FOREVER PROPERTY FINANCE CO LTD v. CHAN HEI KWAN HELENA AND ANOTHER

DCCJ 4339/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4339 OF 2015

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D E C I S I O N

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1.  On 9 May 2016, Master Rita So refused to grant leave to the plaintiff to enter final judgment against the 1^st defendant in default of her giving notice of intention to defend. The Master also refused to strike out the defence filed by the 2^nd defendant. The plaintiff now appeals against both of these decisions.

2.  I shall first deal with the appeal regarding the striking out.

Striking out

3.  The plaintiff is a licensed money lender.  The 1^st defendant and the 2^nd defendant are mother and daughter.  Under a loan agreement dated 17 June 2014, the defendants borrowed a sum of $200,000 from the plaintiff at an interest rate of 42% per annum.  Interest was payable on a monthly basis, and the principal was repayable on or before 17 June 2015, ie, the first anniversary of the loan agreement.

4.  On the same day, the defendants executed a legal charge by which a flat in Hollywood Road owned in the joint names of the defendants was mortgaged to the plaintiff as security for the indebtedness arising out of the loan agreement.

5.  The plaintiff’s pleaded case is that the defendants defaulted on payment from 17 February 2015.  In accordance with the terms of the loan agreement, the outstanding principal and interest accrued became immediately due and payable and remains unpaid by the defendants.  To date, the defendants had only paid to the plaintiff an aggregate sum of $30,500 from June 2014 to December 2014 in respect of the loan.

6.  As at the date of the writ, the alleged outstanding sum amounted to $275,132.89.  Apart from this sum, the plaintiff claims against the defendants interest on the principal sum of $200,000 at the annual rate of 42% from the day after the date of the writ, vacant possession of the property, and costs.

7.  This action is therefore a money lenders’ action under Order 83A of the Rules of the District Court and a mortgage action under Order 88.

8.  It is to be noted that there is a further background to the plaintiff’s present claim, namely that the defendants had previously borrowed two loans from the plaintiff on which default was also allegedly made.  The two loans in the principal sums of $680,000 and $100,000 form the subject matter of a High Court action.

9.  The 2^nd defendant acts in person in these proceedings.  I should note at this juncture that the defence filed by the 2^nd defendant was a homemade document, as are her affirmations in opposition, and the allegations are at times not easy to follow.

10.  Having said that, her defence and counterclaim (the counterclaim has been struck out by Master So, from which there is no appeal) does put forward a number of points in defence.  The main ones are, first, that she had made repayment of the three loans advanced to the defendants.  In the defence, she said:

“... I had made a full HK$980,000 repayment including all extortionate HK$405,540 interest repayment and HK$40,107.5 charges payment etc without any defaults in payment from 17 October 2012 to 16 January 2015 for my second and third legal charges mortgage loan agreement regardless of my medical reason...” See §2(iii) of the defence.

Secondly, that the interest and charges under the loan are extortionate.

11.  The plaintiff applies to strike out the defence under Order 18, rule 19(1) alleging that the above defences are devoid of any merit.  At the hearing, Mr Kenneth Y F Wong, counsel for the plaintiff, sought to make a number of forensic points on the evidence put in by the 2^nd defendant, including the blatant lack of evidence regarding the alleged repayment, the lack of particulars of such payment and the inconsistency between that allegation and the contemporaneous documents, including the letter from the 2^nd defendant’s former solicitors in February 2015 and a series of emails written by the 2^nd defendant from January 2015 onwards.

Analysis

12.  It is immediately notable from the pleadings that the outcome of the case primarily rests on the resolution of the factual dispute as to whether the defendants had in fact repaid the loan and interest.  The plaintiff and the 2^nd defendant are now putting forward diametrically opposite versions of facts.  Prima facie, the resolution of such a stark factual dispute should be resolved at trial, where documentary evidence on repayment records can be looked into and where the credibility of the witnesses, the most important of whom would be the 2^nd defendant herself, can be assessed.

13.  However, that does not mean that a pleading of this nature can never be struck out, but the threshold is obviously very high.

14.  Mr Wong has helpfully referred the court to the case of Kwong Kin Yin v Shun Lee Copper and Decoration Limited HCPI 285/2008, 6 January 2010, in which a decision of Chu J (as she then was) in Infinity Development (Holdings) Company Limited v Bank of China HCA 3202/2001 19 July 2003 was referred to – see §15.

15.  In a striking out application, the court should not blindly accept affidavit evidence put forward by a party, but should consider the evidence as a whole and test it against contemporaneous documents, inherent implausibility and other compelling evidence.  Where, having carried out this exercise, the court comes to the view that the pleading is incredible, it ought to be struck out.

16.  Applying this principle to the present case, the factual allegation made by the 2^nd defendant that she had in fact made full payment must be looked at critically and not be accepted simply at face value.  The task of the court, as accepted by Mr Wong, is to determine whether it is unbelievable.  If it is unbelievable, the defence should be struck out.  On the other hand, if the threshold of unbelievability is not met, then even if the court may have some doubt on the truthfulness of the allegation, the action ought to be allowed to go to trial, as it is not a case that is bound to fail.

