OCEAN ALLIED FINANCE LTD v. SZE, LILY

DCCJ 2977/2021

[2024] HKDC 86

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2977 OF 2021

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BETWEEN

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JUDGMENT

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1.  The plaintiff, a licensed money lender at all material times, commenced this action against the defendant as the borrower to recover a loan in the principal amount of HK$1,100,000, which was granted under a loan agreement dated 21 October 2020 (“Agreement”), plus interest.

2.  The details of the loan under the Agreement are as follows:

(i) Principal:	HK$1,100,000
(ii) Tenure:	1 year
(iii) Interest rate:	30% p.a.
(iv) Repayments:	12 instalments of interest in the amount of HK$27,500 payable on the 21st day of every month starting from November 2020, principal repayable upon maturity on 21 October 2021

(Collectively, the “Loan”)

3.  The drawdown of the Loan took place on 21 October 2020. The principal amount of HK$1,100,000 was broken down into the following cheques all dated 21 October 2020:

(a) A cheque in the sum of HK$300,000 in favour of United Asia Finance Limited to discharge a loan of the same amount that was then owed by the defendant;

(b) Six cheques each in the amount of HK$27,500 in favour of the defendant to be retained by the plaintiff and be deemed as the payments for the first six instalments of interest (“Retained Cheques”), which were not provided in the Agreement and the parties respective explanations as to the reasons behind this arrangement differed; and

(c) A cheque in the amount of HK$635,000 in favour of the defendant as the balance of the Loan.

4.  The defendant has started to default in the repayment of interest since the seventh instalment, ie after 21 April 2021 upon the lapse of the six months as represented by the Retained Cheques, and the principal of the Loan was not repaid upon the maturity of the Loan.

5.  The plaintiff seeks to recover the principal of HK$1,100,000 plus interest accrued from 21 April 2021. Notwithstanding the provision of default rate in the Agreement, the plaintiff only seeks interest at normal rate of 30% p.a. under the Agreement until payment.

The defence case

6.  The gist of the defendant’s factual case is that she was a victim of serial frauds. First, she had fallen victim of an internet scam. The scammers fabricated various stories and excuses to swindle various sums of money from the defendant. In order to satisfy those requests, the defendant started to borrow from a number of financial institutions. Subsequently, she was referred to a dishonest intermediary who held himself out as “John Liu”. “John Liu” referred her to the plaintiff, and eventually took HK$396,000 from the proceeds of the Loan (HK$1,100,000). “John Liu” alleged that out of the said HK$396,000, HK$55,000 was commission for the successful application of the Loan (“Commission”), and the balance of HK$341,000 was “service charge” for remortgaging a property that was owned by the defendant (“Service Fee”). The details of the defendant’s factual case will be set out further below.

7.  The defendant pleaded defence to the plaintiff’s claim, in summary, was that:

(a) The fact that the sum of HK$165,000 represented by the Retained Cheques (“Retained Sum”) were not released to the defendant at all material times constitutes a breach of section 27(1) of the Money Lenders Ordinance, Cap 163 (“Ordinance”);

(b) “John Liu” was either an agent for the plaintiff, or acting in collusion with the plaintiff, in his obtaining of the Commission and the Service Fee (collectively, “Deducted Sum”) from the proceeds of the Loan;

(c) Pursuant to sections 2, 24(1), (2) & (5) and 27(1) & (3) of the Ordinance, the effective interest rate of the Agreement was at least 62.5%, and therefore illegal and unenforceable; alternatively

(d) Pursuant to section 25 of the Ordinance, the defendant was entitled to reopen the Agreement and be returned to the position to time before the defendant was referred to “John Liu”; and further alternatively

(e) Pursuant to section 27(4) of the Ordinance, the defendant should be entitled to set off the Retained Sum and the Deducted Sum against the plaintiff’s claim.

