. The following day, when he discovered that the computer did not have an internal modem, he tried to return it. The shop refused to accept his rejection of the computer and did not cancel the credit agreement. The claimant made no payments, informing the bank that he had rescinded both the contract of sale and the credit agreement. Without making any enquiries about that assertion, the bank treated the claimant as in default and notified the United Kingdom credit reference agencies, who recorded the claimant's alleged default on their registers.

5.  The claimant brought a small claims action against the shop and recovered his deposit by way of settlement. However, the claimant subsequently found that he was prevented from opening new accounts with credit card companies due to the entries on the credit registers. The claimant claimed that he had validly rescinded both the contract of sale and the credit agreement and claimed damages from the bank for its negligent misrepresentation to the credit reference agencies. He sought damages for injury to his credit rating; for interest charges incurred because he had been unable to take up offers of zero per cent credit cards; and for losses caused by his inability to put down a deposit on a house.

6.  In Durkin, Counsel for the bank submitted that in order for the claimant to obtain his remedy if the contract of sale was rescinded and the credit agreement was not[3]:

(1)  The claimant may commence an action against the supplier to recover his deposit on the basis of unjust enrichment and seek damages for breach of contract, including the loss he had incurred under the credit agreement.

(2)  The claimant may commence a claim under section 75 of the 1974 Act against the creditor for the loss arising from the supply agreement, who then counterclaims for the sums outstanding under the credit agreement and makes a third-party claim against the supplier.

(3)  The creditor may sue the debtor for the outstanding sums under the credit agreement who may in response plead a section 75 claim for damages to offset the creditor’s claim.

7.  Lord Hodge, in his judgment, held[4] that:

“23. It is not consistent with the policy of the 1974 Act that the debtor in a case such as this should have to work out the consequences of the rescission of the supply contract in such a complex way. In my view he does not have to. Section 11(1)(b) of the 1974 Act states that the purpose of the restricted-use credit agreement, such as the agreement in this case, is to finance a transaction between the consumer and the supplier. Where, as here, the contract is tied to a particular transaction, it has no other purpose.

24. The rescission of the supply agreement excuses the innocent party from further performance of his obligations (if any) under the supply agreement … and entitles him to [restitution] of sums paid and damages …

25. In most cases the consumer's acceptance of the repudiation of a supply agreement does not frustrate the credit contract by analogy with the coronation case, Krell v Henry [1903] 2 KB 740, because the creditor will have paid the supplier and the purpose of the credit agreement will have been fulfilled by the purchase of the goods, before the consumer rescinds the supply contract. But that does not mean that the debtor has no remedy.

26. It is inherent in a debtor-creditor-supplier agreement under section 12(b) of the 1974 Act, which is also tied into a specific supply transaction, that if the supply transaction which it financed is in effect brought to an end by the debtor's acceptance of the supplier's repudiatory breach of contract, the debtor must repay the borrowed funds which he recovers from the supplier. In my view, in order to reflect that reality, the law implies a term into such a credit agreement that it is conditional on the survival of the supply agreement. The debtor on rejecting the goods and thereby rescinding the supply agreement for breach of contract may also rescind the credit agreement by invoking this condition …

27. I am satisfied therefore that Mr Durkin was entitled to rescind the credit agreement.”

8.  It was thus held by the Supreme Court that it was an implied term of a restricted-use credit agreement under section 12(b) of the 1974 Act, which related to a specific supply transaction, that the credit agreement was conditional upon the survival of the supply agreement; that, therefore, a debtor, on rejecting goods and thereby rescinding the supply agreement for breach of contract, could also rescind the credit agreement by invoking that condition; and that, accordingly, in the circumstances, the claimant had been entitled to rescind and had validly rescinded the credit agreement with the bank.

Mr Wong’s argument

9.  Mr Chan, relying on Durkin, contended that where a credit agreement was entered into for the sole purpose to finance a specific supply contract of goods or services, the credit agreement would contain a term implied in law that it was conditional upon the survival of that specific supply contract (i.e. the Implied Term). It was submitted that the Adjudicator erred in:

(1)  failing to appreciate the distinction between implying a term in law and implying a term in fact.

