ACTUALLY FINANCIAL LTD v. SO YAT

DCCJ 2166/2019

[2022] HKDC 100

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2166 OF 2019

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JUDGMENT

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A. INTRODUCTION

1.  This is an action brought by the plaintiff, a money lender licensed under the Money Lenders Ordinance (Cap 163), for recovery of money from the defendant under a Loan Agreement and a Personal Loan Agreement dated 24 October 2014 in the total sum of HK$1,332,568.68,with further interest on the principal sum of HK$1,200,000 at the rate of 24% per annum (the “Loan”).

2.  The defendant’s defence, in essence, is that the plaintiff has colluded with two agents which introduced the defendant to the plaintiff for the purpose of taking out the Loan, in circumstances where the defendant has been misrepresented and deceived into making various payments and taking out the Loan which she now has difficulty servicing.

3.  It is the defendant’s case that the plaintiff, and/or the agents with whom the plaintiff was in collusion, have received from the defendant sums by way of costs, charges or expenses in relation to the provision of the Loan contrary to ss 27 and 29(10) of the Money Lenders Ordinance (Cap 163) (“MLO”).  The defendant further avers that the Loan Agreement and Personal Loan Agreement were illegal and unenforceable under s 24 of the MLO as the effective rate of interest on the Loan was well beyond 60%, and that the Loan was in any event extortionate and liable to be re-opened under s 25 of the MLO.

4.  The thrust of the plaintiff’s response, on the other hand, is that there was no collusion at all. Any costs, charges or expenses allegedly charged by these agents, if any at all, had nothing to do with the plaintiff.  The plaintiff maintains, therefore, that it should be entitled to recover the Loan and interest given the defendant’s default in making monthly instalments and interest on the Loan since 23 July 2015.

5.  Before I turn to consider the substantive issues of the present trial, it is worth mentioning, at this juncture, that on 25 June 2021, the defendant issued a Summons seeking (a) leave to recall the plaintiff’s first witness, Mr Darryl Tang (“Darryl Tang”), to be cross-examined on the alleged inconsistency between his witness statement dated 20 January 2020 in a set separate of proceedings (DCCJ 3317/2020) and his oral testimony given at the present trial concerning the plaintiff’s involvement with loan referral agents in September 2014; and (b) leave for the defendant to obtain the transcript of Darryl Tang’s evidence given in his examination-in-chief, cross-examination and re-examination for inclusion in the trial of DCCJ 3317/2020.

6.  This Summons was taken out only after the defendant has filed her written closing submissions on 15 June 2021, and less than one week before oral closing took place before this court.

7.  Given the complete lack of merits and the extreme lateness of the defendant’s Summons, I have dismissed the same with reasons given at the oral hearing.  I have also ordered costs of the Summons be paid by the defendant on an indemnity basis.

8.  I now turn to the substantive dispute between the parties in the present action.

B.  BACKGROUND

9.  I set out below the relevant factual background which is either undisputed or cannot seriously be disputed.

10.  The plaintiff is a licensed money lender under the MLO at all material times.

11.  The defendant is aged 63, and divorced with three sons.  She is the registered owner of a public housing estate in Tseung Kwan O (the “Property”) at all material times. At the time of entering into the Loan Agreement and Personal Loan Agreement, the defendant worked as a general cleaner at a restaurant with a monthly salary of around HK$11,000.  She is illiterate.

12.  Mr Li Cheung Nam Tony (“Tony Li”) is the second son of the defendant.

13.  In or around December 2006, the defendant purchased the Property from the Hong Kong Housing Authority at a consideration of HK$221,000.

14.  To finance the purchase of the Property, and for other financing purposes, the defendant has obtained a number of loans by mortgaging the Property over the years:-

(1)     The defendant first took out a mortgage loan in the sum of HK$218,500 from Bank of China (Hong Kong) Limited to complete her purchase of the Property on 7 December 2006 (the “BOC Loan”). 

(2)     Before the BOC Loan was paid off in full, the plaintiff took out a further loan of HK$60,000 from Fu Tat Finance Company on 13 September 2008 (the “Fu Tat Loan”). 

(3)     In January 2012, the defendant intended to refinance the Property.  Thus, on 4 January 2012, the defendant took out another mortgage loan in the sum of HK$490,000 from Hang Seng Bank Limited (the “Hang Seng Loan”) so as to pay off inter alia the BOC Loan and Fu Tat Loan (the “First Refinancing”).  Consent from the Housing Authority was obtained for the First Refinancing.  The monthly repayment of the Hang Seng Loan was HK$4,650.

(4)     On 1 April 2014, before the Hang Seng Loan was paid off in full, the defendant took out another loan in the sum of HK$220,000 from First Asia Finance Limited (the “First Asia Loan”).  The monthly repayment of the First Asia Loan was HK$6,500.

(5)     In October 2014, the total monthly repayment which the defendant had to make for the Hang Seng Loan and First Asia Loan totalled HK$11,150.  However, the defendant’s monthly income at that time was only around HK$11,000.

(6)     On 24 October 2014, the defendant sought a loan (the “Loan”) from the plaintiff in the sum of HK$1,200,000 by the Loan Agreement and the Personal Loan Agreement the terms of which were bilingual.  It is this Loan which lies at the heart of these proceedings.   

(7)     On 11 December 2004, the defendant applied for further refinancing of the Property (the “Second Refinancing”).  To this end, the defendant employed Chung Shun Properties Affairs Company (“Chung Shun”) for the purpose of obtaining a letter of consent from the Housing Authority regarding the Second Refinancing.  The application was eventually approved by the Housing Authority in June 2015. 

15.  Insofar as the application of the Loan is concerned:-

(1)     HK$700,000 of the Loan was, pursuant to the defendant’s instructions, held by Messrs.  Darin Leung & Partners Solicitors (“DLP”), the plaintiff’s solicitors, as stakeholder. 

