OCEAN ALLIED FINANCE LTD v. WONG MAN LUNG AND ANOTHER

HCA 1971/2016

[2024] HKCFI 1554

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1971 OF 2016

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J U D G M E N T

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1.  In this judgment, unless otherwise stated, (1) references to numbered parts, sections and sub-sections are to those of the Money Lenders Ordinance (Cap 163) (“MLO”) as at 21 August 2015, which is the date of the subject loan transaction[1]; and (2) all monetary figures are denominated in Hong Kong dollars.

THE CLAIM

2.  This is a moneylender’s action brought by the plaintiff (“Ocean Allied”), a moneylender licensed under the MLO, against the 1^st and 2^nd defendants (“Mr Wong” and “Ms Wong” respectively and “defendants” collectively) for recovery of the principal and interest of a loan (“Loan”) advanced pursuant to a loan agreement dated 21 August 2015 between Ocean Allied as lender and the defendants as borrowers (“Loan Agreement”).

3.  The principal of the Loan, as stated in the Loan Agreement, was $1,800,000. It was for a term of 1 year. It carried interest at 30% per annum (or 2.5% per month). The interest at such rate (totalling $540,000) was to be paid by 12 equal monthly instalments of $45,000 each, commencing on 21 September 2015. The principal was repayable in one lump sum on the due date of the 12^th monthly instalment of interest, which was 21 August 2016. That is to say, the total amount repayable by the defendants to Ocean Allied was $2,340,000 (i.e. $1,800,000 + $540,000). The defendants were made jointly and severally liable to repay the principal and interest of the Loan.

4.  Notwithstanding the amount of principal stated in the Loan Agreement, the Loan was actually made available by Ocean Allied to the defendants net of (1) a sum of $270,000, being the total amount of the first 6 monthly instalments of interest and (2) a further sum of $10,000 to indemnify Ocean Allied for the legal costs and valuation fee it incurred in the transaction.

5.  Other than the withheld sum of $270,000 to cover the first 6 instalments of interest, the defendants had made no payment to Ocean Allied since 21 March 2016 (being the due date of the 7^th instalment of interest).

6.  After an unheeded demand by letters dated 23 June 2016 to the defendants, Ocean Allied commenced the present action on 6 October 2016 to recover the outstanding principal and interest of the Loan.

7.  For the sake of completeness, Ocean Allied has, in paragraphs 7(vi) and 18A of each of its re-re-re-amended reply to Mr Wong’s re-re-amended defence (“D1 defence”) and Ms Wong’s re-re-amended defence (“D2 defence”), asserted an entitlement and intention to seek restitution of $1,520,000 (being $1,800,000 minus the withheld sums of $270,000 and $10,000) on “unjust enrichment” principles. Notwithstanding such averments, Ocean Allied never amended or sought to amend the statement of claim to properly raise an alternative claim for restitution whether to the claimed or other sum.

8.  Anyway, I should say that Ocean Allied is right in not pressing such alternative claim. It would be unlikely for me to be persuaded that it is “unjust” not to enforce a loan transaction that has been invalidated for infringements of the MLO. This is particularly so when the ordinance itself has, in some instances, already given the courts the discretion to order enforcement of an otherwise invalid loan agreement when it would in all circumstances be “inequitable” not to do so. See ss 18(3), 22(2) and 23 (proviso).

THE DEFENCE CASE

9.  In defence, the defendants rely on Ocean Allied’s alleged contravention of various provisions of the MLO:

(1)  ss 18(1) and (2) which requires the moneylender:

(a)  to present a written note or memorandum of the terms of the loan agreement specified in sub-s (2) (“Section 18 Memorandum”) to the borrower for him to sign within 7 days after the making of the loan agreement and to give the borrower a copy of such note or memorandum at the time of his signing the same and before the loan was advanced or the security therefor was given; and

(b)  to include in, or attach to, the Section 18 Memorandum a summary of the prescribed provisions of Parts III and Part IV (“Section 18 Summary”);

(2)  s 21 which spells out the borrower’s right of early repayment by (a) giving the lender notice in writing and (b) paying up all outstanding principal and accrued interest computed at the contractual interest rate;

(3)  s 24 which:

(a)  criminalises lending at an effective rate of interest which exceeds 60% per annum; and

(b)  renders a loan agreement and the security given therefor unenforceable in any case where the effective rate of interest exceeds 60% per annum;

(4)  s 27(1) under which any agreement for the payment by a borrower or intending borrower to a moneylender 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;

(5)  s 27(3) under which it is unlawful for any moneylender or his partner, employer, employee, principal or agent or any person acting for or in collusion with the moneylender to charge, recover or receive any sum as for or on account of any 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;

(6)  s 27(4) under which a borrower is entitled to set off such “costs, charges or expenses” and “remuneration or reward” against the amount actually lent; and

(7)  s 5[2] of the Unconscionable Contracts Ordinance (Cap 458) (“UCO”) which empowers the court to, inter alia, refuse to enforce a contract for the sale of goods or supply of services in which one of the parties deals as consumer or any part thereof found by the court to have been unconscionable in the circumstances relating to the contract at the time it was made.

