CORE ASIA LTD AND ANOTHER v. WONG CHEUK YIN AND OTHERS

HCMP 651/2015

[2020] HKCFI 2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 651 OF 2015

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DECISION

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The Summons

1.  Before this Court is the summons (the “Summons”) taken out by the Defendants (“Ds”) on 9 July 2020 for leave to amend their Amended Defence and Counterclaim as per the draft Re‑Amended Defence and Counterclaim (the “Draft RAD&C”) annexed to the Summons. 

Directions for paper disposal

2.  The Summons was originally set down to be heard before this Court on 30 July 2020.  In view of the prevailing public health situation caused by the COVID‑19 epidemic, I on 22 July 2020 gave directions that the Summons be dealt with on paper.  I at the same time gave directions on the filing of submissions.

3.  On 27 July 2020, Mr Kam Cheung, counsel for Ds, filed his submissions in support of the Summons.  On 29 July 2020, Mr Adrian But, counsel for the Plaintiffs (“P1”, “P2”, and collectively “Ps”) filed his submissions in opposition.  No reply has been filed by Mr Cheung.

4.  I have read all the submissions and the authorities placed before me.

The background facts and parties’ pleaded case

5.  P1 is a licensed money lender.  P2 is not.

6.  P1, P2 and a company called Myer Jewelry Manufacture Limited (“Myer Jewelry”) are associate companies within the same group of companies.

7.  D3 was an employee of Myer Jewelry.

8.  D3 and D1 were husband and wife.  According to Ds’ pleaded case, D3 and D1 had been separated since 2012, and were divorced in 2015.  D2 and D4 are respectively their daughter and son.

9.  D1 and D2 own a property at Tsuen Wan (the “Property”).

10.  By their Statement of Claim of 12 June 2017, Ps are suing on 2 sets of agreements (the terms used below are those used in the pleadings):

 (a)  the 1^st Loan Agreement secured by the 1^st Legal Charge over the Property between P1 (as lender and mortgagee) of the one part and D1 and D2 (as borrowers and mortgagors) of the other; and

 (b)  the 2^nd Loan Agreement secured by:

 (i)  the 2^nd Legal Charge also over the Property between P2 (as lender and mortgagee) of the one part, D3 as the borrower of the second, and D1 and D2 (as mortgagors) of the third, and

 (ii)  the Guarantee executed by D4 up to HK$1 million.

11.  Ds filed their original Defence and Counterclaim on 7 September 2017.  They filed their Amended Defence and Counterclaim on 28 November 2018 (“AD&C”).

12.  The gist of Ds’ case, according to their AD&C, is as follows:

 (a)  Since about 2009, D1, D2 and D4 had on several occasions been informed by representatives of Myer Jewelry that D3 had stolen properties belong to Myer Jewelry, and that D3 owed it substantial debts;

 (b)  Myer Jewelry would continue to employ D3 if D1 and D2 would use the Property as a security to secure D3’s faithful discharge of his duties in the future (ie as “舖保” according to the terms as pleaded by Ds);

 (c)  It was represented to D1, D2 and D4 that:

 (i)  the Property, offered as舖保, was to secure D3’s proper discharge of his job duty to Myer Jewelry in the future (the “1^st Misrepresentation”); and

 (ii)  there would not be any risk to D1 and D2 unless D3   committed further acts of theft (the “2^nd Misrepresentation”);

 (d)  At that time, the Property was subject to a mortgage to the Standard Chartered Bank.  The outstanding amount was some HK$1.3 million;

 (e)  It was further represented to D1, D2 and D4 (the “3^rd Misrepresentation”) that:

 (i)  Myer Jewelry would repay the mortgage loan to the Standard Chartered Bank in order to make the Property an effective security under the舖保;

 (ii)  in return D1, D2 and D4 needed to sign some documents to ensure that Myer Jewelry could get back the HK$1.3 million should D3 fail to properly discharge his job‑related duties to Myer Jewelry in the future; and

 (iii)  the liability of D1, D2 and D4 under the documents would not exceed their liability to the bank under the mortgage.