(2)     The remaining HK$500,000 of the Loan was advanced to the defendant by a cheque (non-negotiable account payee only) dated 24 October 2015 drawn in her favour (the “HK$500,000 Cheque”).  The defendant signed a copy of the HK$500,000 Cheque as acknowledgement of receipt.

(3)     Part of the stakeholder money was subsequently applied for the full settlement of the defendant’s Hang Seng Loan and First Asia Loan in accordance with the defendant’s instructions.  The balance of the stakeholder money in the sum of HK$19,420.80 was later returned to the defendant by a cheque dated 4 November 2014. 

16.  There is no dispute that the plaintiff has, to date, received payments in the sum of HK$192,000 from the defendant in respect of the Loan.  As will be explained below, however, the nature of this sum is in dispute: whilst it is the plaintiff’s case that this sum represents the defendant’s repayment of 8 months’ monthly instalment under the Loan, the defendant avers that this was an upfront payment made by the defendant to INC International Accounting Affairs Limited (“INC”), an agent which the defendant says has acted in collusion with the plaintiff.

17.  By a Writ of Summons dated 2 December 2015, the plaintiff brought the present action against the defendant, seeking repayment of the outstanding sum under the Loan with further interest on the basis that defendant has defaulted in making monthly instalments and interest payments since 23 July 2015.

C.  PARTIES’ RESPECTIVE CASES

C1.  Plaintiff’s pleaded case

18.  The plaintiff’s pleaded case is simple and straightforward.

19.  In gist, pursuant to the Loan Agreement and Personal Loan Agreement signed by the parties on 24 October 2014, the plaintiff provided the Loan in the sum of HK$1,200,000 to the defendant.  The Loan was drawn down on the same day.

20.  Before the plaintiff agreed to advance the Loan to the defendant, it is the plaintiff’s case that:-

(1)     The defendant informed the plaintiff that she planned to refinance the Property, which would take around 6 months.  As such, she wished to seek the Loan from the plaintiff as a bridging loan. 

(2)     The plaintiff found out, from land searches, that the defendant had previously refinanced the Property from BOC to Hang Seng Bank in January 2012 with the consent of the Housing Authority.

21.  Eventually, the plaintiff approved the Loan to the defendant primarily in view of the market value of the Property, its loan-to-value ratio, and the financial support given to the defendant by her family members.  The plaintiff also believed that the defendant would be able to refinance the Property similar to what she did previously.

22.  According to the plaintiff, the drawdown of the Loan took place at DLP’s office, and consisted of two sessions:-

(1)     The first session was conducted by the plaintiff’s staff, Mr Ho On Yu (formerly known as Ho Chun Wan) (“Mr Ho”), in the presence of the defendant and Tony Li.  During this session, documents including the Personal Loan Agreement, Repayment Schedule, Schedule of Special Loan Disbursement Agreement, a Chinese abstract of the MLO, a Chinese declaration of lender and guarantor, a Chinese declaration of the borrower, as well as an Owner’s Loan / Personal Loan / Mortgage Loan Services Agreement, have all been explained to both the defendant and Tony Li before the defendant signed the same.

(2)     The second session was conducted by DLP’s clerk, Mr Chui Chung Man (“Mr Chui”), in the presence of the defendant, Tony Li and Mr Ho.  Mr Chui has explained the Loan Agreement to the defendant and Tony Li before the defendant signed the same.  The plaintiff avers that the defendant’s interest has been adequately safeguarded in view of Tony Li’s presence at the time of the drawdown.

23.  It is the plaintiff’s case that the defendant has defaulted in her repayment of the Loan since 23 July 2015.  Accordingly, the plaintiff claims against the defendant for the outstanding sum and interest pursuant to the Loan Agreement and Personal Loan Agreement.

24.  As to the defendant’s allegation that the plaintiff has colluded with other parties to deceive the defendant into taking out the Loan and making various payments (see Section C2 below), the plaintiff’s pleaded case is that:-

(1)     The plaintiff has never employed any employees or agents, or acted in collusion with other persons, including INC, Mr Yip and/or Mr Yau, to charge or receive from the defendant interest, remuneration and/or reward, whether in the form of Consultancy Fees or otherwise. 

(2)     The plaintiff has also never had any prior discussion, contact or communication with INC before completion of the Loan on 24 October 2014.

(3)     Instead, it was the defendant herself who called the plaintiff by phone to apply for the Loan of HK$1,200,000 on 21 October 2014 so as to settle her outstanding payments due under the First Asia Loan.  On the plaintiff’s request, the defendant provided the plaintiff with basic information about the Property, the defendant’s own income, the Hang Seng Loan, and the contributions made by the defendant’s family member to settle the defendant’s existing loans. 

(4)     On 22 October 2014, Darryl Tang, the plaintiff’s director, tried to reach out to the defendant by ringing her phone number, which was instead picked up by her son Tony Li.  Darryl Tang then informed Tony Li that the plaintiff has preliminarily approved the Loan of HK$1,200,000 to the defendant, and informed Tony Li of the loan amount, interest rate and means of repayment of the Loan, and the fact that about hundred odd thousand dollars would be made available for the defendant’s own use after her existing debts were settled.  Darryl Tang further reminded Tony Li to inform the defendant to attend the office of DLP on 24 October 2014 for the drawdown of the Loan.

C2.  Defendant’s pleaded case

25.  The thrust of the defendant’s defence, as could be seen from her Re-Re-Re Amended Defence, is that the plaintiff has colluded with INC and Chung Shun in deceiving the defendant into taking out the Loan and making various payments to INC and Chung Shun.  The Loan Agreement and Personal Loan Agreement are, consequently, illegal and unenforceable against the defendant pursuant to ss 24, 27 and 29 of the MLO.  Alternatively, the defendant seeks to rely on s 25 of the MLO to reopen the transaction on the ground that the Loan transaction is extortionate, although the defendant’s Counsel did not press on this aspect of the defendant’s case at the oral hearing.