8.  In light of the defence, the issues in the present proceedings are as follows:

(a) Whether the Retained Sum was illegal pursuant to section 27(1) of the Ordinance;

(b) Whether the defendant’s account of “John Liu” having obtained the Deducted Sum from her was credible, and if so, whether “John Liu’ was either an agent for the plaintiff, or acting in collusion with the plaintiff in obtaining the Deducted Sum;

(c) Subject to the disposal of issues in (a) and (b) above, what was the effective interest rate for the Loan;

(d) Whether the defendant was entitled to reopen the Agreement pursuant to section 25 of the Ordinance; and

(e) Whether the defendant should be entitled to set off the Retained Sum and the Deducted Sum against the plaintiff under section 27(4) of the Ordinance.

The defence evidence

9.  Given the nature of the defence case and the issues involved in the present proceedings, I will set out the defence evidence first, as she bears the burden of proving the assertions that underly her defence against the enforcement of the Agreement.

The defendant’s background

10.  The defendant was 53 years old as of October 2020. She was divorced and lived with her daughter who was then about 24 to 25 years old. She worked as an accountant for a boutique supermarket at all material times with a modest income of HK$14,000 per month.

11.  Certain features of the defendant’s personal background, particularly her ability to communicate in Cantonese, was challenged extensively during cross-examination.

12.  The defendant was born in Hong Kong. At the age of 5 or 6 years old, she moved together with her family to live in the Philippines. When she was about 19 to 20 years old, her father passed away and she relocated back to Hong Kong with the rest of her family.

13.  During her time in the Philippines, the defendant got very little opportunities to speak Cantonese as she mainly spoke (i) the Fujian dialect with her parents and schoolmates who were mostly with Fujian heritage, and (ii) the Filipino language with her siblings as well as people outside of her school. Notwithstanding the fact that the school she attended was a Chinese school, given the education system in the Philippines, the defendant was mainly educated in English. She had enrolled into a university but did not finish before she relocated back to Hong Kong.

14.  Back in Hong Kong, she started to work as factory worker. Subsequently, she was given the opportunity to work as an accounting clerk at a garment factory.

15.  At the age of about 26 years old, the defendant enrolled into the Higher Diploma in Management Studies programme run by the Hong Kong Management Association, which involved courses in accounting, management, economics, information technology, Hong Kong law, marketing, and business strategy, etc. She completed the said course on a part-time basis in four years.

16.  In the present proceedings, the defendant never raised any issue about her ability to read any English documents. She however suggested that she had some difficulty in communicating in Cantonese.

17.  In her own choice, the defendant testified in Cantonese and was cross-examined for one full day. I observed that she was occasionally slow in understanding the questions and she was not articulate in some of her answers which involved complicated matters. However, I find her proficiency in Cantonese sufficient for normal conversations, which is consistent with her personal background that she has been living and working in Hong Kong for over 30 years although she was mostly educated in the Philippines.

The material events

18.  On 20 July 2020, the defendant received a request by a male stranger who held himself out as “Steve” to connect on Facebook. She accepted that request and started to converse with that stranger first on Facebook Messenger. Subsequently, they started to communicate through WhatsApp. The relationship between “Steve” and the defendant got intimate.

19.  Since 27 August 2020, “Steve” and another individual who held himself out as “Mr Saunders” started to make up a series of false stories in order to procure the defendant to make various transfers of money to accounts designated by “Mr Saunders”. The gist of those allegations was that:

(a) “Steve” was a drilling engineer with a US company and was working at “High Sea” of Norway;

(b) He tried to send a luggage to the Defendant which was in fact USD 7.8 million in cash for safekeeping, otherwise such money would be confiscated;

(c) However, the defendant would need to write to “Mr Saunders” and pay £6,900 for the transfer of the “ownership certificate” of the said luggage;

(d) Initially reluctant, the defendant eventually acceded to such request upon the promise of “Steve” to repay the defendant once she had received the said luggage;

(e) The defendant then withdrew the equivalent amount in Hong Kong dollars from her savings in her insurance, and made such payment to an account held by one Lu Dan Hui with Bank of China (Hong Kong) Limited;

