TRILLION WIDE CREDIT FINANCE LTD v. AMPLE SKY HOLDINGS LTD

HCA 288/2019 &
HCMP 2203/2019
(heard together)
[2022] HKCFI 3813

HCA 288/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 288 OF 2019

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BETWEEN

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HCMP 2203/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2203 OF 2019

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.  This trial involves 2 sets of related proceedings, ordered to be heard together:

(1) HCA 288/2019 (“High Court Action”) is the debt recovery claim of Trillion Wide (“Plaintiff”) under 2 Loan Agreements against Ample Sky (“Defendant”); and

(2) HCMP 2203/2019 (“HCMP Proceedings”) was originally part of the counterclaim in the High Court Action but hived off into an originating summons taken out by the Defendant to seek a declaration that the 2^nd Loan Agreement is not registrable.

2.  Despite being served with the notice of today’s hearing, the bundles and opening submission of the Plaintiff, the Defendant has failed to appear.  As I am satisfied as to service, I have proceeded to try these cases.

B. FACTS

3.  The Plaintiff was a licensed money lender under the Money Lenders Ordinance, Cap 163 (“MLO”).

4.  The Plaintiff advanced 2 loans to the Defendant:

(1) The 1^st Loan of HK$4 million under the 1^st Loan Agreement dated 22 December 2014, repayable in 6 monthly instalments; the interest rate was 33.6% per annum; and

(2) The 2^nd Loan of HK$6.35 million under the 2^nd Loan Agreement dated 9 February 2015, repayable in 12 monthly instalments; the interest rate was 15% per annum.

5.  The 1^st Loan Agreement contains a recital that a property and car park in Mainland China would be used as collateral (抵押品) to the 1^st Loan.  The 2^nd Loan Agreement contains a recital which stated that a property known as “Flat A on the 16^th [Floor] with Balcony and Utility Platform of High West, Hong Kong” (“the Property”) would be used as collateral to the 2^nd Loan. 

6.  The 2 Loan Agreements contained common provisions:

(1) Should the Defendant fail to repay any of the instalments, the entire sum would become due and owing.

(2) The Defendant must repay the principal and interest in accordance with the terms of the respective Loan Agreement.

(3) If the Defendant does not repay the loan when it is overdue, the Plaintiff shall have the right to claim back the loan.

(4) If the borrower does not repay on the due date, the lender has a right to recover the Loans and impose penalty interest “in accordance with stipulation”.  (按規定加收罰息)

7.  The 1^st Loan was remitted to China as directed by Mr Huang Ying Pin (director of the Defendant) and was treated as paid and lent to the Defendant.  The 2^nd Loan was advanced for the purposes of funding the purchase of the Property by the Plaintiff’s deposit into the account of Messrs. Lo & Lo, the conveyancing solicitors for the Defendant. 

8.  The Defendant has failed to repay any part of the Loans. 

9.  On 22 January 2019, the Plaintiff, via its solicitors, made a formal demand for repayment of the 1^st and 2^nd Loans. 

10.  On 29 January 2019, the Plaintiff applied to register the 2^nd Loan Agreement at the Land Registry.  Registration has been pending since. 

11.  On 22 February 2019, the Plaintiff issued the writ in the High Court Action to seek money judgment of HK$29 million.      

12.  On 28 November 2019, the Defendant commenced the HCMP Proceedings. 

C. THE DEFENCE

13.  There is no dispute on pleadings that the Defendant had never repaid the Loans.  The pleaded defences in the High Court Action and the Defendant’s case in the HCMP Proceedings are that:

(1) The Defendant had never executed the Loan Agreements, or authorized anyone to do so and had never received the Loans.  (“No Agreement Issue”);

(2) A mortgage of the Property was, purportedly executed by the Defendant in favour of DBS (Hong Kong) Ltd without the authority of the Defendant (“DBS Mortgage Issue”);

(3) The Loan Agreements were tainted with MLO non-compliances (“Illegality Issue”); and

(4) The 2^nd Loan Agreement over the Property is not registrable (“Registrability Issue”).

14.  The Plaintiff denies the Defendant’s version.

D. THE EVIDENCE

15.  The Plaintiff has called one witness, Ms Wong Oi Chun, Manager of the Plaintiff, who produced contemporaneous documents to prove its case.  The Defendant has not filed any witness statement, or produced any documentary evidence. 

E. NO AGREEMENT ISSUE

16.  The Plaintiff was a money lender between 18 March 2014 and 18 March 2015.  This is proved by production of the original license.      

17.  Ms Wong was the person who attended to the execution of the 2 Loan Agreements.  She had personally seen Mr Huang Ying Pin at the Plaintiff’s office to execute the Loan Agreements and apply the company seal of the Defendant.  Ms Wong had taken copies of the identity documents of Mr Huang and gathered documents relating to the collaterals under the 2 Loan Agreements. 