26.  In addition to the foregoing, the defendant also initially raised a cloud of objections in her Re-Re-Re Amended Defence based on the plaintiff’s alleged contraventions of ss 7, 18, 21 and 22 of the MLO.  However, Counsel for the defendant has confirmed in his written opening submissions that the defendant would no longer pursue defences based on these provisions, and would instead confine her defence based on ss 24, 25, 27 and 29 of the MLO.  It is on this basis which I will proceed.

27.  Returning to the defendant’s pleaded case.  According to the defendant, on 14 October 2014, a Chinese male called the defendant’s mobile phone and represented to the defendant that he was Mr Johnny Yip of Hang Seng Bank (“Mr Yip”).  Mr Yip told the defendant that she has unlawfully created a second mortgage in the sum of HK$220,000.  However, since the defendant was busy at work at that time, she hung up her phone.

28.  Subsequently, on or around 19 October 2014, Mr Yip rang the defendant’s mobile phone again.  This time, Mr Yip represented to the defendant that Hang Seng Bank asked for immediate repayment by the defendant of all the outstanding sums due under the Hang Seng Loan, since the defendant has unlawfully created a second mortgage (the “First Alleged Representation”).  The defendant was under the impression that what Mr Yip referred to as the “unlawful” second mortgage was the First Asia Loan.

29.  Mr Yip then asked the defendant to bring with her income proof, salary slips, her address proof as well as government rates payable in the last 3 months to an office, later known to be the office of INC in Mong Kok, on 20 October 2014, in order to deal with the second mortgage issue.

30.  Since Mr Yip had knowledge of the defendant’s mobile number and credit information, and could speak to the defendant about her debts due under her first and second mortgage loans, viz what the defendant believed to be the Hang Seng Loan and First Asia Loan, the defendant says that she truly believed Mr Yip to be an employee of Hang Seng Bank.  As such, in reliance on the truth of the First Alleged Representation, the defendant attended the office of INC together with her son, Tony Li, on 20 October 2014 at around 3pm.

31.  When the defendant arrived at the office of INC on 20 October 2014, she was led into a room where she met Mr Yip.  According to the defendant, Mr Yip suggested to her that she could solve the problem regarding her second mortgage by taking the following steps:-

(1)     Apply for a new loan from a money lender so as to fully settle the outstanding amounts owed by the defendant under her first and second mortgage loans;

(2)     Apply for approval from the Housing Authority for refinancing by way of creation of a new mortgage; and

(3)     Pay off the loan from the money lender by obtaining a further mortgage loan from Hang Seng Bank.

32.  Mr Yip further represented to the defendant that INC could arrange a loan of HK$900,000 for the defendant from a money lender company, out of which INC would charge the defendant (a)consultancy fees (“Consultancy Fees”) of HK$175,000; (b) application fees for seeking approval for refinancing from the Housing Authority (“HA Application Fee”); and (c) guarantee fees to secure a loan from a money lender company (“Loan Guarantee Fee”) in return for INC’s agreement to act as the defendant’s guarantor in respect of the her loan from the money lender company (the “Second Alleged Representation”). 

33.  The defendant was then asked to sign an agreement prepared by INC.  However, prior to signing the agreement, Tony Li noticed that the agreement contained a clause which provides that fees were charged on a contingency basis (“不成功不收費”).  When Mr Yip was asked to explain the meaning of such contingency fees, Mr Yip failed to proffer a direct answer but only vaguely replied that this means the application must be successful.

34.  Eventually, in reliance on the Alleged Second Representation, the defendant signed the agreement.  After the defendant signed the agreement, the defendant was asked to leave and wait for further notice.  No copy of the signed agreement was given to the defendant. 

35.  Subsequently, on or about 22 October 2014, Tony Li received a phone call from a male who introduced himself as a staff of the plaintiff (who was later identified as Darryl Tang), informing him that the loan amount to the defendant has been increased to HK$1,200,000.  It is the defendant’s case that this was the first time the defendant and Tony Li ever encountered the plaintiff.  The defendant also avers that Tony Li has only ever given his phone number to INC, and not the plaintiff.  The fact that the plaintiff was able to contact Tony Li directly was therefore suggestive of collusion between the plaintiff and INC.

36.  According to the defendant, the plaintiff’s male staff informed Tony Li that after the defendant has repaid her existing first and second mortgage loans, she could then obtain hundred thousand-odd dollars for her own disposal.

37.  Since Mr Yip previously represented to the defendant that INC would arrange a loan for her from a money lender company, the defendant genuinely believed the plaintiff to be the money lender company arranged by INC, particularly as the defendant has never had any contact or communication with the plaintiff or its staff before. In her view, the plaintiff must have had prior discussions, contact or communications with INC.  The defendant, therefore, agreed to the proposal offered by the plaintiff. 

38.  On the same day, Mr Yip telephoned Tony Li that since the loan amount has been increased to HK$1,200,000, the Consultancy Fees charged by INC would be increased from HK$175,000 to HK$240,000, and that INC would retain the defendant’s interest instalments under the Loan for the first 8 months in the sum of HK$192,000 (“8-month Instalment Deposit”).  Mr Yip further represented to Tony Li that the defendant could keep around HK$150,000 to HK$180,000 for her own use.

39.  The defendant says she was extremely worried about the unlawful second mortgage at the time. Anxious to resolve the matter expeditiously, the defendant therefore agreed to the consultancy fee arrangement and INC’s retention of the defendant’s 8-month Instalment Deposit.

40.  On 24 October 2014 at around 10 am, the defendant was brought to DLP’s office by Mr Yip whereby the defendant, Mr Yip, Tony Li, and Mr Chui were present.  The defendant avers that she has no prior relationship or connection with the plaintiff and DLP, nor has she ever heard of DLP before attending its office.

