XCHRX ETABLISSEMENT AMRA v. YIU YAU PING

1995, No. A374

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

__________

__________

JUDGMENT

__________

Introduction

I have several summonses before me; under Orders 14, 23, 29 and 32. Counsel agreed that I should hear the Order 14 summons first because what I decide there may have an impact on the decisions to be made in relation to the other summonses. Accordingly, I adjourned the hearing of the other summonses sine die pending my decision in the Order 14 proceedings.

Order 14 Summons

2. In the amended Order 14 summons, the plaintiff claims final judgment against the defendant for the amount claimed in the amended statement of claim.

The Amended Statement of Claim

3. The amended statement of claim alleges that, between September and November 1994, the defendant received on behalf of the plaintiff a total sum of $4.82 million from Neworld Estate Limited (Neworld). The defendant paid $250,000 of this sum to the plaintiff and asked to borrow the balance of $4.57 million. Consequently, the plaintiff and the defendant entered into a loan agreement on 23 November 1994 (the first agreement) recording a loan of $1 million. On 24 November 1994, another loan agreement (the second agreement) was entered into by the parties recording a loan of $3.57 million. In the alternative, the plaintiff claims the sum of $4.57 million from the defendant on the basis that the sum was received by the defendant from Neworld to the use of the plaintiff.

The Defendant's Response

4. Regarding the first agreement, the defendant says that the plaintiff advanced $1 million to Tact Shing Trading Company Limited (TST) as evidenced by a loan agreement dated 16 February 1994 (the TST agreement). In July, 1994, the defendant asked Mr Naville of the plaintiff to agree to "transfer" this loan from TST to Penlingford Estate Limited (Penlingford). This was agreed, and on 1 August 1994 a loan agreement (the Penlingford agreement) was signed by Penlingford and Mr Naville. Pursuant to this, TST paid $1 million to Penlingford on 8 August 1994. On or about 5 October 1994, Mr Naville visited Hong Kong and spoke to the defendant. Mr Naville expressed concern regarding the ability of Neworld and Penlingford to repay the loans. Mr Naville told the defendant that the lender under the Penlingford agreement should be the plaintiff, not him personally. Mr Naville suggested that a fresh loan agreement should be prepared to replace the Penlingford agreement. The defendant says that "Mr Naville suggested that as a matter of formality, this fresh loan agreement be made in the name of the plaintiff and also in my name although I was not the real borrower. I understood Mr Naville to mean that the plaintiff would continue to treat the Penlingford Loan Agreement as valid and subsisting but may go after me in the event Penlingford defaults in making payment. At that time, due to the good working relationship I had with Mr Naville, I did not see any problem in Mr Naville's suggestion and I was quite ready to accommodate him. Besides, I was at all material times under the belief and understanding that Penlingford, and not me, was the true borrower of the said loan of HK$1 million. I did not see any problem in lending my name to Penlingford and I believed that Penlingford would duly and fully repay the said loan of $1 million". As a result of this, he and Mr Naville gave instructions to a solicitor to draw up the first agreement.

5. In relation to the second agreement, the defendant says that he succeeded recovering $3.57 million from Neworld. In his affirmation, he says - "I succeeded", but the particulars he gives indicate that the money was received by TST. He discussed this with Mr Naville and asked him if the plaintiff was willing to advance this money to TST. The defendant offered interest at the rate of 4% a month. Mr Naville agreed. The defendant says - "Mr Naville saw no point in again instructing a solicitor to prepare such a written loan agreement. He therefore used the said loan agreement dated 23 November 1994 as a base or draft and modified it in such ways as he thought fit." As a result, the second agreement dated 24 November 1994 was signed. The defendant goes on to say - "When the said loan of HK$3.57 was negotiated and agreed, it was the mutual understanding and indeed our agreement that the loan was to be made to TST and not me in my personal capacity."

The Defences

6. The defendant has not filed a draft defence, but Mr Yuen argues that, on the evidence before me, the defendant has open to him a number of defences.

Under the Money Lenders Ordinance, Chapter 163.

8. Mr Yuen says that the defendant has a good arguable defence under the Money Lenders Ordinance, Chapter 163.

9. It is argued that the defendant is a money lender, but it is not licensed under that Ordinance. Section 23 of the Ordinance provides that -

"No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by the production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed:"

10. The defendant says that he made inquiries at the office of the Registrar or Money Lenders, and he believes that the plaintiff is not licensed. The plaintiff does not attempt to say that it is licensed, so I may safely assume that it is not.

11. The definition in the Ordinance of "money lender" is -

"money-lender means every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business . . ."

12. There are exclusions and a power to exempt, but it is not suggested that the plaintiff may take advantage of these.

13. According to the plaintiff itself, it has made the following loans -

a) In July 1993, a loan to Neworld Estate Limited in the sum of $5 million;

b) On 16 February 1994, a loan to TST of $1 million;

c) In late July 1994, a loan to Penlingford of $2 million, although only $1 million was drawn. Mr Naville says he learnt of this loan after it had been advanced, but he undoubtedly ratified it;

d) On 23 November 1994, a loan to the defendant of $1 million (the first agreement); and

e) On 24 November 1994, a loan to the defendant of $3.57 million (the second agreement).

14. On the face of it, there is certainly sufficient continuity and systematic lending here to raise a strong inference that the plaintiff is carrying business as a money lender. In Ng Shou Chun v Hung Chun San, unrep., Civ, App. No. 182 of 1993, Godfrey JA held that even a single loan, where there is something in the nature of the loan to suggest that the plaintiff might be a money lender, is sufficient to give leave to a defendant to advance the money lending defence. In this case, all the loans were commercial loans advanced on a business basis in order to make a profit - very large profit, and, of course, the fact that there were five loans within a comparatively short span of time goes towards showing that they were advanced in the course of a business of money-lending. There is no evidence from the plaintiff that might suggest that the loans were advanced from any motive other than a business one, or that the loans were associated in some way with the plaintiff's other businesses.