(2)  Concluding that the Implied Term was inconsistent with the terms of the IPP.

10.  Mr Chan emphasised in his submissions that as the sole purpose of the IPP was for payment of the Service Agreement, once the Service Agreement is terminated (for whatever reason), the substratum of the IPP is lost. The IPP would serve no purpose if the Service Agreement is rescinded.

11.  It was submitted that the Implied Term in the present case should be an implied term in law, i.e. as a legal incident to a class of contractual relationship generally based on broader considerations such as reasonableness, fairness and the balancing of competing policy objectives.

12.  Alternatively, even supposing the Implied Term could only be implied in fact, it was submitted that the Adjudicator erred in law in failing to imply the Implied Term on the facts of the present case. The Adjudicator failed to ask himself the correct questions, namely (a) whether it is necessary to give effect to the reasonable expectations of the parties and/or (b) whether it is what a reasonable person would understand the contract to mean[5]. As such, the Adjudicator failed to undertake an inquiry into the said questions; instead, he wrongly focused on whether the IPP would be unworkable in practice.

13.  As to the inconsistency between the Implied Term and the terms of the IPP, it was submitted that as the Adjudicator found as a matter of fact (from which there was no appeal) that Mrs Wong had signed the IPP for the sole purpose of financing the Service Agreement, it follows from that finding of fact and on the strength of Durkin[6], that the only conclusion open to him was that the Implied Term was not expressly excluded by the terms of the IPP on their proper purposive and contextual construction.

14.  Mr Chan submitted that as none of the express terms had excluded the situation where the Service Agreement was rescinded by fraudulent misrepresentation, the Implied Term has not been excluded.

BoCom’s argument

15.  Mr Norman Nip SC and Mr Brian Chok, Counsel for BoCom, submitted that the appeal should be dismissed on the grounds that:

(1)  The Implied Term should not be implied in law in Hong Kong due to different policy considerations.

(2)  In any event, the Implied Term contradicts the express terms.

(3)  The Implied Term should not be implied in fact as it fails to meet the relevant tests.

16.  Mr Nip submitted that due to the following, the Implied Term should not be implied in law due to the different policy considerations in the UK and in Hong Kong.

(1)  The judgment of Lord Hodge in Durkin had in mind the 1974 Act, in particular, section 75(1) which imposes on the bank a joint and several liability together with the supplier:

“If the debtor under a debtor-creditor-supplier agreement falling within section 12(b) … has, in relation to a transaction financed by the agreement, any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a like claim against the creditor, who, with the supplier, shall accordingly be jointly and severally liable to the debtor.”

(2)  The 1974 Act was based on the recommendation of the Report of the Committee on Consumer Credit chaired by Lord Crowther in 1971 (the “Crowther Report”). The relevant recommendation from the Committee was:

“We therefore recommend that where the price payable under a consumer sale agreement is advanced wholly or in part by a connected lender that lender should be liable for misrepresentations relating to the goods made by the seller in the course of antecedent negotiations, and for defects in title, fitness and quality of the goods. Further, we consider that where the sale and the loan are made by separate contracts, the borrower should nevertheless have the right to set off against any sum payable by him under the loan contract any damages he is entitled to recover from the lender for breaches of the sale agreement by the seller.”

(3)  As such, under the recommendation, the claim against a lender is derived from the seller’s breach of contract or misrepresentation and is not a claim relating to the credit agreement or the actions of the creditor.

(4)  Lord Hodge’s reasoning of “…if the supply transaction which it financed is in effect brought to an end by the debtor’s acceptance of the supplier’s repudiatory breach of contract, the debtor must repay the borrowed funds which he recovers from the supplier. In my view, in order to reflect that reality, the law implies a term into such a credit agreement that it is conditional on the survival of the supply agreement.” is based on the characteristics of a debtor-creditor-supplier agreement under section 12(b) of the 1974 Act. It is thus not the case that such reasoning would apply in general at common law to all such credit agreements.