41.  According to the defendant, at that time, Mr Chui pointed to the Loan Agreement and explained that it was in respect of a Loan in the sum of HK$1,200,000 at an interest rate of 2% per month, with a monthly instalment of HK$24,000 repayable within 12 months and the principal sum of HK$1,200,000 due at the 12^th instalment repayment, with the plaintiff as the lender.

42.  Mr Chui further informed the defendant that the Loan would be applied in the following manner:-

(1)     About HK$490,000 would be used to settle the defendant’s outstanding first mortgage loan due to Hang Seng Bank (ie the Hang Seng Loan);

(2)     About HK$220,000 would be used to settle the defendant’s outstanding second mortgage loan due to First Asia (ie the First Asia Loan); and

(3)     The balance of about HK$500,000 would be paid to the defendant by cheque.

43.  Whilst the defendant did not understand why she had to borrow such a large sum of money (up to HK$1,200,000) from the plaintiff and at such a high interest rate, in reliance on the Alleged Second Representation, the defendant nonetheless went ahead and signed (a) the Personal Loan Agreement; (b) Declaration of Borrower; (c) the Repayment Schedule, (d) Receipt; (e) the Schedule of Special Loan Disbursement Agreement; (f) an abstract of the MLO; (g) a declaration of lender and guarantor, (h) an Owner’s Loan / Personal Loan / Mortgage Loan Services Agreement and the (g) Loan Agreement. 

44.  Afterwards, Mr Chui introduced Mr Ho to the defendant.  Mr Ho signed some documents, and Mr Chui then delivered the HK$500,000 Cheque to the defendant and copies of some documents. 

45.  At about noon on the same day, the defendant, Tony Li and Mr Yip reached the Head Office of Hang Seng Bank in Central, deposited the HK$500,000 Cheque and cashed the total sum of HK$500,000.  Mr Yip then received the entirety of the HK$500,000 in cash from the defendant.  The defendant now says that she finds herself cheated by Mr Yip in parting with her HK$500,000. 

46.  The parties then returned to INC’s office, where Mr Yip told the defendant that INC would (a) charge the Consultancy Fee of HK$240,000 and (b) 8-month Instalment Deposit in the total sum of HK$192,000.  Mr Yip also mentioned that INC would hold a sum of HK$16,000 as the HA Application Fee and HK$48,000 as the Loan Guarantee Fee payable to INC.  The defendant was then asked to sign documents confirming the same.

47.  Whilst there should have been a balance of HK$4,000 after the defendant has paid all the foregoing fees, the defendant says she has no knowledge of the whereabouts of this sum. 

48.  Thereafter, Mr Yip brought the defendant and Tony Li to another room in the office of INC, and introduced a Mr Yau, who introduced himself as an employee of Chung Shun, to the defendant.  Mr Yau represented that he would be responsible for applying for approval for refinancing from the Housing Authority for the defendant.

49.  The defendant then signed an agreement for re-mortgage prepared by Mr Yau, a copy of which was given to Tony Li.  Mr Yip also passed to Tony Li two receipts in respect of INC’s Consultancy Fees in the sum of HK$175,000 and 8-month Instalment Deposit in the sum of HK$192,000.  Although the Consultancy Fees were stated to be HK$175,000, the defendant avers that the actual amount received by INC was HK$240,000 following the increase of the amount of the Loan from HK$900,000 to HK$1,200,000.

50.  Eventually, by a letter from the Housing Authority dated 23 June 2015, the defendant obtained approval from the Housing Authority for a mortgage loan not exceeding HK$1,030,000. 

51.  When the defendant intended to enquire with Mr Yau by phone as to why the approved mortgage loan was only in the sum of HK$1,030,000, Mr Yau failed to provide an answer.  Thereafter, the defendant avers that she could no longer contact or locate Mr Yau or Mr Yip. 

52.  The defendant avers that the First Alleged Representation and the Second Alleged Representation are false, as:-

(1)     Mr Yip was not in fact an employee or staff of Hang Seng Bank, and the defendant was never required by Hang Seng Bank to immediately repay all outstanding sums under the Hang Seng Loan; and

(2)     INC never agreed to guarantee the defendant’s loan from a money lender company.  Nor did INC ever approach the defendant to arrange or discuss with Hang Seng Bank or another bank for the defendant to create a fresh first mortgage over the Property.

53.  In October 2015, the defendant received a letter from the plaintiff dated 8 October 2015, notifying her that she has been in arrears for payment of the interest instalment for 3 months.

54.  In December 2015, the defendant approached Hang Seng Bank and BOC to arrange a fresh first mortgage over the Property.  However, the two banks declined to consider the defendant’s application on the grounds that she has no suitable guarantor, and that the defendant was indebted to the plaintiff at that time.

55.  It was then that the defendant, upon further reflection, came to realise that she has been deceived.

56.  More specifically, INC and Chung Shun were, says the defendant, firms or group of persons which acted in collusion with the plaintiff as the plaintiff’s partners, employees or agents in order to charge or receive from the defendant excessive interest (above 60% per annum), remuneration, reward, costs, expenses and/or charges in contravention of ss 24(1), 24(2), 27(3) and 29(10) of the MLO. Taken as a whole, it is the defendant’s case that INC and/or Chung Shun have colluded with the plaintiff and altogether (a) cheated the defendant HK$500,000 (by asking the defendant to cash her HK$500,000 Cheque) and (b) charged the defendant the following:-

(1)     Consultancy Fees in the sum of HK$240,000;

(2)     8-month Instalment Deposit in the sum of HK$192,000;

(3)     HA Application Fee in the sum of HK$16,000;

(4)     Loan Guarantee Fee in the sum of HK$48,000; and

(5)     An unaccounted sum of HK$4,000.

(collectively the “Disputed Fees”).

57.  The defendant also seeks to rely on s 27(4) and 29(10) of the MLO to recover from the plaintiff the amount of HK$500,000 or such reasonable sum with interest at an enhanced rate from 24 October 2014 until payment, or to have the same set-off against any amount lent to the defendant which was the outcome or consequence of the alleged collusion.