10.  More particularly, at the forefront of the defence case is the defendants’ claims:

(1)  that they were defrauded into taking out the Loan as a result of the repeated false representations made to them by a Chinese male person going by the name of Roy Chan (“Roy Chan”) and holding himself out as a senior director of a company called Hong Kong Peoples International Company Limited (“HKP”); and

(2)  that Roy Chan had, under false pretext, received and pocketed $782,873 of the proceeds of the Loan purportedly as “consultancy fee” from the defendants to HKP; and

(3)  that Ocean Allied had colluded with Roy Chan.

11.  I have 2 observations at this juncture.

12.  First, the reference to s 21 is a red herring. The present case is not one where the borrower wished to make early repayment of the loan but was prevented by a term of the loan agreement from exercising his otherwise unrestricted right to make early repayment. On the contrary, the defendants are disputing all liability to repay the Loan.

13.  Second, the defence based on s 24 is problematic. The Loan Agreement expressed the interest payable on the Loan as a percentage of the principal of the Loan, i.e. 2.5% per month or 30% per annum. One would have thought such contractual rate of interest (which is below 60%) should apply to the actual amount found at the end of the day to have been lent by Ocean Allied to the defendants. See Kwok Ying Lung v Ho Chi Hung, CACV 635/2000 and CACV 142/2001, unreported, 25 May 2001, at pages 10-12 (Le Pichon JA).

UNDISPUTED AND INDISPUTABLE FACTS

14.  This section sets out matters that are uncontroversial or indisputable based on the pleadings and evidence before the court and which I therefore find as facts.

The defendants’ personal circumstances

15.  Mr Wong and Ms Wong are father and daughter.

16.  Mr Wong retired in 2000 and has since been relying on the financial support of Ms Wong, his only daughter. He was aged 80 at the time of the Loan Agreement.

17.  Mr Wong is the owner of Flat J, 20/F, Block 1, Kingsford Terrace, 8 King Tung Street, Kowloon, Hong Kong (“Property”), which he acquired under the Home Ownership Scheme in December 2007 at the price of $1,411,700, the payment of which was partly financed by a loan of $300,000 from the Bank of China (Hong Kong) Limited (“BOC”). The repayment of such loan was secured by a legal charge of the Property in favour of BOC.

18.  Ms Wong holds a High Diploma from the former Hong Kong Polytechnic. In July 2015, Ms Wong, whose monthly salary was then around $21,000[3] or $25,000[4], was indebted to a number of financial institutions for sums adding up to just over $700,000 as follows:

(1)  credit card debts amounting to about $180,000 (“BOC Debt”, “SCB Debt” and “DBS Debt” respectively and “Credit Card Debts” collectively) owed to BOC, Standard Chartered Bank (Hong Kong) Limited (“SCB”) and DBS Bank (Hong Kong) Limited (“DBS”); and

(2)  a loan of $530,000 (“UA Loan”) advanced by United Asia Finance Limited (“UA”) to Ms Wong on 14 November 2014. This loan carried interest at 18.60% per annum and was repayable by 84 monthly instalments of $11,327 each.

19.  Mr Wong had not obtained the Hong Kong Housing Authority’s consent to, or paid any premium for, the creation of any surety interest in the Property to secure the repayment of the UA Loan. Nevertheless, the loan agreement for the UA Loan was registered against the Property.

Direct contacts between Ocean Allied and the defendants for the formalities and grant of the Loan

20.  The events leading up to, and including, the signing of the Loan Agreement on 21 August 2015 are highly contentious, but the following are either common grounds or matters of authentic record or otherwise indisputable, which I likewise find as facts.

21.  On 4 August 2015, Mr Li Wei Kiu John (“John Li”), a director of Ocean Allied, ordered a land search and a valuation of the Property, showing that Ocean Allied had begun to consider granting a loan of $1,800,000[5] to the owner of the Property, since 4 August 2015 at the latest.

22.  Before 21 August 2015, John Li telephoned Ms Wong to confirm the defendants’ intention to apply for a $1,800,000 loan from Ocean Allied. This was the first time John Li (or, indeed, anyone from Ocean Allied) had direct contact with either of the defendants.

23.  On 21 August 2015, the defendants attended Ocean Allied’s office (“Ocean Allied Office”) in Cameron Commercial Centre (“Building”), 458-468 Hennessy Road, Causeway Bay where they had separate meetings with (1) John Li and (2) Ms Chan Kei Fan Fanny (“Fanny Chan”), a clerk to Ocean Allied’s solicitors, Alan Ho & Co (“AHC”), to complete the formalities of the subject loan transaction.