15. Under section 23 of the Ordinance, the court has a discretion to allow recovery, or partial recovery, of the loan and interest "if the court is satisfied that in all the circumstances it would be inequitable" if the money lender was not entitled to recover. I do not think, however, that, at this stage of these proceedings, the court can be so satisfied by considering "all the circumstances"; an inquiry into this would only be appropriate at the trial.

16. Mr Li argues that, even if this is so, the plaintiff's claim based on money had and received is not affected. I do not think this is so. Assuming that, before the first and second agreements were entered into, the plaintiff had a good claim against the defendant in respect of $4.57 million received by the defendant on the plaintiff's behalf from Neworld, my view is that this claim was overtaken, or novated, by the claims under the agreements. It seems clear to me that, once the plaintiff agreed to lend the money to the defendant, as it says it did, it no longer had any claim for money had and received. This result may be by operation of law or some kind of implied term in the agreements. The plaintiff could not have, simultaneously, rights to recover the money because it was received by the defendant on the plaintiff's behalf and rights to recover the money under the agreements. And this is so even if the agreements are unenforceable because the plaintiff is an unlicensed money lender. It cannot be read into the agreements, in my view, that, if the loans are not recoverable under them for the reason I have mentioned, the plaintiff would be free to revert to its former rights and recover the money on the basis that the defendant received the money on the plaintiff' behalf. It seems to me that there is an arguable defence here to the claim for money had and received that can be resolved only at trial. It is the defendant's case, of course, that he did not personally receive the money from Neworld, and the evidence about this is far from clear. There are disputes of fact that can be resolved only at trial, and this also provides the defendant with an arguable defence.

17. The defendant says he has other defences under the Money Lenders Ordinance, but, in view of the findings I have already made, there is no need to deal with those fully here. It is, perhaps, sufficient to say that they also provide arguable defences, subject to certain powers of the court to grant relief that are not appropriately exercisable under these proceedings.

18. This is sufficient to dispose of the matter, but it may be helpful if I express my views on the other suggested defences.

Lack of Consideration

20. Mr Yuen says that the defendant has a defence to the claim under the first agreement on the basis that no consideration for it proceeded from the plaintiff to the defendant.

21. The first agreement states that it is between the parties whose names, addresses and descriptions are set out in the first schedule. It refers to a loan of money as mentioned in the second schedule, and the borrower acknowledges receipt of this loan. The first schedule specifies the plaintiff as the lender and the defendant as the borrower. After the defendant's name as Borrower there is a space in which is written some Chinese characters. The second schedule specifies the loan as "Up to the extent of and not exceeding the aggregate sum of Hong Kong Dollars One Million (HK$1,000,000.00)." This page is signed by the defendant. The signature page says - "Signed sealqed (sic) and delivered by the Borrower (he having been identified by the production of his Hong Kong Identity Card No. XXXXXXX(X) in the presence of :-" There appears the unqualified signature of the defendant alongside this. To the right of this there is a seal. Below his signature, there appears an impression left, apparently, by a rubber stamp. This says - "For and on behalf of Tact Shing Trading Company Limited", with a space and a dotted line, and, underneath the dotted line - "Authorised Signature". On this line, there is an indecipherable signature. Below this is written "(WAN LEUNG KEE) as witness". Below this again appear the words - "Interpreted by :-", a signature and "Ricky Ma Hok Shing, Solicitor, Hong Kong."

22. Section 19 of the Conveyancing and Property Ordinance, Chapter 219, says that "A document shall be presumed to have been sealed by an individual if the document signed by him . . . states that it has been sealed . . ." Assuming that "sealqed" means "sealed", it may be that the first agreement is a deed requiring no consideration. If it is not, the allegation of lack of consideration depends on the defendant's version of the facts. This version is difficult to accept, but it does explain why there were two agreements, one immediately after the other. My view is that the defendant's evidence is just believable, but barely so. If I were to give leave to defend on this basis, I would make this conditional.

Mistake and Rectification

24. The defendant's case in respect of the second agreement is that, in reality, he was not the borrower; that was TST. He says that his name appeared in the agreement as borrower by mistake, and that he is entitled to have the agreement rectified to substitute the name of TST as borrower.

25. The second agreement is identical to the first agreement, save for the following -

• It is dated 24 November 1994
• The amount of the loan is stated to be $3.57 million "received by Mr Yiu Yau Ping" from a Mr Cheng Wai Kin and a Mr Feng Jinliang "on behalf of Est. Amra (Denis Naville)".
• There is no statement that it was interpreted by anyone and the words "Interpreted by" are crossed out.

26. A copy of the second agreement produced by the defendant bears no seal and the TST stamp appears between the signatures of the defendant and someone else. That someone else is not identified and he is not described as a witness.

27. The second agreement is executed by the defendant in almost precisely the same way as he executed the first agreement, under which admittedly he is correctly shown as the borrower. Nevertheless, if what the defendant says is believable, he has set up an arguable defence. I think what the defendant says is believable, but if this were the sole ground upon which he was to be granted leave to defend I would have made that leave conditional.

Conclusion

28. I find that the defendant has a good arguable defence under the Money Lenders Ordinance, and, on this basis, I grant him leave to defend. On this ground, there is no reason why this leave should be conditional.

Costs

29. There seems no reason why I should not make the usual order as to costs; that is, that costs be costs in the cause, and I make an order nisi accordingly.

(J.K. FINDLAY)

Judge of the High Court