58.  The defendant further lodged a complaint with the police in respect of the foregoing matters, which is currently under investigation by the Hong Kong Police Force.

E.  Applicable Legal Principles

59.  Advancing loans at excessive interest rates are prohibited under s 24 of the MLO.  The relevant parts of s 24 provide as follows:-

“(1) Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.

(2) No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).”

60.  Under s 2 of the MLO:-

(1)     “Interest” “does not include any sum lawfully agreed to be paid in accordance with this Ordinance on account of stamp duty or other similar duty, but save as aforesaid includes any amount (by whatever name called) in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan”; whereas

(2)     “Effective rate”, in relation to interest, “means the true annual percentage rate of interest calculated in accordance with Schedule 2”.

61.  Meanwhile, s 27 of the MLO prohibits inter alia the charging of any sum for or on account of costs, charges and expenses incidental to or relating to the negotiations for or the granting of the loan, as well as remuneration or reward demanded from a borrower.  S 27 provides as follows:-

“(1) Any agreement entered into between a money lender and a borrower or intending borrower for the payment by the borrower or intending borrower to the money lender 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.

...

(3) Subject to section 33A(5), 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.”

62.  As to the meaning of “collusion” in the context of s 27(3) and (4) of the MLO:-

(1)     The question to ask and answer on a charge of “collusion” is whether the persons who are said to have acted in collusion were “playing the same game”: HKSAR v Wong Kwok Wai (2013) 16 HKCFAR 191 at §11 per Tang PJ.

(2)     In the specific context of s 27(3) and (4) of the MLO, persons who have “acted in collusion” with the money lender would be ones who identify their interest with the money lender’s rather than the borrower’s.  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 facilitating the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice: Ever-Long Finance Limited v Yeung Wah Lung [2017] 1 HKLRD 500 at §§86-90 per Deputy Judge Simon Ho.

(3)     “Collusion” under s 27(3) of the MLO may take different forms: the lender and the entities in collusion may act together or separately, simultaneously or in disjunctive temporal periods, complementarily or supplementarily.  They may also 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: Gain Wealth Global Credit & Investment Limited v Lam Hau Kay (unrep, DCCJ 2610/2015, 19 July 2018) at §70 per Deputy District Judge C To.

(4)     Importantly, “collusion” in the context of the MLO is a wider concept than “conspiracy” – proving “conspiracy” is only one of the ways of proving “collusion”, as trickery may take different forms.  The natural and ordinary meaning of “collusion” is sufficiently broad to cover “co-operation between parties to deceive or otherwise to do harm to others”: Ever-Long Finance Limited (supra) at §§91-93.

(5)     However, one seldom has direct evidence of collusion.  Thus, the court is entitled to rely on overt acts of the parties involved and established facts to draw inferences in order to make a finding of collusion that the parties were acting in concert and playing the same game: Skyline Credit Limited v Leung Hing Chung [2019] HKCFI 169 at §36 per DHCJ William Wong SC.

E.  MAIN ISSUES

63.  In light of the foregoing, the main issues to be decided by this court include:-

(1)     Whether the plaintiff hasacted in collusion with INC and/or Chung Shun in charging the defendant the Disputed Fees which fall within the meaning of costs, charges, expenses, and/or remuneration or reward contrary to 27(3) and 29(10) of the MLO (“Issue 1”); and

(2)     Whether the effective rate of interest charged by the plaintiff, having regard also to the Disputed Fees, exceeds the statutory limit of 60% per annum in contravention of ss 24(1) and 24(2) of the MLO; further or alternatively, whether the Loan is an extortionate transaction which is liable to be reopened by this court pursuant to s 25 of the MLO (“Issue 2”).

F.   ISSUE 1: DID THE PLAINTIFF ACT IN COLLUSION WITH INC AND/OR CHUNG SHUN IN IMPOSING CHARGES FOR EXPENSES ETC IN THE FORM OF THE DISPUTED FEES CONTRARY TO SS 27(3) AND 29(10) OF THE MLO?

64.  It is clear, even on the defendant’s own pleaded case, that the Disputed Fees were all allegedly charged by INC and/or Chung Shun, and not by the plaintiff directly.  Thus, to make out her defence to the plaintiff’s claim under ss 27(3) and 29(10) of the MLO, the defendant bears the burden of proving that INC and/or Chung Shun acted for or in collusion with the plaintiff in charging the defendant the Disputed Fees, such that the plaintiff should be held responsible for the charging of these fees.

65.  In this regard, the defendant accepts that there is no direct evidence of collusion in this case, and that the defendant, in proving collusion, will have to rely on overt acts of collusion by inviting the court to draw inferences from the established facts.

66.  At trial, this court heard live evidence from the following witnesses:-

(1)     Darryl Tang;

(2)     The defendant;

(3)     Tony Li;

(4)     Mr Chui; and

(5)     Mr Ho.

67.  In assessing the credibility and reliability of the evidence given by these witnesses:-

(1)     I have had regard to the inherent probabilities of their respective cases, the internal consistency of their evidence and the deameanour of the witnesses when testifying at trial.  I have also had regard to the contemporaneous documents, circumstantial evidence and the overall impression of the character or motivation of the witnesses: Lee Fu Wing and Another v Yan Paul Po Ting and Another [2009] 5 HKLRD 513 at §53 per DHCJ Au (as he then was).

(2)     I also bear in mind that while the standard of proof of “collusion” remains the balance of probabilities, the more serious the allegation, the less likely it is that the event occurred and thus the stronger the evidence has to be before the court concludes that the allegation is established on the civil standard: China Yinsheng Finance Limited v Wong Ping Shing [2020] HKCFI 3072 at §30 per Ng J.

68.  No witness from Hang Seng Bank, INC or Chung Shun was called to give evidence.  Nor did Mr Yip or Mr Chung give evidence at trial.