24.  In the course of these meetings, in addition to the Loan Agreement to which a Section 18 Summary in both English and Chinese was enclosed, the defendants also executed various other papers including (1) a Section 18 Memorandum of the Loan Agreement and (2) a Chinese acknowledgment of receipt of these documents (文件簽收證明書): copies of the Loan Agreement and the Section 18 Memorandum, the Section 18 Summary and a repayment schedule before the drawdown of the Loan.

Utilisation of the Loan

25.  Thereafter, on the same day, John Li handed over to the defendants 4 cheques adding up to $970,027 (“4 Cheques”) as follows:

(1)  a cheque payable to the defendants, but not crossed, in the sum of $782,873 (“Uncrossed Cheque”);

(2)  a crossed cheque for $153,047 for settlement of the BOC Debt;

(3)  a crossed cheque for $29,074 for settlement of the DBS Debt; and

(4)  a crossed cheque for $5,033 for settlement of the SCB Debt.

26.  The balance of the Loan was applied as follows:

(1)  $270,000 was withheld by Ocean Allied to pay interest for the first 6 months.

(2)  $10,000 was deducted by Ocean Allied to cover its valuation fee and legal costs of the transaction.

(3)  The remaining $550,000 was paid to AHC for settling, and obtaining a “release” of the Property from, the UA Loan.

27.  Although there was initially some dispute as to how the last-mentioned sum of $550,000 had been utilised, it is common ground that AHC did apply $509,094 out of such sum to pay off the UA Loan. The discharge of the UA Loan as aforesaid should leave a surplus of $40,906. It is the defendants’ case that only $12,476 was subsequently released to Ms Wong, hence leaving a shortfall of $28,430.

28.  Leaving aside the fact that AHC had released $36,856 to Mr Wong on about 11 September 2015, the defendants’ said calculation has omitted the amounts of (1) $2,500 paid by AHC to Eric Yu & Company, solicitors for UA, for UA’s costs and disbursements for the preparation of the “release” of the Property from the UA Loan and (2) AHC’s own costs and disbursements of $1,550.

DISPUTED FACTS

29.  The parties disagree with each other over numerous factual matters, many of which are, on proper analysis, regrettably immaterial to any issues of law or fact that the court has to decide. Prime examples are: whether the defendants were accompanied by a third person (who the defendants say was Roy Chan) when they attended Ocean Allied’s office on 21 August 2015; whether Ocean Allied maintained another office in the Building to which the defendants were taken for their meeting with Fanny Chan; and what such other office looked like. I will not waste time in attempting to resolve irrelevant factual disputes.

30.  The material issues of fact will be addressed individually in the context of the specific issues to which they relay.

31.  On this note, I shall first turn to the defence of set-off raised under s 27(4).

THE DEFENCE OF SET-OFF UNDER SECTION 27(4)

Relevant statutory provisions

32.  It is convenient at this point to set out the provisions of the MLO, the breach of which underpins the set-off defence.

33.  Section 27(3) and (4) provide that:

“(3) Subject to section 33A(5)[6], 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.” (footnote and emphasis added)

34.  The phrase “any person acting … in collusion with any money lender” also appears in s 29(10), which criminalises contraventions of section 27(3):

“(10) Any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender who charges, recovers or receives any sum as for or on account of any costs, charges or expenses (other than stamp duties or similar charges) referred to in section 27(3) or demands or receives 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 commits an offence.” (emphasis added)

Defendants’ case in detail

35.  The defendants’ case can be summarised as follows.

36.  In late July 2015, Ms Wong was approached[7] by Roy Chan who claimed that he could help her obtain a loan at a low interest rate from Hang Seng Bank (“HSB”) to pay off the Credit Card Debts and the UA Loan.

37.  On 8 August 2015, upon Roy Chan’s request, the defendants attended what appeared to be HKP’s office in Yau Ma Tei (“HKP Office”), where they met Roy Chan in person. At Roy Chan’s request, Ms Wong had brought along her income proof, bank statements and passbooks and address proof.

38.  During the meeting that followed, Roy Chan explained to the defendants that he could procure HSB to grant a loan to be secured by a mortgage over the Property at the interest rate of 2.8% per annum. When Ms Wong expressed doubt about the possibility of obtaining such a low interest rate, Roy Chan explained that he was well acquainted with the staff of the loan department of HSB and that it was common for banks to co-operate with outside companies in order to meet their performance targets. He also claimed to have “special channels” through which he could obtain the consent of the Housing Authority to the mortgage, even though no premium had been paid by Mr Wong on the Property.

39.  However, in light of the unsatisfactory credit ratings of the defendants, Roy Chan suggested the defendants to first take out a short-term loan of $1,500,000, which he could arrange from a friendly moneylender, with the interest for the first 6 months being $270,000. Roy Chan explained that his company could obtain the low interest rate loan from HSB within the next 6 months, which could then be used to repay the short-term loan. Meanwhile, the $270,000 interest would be covered by a rebate in the same amount from HSB upon the grant of the low interest mortgage loan.