Analysis – Implied term in law

17.  Implication of a term in law is made as a legal incident to a class of contractual relationship generally, based on considerations such as reasonableness, fairness and the balancing of competing policy objectives. Courts may imply a term as a necessary incident of the relationship concerned, unless the parties have expressly excluded it[7].

18.  The 1974 Act is one of the statutes in the UK regulating consumer credit. The 1974 Act is a direct result of the Crowther Report which adopted the approach of making the bank answerable in damages for misrepresentations made by the seller in antecedent negotiations and for breaches of any term of the supply agreement[8].

19.  Section 11 of the 1974 Act lists out 3 types of restricted-use credit agreement and unrestricted-use credit agreement. Of relevance is section 11(1)(b) which is a regulated consumer credit agreement to finance a transaction between the debtor and a person (the supplier) other than the creditor.

20.  Section 12(b) of the 1974 Act provides:

“A debtor-creditor-supplier agreement is a regulated consumer credit agreement being— … (b) a restricted-use credit agreement which falls within section 11(1)(b) and is made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier …”

21.  Section 75 of the 1974 Act offers protection for consumers who make purchases involving a credit agreement, typically with a credit card. Such protection includes making a claim to both the supplier and the bank to recover losses, as the bank is expressly made to be jointly and severally liable to the purchaser under the 1974 Act. The relevant portion of section 75 of the 1974 Act provides:

“(1) If the debtor under a debtor-creditor-supplier agreement falling within section 12(b) or (c) has, in relation to a transaction financed by the agreement, any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a like claim against the creditor, who, with the supplier, shall accordingly be jointly and severally liable to the debtor.

(2) Subject to any agreement between them, the creditor shall be entitled to be indemnified by the supplier for loss suffered by the creditor in satisfying his liability under subsection (1), including costs reasonably incurred by him in defending proceedings instituted by the debtor.”

22.  Hong Kong does not have any equivalent legislation or protection.

23.  There can be no dispute that Lord Hodge’s reasoning for implying a term was based firmly with the 1974 Act and the recommendations of the Crowther Report and their rationale in mind. This can be seen from the fact that after holding that the purchaser had no right to rescind the credit agreement under section 75 of the 1974 Act (as the claim against the bank was derived from the supplier’s misrepresentation or breach of contract and was not a claim relating to the credit agreement or the actions of the bank), Lord Hodge expressly rejected the suggested alternative remedies recommended by the bank’s counsel as they were considered as too convoluted and not consistent with the policy of the 1974 Act[9].

24.  Lord Hodge then analysed that if a debtor-creditor-supplier agreement that falls within section 12(b) of the 1974 Act is brought to an end by the debtor’s acceptance of the supplier’s repudiatory breach of the supply contract, and when the debtor recovers damages from the supplier, he must repay to the bank the sum that had been paid by the bank to the supplier[10]. This means that the credit agreement is also necessarily rescinded as well.

25.  Lord Hodge went on to comment that the reality was that the credit agreement would also necessarily come to an end upon the rescission of the supply agreement. It was on that basis that Lord Hodge came to the conclusion that to reflect this reality, the law implies a term into such a credit agreement that it is conditional on the survival of the supply agreement.

26.  Mr Chan argued that although the reasoning was made by Lord Hodge with a debtor-creditor-supplier agreement that falls within section 12(b) of the 1974 Act in mind, it should equally apply even if the 1974 Act is not in existence, as in the case of Hong Kong.

27.  I agree with Mr Chan to the extent that in cases involving a debtor-creditor-supplier agreement that fall within the exact factual scenario described by Lord Hodge, his reasoning would apply by way of a common law remedy, even where the protection under the 1974 Act is not available. The common law simply implies a term that reflects the reality of the operation and consequence of such debtor-creditor-supplier agreement (where the credit agreement would necessarily come to an end upon the rescission of the supply agreement). The imposition by section 75 of the 1974 Act of joint and several liability against a creditor does not affect the operation of such contracts.