69.  Having heard evidence from the witnesses and considered all the relevant circumstances, I consider that the plaintiff’s case should be preferred to that of the defendant.  Whether or not INC and/or Chung Shun did demand the Disputed Fees from the defendant in an unlawful manner (and I make no finding as to that), one fundamental element which remains missing from the defendant’s case is credible evidence which connects INC and Chung Shun to the plaintiff, either as an agent or parties “playing the same game” with the plaintiff, such that the plaintiff can properly be regarded as “acting in collusion” with INC and Chung Shun insofar as the Disputed Fees are concerned.

70.  First, I accept the plaintiff’s case that it was the defendant who made an unsolicited call, on her own initiative, to the plaintiff on 21 October 2014, instead of the plaintiff making a call to the defendant upon INC’s introduction of the defendant to it:-

(1)     The crux of the defendant’s defence is that the defendant, who was illiterate, could not possibly provide sufficient details to the plaintiff over the phone on 21 October 2014, which would have enabled the plaintiff to assess whether or not to advance the Loan to the defendant. 

(2)     However, whilst the defendant could not read Chinese and English, she had no difficulty expressing herself and giving oral evidence at trial.  In fact, in her oral evidence, the defendant was able to confirm details such as when and at what price she bought the Property, the meaning of “premium not paid” insofar as her purchase of the Property is concerned, and had clear recollection of the Fu Tat Loan, First Asia Loan and how these loans came to be settled by the Hang Seng Loan.  In these circumstances, I see no reason why the defendant could not similarly provide the plaintiff with basic information about her Property and outstanding loans over the phone on 21 October 2014.

(3)     As corroborated by Darryl Tang’s evidence, the plaintiff assessed the defendant’s application for the Loan by making enquiries of the value of the Property and outstanding loans owed by the plaintiff at the material time, and thereby worked out the rough loan-to-value ratio.  Darryl Tang also conducted a land search of the Property at that time to confirm the same, and asked for further documentary support, such as MPF forms, from the defendant.  From the land search, he found that the defendant has previously re-financed the Property with the consent of the Housing Authority.  I accept his evidence in this regard.

(4)     The defendant, however, attempted to challenge the plaintiff’s case by suggesting that the defendant, given her education level, could not possibly understand the meaning of a “bridging loan” and explain the same to the plaintiff over the phone on 21 October 2014.  I do not agree.  As Darryl Tang suggested in his cross-examination, which I find credible, the defendant may not have used the exact wording “bridging loan”, but similar colloquial terms such as “過渡性貸款” with the same meaning.

71.  Second, insofar as the phone call confirming the plaintiff’s approval of the Loan to the defendant on the next day (22 October 2014) is concerned, I also prefer the plaintiff’s case that the phone call was directed at the defendant’s, rather than Tony Li’s, mobile number:-

(1)     The evidence given by Tony Li that he was approached by the plaintiff directly, when he only gave his number to INC and not the plaintiff, is unsupported by contemporaneous documents.  As seen from Tony Li’s phone call record on 22 October 2014, no incoming call was recorded on the morning of that day, whereas all other incoming calls for the remainder of the day only lasted for a few seconds. 

(2)     Tony Li’s suggestion in this regard likewise does not square with the defendant’s suggestion in her witness statement that it was the defendant herself who received the plaintiff’s incoming call on 22 October 2014. 

(3)     In these circumstances, there is no basis for the defendant to suggest that the plaintiff was introduced to the defendant by an intermediatory or agent (ie INC), which was why the plaintiff had the phone number of Tony Li.  The defendant’s suggestion in this regard is not borne out by the evidence.

72.  Third, the defendant’s attempt to link the Loan advanced by the plaintiff with INC as the intermediatory was significantly discredited by the defendant’s production of a copy of the Record of Interview (“ROI Copy”), which Tony Li alleged was prepared by Mr Yip of INC on 20 October 2014 and contained his recollection of the happenings at the meeting on 20 October 2014 written in blue pen:-

(1)     The most salient feature of the ROI Copy which cries out for explanation is that Tony Li’s personal handwriting, and his purported signature mimicking that of Mr Yip’s, were scattered all over the ROI Copy. References to INC, Consultancy Fees, Legal Fees, and names such as “Johnny Yip” were all handwritten by Tony Li himself in blue, but none of these were found in the original copy of the ROI (“Original ROI”) also produced before this court as Exhibit P1, meaning that all of them were added by Tony Li himself ex post.  Writings such as “So Yat女仕” and “我們將會為你向必然財務公司，必然財務公司借錢，本公司將會為So Yat小姐作擔保，在此聲明有效” were also found in the ROI Copy but not the Original ROI. 

(2)     When asked about such substantial additions to the Original ROI in the ROI Copy during cross-examination, Tony Li admitted that those were words which he subsequently added.  He claimed that they were added only for the purposes of assisting his recollection of events.

(3)     I do not find Tony Li’s explanation credible at all.  If the ROI Copy were truly intended to be for record keeping purposes only, I see no reason why Tony Li had to address her mother, the defendant, as “So Yat 女仕” or “So Yat小姐”, and why Tony Li had to make use of direct speeches by INC such as “我們將會” and “本公司將會”, which would likely create the false and misleading impression to the reader that the handwritten speeches reflected what INC directly agreed with the defendant.  It seems to me, rather, that the handwritten additions were attempts by Tony Li to rewrite history so as to belatedly link the Loan advanced by the plaintiff with INC.  When asked about the same, Tony Li gave inconsistent accounts and subsequently skirted the question by alleging that he could not recall these matters.  In the light of the foregoing, I am of the view that the ROI Copy has no probative value at all. I would place no weight on it. 

(4)     As one could see from the Original ROI (at Exhibit P1), there was no reference to the plaintiff at all. I accept the Original ROI, rather than the ROI Copy, to be the accurate and true record of the discussions in the meeting at INC on 20 October 2014.