40.  The defendants believed Roy Chan and agreed to his proposal to take out a short-term loan from a moneylender first. They then filled in two application forms provided to them by Roy Chan.

41.  A few days before 21 August 2015, Ms Wong received a telephone call from Roy Chan who persuaded her to increase the amount of the short-term loan from $1,500,000 to $1,800,000.

42.  Thereafter, Ms Wong received a telephone call from John Li, who introduced himself as a staff of Ocean Allied and confirmed that a $1,800,000 loan had been approved by his company.

43.  On the morning of 21 August 2015, the defendants first attended what appeared to be the office of another company called Asia Pure Universal Company Limited in Mongkok to meet Roy Chan pursuant to his instruction. Roy Chan briefly explained to them the breakdown of the $1,800,000 loan amount and repeatedly reassured Ms Wong that she need not worry in spite of the large loan principal and high interest.

44.  Roy Chan then took the defendants to the Ocean Allied Office, where they were received, firstly, by John Li. John Li took the defendants into a conference room and briefly explained the documents that the defendants had to sign. Throughout the process, Roy Chan waited outside the conference room and Ms Wong would ask him questions whenever she had any doubts. Relying on the repeated assurances by Roy Chan, the defendants signed the documents provided by John Li. They were, however, not given copies.

45.  Thereafter, Roy Chan took the defendants to another office on a lower floor of the same building, where a lady, who introduced herself as Fanny (i.e. Fanny Chan) and a staff of AHC, presented more documents for the defendants to sign. Again, the defendants were not given copies of the documents they had signed, despite Ms Wong’s request.

46.  After the defendants had completed signing all the loan documentations, John Li handed the 4 Cheques to Ms Wong.

47.  Roy Chan then took the defendants to a branch of HSBC in Causeway Bay to immediately encash the Uncrossed Cheque. Afterwards, the defendants and Roy Chan left Causeway Bay together by taxi. Inside the taxi, Roy Chan asked Ms Wong to hand over to him the cash sum of $782,873 as security and/or deposit for the application for the low interest mortgage loan from HSB. Roy Chan then gave Ms Wong a receipt for a “consultancy fee” of $1,050,000. Roy Chan explained to Ms Wong that the receipt was only a formality and promised to give her a breakdown later.

48.  After 21 August 2015, Ms Wong initially could not contact Roy Chan. On 29 August 2015, she went to the HKP Office but found that it had been closed down. She managed to resume contact with Roy Chan who informed her over the phone that he was still working on the application for the low-interest mortgage loan. It was not until February 2016 that Ms Wong completely lost touch with Roy Chan and realised that they had been defrauded. She reported the matter to the police.

Ocean Allied’s response

49.  In reply, Ocean Allied denies any involvement with or knowledge of Roy Chan.

50.  Ocean Allied further advances a positive case that the defendants were referred to its former employee, Mr Hsu Chi Pong (“Hsu”), by one Mr Mark Yu Kai On (“Yu”) of an entity called Shui Ko Consultant (瑞高顧問) on 4 August 2015.

51.  And the defendants personally submitted all the documents and information required in support of the application for the Loan.[8]

52.  In support, Ocean Allied has disclosed the following documents: (1) an agreement dated 16 October 2014 between Ocean Allied and Yu and containing the terms on which Yu agreed to refer potential borrowers to Ocean Allied at a fee equivalent to 1% of the loan amount; (2) an email dated 17 August 2015 from Yu to Ocean Allied’s branch office in Tsim Sha Tsui, attaching a referral form in respect of the defendants; and (3) Ocean Allied’s uncrossed cheque dated 30 September 2015 for $18,000 in favour of one 郭嘉林 (transliterated as Kwok Ka Lam).

53.  Ocean Allied also (1) subpoenaed Hsu to explain the source, and Ocean Allied’s handling, of the subject loan transaction; and (2) called Mr Lai Chi Biu Lawrence (“Lai”) (at the last minute after Ms Wong has completed her testimony) to speak on the agreement between Ocean Allied and Yu and the payment of 1% promotion fee by Ocean Allied to Yu.

Payments out of the Loan caught by s 27(3)

54.  It is clear that the deducted sums of (1) $10,000 (valuation fee and legal costs incurred by Ocean Allied in the transaction)[9]; (2) $2,500 (UA’s solicitors’ costs and disbursement)[10]; and (3) $1,550 (AHC’s costs and disbursements)[11] were “costs, charges or expenses” within the meaning of s 27(3).

55.  The only serious question to be considered is whether the defendants did pay the proceeds of the Uncrossed Cheque ($782,873) to Roy Chan and, if so, whether such payment falls foul of s 27(3).

Did Roy Chan pocket $782,873 out of the proceeds of the Loan?