28.  However, it needs to be borne firmly in mind that if the court were to hold that the implied term in law is to be applicable to such class of contracts in this present case, it will have the force of precedent in relation to all contracts of the same type in Hong Kong. Hong Kong courts are not bound by the development of common law in other jurisdictions and it is a matter for the Hong Kong courts as to how our common law should be developed, taking into account the local legal and societal circumstances[11].

29.  Therefore, before the court decides to adopt the reasoning of Lord Hodge in implying a term into a debtor-creditor-supplier agreement that falls within section 12(b) of the 1974 Act in all similar contracts in Hong Kong, one must be satisfied that the position in Hong Kong, despite not having a 1974 Act counterpart, is the same as that in the UK.

30.  I am of the view the position in Hong Kong is different such that the reasoning of Lord Hodge cannot be applied across the board in a similar type of contract in Hong Kong:

(1)  As Lord Hodge observed: “In most cases the consumer’s acceptance of the repudiation of a supply agreement does not frustrate the credit contract … because the creditor will have paid the supplier and the purpose of the credit agreement will have been fulfilled by the purchase of the goods, before the consumer rescinds the supply contract.”[12]

(2)  However, Lord Hodge was of the view that despite the usual position, if the agreement falls under the type of debtor-creditor-suppler agreement regulated under the 1974 Act, if the supply contract is brought to an end by the debtor’s acceptance of the supplier’s repudiatory breach, the debtor must repay the borrowed funds which he recovers from the supplier. The reality is therefore the credit agreement also comes to an end. Therefore, to reflect such reality, a term that the credit agreement is conditional on the survival of the supply agreement is implied. It is noted that having implied such a term, it was not necessary for his Lordship to consider further alternative non-contractual remedies or analysis based on other principles such as restitution or trust.

(3)  However, the UK “reality” referred to is not necessarily that in Hong Kong.

(4)  In Hong Kong, not only do we not have any legislation which can be seen as similar to the 1974 Act, there was not even any consideration or consultation that contemplated adopting in Hong Kong a similar policy as that was canvassed in the Crowther Report.

(5)  The Hong Kong Monetary Authority (the “HKMA”) has issued Circular B9/67C dated 16 August 2010 (the “Circular”), offering guidance to all authorized institutions concerning instalment payment plans for the supply of goods or services. The HKMA recognised that institutions offering such instalment payment plans would be at risk, when the full amount of the pre-paid amount has been advanced to the customer but the merchants have gone out of business before the services have been fully delivered.

(6)  It is also recognised that “The terms and conditions of [instalment payment plans] vary …”. This suggests that institutions are free to contract on their own terms. Some terms may provide that the instalment payment plan will come to an end upon the rescission of the service agreement, whilst some do not.

(7)  In the Circular, the HKMA then went on to recommend that to manage such risks, the relevant terms be clearly set out in accordance with the Code of Banking Practice, such that the following terms should be set out in plain language and readable format:

(a)  The instalment payment plan is a loan agreement;

(b)  The customer agrees to pay for services which may be delivered at a later date.

(c)  The instalment amount will be counted against the customer’s credit limit.

(d)  whether the customer will be able to stop repayment obligations if the services are not delivered by the merchant.

(e)  The customer will not enjoy chargeback protection.

(8)  The above content in the Circular shows that it is within the contemplation of institutions within the banking industry as well as the HKMA that such instalment payment plans do sometimes contract with the customers on the basis that regardless of whether the services are provided by the merchant, the payment obligation continues. In other words, if the terms so provide, the credit agreement does survive even when the service contract between the customer and the merchant is terminated.

(9)  The overall attitude of prioritising consumers’ interest is apparent in the UK, as evidenced by the 1974 Act. This is why Lord Hodge’s analysis of what is the “reality” when a service agreement is rescinded may be non-controversial, or even widely accepted, when one is considering the situation in the UK.

(10)  Whilst that may be true in the UK, it does not seem to be the case in Hong Kong, at least not for contracts which have expressly provided for the survival of the credit agreement even in the event of breach or non-performance of a service contract.