(f) “Mr Saunders” continued to make further requests for payments with different excuses, all of which involved allegations that the said luggage was detained by the Customs which demanded payments, and “Steve” managed to persuade the defendants to comply;

(g) As a result, the defendant made two further payments of HK$157,192 and HK$300,000 to the same account held by Lu Dan Hui, as well as another account held by one Lau Kam Wo with Bank of China (Hong Kong) as designated by “Mr Saunders”;

(h) Both sums were proceeds of loans that the defendant took out from Hang Seng Bank (for $200,000, “HSB Loan”) and UA Asia Finance Limited (for $300,000, the “UA Loan”) respectively;

(i) “Mr Saunders” and “Steve” made a further request to the defendant for a final payment of HK$150,000 before the purported luggage could be released; and

(j) Even though she was reluctant initially, the defendant eventually acceded to such request which led to the subsequent events that were directly relevant to the Agreement and the Loan.

20.  On 8 October 2020, the defendant was approached by certain individuals who claimed to be the representatives of Hang Seng Bank:

(a) The defendant received a call from a “Ms Chan” claiming to be working at the personal loan department of Hang Seng Bank;

(b) “Ms Chan” suggested to the defendant that she knew about the UA Loan which carried heavy interest, as well as the fact that the defendant had a property that was mortgaged to Hang Seng Bank (both of which were true), and the defendant could save substantial interest payment by taking out a loan from her;

(c) Given the intention to make a further payment of HK$150,000 as requested by “Mr Saunders” and “Steve”, the defendant expressed interest to the suggestion of “Ms Chan”, who then transferred her to a “Mr Cheng”;

(d) “Mr Cheng” suggested that, after some checking, he could not help but introduced a “Mr. John Liu” to the defendant claiming that this individual could help.

21.  On 13 October 2020, the defendant was approached by the said “John Liu” through WhatsApp, requesting her to meet at the latter’s office on the next day and to bring the necessary documents.

22.  On 14 October 2020:

(a) The defendant brought the requested documents and met “John Liu” at an office in Mongkok. “John Liu” gave her a name card which stated that he was the general manager of one Anson International Accounting Centre Limited (“Anson”) and the address of the office they were meeting at was stated to be Anson’s office.

(b) Initially, the defendant asked “John Liu” if she could borrow HK$150,000. “John Liu” then inquired about the defendant’s MPF as well as whether she had any private housing. The defendant revealed that she had a Home Ownership Scheme property which was then mortgaged to Hang Seng Finance Limited (“Property”) with the final instalment due in December 2020.

(c) Upon learning about the Property, “John Liu” asserted that his service was to clear loans and could not just lend the defendant money if she did not let him clear the UA Loan as well.

(d) “John Liu” requested the defendant to sign on a blank piece of paper, and he would fill in other information later. The defendant complied with the said request.

(e) “John Liu” further suggested that he could introduce a finance company to the defendant and help the defendant to apply to the Housing Authority for remortgaging the Property to a bank so as to pay off the new loan to be raised from the finance company to be introduced by him.

(f) However, “John Liu” did not explain to the defendant that, for the purpose of remortgaging the Property, a premium would need to be paid to the Housing Authority to remove the non-alienation restriction. The defendant was not aware of such requirement at the time.

(g) The defendant was impressed by “John Liu” as an eloquent speaker.

23.  After the meeting at the office of Anson on 14 October 2020, “John Liu” called the defendant and recommended two finance companies, namely “Konew” and the plaintiff. “John Liu” suggested that the application to “Konew” would be more complicated but it would be “cheaper”, whereas the application to the plaintiff would be less complicated but more “expensive”. “John Liu” then inquired if the defendant would consider making an application to the plaintiff and the defendant replied positively.

24.  On 18 October 2020, “John Liu” called and asked the defendant if she would borrow HK$1,100,000. The defendant expressed her reluctance to such a large amount of loan, but upon the persuasion of “John Liu” who suggested that during the pandemic one would need more cash for rainy days, she agreed to borrow in such amount.