56.  Ms Wong was, unsurprisingly, cross-examined in great details by Mr Kenneth YF Wong, counsel for Ocean Allied, and questioned at times by the court, on her dealings with Roy Chan.

57.  Mr Wong has in his written closing submission helpfully set out what Ocean Allied considers to be questionable aspects of the defence evidence. In preparing this judgment, I have followed counsel’s analysis and revisited every piece of evidence referred to by him (including transcripts of the oral testimonies in court).

58.  I hope to be forgiven for not repeating counsel’s competing analyses of the evidence for fear of fudging the focus of this judgment.

59.  While there may be some gaps here and there in Ms Wong’s evidence, she was unshaken on the core elements of her account of how she and Mr Wong came to borrow the Loan on terms, which significantly worsened the financial predicament that Ms Wong already found herself in. I believe it is not an exaggeration to say that the enforcement of the Loan Agreement would leave Ms Wong in financial ruins. See [62] below.

60.  I am satisfied on the balance of probabilities, and I find, that the defendants were duped to obtain the Loan by Roy Chan’s aforesaid misrepresentations and that Ms Wong did pay $782,873 out of the proceeds of the Loan to Roy Chan.

61.  First, there is nothing inherently incredible about the defendants’ case. Indeed, it is clear from the volume of similar cases dealt with by the courts that scams by moneylending intermediaries have become rampant.

62.  Second, I can see no reasons why the defendants should enter into the Loan Agreement but for the trickery practised on them by Roy Chan. On the contrary, as stated above, Ms Wong was left in financial ruins by the Loan.

(1)  The loan amount ($1,800,000) more than doubled the amount of the defendants’ total pre-existing indebtedness at the time (around $700,000).

(2)  Notwithstanding such pre-existing indebtedness, the defendants did not appear to be in urgent need of funds. Ms Wong still had over $100,000 in bank savings. She had not defaulted on the monthly repayments of the Credit Card Debts or the UA Loan. Nor was she exposed to any immediate risk of debt enforcement.

(3)  The interest rate of the Loan (30% per annum) was about 62% higher than say that of the UA Loan (18.60% per annum), which Ms Wong was already worried about.

(4)  The amount of monthly interest payable on the Loan ($45,000) was more than double of Ms Wong’s monthly salary at the time (around $20,000 - $25,000).

(5)  Ms Wong would be financially incapable of paying the monthly interest of the Loan ($45,000) for 6 months once the withheld sum of $270,000 was exhausted, not to mention the whole principal of $1,800,000 on the due date of the last instalment of interest.

(6)  Ms Wong’s financial incapability to repay the principal and interest of the Loan was, or would have been, plain and obvious to Ocean Allied, having regard to the information she disclosed to Ocean Allied which should cause one to seriously question her repayment ability.

(7)  In fact, John Li accepted that, it was foreseeable that the defendants would not be able to repay the Loan upon the expiry of the 12-month term, unless they obtained the Housing Authority’s consent for a new mortgage over the Property or they sold the Property.

63.  Third, whilst not every detail matched, I find the contemporaneous records to be broadly in support of Ms Wong’s evidence in this regard.

64.  Ms Wong produced a screenshot of her email box showing emails from her to Roy Chan between August 2015 and February 2016, showing the dates and subjects of the emails, though not the full content thereof. She claimed that her computer was infected with viruses and she was only able to take a photograph of her email box. When asked why she did not simply log onto her email account on a different computer, she answered that she did not know she could do that.

65.  She also produced the WhatsApp messages she exchanged with Roy Chan between 26 and 31 January 2016. The earlier messages, she says, are not available because her mobile phone broke down in mid-January 2016 and had to be replaced, and she did not know how to transfer the previous messages onto her new device.

66.  Whilst Ms Wong’s explanations for not producing the actual emails and the earlier WhatsApp messages are not one hundred percent satisfactory (which is not the standard of proof anyway), I am prepared to give her the benefit of the doubt that she is not technology savvy. More importantly, whilst Mr Wong did cross-examine Ms Wong on her said explanations for not producing the actual emails and the earlier WhatsApp messages, there was no challenge to the authenticity of the email box screenshot and WhatsApp messages that the defendants has produced. The focus of Mr Wong’s questions was what the actual emails or earlier WhatsApp messages may reveal.

67.  From the available email box screenshot and WhatsApp messages, I am satisfied that:

(1)  On 9 August 2015, before the Loan Agreement was signed on 21 August 2015, Ms Wong did send some documents to Roy Chan by email;

(2)  After the execution of the loan documentation, and the drawing down of the Loan, on 21 August 2015 and up to February 2016, Ms Wong did continue to send Roy Chan by emails further information such as her bank statements and the defendants’ credit ratings.

(3)  Up to early February 2016, Ms Wong was still making enquiries and following up with Roy Chan regarding the credit ratings of the defendants as well as the intended loan application to HSB.

