RISE HONEST INTERNATIONAL LTD v. TONG CHAI ON VIVIAM

DCCJ 2163/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2163 OF 2013

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REASONS FOR DECISION

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1. In this case, the plaintiff, a licensed money lender, claims against the defendant for outstanding amount of principal and interest due to the plaintiff under two agreements, one in Chinese and the other in English, both dated 8 February 2012.  The Chinese and English agreements actually formed a composite one.  The Chinese agreement can be said to be a summary of the major terms of the loan, probably prepared for the benefits of borrowers who may not be conversant in English, whilst the English agreement contains all the boilerplates. I shall refer to them collectively as the “Loan Agreement”.

2. The defendant did not defend the action and in a hearing before Master Timon Shum on 6 August 2013, default judgment was granted against the defendant. However, the plaintiff contends that the learned Master made an error in the outstanding amount of the principal. Instead of HK$295,154 as claimed by the plaintiff, the learned Master awarded HK$280,326.  The difference is admittedly small.  However, Mr Alexis Lam of the plaintiff’s solicitors who appeared before me explained that the plaintiff felt compelled to appeal against the learned Master’s decision as it may set an undesirable precedent affecting future applications for judgments against his client’s customers

3. The difference arose in this way.  The loan amount was for HK$320,000.  Interest is payable at 3% per month or 36% per annum.  An installment of HK$11,558 was to be paid on a monthly basis to the plaintiff, starting from one calendar month after the drawdown of the loan, for 60 months to completely pay off the loan and interest thereon.  Apart from the Loan Agreement, there was a schedule in Chinese given to the borrower setting out in details the monthly installment payable, how much that was for principal and how much for interest, and the outstanding principal after each installment payment (the “Repayment Schedule”). For example, according to the Repayment Schedule, when the plaintiff made the 16^th installment payment of HK$11,558 on 8 June 2013, HK$8,501 of it will go to the payment of interest and HK$3,075 will be for principal. After this payment, the outstanding principal would be HK$280,326.  This Repayment Schedule was evidently given to the borrower and the borrower signed on it signifying his understanding of his obligation to pay according to the schedule.  However, the contractual status of this document is somewhat doubtful. It did not form part of the body of the Loan Agreement.  It was signed by the borrower only but not the lender. Neither the Chinese agreement nor the English agreement refers to it. There are other, quite clear provisions in the Loan Agreement dealing with the borrower’s payment obligations. It seems to me that the correct characterization of this document is that it is just an illustration for the borrower to understand how his payments, if made on schedule, would be apportioned between principal and interest.  This is not unlike the bank statements that people with a mortgage receive from the mortgagee bank from time to time.

4. The defendant had made a payment of totally 16 installments to the plaintiff. Hence, according to the Repayment Schedule, the outstanding principal should be HK$280,326.  However, the payments made by the defendant were not in compliance with the Repayment Schedule or the Loan Agreement.  The defendant defaulted on the very first installment payment. Instead of paying on 8 March 2012 as provided in the Repayment Schedule, and the Loan Agreement, he made his first payment on 10 April 2012. Since then he never brought himself back to the schedule set out in the Repayment Schedule.  By June or July this year, it was apparent that he was no longer able to service the loan.

5. For some reason, the learned Master ruled that since the defendant had made 16 installments, the outstanding principal should be HK$280,326 according to the Repayment Schedule.  With respect, it seems to me such ruling is without sufficient legal or contractual basis.  The learned Master probably misinterpreted the effects of the Repayment Schedule.

6. On the other hand, the Chinese agreement clearly provided in Clause 5 that any repayment by the borrower shall be applied in the sequence of interest on principal, default interest, and finally the principal.  As a result of the delays and defaults made by the defendant, additional interest and default interest had accrued on the outstanding principal, and because payment by the defendant would be first applied to additional and default interest, the outstanding amount of the principal after 16 installment payments which were not in compliance would no longer be HK$280,326 as set out in the Repayment Schedule.  According to the calculation of the plaintiff, which Mr Alexis Lam patiently took me through at the hearing, the outstanding amount of principal should instead be HK$295,154. Having spent some time at the hearing to understand the calculation, I am satisfied that this is the correct amount of the outstanding principal.  In fact, this calculation may be a little more favourable to the defendant than it would be the case if the plaintiff had insisted on its full contractual rights: the plaintiff had not actually applied the defendant’s payment to default interest.  Hence, in the award of the learned Master, there is an item of default interest in the amount HK$6,270.98.

7. Accordingly, the plaintiff’s appeal is allowed.  The sum HK$280,326 in the learned Master’s judgment would be substituted with the figure of HK$295,154. Other parts of the learned Master’s judgment would remain undisturbed.

8. Costs of this appeal are to the plaintiff and assessed on a gross-sum basis at HK$16,068.