18.  Ms Wong testified that the 1^st Loan was remitted to Mr Huang in China who received it on behalf of the Defendant, although no documents have been produced.  The 2^nd Loan was given to Lo and Lo, solicitors, to enable the Defendant to complete the sale and purchase of the Property.  There were documents concerning that Property transaction previously provided by Mr Huang to Ms Wong at or about the time the 2^nd Loan Agreement was executed. 

19.  According to Ms Wong, the Loan Agreements were executed in duplicates with one set given to the Defendant (and the guarantors). 

20.  Ms Wong could not remember why the 2^nd Loan Agreement was not registered in 2015 when it was executed.  In 2015, her father (who beneficially owed the Plaintiff) and Mr Huang were business partners and were in good relationship.  In 2019, however, her father lost contact with Mr Huang and that was why the Plaintiff sought to register 2^nd Loan Agreement.  Ms Wong had no idea why registration was withheld by the Land Registry. 

21.  The Defendant has nothing to contradict the Plaintiff’s case.   I am satisfied from the evidence of Ms Wong that Mr Huang, on behalf of the Defendant, had executed the 2 Loan Agreements and the seal of the Defendant was properly applied.  The Loans have been advanced to and received by the Defendants.  The Plaintiff has proved its case and I find the facts in §§3-8 above to be established. 

F. DBS MORTGAGE ISSUE

22.  DBS lent money to one Cheung Wing Holdings Ltd (owned by Ms Wong’s father) on the security of the Property (owned by the Defendant).  The Mortgage was executed on 15 May 2015 by Ms Wong’s father on behalf of Cheung Wing Holdings Ltd and Mr Huang on behalf of the Defendant, in the presence of Ms Wong.  The Mortgage had been redeemed on 12 January 2017.

23.  I accept Ms Wong’s evidence.  The Mortgage was executed by the Defendant.  The Mortgage had nothing to do with the 2 Loan Agreements.  There was nothing to suggest that the Defendant was in any way prejudiced by the Mortgage.  The DBS Mortgage Issue does not constitute a defence to the Plaintiff’s claim.

G. ILLEGALITY ISSUE

24.  The pleaded defence on this aspect is as follows:

(1) The provisions of the MLO were not provided to the Defendant, in contravention of section 18(1)(b) of MLO;

(2) The Defendant was not given a right at any time by notice in writing to the Plaintiff to repay;

(3) Default interest was charged, in contravention of MLO;

(4) The effective interest rate exceeded 60% or 48% per annum; and

(5) The Plaintiff wrongly charged the Defendant for costs, charges and expenses.

G1. Provisions of the MLO were not provided to the Defendant

25.  This cannot be true because, according to Ms Wong a duplicated version of the Loan Agreements with a memorandum under MLO had been given to the Defendant after execution. 

26.  In any case, there is no pre-conception in favour of or against a money lender or a borrower.  The key consideration is whether there was prejudice caused by the non-compliance: Strong Offer Investment Ltd v. Nyeu Ting Chuang (2007) 10 HKCFAR 529 at §20 per Chan PJ and §62 per Ribeiro PJ. 

27.  In the present case, the Defendant has not even pleaded prejudice, not to say prove it. 

28.  The details of the Loans have all been set out in the Loan Agreements and the Memoranda attached to them.  There was nothing pointing otherwise than to the fact that the transactions were at arm’s length.  Even if exercise of discretion conferred by section 18(3) of MLO is necessary, the Court does not see fit to bar the Plaintiff from enforcing the Loan Agreements for the alleged non-compliance.

29.  In any event, insofar as the 2^nd Loan was concerned, the Plaintiff was not regarded in law as a “money lender” because the 2^nd Loan was made by the Plaintiff bona fide for the purchase of an immovable property (ie the Property) on the security of a mortgage of that Property: see MLO s. 2 for the definition of “money lender” and Schedule 1, Part 2, clause 4.  Accordingly, the Plaintiff was simply not caught by the requirements to provide provisions of MLO to the Defendant.  The alleged non-compliance cannot get off the ground with regard to the 2^nd Loan Agreement.

G2. Prohibition of Early Repayment

30.  There is no substance is this complaint, because:

(1) MLO s. 21 confers a right on the borrower’s part to repay early.  Failure to include this provision does not render any agreement illegal: Gain East Investment v. Chan Po Wing [2022] HKCA 156 at §47 per G Lam JA. 

(2) In any event, the issue is academic because the Defendant has never asked to repay early.

G3. Charge of Default Interest

31.  The defence pleads that the rate of interest was increased by reason of default in payment.  Such is levelled presumably with reference to the 5%[1] default rate per month under the Loan Agreements.

32.  The defence has become academic because the Plaintiff no longer seeks to enforce the default interest.  Given that the Loan Agreements were entered into between businessmen at arm’s length and not under extortionate circumstances, I do not see why the existence of the default interest rate should, in itself, bar the Defendant from enforcing the rest of the Loan Agreements. 

G4. Excess of Default Interest Rate

33.  The defence pleads that the effective interest rate exceeded 60% (or 48%) per annum.  This plea is unmeritorious because:

(1) The annual interest rates under the 1^st and 2^nd Loan Agreements were 33.6% and 15% respectively.  Neither rate calls for investigation under MLO ss. 24-25.