25.  On 19 October 2020, “John Liu” called the defendant and gave her certain information in relation to the intended loan. The defendant was busy at work at that moment and therefore simply jotted down the following information on a scrap paper without any further discussion or inquiry:

(a) Loan amount: HK$1,100,000

(b) 30% interest, 6 months’ interest of HK$27,500 per month amounting to HK$165,000

(c) HK$176,000 to lawyer and HK$165,000

(d) Total of HK$341,000 service fee

(e) Commission of HK$55,000.

26.  The defendant added in the cross-examination that “John Liu” also suggested to her that the sums of HK$165,000 and HK$55,000 were meant to be paid to the plaintiff.

27.  Also on 19 October 2020, a Stanley Chan of the plaintiff contacted the defendant through WhatsApp messages and informed the defendant that, in the morning on 21 October 2020, the staff of the plaintiff would inspect the Property. The purpose of the inspection was to confirm if the Defendant was the true owner, and after the said inspection they would drive the defendant to the plaintiff’s office for signing the contract. Stanley Chan urged the defendant to bring the necessary documents including the agreement for the UA Loan.

28.  On 20 October 2020, Stanley Chan reminded the defendant about the arrangement for 21 October 2020, and informed the latter that one “Ms Wong” would be inspecting the Property.

29.  Also on 20 October 2020:

(a) “John Liu”, who apparently was fully aware of the progress of the plaintiff’s processing of the defendant’s application, met the defendant at the “Jollibee” restaurant in Central and requested her to sign a Chinese document entitled “借款人/擬借款人及中介人之轉介協議” (“Referral Agreement”).

(b) The Referral Agreement did not contain any letterhead, but the contents of it suggested that it probably was a proforma agreement prepared by the plaintiff, as its name was the only name that was set out in printed text. The names of other parties involved were left blank and to be filled in manually.

(c) However, according to the substance of the said agreement, it was intended to be an agreement between the defendant as the borrower and an intermediary in respect of the latter’s referral of the defendant to the plaintiff.

(d) Through the handwritten text and a chop, the intermediary was stated to be one Krina Sales and Marketing Company (“Krina”).

(e) According to the defendant, she had never come across Krina nor did she intend to engage Krina at all.

(f) At the “Jollibee” restaurant, “John Liu” suggested to the defendant that (i) 6 months’ instalments would be frozen so that the defendant would not need to pay them, (ii) it would take 6 to 10 months to apply to the Housing Authority for the mortgage and the defendant would only need to pay around HKD$6,900 or so per month, and (iii) he would ask someone to take care of it.

30.  On 21 October 2020:

(a) The said Ms Wong (whose full name was Ms Wong Suet Yuk (“Ms Wong”) and she has testified at the trial) inspected the Property as scheduled, and then travelled to the plaintiff’s office with the defendant via a vehicle arranged by the plaintiff;

(b) During the transit from the Property to the plaintiff’s office, the defendant received a call from “John Liu” who told the defendant that there would be 3 cheques and he had already discussed everything with Stanley Chan. He further told the defendant not to worry and not to hesitate to sign the contract. Also, the defendant should call him immediately after she had collected the cheques and left the plaintiff’s office.

(c) After arriving at the plaintiff’s office, the defendant was greeted by Stanley Chan. It was the first personal meeting between the two. Stanley Chan showed the defendant a payment schedule and warned the defendant that if she did not repay the loan he would take over the Property. Stanley Chan further showed the defendant the Agreement and gave her time to read it. He also explained the Agreement briefly afterwards. Stanley asked the defendant to sign an autopay form, and he copied all the documents brought by the defendant including the agreement for the UA Loan and returned the same to her afterwards.

(d) Further, Stanley Chan handed an envelope containing some documents and a name card of one Fanny K F Chan of a solicitors’ firm C. O. Yu & Co (“Fanny Chan”, who was also called as a witness for the plaintiff) to the defendant and requested her to (i) attend the office of C. O. Yu & Co, which was the law firm acting for the plaintiff, (ii) meet Fanny Chan, (iii) hand over the envelope to Fanny Chan, and (iv) return to the plaintiff’s office after signing documents at the office of C. O. Yu & Co.