73.  Fourth, the defendant’s suggestion regarding INC’s referral of the defendant to the plaintiff is also clouded with suspicions and inherently improbable:-

(1)     If the defendant were indeed referred to the plaintiff by INC, it appears dubious to me why the defendant never queried, sought clarification, or questioned from start to end, the relationship between the plaintiff and INC when she communicated with Darryl Tang over the phone on both occasions, viz 21 October and 22 October 2014 respectively, since Darryl Tang introduced himself as a personnel from the plaintiff company but never mentioned that he was in any way related to INC.

(2)     In these circumstances, I find it inherently improbable that the defendant would simply proceed to take out the Loan with the plaintiff on her alleged assumption that the plaintiff was somehow related to INC, and thereafter sign the Loan Agreement and Personal Loan Agreement, when none of these agreements contains any reference to INC.

(3)     By contrast, Darryl Tang was adamant throughout cross-examination that the plaintiff would not employ any agents or intermediaries in concluding loan transactions, a point confirmed by Mr Ho in his oral evidence, who maintained that the plaintiff did not handle any borrower which was referred to it by agents.  That said, this is only one of the factors in the overall picture which I have taken into account as such evidence is, after all, largely self-serving.

74.  Fifth, I do not consider the mere fact that INC retained the 8-month Instalment Deposit, which was thereafter used to settle the plaintiff’s Loan, is sufficient to prove collusion between the plaintiff and INC:-

(1)     The defendant avers that the 8-month Instalment Deposit (HK$24,000 per month, totalling HK$192,000 for 8 months) retained by INC for settling the monthly instalments of the plaintiff’s Loan suggests that INC and the plaintiff were acting in concert with each other.  More specifically, Counsel for the defendant invites this court to draw the inference that Mr Yip was tipped off by Darryl Tang about the amount of the Loan, thereby providing Mr Yip with an excuse to extract an additional HK$192,000 from the defendant.  The levying of the 8-month Instalment Deposit was also no coincidence, says the defendant, since Clause 5 of the plaintiff’s Terms of Service Charges for Borrowers provides specifically for a levying of 8 months’ interest as early repayment charges.

(2)     In my judgment, however, whilst the defendant and INC did enter into a written agreement for INC to retain the 8-month Instalment Deposit for the defendant, the existence of such an agreement per se does not mean that the plaintiff was in any way involved in, or has knowledge of, the conclusion of this agreement. 

(3)     The defendant’s counsel, however, pointed further to what he called haphazard ways in which the 8-month Instalment Deposit has been paid by INC (on the defendant’s behalf) to the plaintiff’s HSBC bank account over the course of the 8 months, which were usually made up by 3 to 4 partial payments per month, some early and some late. The defendant says that it was surprising in these circumstances that the plaintiff could actually reconcile and make sense of these payments if the plaintiff were not colluding with INC.  The defendant therefore asks the court to infer that these payments were a “made-up job” which were not really used to meet the defendant’s monthly instalments, but were “spoils of the game” to be shared between the plaintiff and INC.

(4)     I appreciate that the timing and manner of INC’s payment of the 8-month Instalment Deposit to the plaintiff were quite disorganised and at times irregular.  Nonetheless, I accept Darryl Tang’s explanation in his oral evidence that the plaintiff’s main concern is with repayments for whom, not from whom.  Indeed, given the relatively small size of the plaintiff’s business, I find it believable that the plaintiff would unlikely be very pedantic when it comes to dealing with the precise manner of repayments, or clarifying the source from which the defendant financed her repayments under the Loan (viz whether from the defendant herself, or INC or other parties on her behalf), so long as the defendant was able to meet her payment obligations at the end of the day.  As Darryl Tang explained, which I accept, a call would usually be made to the plaintiff every time repayment was made, and corresponding records will be entered.  The plaintiff would then check the payments received against its own records at a later stage.

(5)     Lastly, the defendant’s suggestion that these payments were merely “pretended payments of interest to the plaintiff” is a bare assertion unsupported by any evidence.

75.  Sixth, Clauses 4 and 5 of the Declaration of Lender and Guarantor signed by the defendant do not take the defendant’s case any further:-

(1)     The clauses provide, inter alia, that “本借款人/我們等知道及確認，此貸款是由中介人/公司轉介，中介人/公司並無任何佣金及費用給與必然財務有限公司” and “本借款人/我們等知道及確認，在辦理貸款手續中，由中介人/公司轉介至貴司申請貸款，本借款人/我們等知道中介人/公司與貴司是獨立個體，並無任何關係”.  Thus, the defendant avers that the existence of intermediaries such as INC must be known to, and indeed engaged by, the plaintiff. 

(2)     However, as Darryl Tang explained in cross-examination, which I accept, such clauses are merely terms in standard forms which are used in every loan transaction concluded by the plaintiff.  They are primarily used to protect the plaintiff in circumstances where there may be an unknown agent or intermediary which was not disclosed to the plaintiff before the drawdown of the loan.  Such clauses are therefore in no way indicative of the plaintiff’s knowledge (or the lack of) of agent involvement in the conclusion of the Loan.  The same was corroborated by Mr Ho’s evidence, who maintains that he explained the effect of these two clauses to the defendant when she was asked to sign the same.

76.  Another issue goes to what the defendant’s counsel coined as the “Virtual Cash Cheque Theory” which, for reasons given below, I will likewise reject:-

(1)     According to the defendant’s counsel, since Darryl Tang well knew of the existence of the defendant’s Hang Seng Loan, he must have known that the defendant held a Hang Seng Bank account.  Thus, it cannot be mere coincidence that the HK$500,000 Cheque was a Hang Seng Bank Cheque, such that no interbank clearance was required and Mr Yip of INC could immediately receive the sum of HK$500,000 when the defendant cashed the Cheque.