68.  Lastly, according to Ms Wong’s mobile phone bills, she talked to Roy Chan on the phone from 3 August 2015 the latest.

Is the payment to Roy Chan “costs, charges or expenses” or “remuneration or reward” within the meaning of s 27(3)?

69.  In my view, where other aspect(s) of the section are also satisfied, the sum of $782,873 paid by the defendants to Roy Chan out of the proceeds of the Loan do fall within the types of payment targeted under s 27(3).

70.  In this regard, in deciding whether a sum would constitute “costs, charges or expenses” of, or “remuneration or reward” for, a loan, the true nature or substance of the payment should be considered, and not with regard to the falsehood under which the borrower was labouring under. For s 27(3) and (4) to be engaged, it is not necessary to find that the moneylender was somehow involved in the fraud pertaining to the payments defrauded from the borrower. See Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong [2020] 4 HKLRD 831 at [35] (Kwan VP).

71.  In this case, the payment of $782,873 to Roy Chan could in my view be said to be the “remuneration or reward” levied by Roy Chan in procuring the Loan for the defendants, or the “costs” for obtaining the Loan.

Did Ocean Allied collude with Roy Chan?

72.  The next question is whether Roy Chan was a person “acting … in collusion with” Ocean Allied.

Case law on “collusion”

73.  I have in [62] to [71] of my judgment in Credit One Finance Limited v Leong Wun Heng [2023] 3 HKLRD 136 reviewed the available case law on what constitutes “collusion” as follows:

“62. What constitutes “collusion” is context specific.

63. In the present case, the context is the MLO and the legislative objectives sought to be achieved by such statute, which are to curb loansharking and grossly excessive interest rates.

64. In HKSAR v Wong Kwok Wai (2013) 16 HKCFAR 191, the borrower went to company A for a loan of $15,000. After being told a loan of that amount had been approved, she was directed to company B where she was told that only a loan of $6,000 had been approved and that she had to pay $3,600 to guarantee repayment. The borrower was then escorted to company C where she was given a cheque for $6,000. After depositing the cheque and obtaining $6,000 in cash, the borrower had to part with $5,100 ($1,500 for administrative fee and $3,600 as guarantee), the borrower was left with just $700. The “remuneration or reward” that was the subject matter of the charge under s 29(10) was the $3,600 deduction. The applicant for leave to appeal to the Court of Final Appeal was convicted of acting in “collusion” with a moneylender to demand the $3,600 “remuneration or reward” from the borrower in violation of s 29(10).

65. In dismissing the leave application, Bokhary NPJ, giving the decision of the Appeal Committee, said at [8] that no point of law really arose on the meaning of “collusion”. Regardless of the precise definition of this word, the applicant and the moneylender’s conduct in that case certainly fell fairly and squarely within such meaning.

66. Tang PJ added at [11][12]:

‘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.’ (emphasis added)

67. Tang PJ’s comment was applied and elaborated on in Ever-Long Finance Ltd v Yeung Wah Lung [2017] 1 HKLRD 500, an application to set aside a default judgment. In that case, the defendant borrower was found to be a mentally incapacitated person, whereupon the judgment in default against him was held to be irregular and set aside for want of a guardian id litem having first been appointed to act for the defendant.

68. Deputy District Judge Simon Ho said, obiter, at [86] – [93]:

‘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. (original emphasis)’

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 "person 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 … 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 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 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 harms to others”.’

69. After citing DDJ Simon Ho’s above judgment, Deputy District Judge C To said in Gain Wealth Global Credit & Investment Ltd v Lam Hau Kay [2018] HKDC 796 at [70]:

‘70 In my view, the cooperation may take many forms. The lender and the entities in collusion may act together or separately. They may act simultaneously, or in disjunctive temporal periods. They may act complementarily or supplementarily. They may appear to act independently, but if the arrangement including their roles and conduct taken as a whole is to facilitate the imposition of a charge or the receipt of a sum in connection with the procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan, such conduct should also be caught by the [MLO].’

70. The above passages in Wong Kwok Wai; Ever-Long Finance and Gain Wealth Global Credit & Investment Ltd v Lam Hau Kay have since been quoted and applied in a number of District Court[13] and Court of First Instance[14] decisions.

71. In Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong [2020] 4 HKLRD 831[15], Kwan VP (giving the judgment of the Court of Appeal) approved at [49] the principles set out by DDJ Simon Ho in Ever-Long Finance. Her Ladyship added at [35] that for ss 27(3) and (4) to be engaged:

‘…it is not necessary to find that the money lender was somehow involved in the fraud pertaining to those payments. Whatever the object of the plaintiff’s collusion might be as regards the defrauded monies is irrelevant.’

72. Mr Lui contends that as a matter of proper construction, the phrase “any person…in collusion with any money lender” in s 27(3) does not cover situations where the moneylender has no knowledge of the existence or involvement of the person taking monies from the borrower.