(11)  This is precisely the scenario in the present case: Mrs Wong had asked for a loan from BoCom for the purposes of paying IM the price of the Service Agreement. HK$40,000, being the package price for the Service Agreement was paid over to IM immediately upon BoCom’s approval of the IPP on 31 August 2014. As such, when the Service Agreement was rescinded, there was no further obligation from Mrs Wong (vis-à-vis IM), as the entirety of the package price of HK$40,000 had been paid over.

(12)  Although the IPP was tied to the Service Agreement in the sense that it was solely for payment of the Service Agreement, the purpose of the IPP had already been fulfilled on 31 August 2014 as BoCom had already paid IM the full price of HK$40,000.

(13)  What remained was Mr Wong’s (as the principal credit card holder) obligation to repay BoCom. Despite Clause 7 of the IPP stipulating that the first instalment shall be debited immediately to the credit card account, and each subsequent instalment shall be debited in each following month, for some reason, the deduction by BoCom from Mr Wong’s savings account of the entire HK$49,815.24 only took place on 11 March 2016. Mr Wong’s repayment obligation was thus completed when BoCom deducted the HK$49,815.24 (principal of HK$40,000 plus interests and charges) from Mr Wong’s savings account on 11 March 2016. After that, the obligations of BoCom and Mrs Wong under the IPP had completed.

(14)  In such circumstances, after Mrs Wong received the HK$40,000 from IM 5 years later in 2021, there was no longer any need for her to repay BoCom, as envisaged by Lord Hodge in Durkin[13].

(15)  Based on the above, I do not consider the implication of the term in Lord Hodge’s analysis as a common law development, but rather a position that was a consequence of the 1974 Act.

31.  I am thus of the conclusion that it would be inappropriate, in the present set of facts, in particular, with regard to how the IPP was designed to operate in the present case, to have the Implied Term (in the current form and definition) as advocated by Mr Chan.

32.  I am further of the view that if one were to apply Lord Hodge’s logic of implying a term to reflect the reality – the reality in Hong Kong, upon the rescission of an underlying service agreement, depending on the terms of the particular credit agreement, may be different from that in Durkin, and thus Lord Hodge’s reasoning for implying a term into such credit agreement cannot be applied across the board in Hong Kong.

33.  This conclusion is perhaps inevitable in light of how the IPP operates, as opposed to the way the credit agreement operated in Durkin. The difference in operation is perhaps due to the difference in how such credit agreements are regulated in Hong Kong and the UK.

34.  This ties in with Mr Nip’s argument that in Hong Kong there is no equivalent legislation as the 1974 Act and the degree of consumer protection is different. As such, Mr Nip cautioned, and I accept, that there should not be judicial legislation by courts where the legislature has not chosen to codify in law how such instalment payment plan should be regulated.

35.  As a result, although it might be said that the Adjudicator had applied the test for implied terms in fact rather than implied terms in law[14] in his analysis, I am of the view that the outcome is not affected, as the reasoning applied by Lord Hodge cannot be applied across the board to all such debtor-creditor-supplier agreements in Hong Kong.

36.  It might be said that the result might be seen as unfair to a consumer. However, when the court undertakes the exercise of construing a contract for the purpose of determining whether a term ought to be implied into it, one must take into account the proper contextual background against which the contract was entered into by the parties[15].

37.  A term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that parties would have agreed it if it had been suggested to them[16]. The process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. Necessity is not established by showing that the contract would be improved by the addition.[17]

38.  I also note that, as in the case of Durkin, the consumer is not left without alternative remedy. Mrs Wong in the present case, if so advised, could consider commencing action against IM, for the damages she suffered under the IPP by reason of the rescission of the Service Agreement due to fraudulent misrepresentation on the part of IM. This was in fact what Mrs Wong did in SCTC 19453/2020 and SCTC 19454/2020. However, the Adjudicator held[18] (in my view correctly) that the fraudulent misrepresentation by IM did not lead to the rescission of the IPP, which remained subsisting. As such, Mrs Wong’s obligations under the IPP, and Mr Wong’s obligation as primary credit card holder for repayment remained. Before damages can be sought against IM, Mrs Wong and/or Mr Wong should have mitigated their loss under the IPP. This they had not demonstrated at trial. It was held that the interest and charges imposed were due to Mr Wong’s refusal to make repayment according to the repayment schedule. If they had paid the monthly instalments promptly, there would not have been overdue interest or charges due from late payment. It was on such basis that Mrs Wong’s claim for damages was dismissed.