(2) In determining the “effective interest rate”, one does not have regard to the scenario of default.  One simply looks at the rate of interest agreed to be charged and compare it with the statutory maximum: Easy Fortune Property Limited v. Yung Chun Him [2019] HKCA 1055 at §53 per Chu JA.

G5. A term for payment of costs, charges or expenses

34.  The defence pleads that there was a term for payment of costs, charges and expenses incidental to the negotiations for the granting of the Loans or securing the repayment thereof.  This attack presumably relies on s. 27 of MLO.  

35.  It is not clear which term of the 1^st and the 2^nd Loan Agreements the Defendant is relying on. In any event, the short answer is that there is no claim based on that unidentified term and there is no evidence that the Plaintiff had charged the same.  Even if s.27 is somehow not being complied with, it would not invalidate the entire agreement: Hao Tian, Finance Company Limited v. Hung Yuk Ming & Anor [2020] HKCFI 465 at §97 per Ng J.   This plea has no merit.

36.  In summary, the Illegality Issue cannot stand.

H. REGISTRABILITY ISSUE

37.  The applicable principles concerning registrability are summarised in DHCJ Burns SC’s decision dated 16 November 2000 when he dealt with the Defendant’s application for a declaration of non-registrability in the HCMP Action.  In essence:

(1) An instrument may only be registered with the Land Registry under the Land Registration Ordinance, (Cap 128) if it creates some interest, legal or equitable, in the parcel of land in question.  

(2) The Court has inherent jurisdiction (a) to grant a declaration as to the registrability or otherwise of any document lodged with the Land Registry for registration and (b) order the removal or vacation of registration if the document in question is not registrable, if appropriate, by summary determination. 

(3) Whilst, plainly there is a difference in law as between an equitable mortgage on the one hand and an equitable charge on the other,

(a) if it can be shown that, by the document in question, the parties intended to create an immediate interest in the relevant property, the document will be registrable; and

(b) it is not enough for the document in question merely to provide machinery whereby a registrable interest either will or may be created by some other transaction; the document itself must itself have the effect of creating the interest. 

(4) In determining whether or not the document in question does or does not create an immediate registrable interest in the relevant property, it is permissible not only to have regard to the language adopted in the document and the immediate surrounding circumstances but also to the parties’ subsequent conduct. 

38.  There is evidence that the 2^nd Loan Agreement created equitable interest in the Property:

(1) The 2^nd Loan Agreement and clause (h) of the Memorandum expressly stated that the Property was to be collateral for the 2^nd Loan.  The parties’ common intention to create a security was clear although there was no express use of the word “mortgage”. 

(2) The document need not purport to be a mortgage.  The language is immaterial provided that the meaning is plain: Elders Pastoral Ltd v. Bank of New Zealand [1990] 1 WLR 1478 [PLOA#12] at 1480, per Lord Templeman. 

(3) Both Loan Agreements consistently referred to having a property as collateral.  The 2^nd Loan was larger than the 1^st but with a lower interest rate.  The logical inference is that there was collateral in the form of a Hong Kong property which made the 2^nd Loan more secure.

39.  Mr Lau, counsel for the Plaintiff, submits that whilst the terms in the 2^nd Loan Agreement might be said to be rudimentary, they were cured by the default provisions in s. 51 and Schedule 4 of the Conveyancing and Property Ordinance, Cap. 219, which gave extensive powers to the Plaintiff as a mortgagee.  Hence enforcement mechanism was available.

40.  I have reservations about this argument as those default provisions only apply to a legal charge or equitable mortgage “by deed”, but the 2^nd Loan Agreement was not by deed.  However I do not need to come to any affirmative decision because this is not an action to enforce the security or section 51. 

41.  It is for the Defendant to satisfy the Court that the 2^nd Loan Agreement is not registrable, but the Defendant has failed to. 

42.  In summary, no part of the Defendant’s case has merits.  The Plaintiff has validly established liability and is entitled to judgment in the High Court Action.  The originating summons should be dismissed.    

I. QUANTUM

43.  Ms Wong has produced a repayment schedule for each of the Loans showing the amount due upon judgment based on the terms in §4 above.  No default interest has been included.  I accept the schedules and hold that the Defendant is liable to pay the Plaintiff:

(1) With regard to the 1^st Loan, the principal of HK$4 million and interest up to 23 December 2022 at $10,759,364.38 and thereafter at judgment rate until full payment; 

(2) With regard to the 2^nd Loan, the principal of HK$6.35 million and interest up to 23 December 2022 at $7,500,393.84 and thereafter at judgment rate until full payment.    

J. CONCLUSION

44.  I order as follows:

(1) There be judgment to the Plaintiff in the High Court Action as per §43 above. 

(2) The originating summons is dismissed. 

45.  I also order, on a nisi basis, that costs should follow the event and be payable by the Defendant for both sets of proceedings, summarily assessed in the amount of HK$450,000.    

46.  I thank Mr Martin Lau for his assistance.