 (f)  D1, D2 and D4 attended a solicitor firm on about 1 September 2011 and signed “a host of documents”;

 (g)  the 1^st Loan Agreement[1], the 1^st Legal Charge[2], the 2^nd Loan Agreement[3], the 2^nd Legal Charge[4] and the Guarantee[5] were likely to be among the documents signed on 1 September 2011, but that they were:

 (i)  signed as a result of the 1^st, 2^nd and 3^rd Misrepresentations;

 (ii)  signed due to the mistaken belief of D1, D2 and D4 as to their meanings; and

 (iii)  they are void and have no effect, and are liable to be rescinded.

13.  In the AD&C, no defence relating to or in reliance of any provisions in the Money Lenders Ordinance Cap 163 (the “Ordinance”) has been raised.

The Pre-trial Review

14.  The action has been set down for trial.  The trial is scheduled to commence on 13 October 2020 with 6 days reserved.

15.  The Pre‑trial Review took place before me on 16 June 2020.

16.  During the Pre‑trial Review, I raised the point as to whether Ds might seek any amendment of their AD&C to introduce any intended defence in reliance of the provisions in the Ordinance.  I at the same time made clear that the Court was not suggesting that any of those defences were required to be made, but that the matter was raised during the Pre‑trial Review so as to avoid any last minute surprises.  I sought confirmation from Mr Cheung, who appeared for Ds, that no such amendments were intended.  In response, Mr Cheung informed me that the matter was under deliberation.  I put on record that the stage for any amendment was already late, and that Ds had given no indication that they might seek any amendment until the Court raised the issue.

17.  Then, on 9 July 2020, some 3 weeks after the Pre‑trial Review, the Summons was issued.

The proposed amendments  

18.  By the Summons, and as per the Draft RAD&C, Ds seek to:

 (a)  add to §1 of the AD&C by averring that P2 has never been a registered money lender;

 (b)  add a new §30A that:

 (i)  P2 carried on business as a money lender in contravention of s 7 of the Ordinance, so that the 2^nd Loan is unenforceable by reason of s 23 of the Ordinance (§30A(1) of the Draft RAD&C);

 (ii)  P2 acted in contravention of ss 18(1), 18(2) and 20 of the Ordinance (§30A(2));

 (iii)  the 2^nd Loan Agreement and the 2^nd Legal Charge were, by virtue of s 22 of the Ordinance, illegal because they provided for an increased rate of interest in case of default (§30A(3)); and

 (iv)  by providing payment of interest at the rate of 5% per month in the event of default, the 2^nd Loan is extortionate.  In reliance of s 25 of the Ordinance, Ds invite the Court to reopen the transaction (§30A(4)); and

 (v)  certain consequential amendments to the Counterclaim.

Discussion

19.  For the reasons set out below, I have decided to refuse the application.

20.  At §6 of his written submissions, Mr Cheung submits that:

“ … the defence sought to be added is a legal one. The Defendants [sic] are not burdened with the task of looking into the facts and making further investigation. In fact, in so far as potential prejudice to the 1^st and 2^ndDefendants [sic] is concerned, there is no suggestion that either of them will suffer any prejudice.” (underlying added)

21.  To start with, I believe that in that paragraph, by the words “Defendants” and “the 1^st and 2^nd Defendants” (as underlined), Mr Cheung in fact means to refer to the “Plaintiffs” and “the 1^st and 2^nd Plaintiffs”.

22.  More importantly, and if Mr Cheung is seeking to submit there that the proposed new defences were entirely legal in nature with no new facts involved, which he appears to be, I disagree.  The defences which Ds seek to add are not purely legal in nature.  They involve issues of facts.  I accept Mr But’s submissions in this regard.  In particular:

 (a)  Under §§30(A)(1), (2) and (3) of the Draft RAD&C:

 (i)  Ds seek to pray in aid ss 18, 20, 22 and 23 of the Ordinance;

 (ii)  those sections are in Part III of the Ordinance regulating money lenders’ transactions;

 (iii)  before Ds can invoke those sections, they would have to establish as a matter of law and fact that P2 was a money lender as defined in s 2 of the Ordinance;

 (iv)  the resolution of the issue as to whether P2 was carrying on business as a money lender at the material time is going to open up a new line of factual investigations;

 (b)  In respect of all the sections which Ds seek to introduce by the proposed amendments, even if breaches can be established, and as Mr But has submitted, facts sensitive investigations are still required on the degree and extent of the alleged breach(es), on the scope for any remedial compliance, and on the question as to whether the court should nonetheless enforce the related agreement(s) on the basis that it would be inequitable otherwise — see ss 18(3), 20(4), 22(2) 23 and 25 of the Ordinance, and Strong Offer Investment Ltd (in liq) v Nyeu Ting Chuang (2007) 10 HKCFAR 529 at §§17‑20.