39.  The law has many ways of addressing apparent injustice, if it is found that there is an injustice that needs to be corrected. However, since Mr Wong’s case in the Tribunal was based on contractual remedies only, it would be inappropriate to consider at this juncture whether non-contractual remedies such as trust and restitution would lead to a different result.

Inconsistency with express terms

40.  Even if I were wrong on the applicability of Lord Hodge’s reasoning in Durkin to the present case such that the Implied Term operates in law, I am of the view that in the present case, such Implied Term is contrary to the express terms of the IPP and is thus excluded. The relevant terms of the IPP are:

(1)  The confirmation by Mrs Wong (by signing on the IPP application form against each of the following) that she has read and understood the following conditions, which are in English and Chinese:

-  “I understand that this instalment plan application form is a loan agreement between [BoCom] and me, under which [BoCom] advances the pre-paid amount to me and pays the full amount to the merchant, while I undertake to repay the amount to [BoCom] in instalments through my credit card.”

-  “I understand that I will not be able to stop payment to [BoCom] even if the goods or services contracted for are not delivered by the merchant.”

-  “I understand that I will not enjoy chargeback protection.”

-  “I unconditionally authorize [BoCom] to pay the Merchant (in any manner that [BoCom] may decide upon with Merchant) the purchase price for the Product(s)…”

(2)  The risk disclosure (both in English and Chinese):

-  “Please note that… the Instalment Purchase transaction is not protected by chargeback arrangement. You may therefore suffer loss if the relevant merchant(s) cannot wholly or partially provide the goods and/or services to you.”

-  “Instalment Purchase is in the form of loan provided to you by [BoCom]. [BoCom] will make payment of the full price of the Instalment Purchase to the merchant(s) on your behalf and you are wholly liable to fully repay the monthly instalments under the Instalment Purchase to [BoCom] by using your credit card and/or other obligations to [BoCom] regardless of whether the relevant goods and/or services are subsequently delivered to you by the relevant merchant(s).”

(3)  The terms and conditions (both in Chinese and English) which were overleaf of the application form, in particular:

-  Clause 5: “Once the Instalment Purchase is completed, you hereby irrevocably authorize [BoCom] make payment of the full price of the instalment Purchase to the Merchant. For avoidance of doubt, a credit card sales draft or Interest-Free Instalment Plan Application Form signed by you or other means acceptable by [BoCom] may evidence the completion of the Instalment Purchase.”

-  Clause 6: “Once the application for an Instalment Purchase is approved by [BoCom] and before the relevant Instalment Plan is settled in full, the purchase of the Products cannot be cancelled, refunded or altered. The credit limit of Credit Card Account will be reduced by the purchase price accordingly.”

-  Clause 14: “[BoCom] shall not be liable in any way for, and make no representation as to, the provision, quality or performance of any goods, facilities and/or services in connection with the Products. [BoCom] is not acting as an agent for the Merchant. If you have any complaint arising from the Products, you should resolve the complaint directly with the Merchant and [BoCom] will continue to debit the monthly instalments to your Credit Card Account. No claim from you against the Merchant and/or other parties shall affect your obligation to repay the monthly instalments and/or other obligations to [BoCom].”

41.  It can be seen from the above that BoCom had undertaken the steps as recommended by the HKMA in the Circular and had spelt out the following in no unclear terms:

(1)  The IPP is a loan agreement between Mrs Wong and BoCom where BoCom advances the full amount to IM, but allows Mrs Wong to repay BoCom by instalment.

(2)  Upon signing the IPP application form, Mrs Wong had authorised BoCom to make full payment to IM immediately.