73. Assuming that Credit One has no direct knowledge of the existence or involvement of C&W or the C&W Representatives taking monies from Madam Leong, Mr Lui prays in aid the ejusdem generis maxim. Counsel suggests that since the phrase “any person…in collusion with any money lender” is preceded by specific references to the moneylender being in partnership etc with the person with whom it has allegedly colluded, the phrase should likewise only cover persons or entities of whom the moneylender has knowledge in terms of existence or involvement in the loan transaction.

74. Mr Lui further contends that the “playing the same game” test mentioned by Tang PJ in Wong Kwok Wai was obiter and required elaboration, and that in many civil cases decided by the Court of First Instance or the District Court (including Ever-Long Finance and the first instance decisions in Gain Wealth and Skyline Credit), it was found that the plaintiff moneylender actually co-operated with the fraudulent intermediary and had communication with or knowledge of the latter’s role.

75. I am inclined to accept that to show collusion under s 27, the moneylender should have knowledge of the existence of the relevant intermediary. As a matter of common sense and plain language, the words “collusion” (the wording used in s 27) and “cooperation” (the wording used by DDJ Ho in Ever-Long Finance and approved by the Court of Appeal in Gain Wealth and Skyline Credit) would require the moneylender and the intermediary to be aware of the existence of each other. DDJ C To’s statement at [7] in Gain Wealth Global Credit & Investment Ltd v Lam Hau Kay is concerned only with the flexible manners in which collusion may take place.

76. However, as confirmed by the Court of Appeal in Gain Wealth, it is unnecessary to show any conspiracy (between the moneylender and the intermediary) to extract payment from the borrower. There is also no need to show that the moneylender was involved in or even had knowledge of the fraud practised by the intermediary. Mr Lui did not seek to contend otherwise.”

Summary of principles:

74.  In summary:

(1)  A moneylender and a person who received “remuneration or reward” for a loan colluded with each other if they were paying the same game.

(2)  The game in question is the allurement of the borrower into entering into the loan transaction against his interest or otherwise to his prejudice, therefore, “for or in connection with or preliminary to procuring, negotiating or obtaining [the Loan] or guaranteeing or securing the repayment thereof”.

(3)  It is not necessary to find that the moneylender was somehow involved in the fraud pertaining to the payments under scrutiny.

(4)  It would be sufficient for such person and the moneylender to co-operate with each other in any forms to do or abstain from doing some act(s) in order to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice.

75.  In addition to the said principles, I shall add that, depending on the circumstances, the mere fact that the borrower was referred to the moneylender by an entity other than that receiving “remuneration or reward” for the loan may or may not be sufficient to negate a primary finding, or inference, of “collusion”. Otherwise, s 27 would be robbed of much of its impact, given that it appears to be not uncommon for a chain of intermediaries to intervene between the borrower and the moneylender. See [78] below.

Application to the present case

76.  I am satisfied on the balance of probabilities, and I find that, Ocean Allied and Roy Chan were in collusion for the purpose of s 27(4) for the following reasons.

77.  I have already set out in [52] and [53] above the evidence adduced by Ocean Allied with a view to establishing that insofar as it is concerned, the defendants were referred to Ocean Allied by Yu. However, such evidence raised its own questions.

78.  Hsu’s evidence did not advance Ocean Allied’s case in any meaningful way. According to Hsu, Yu introduced the defendants’ loan application to him. Later, John Li told him that the customer claimed to have been deceived and asked him to follow up with Yu to see how he found the customer. Yu did not disclose the name of the person who introduced the business to him but told Hsu that it was introduced through multiple agents (艇仔形式搭上搭). Hsu did recall, however, that John Li had asked him to find out whether Yu knew a Roy Chan and that when he asked Yu about it, Yu answered that he did not know the person, “basically” (都唔識呢個人㖞，基本上). There is no evidence from Ocean Allied as to why it did not follow up with Yu on either of these non-committal answers. Ocean Allied’s limited enquiry with Yu is unsatisfactory and not explained or adequately explained.

79.  Yu’s said email, enclosing a referral form, was tendered as evidence of Yu’s referral of the defendants to Ocean Allied. However, the email was not sent until 19 August 2015. This does not sit well with the fact that Ocean Allied had already started to process the application for the Loan on 4 August 2015 at the latest by obtaining a land search and valuation of the Property.

80.  Ocean Allied’s said cheque dated 30 September 2015 for $180,000 was presented as proof of payment of the 1% commission by Ocean Allied to Yu for referring the defendants. However, the payee was not Yu.

81.  A more helpful witness would obviously be Yu. Ocean Allied had, however, made no attempt to call Yu to give evidence. John Li could not give any explanation for the failure to call Yu, other than saying that he did not think about it.

82.  When a party elects not to call a particular witness on a point, thereby depriving the court of positive evidence as to important issues in the case, the court is entitled to draw any reasonable inference against that party, absent any explanation on its part: see Herrington v British Railways Board [1972] AC 877 at 930 and Grave v G A Bonus PLC [1992] 2 Lloyd’s Rep 716.