23.  Ds’ proposed amendments lack particulars:

 (a)  Ds’ averment at §30A(1) of the Draft RAD&C that P2 “carried on business as a money lender” is a bare one, not supported by any other pleaded facts or particulars.  It does not inform P2 in what way it is alleged to have carried on business as a money lender;

 (b)  In respect of Ds’ averment at §30A:

 (i)  Ds aver that the 2^nd Loan Agreement provides for “payment of interest at the rate of 5% per month in the event of default”; (emphasis added)

 (ii)  That averment has to be understood in the light of the terms of the 2^nd Loan Agreement.  As pleaded in the Statement of Claim, under the terms of the 2^nd Loan Agreement (the fact that the 2^nd Loan Agreement contains those terms having been admitted[6]):

(1)  D3’s contractual duty was to repay P2 the 2^nd Loan free of interest by instalments;

(2)  if any instalment becomes outstanding, it will only then when interest on the outstanding instalment at the rate of Prime + 2% will be payable;

(3)  it is only when the outstanding instalment has become outstanding by 30 days when interest on the overall outstanding amount will become payable at the rate of 5% per month;

 (iii)  s 25(3) of the Ordinance regulates the “effective rate of interest” of a loan, and it is only when such “effective rate of interest” is over 48% per annum when the agreement concerned will be presumed to be extortionate;

 (iv)  under the Ordinance, “effective rate” is defined in s 2(1), and has to be calculated in accordance with Schedule 2 thereof;

 (v)  Ds have in the proposed amendments failed to plead what “the rate of 5% per month in the event of default” under the 2^nd Loan Agreement actually was in terms of the “effective rate” as statutorily defined;

 (vi)  I agree with Mr But’s submission that Ds have failed to properly plead and particularize as to why the interest rate charged under the 2^nd Loan Agreement only in the contingent event of default shall be treated as an effective rate of interest exceeding 48%;

 (vii)  Ds have also failed to plead and particularize as to how and in what way they intend to seek the transaction to be reopened;

 (c)  In making the present application, the obligation is on Ds to properly particularize the proposed amendments.  The provision of clear particulars is of particular importance when, as in this case, the application for amendment is made late close to the scheduled trial;

 (d)  Ds have failed to do so[7].

24.  Ds’ averment by way of the proposed amendments that P2 “carried on business as a money lender”, apart from being a bare one, is also inconsistent with Ds’ own pleaded case that D1 and D2 were asked to offer the Property as舖保.  I note also that §§30A(1), (2) and (3) are not proposed to be added as pleas alternative to the averments already pleaded in the AD&C.  I accept Mr But’s submission[8] in this regard that given Ds’ own case about the underlying nature of the 2^nd Loan and the capacity of P2 representing D3’s employer, P2 cannot, by virtue of making that loan to D3, be regarded as carrying on business as a money lender.  In that sense, the proposed pleas in §§30A(1), (2) and (3), which premise upon P2 carrying on business as a money lender, is bound to fail. 

25.  Given, as discussed above, the new factual issues that the proposed amendments if allowed will open up, and given the inadequacies of the proposed amendments as identified above, allowing the application, and thereby requiring P2 to answer the new defences in the short time available before the scheduled commencement of the trial, would in my view be highly prejudicial to P2.

26.  The alternative or possibility of adjourning the trial is equally prejudicial not just to P2 but also to P1 (which has nothing to do with the proposed amendments).  Doing so is also going to be prejudicial to the due administration of justice.

27.  Also relevant is the lateness in which the application is made, and the complete absence of explanation as to why.

28.  Having considered all factors, I am not satisfied that the proposed amendments are justified in order to secure the just resolution of disputes between the parties in accordance with their substantive rights.  In all the circumstances of the case, and having balanced them, I exercise my discretion against the Summons. 

Disposition

29.  For the reasons set out above, I dismiss the Summons.

Costs

30.  The trial is only 2 months away.  Rather than requiring parties to incur further time and resources to argue over costs, I propose to make a costs order nisi that the costs of and occasioned by the Summons be reserved and be decided by the trial judge upon conclusion of the trial.  The added advantage of that course is that the trial judge will by then have the full background of the case who may then deal with all costs matters in one go.  I so order.