(3)  Mrs Wong will not be able to stop monthly repayment even if IM does not deliver the services.

(4)  Mrs Wong may not ask BoCom to help apply for a refund if there is a dispute over the transaction with IM.

(5)  Mrs Wong may suffer loss if IM does not deliver the services.

(6)  Mrs Wong’s obligation to make repayment to BoCom is not affected by Mrs Wong’s claim against IM.

(7)  Mrs Wong cannot rely on a claim against IM to avoid fulfilling her repayment obligations under the IPP.

42.  Mr Chan argued that the IPP did not contain any express term that provides for circumstances where the Service Agreement was rescinded by fraudulent misrepresentation, and hence, the Implied Term cannot be said to have been excluded by the terms of the IPP. I do not agree:

(1)  In considering whether the Implied Term was expressly excluded, the exercise includes considering whether it is “inconsistent with the express provisions” [19]. It is “a cardinal rule that no term can be implied into a contract if it contradicts an express term”[20]. A contradiction, or inconsistency, can for this purpose take one of two forms: direct linguistic inconsistency or substantive inconsistency. An inconsistency is linguistic where the wording of the proposed implied term contradicts or cannot be reconciled as a matter of language or grammar with one or more of the express terms of the contract. Substantive inconsistency is more difficult to define but it arises where the proposed implied term does not fit with the substance of the parties’ rights and obligations under the express terms of the contract or their express allocation of the risk of the occurrence of a particular event[21].

(2)  It is thus not sufficient to simply look at whether the exact formulation as advocated by Mr Chan (where the IPP had been rescinded by fraudulent misrepresentation) was included in the IPP as an express term. Even if there is no linguistic inconsistency, one needs to proceed to consider if there is substantive inconsistency.

(3)  I consider the Implied Term to be both linguistically and substantively inconsistent with the express provisions of the IPP.

(4)  As found by the deputy adjudicator in the IM Decision, the Service Agreement was rescinded by reason of IM’s fraudulent misrepresentation. It was clearly set out in Clause 14 of the IPP that BoCom makes no representation as to the provision of services by IM. Mrs Wong acknowledged that she had to resolve the dispute directly with IM. Importantly, it is set out clearly that regardless of any complaint or disputes that Mrs Wong may have, BoCom will continue to debit the monthly instalments, and no claim against IM will affect Mrs Wong’s obligation to repay. As such, I am of the view that Clause 14 is expressly against any suggestion that where a credit agreement was entered into for the sole purpose to finance a specific supply contract of goods and services, a credit agreement is conditional upon the survival of a specific supply contract.

(5)  Even if I were wrong in my view that Clause 14 is expressly against the Implied Term, the Implied Term still does not fit with the substance of the parties’ rights and obligations under the express terms of the IPP or their express allocation of the risk of the occurrence of a particular event. As such, it is substantively inconsistent with the express terms of the IPP:

(a)  Upon signing the IPP, Mrs Wong irrevocably authorised BoCom to make payment to IM and the actual delivery of goods/services had no bearing on BoCom’s payment obligation to IM or Mrs Wong’s obligation to make repayment.

(b)  Mrs Wong could not stop the payment from BoCom to IM whether or not the goods/services were supplied.

(c)  No refund would have been possible in any event.

(d)  Mrs Wong’s repayment obligation is independent of whether she could successfully claim against IM, whatever the basis of the claim is.

43.  In Durkin, the terms of the credit agreement are different: the bank had the right to withhold payment to the supplier until it was satisfied that the goods and/or services have been supplied to the satisfaction of the buyer. There is no mention in the judgment of any other terms in the credit agreement concerning the eventualities of non-performance of obligations by the merchant as the IPP did in the present case.

44.  I thus reject the ground of appeal that the Implied Term (in the current form and definition) ought to have been implied in fact.

Conclusion

45.  Based on the above, I would dismiss the appeal. Costs follow the event. I make a costs order nisi that the Respondent should have costs of the appeal, with certificate for two counsel, to be taxed, if not agreed.

46.  I thank counsel for their most helpful assistance.