17.  With that test in mind, I am of the view that the defence ought not to be struck out.  The attacks mounted on the 2^nd defendant’s factual allegation do cast some doubt on whether it is a credible allegation or not.  But it is no more than that.  I do not feel that I am able to come to a finding at this stage that the allegation is unbelievable such that it can be rejected outright in a summary fashion.

18.  The most forceful attack raised by the plaintiff is based on the emails allegedly written by the 2^nd defendant herself in early 2015 to her former solicitors to pay to the plaintiff only the sum of $980,000 (ie the sum of the principal of the three loans).  This seems to suggest that by that stage, she had not yet made payment of that sum.  See also the letter from her former solicitors dated 6 February 2015 stating that the amount outstanding should be about $980,000.

19.  There are therefore arguably apparent discrepancies between those emails and her plea of full repayment as stated in the defence filed by her later in November 2015.

20.  The 2^nd defendant’s answer to it is to be found in her affirmation when she said that the emails exhibited to the plaintiff’s affirmation are only “partial extractions”.  She was not able to elaborate on this point at the hearing, but she seemed to suggest that there are other relevant emails that have not yet been disclosed.

21.  All these do cast serious doubt on the truthfulness of the 2^nd defendant’s allegation, but the ultimate question remains as to whether that allegation is not capable of belief at all.

22.  Next, the plaintiff complains about the lack of evidence of repayment and the lack of particulars; for example, how much was paid on each occasion.  Mr Wong accepts that the burden of proof is, strictly speaking, not on the 2^nd defendant to produce evidence at this interlocutory stage, but he invites the court to take into account the total lack of evidence in the circumstances as throwing grave suspicion on the credibility of the 2^nd defendant’s allegation.

23.  I think it is a fair point and I should take into account the lack of particulars in the evaluation of the evidence.  On the other hand, however, it seems to me that one potential course for the plaintiff to take is to ask for further and better particulars as it sees fit, and I think it may be premature to simply strike out the 2^nd defendant’s defence at this stage, as ultimately the burden, it seems to me, is for the plaintiff to demonstrate to the court that the 2^nd defendant’s allegation cannot be believed.

24.  Another difficulty which stands in the plaintiff’s way is that while the three loans are arguably independent transactions and there is nothing wrong with how the plaintiff has pursued its remedies in relation to them, ie the first two loans in the separate High Court action and the third loan in the present District Court action, it does lead to the situation that before this court there is an incomplete overall picture of the whole indebtedness as alleged by the plaintiff.

25.  In the defence, the 2^nd defendant pleads that in addition to the principal she had paid extortionate interest repayment in the sum of HK$405,540, and that apparently was with reference to the three loans altogether.

26.  On the evidence before me, the plaintiff says the 2^nd defendant had paid a sum of $30,500 on the third loan, whereas the 2^nd defendant said she has paid interest of over $400,000 for the three loans altogether.

27.  I do not have any information before me as to how much interest the plaintiff says is owing under the first two loans.

28.  There is thus clearly a dispute on the quantum of the interest amount paid under each of the three loans, in particular the third one.  It is simply not possible for this court to come to any definitive conclusion as to, leaving aside the principal, how much interest was indeed paid on the third loan.

29.  It should also be borne in mind that the alleged inconsistency between the 2^nd defendant’s allegation and the contemporaneous emails is directed at the repayment of the principal but not at the payment of interest.  The only complaints Mr Wong has here are that the 2^nd defendant has failed to give a breakdown of the interest payments between the three loans and failed to provide evidence to substantiate the payments.  But I do not think, however, that these complaints are such as to render the allegation unbelievable.

30.  There are clearly triable issues on the claim of interest.

31.  On the whole, while it seems that the defence of alleged full repayment can arguably be said to be lacking in particulars and susceptible to challenges of inconsistency, I do not consider that it is not capable of belief at all.

32.  I take the same view as regards the second line of defence regarding extortionate interest and charges.  In the circumstances, it is not appropriate to strike out the defence.

Conclusion

33.  For the above reasons, I have come to the conclusion that it is not plain and obvious that the 2^nd defendant’s defence must fail, and I refuse to strike it out.

34.  Accordingly, the appeal on striking out is dismissed.

35.  I now turn to the plaintiff’s application for leave to enter final judgment against the 1^st defendant.  Leave is sought under Order 83A, rule 4 and Order 88, rule 6.  Mr Wong has made clear the plaintiff’s position that in the event that the 2^nd defendant’s defence is not ordered to be struck out, the plaintiff accepts that no leave should be granted to enter judgment against the 1^st defendant.

36.  Accordingly, the plaintiff’s appeal is also dismissed in this regard.

[Submission on costs]

37.  I order that the plaintiff do pay the 2^nd defendant’s costs of the appeal, summarily assessed at $500, payable forthwith.