(2)     To this end, the defendant’s counsel references the CA’s findings in Gain Wealth Global Credit & Investment Limited v Chan Suk Fong [2020] HKCA 737 at §66, where Kwan VP observed that a “compelling inference can be drawn that the cash cheque was issued to facilitate payment of its proceeds to the intermediary at the earliest opportunity and it was not envisaged that such proceeds would go to the borrower”.  He argues that the same “compelling inference” can and should be drawn in the present case.  He also refers to DDCJ C To’s observations in Lam Hau Kay (supra) at §106 that cashing a cheque immediately facilitates the charging of sum “right there and then”, with less uncertainty of what the defendant may do with the money after returning home and re-reading what he had signed earlier.

(3)     However, as with all cases, each case must be decided on its own specific facts.  What may justify the drawing of a compelling inference in one case may not justify the drawing of the same in another.  Nor should factual observations in one case be transposed to another out of context.

(4)     In Chan Suk Fong (supra), the CA found that (a) there was no evidence explaining why a cash cheque in the said sum was issued; (b) the court made a finding that an intermediary was indeed involved in the transaction, such that it must be expected that the intermediary would be remunerated out of the funds made available by the cash cheque; and (c) the borrower was issued a separate cheque marked “account payee only”, which lends credence to the suggestion that the proceeds of the cash cheque was not intended to go to the borrower.  None of these facts is, however, present in this case.

(5)     Moreover, as Mr Chui explained in his evidence, the reason why the HK$500,000 Cheque in respect of the Loan was issued under DLP’s Hang Seng Bank Account, and not other accounts held by DLP with other banks, was explicable for the simple reason that the plaintiff deposited its money with DLP’s Hang Seng Bank Account.

(6)     In these circumstances, I see no reason for leaping to the conclusion that there was some form of “collusion” between the plaintiff and INC simply because a Hang Seng Bank Cheque was used by DLP.  I would reject the defendant’s argument concerning the “Virtual Cash Cheque Theory”.

77.  Finally, I note that the defendant has not adduced any concrete evidence in support her suggestion that the plaintiff colluded with Chung Shun.  Whilst Chung Shun charged the defendant HA Application Fee in the sum of HK$16,000, and the plaintiff has knowledge that the defendant would obtain approval from the Housing Authority for her Second Refinancing, nothing shows that the plaintiff was in any way involved insofar as the charging of these HA Application Fee is concerned.

78.  For all the above reasons, I am not satisfied that the defendant has discharged her onus in proving that the plaintiff hasacted in collusion with INC and/or Chung Shun, whether in inducing the defendant into entering into the Loan Agreement or charging the defendant the Disputed Fees.  There is, in my view, at best tenuous evidence connecting the plaintiff with INC and/or Chung Shun so as to justify the drawing of inferences of collusion between these parties.  As such, I would reject the defendant’s defence based upon s 27(3) and 29(10) of the MLO.

79.  In light of my findings above, the defendant’s claim for set-off and/or recovery of the amount of HK$500,000 pursuant to s 27(4) of the MLO also necessarily falls away.

G.    ISSUE 2: WAS EXCESSIVE INTEREST CHARGED CONTRARY TO SS 24(1) AND 24(2) OF THE MLO?

80.  I now turn to consider Issue 2, viz whether the plaintiff has charged the defendant excessive interest contrary to ss 24(1) and 24(2) of the MLO.

81.  There is no dispute that the interest rate charged by the plaintiff on the face of the Loan Agreement and Personal Loan Agreement is 24% per annum, which is well within the statutory limit of 60% per annum provided under ss 24(1) and 24(2) of the MLO.  As such, the only peg on which the defendant’s s 24 defence hangs is the Disputed Fees allegedly charged by INC and/or Chung Shun: unless it can be proved that the Disputed Fees are sums which are paid or payable in consideration of or otherwise in respect of the Loan advanced by the plaintiff, such that they should properly be included in the definition of “interest” under s 2(1) in arriving at the effective interest rate of the Loan, the defendant’s defence based on ss 24(1) and 24(2) of the MLO cannot get off the ground. 

82.  To qualify as “interest” under s 2(1) of the MLO, the amount is not required to be paid or payable to the lender (here, the plaintiff) or its agent – it could be paid to someone else so long as it is “paid or payable in consideration of or otherwise in respect of a loan”.  However, in circumstances where there is no evidence of any involvement of the lender regarding the monies defrauded by the intermediary and nothing to link the payment by the borrower with the loan made by the lender, that can be difficult to establish: Chan Suk Fong (supra) at §55.

83.  Given my decision above that neither INC nor Chung Shun can be proved to be a partner, principal, agent of or persons acting for or in collusion with the plaintiff within the meaning of s 27(3), and that the available evidence falls short of supporting the suggestion that the Disputed Fees are sums paid or payable in consideration of or otherwise in respect of the plaintiff’s Loan, the Disputed Fees cannot, in my judgment, count as “interest” paid on the Loan over and above the interest rate of 24% per annum charged by the plaintiff.

84.  Accordingly, the defendant has failed to show that the effective rate of interest on the Loan exceeds 60%.  I would reject the defendant’s defence based on ss 24(1) and 24(2) of the MLO.

85.  For the same reasons, there is no basis for concluding that the Loan is an extortionate transaction which should be reopened pursuant to s 25 of the MLO.

H.  CONCLUSION

86.  In the premises, I am not satisfied that the defendant has made out her defence based upon the plaintiff’s alleged collusion and contraventions of the MLO.  I would allow the plaintiff’s claim.

87.  Accordingly, judgment shall be entered against the defendant in the sum of HK$1,332,568.68 together with contractual interest thereon at the rate of 24% per annum from 2 December 2015 until the date of this judgment, and thereafter at the judgment rate until full payment.

88.  As to costs, I make an order nisi that costs of the action be to the plaintiff, to be taxed on a party to party basis if not agreed, with certificate for counsel. The defendant’s own costs be taxed in accordance with the Legal Aid Regulations.

89.  Lastly, I thank counsel for their assistance.