83.  In any event, this is in my opinion not a case where it is adequate for the moneylender to just show that he received the business from someone other than the entity receiving “remuneration or reward” for the loan.

84.  This is so having regard to the extent of the detriment that would be caused to the defendants by the Loan, particularly when they did not appear to have any need for the same. See [62] above.

85.  Any bona fide moneylender would, in the circumstances, be alerted to the risk of involvements of rogue intermediaries behind the scene.

86.  Instead, Ocean Allied actually facilitated the completion of the fraud practised by Roy Chan by paying the balance of the proceeds of the Loan by the Uncrossed Cheque. As discussed above, the practical effect of the Uncrossed Cheque being issued in such form was that the defendants could obtain the cash and hand it to Roy Chan immediately, without having to wait for the cheque to be cleared. Notably, all the other cheques issued to the defendants had been crossed; only the one for the largest amount, the $782,873 balance, was left uncrossed.

87.  John Li attempted to give several explanations for not crossing the Uncrossed Cheque, none of which is believable.

(1)  At first, he claimed that it was Ocean Allied’s practice to cross cheques which were issued to repay the borrower’s debts owed to other companies; but where the customers wanted cash, they would often ask for the cheque to be uncrossed and Ocean Allied would issue an uncrossed cheque upon such requests.

(2)  He then claimed that, during his one and only telephone conversation with Ms Wong before 21 August 2015, Ms Wong specifically asked him to provide cash for the balance and hence he arranged the Uncrossed Cheque for the defendants. This was new evidence as he has never suggested that Ms Wong had made such a request during their phone call, whether in his witness statement or when he described the phone call in earlier parts of his oral testimony.

(3)  John Li also claimed that, although he did not personally handle the drawing up of the 4 Cheques, his colleagues could know whether the cheques should be crossed or not from the loan documents. But when asked how his colleagues could have known from the loan documents in this case to issue an uncrossed cheque for the balance, he could only point to the phrase “淨發放金額” (net release amount) in the table setting out the distribution of the Loan amount. He had to accept, however, the said phrase was only referring to the balance of the Loan and there was nothing in the said table to indicate that the balance should be released by way of cash/uncrossed cheque.

(4)  In order to salvage his case, he then added that, in fact, unless specifically informed, the general practice of Ocean Allied was to issue cash cheques for the net release amount. But when I questioned him whether he assumed that Ocean Allied’s customers wanted cash, no matter how large the amount was, he retracted and said that in this case, Ms Wong asked for a cash cheque. What he could not explain then was how the persons issuing the cheque knew that it should be uncrossed.

88.  John Li’s evidence in this regard is highly unsatisfactory. He did not mention any of his purported explanations (as set out above) in either of his 2 witness statements. And, unfortunately, it seems to me that he was just making things up as he went along. While John Li stressed that he was not personally involved in preparing and issuing the 4 Cheques, there is no explanation as to why Ocean Allied did not call someone who was personally involved in the process, e.g. Lai, who not only signed the 4 Cheques but was actually involved in reviewing and approving the application for the Loan.[16]

89.  In the circumstances, I do not accept John Li’s evidence that the Uncrossed Cheque was issued in such form pursuant to the defendants’ specific request.

Conclusion

90.  I am satisfied on the balance of probabilities, and I find that, Ocean Allied and Roy Chan were in collusion for the purpose of s 27(3) and (4).

CONSEQUENCES OF A FINDING OF PAYMENTS IN BREACH OF SECTION 27

91.  As set out above, the “costs, charges or expenses” and “remuneration or reward” within the meaning of s 27 in this case amounted to $796,923 (being the sum total of $10,000 (deducted and withheld by Ocean Allied), $2,500 (paid by AHC to US’s solicitors for their costs and disbursements in the discharge of the UA Loan), $1,550 (AHC’s costs and disbursements) and $782,872 (taken away by Roy Chan).

92.  In contrast, the “amount actually lent” under s 27(4) should be $733,104 (being the sum total of $153,047 (BOC Debt), $29,074 (DBS Debt), $5,033 (SCB Debt), $509,094 (UA Loan) and $36,856 (released by AHC to Mr Wong)).

93.  The “costs, charges or expenses” and “remuneration or reward” exceeded the “amount actually lent”.

94.  In the circumstances, it is unnecessary for me to deal with the other defences raised by the defendants.

DISPOSITION

95.  For the reasons stated above, I dismiss Ocean Allied’s claim.

96.  I further make a cost order nisi that Ocean Allied shall bear the costs of this action, such costs to be taxed on a party and party basis if not agreed, while the defendants’ own costs shall be taxed in accordance with the Legal Aid Regulations (Cap 91A). This cost order nisi will be made absolute unless the parties take out a summons to vary it within the next 14 days.