(e) Following the instructions of Stanley Chan, the defendant went to the office of C. O. Yu & Co, met Fanny Chan, signed certain documents as requested, and then returned to the office of the plaintiff. The documents that she signed were not returned to her.

(f) Upon the return to the plaintiff’s office, she was shown three sets of cheques, namely (i) six cheques each for HK$27,500 payable to her, namely the Retained Cheques, (ii) one cheque for HK$300,000 payable to United Asia Finance Limited for the outstanding UA Loan (“UA Cheque”), and (iii) one cheque for HK$635,000 payable to her (“Balance Cheque”). All the cheques were issued from the plaintiff’s HSBC account. Notwithstanding the signing of a receipt which stated that the defendant had received all of the eight cheques, in fact she was not given the Retained Cheques.[1]

(g) The defendant accepted that, during her encounter with Stanley Chan, she never revealed (i) the existence of “John Liu”, (ii) the fact that she was asked to pay the Deducted Sum to “John Liu”, and (iii) no one suggested to her that Stanley Chan and “John Liu” knew each other. She also accepted that the application for remortgaging the Property was her own business which was not relevant to the plaintiff as the creditor, and she relied on “John Liu” for handling that application.

(h) After collecting the UA Cheque and the Balance Cheque, the defendant left the plaintiff’s office and called “John Liu”. “John Liu” instructed the defendant to attend a HSBC branch, deposit the Balance Cheque and withdraw HK$396,000 immediately, being the Service Fee and the Commission.

(i) The defendant followed the instruction of “John Liu”, but was told by the HSBC staff that the branch had run out of cash. She was only able to withdraw HK$300,000 in cash. She then took the HK$300,000 cash back to Anson’s office in Mongkok and handed the same to “John Liu”, who issue two receipts on behalf of Anson to the defendant. “John Liu” requested the defendant to withdraw the balance of HK$96,000 from the bank as his lawyer was asking for the fund. The defendant could not accede to the request immediately as the banks were closed.

31.  On 22 October 2020, the defendant went to HSBC again to withdraw HK$96,000 and handed the same to “John Liu” at Anson’s office. A further receipt of Anson was issued to the defendant.

32.  Subsequently, between 22 October 2020 and late November 2020:

(a) The defendant withdrew further cash to satisfy the demands of “Mr Saunders” and “Steve”, who upon the receipt of the fund from the defendant made further requests for money with various new excuses.

(b) The defendant even sold her gold to raise cash for the new demands of “Steve” made with new stories. Whilst the staff of the jewelry store warned the defendant of possible scam, the defendant eventually paid the funds raised by the sale of her gold.

(c) On 28 November 2020, after the defendant said to “Steve” that she could not pay any money to satisfy his requests anymore, “Steve” alleged that he would be sent to jail and the defendant would not be able to contact him anymore. At that point, the defendant realised that she had fallen victim of a scam.

33.  On the other hand, the defendant continued to contact “John Liu” to follow up on the application to the Housing Authority for remortgaging the Property. Initially, “John Liu” comforted her that it would be fine. Stanley Chan repeatedly contacted the defendant and asked the defendant to provide a name card of the person in charge of the intended application. In reply to the defendant’s request for the same, “John Liu” alleged that the relevant person would contact the plaintiff directly. Eventually, the defendant lost contact of “John Liu” altogether.

34.  Stanley Chan did offer to introduce a lawyer to the defendant to take care of the intended application for remortgaging the Property at the legal costs of HK$20,000. Subsequently, Stanley Chan offered that the legal costs could be waived. However, the defendant did not take up these offers as she had lost trust in the people involved in the Loan.

35.  On 2 December 2020, she made a report to the police. The defendant could only produce the police statement but not any documentary evidence showing her communication with “Steve” and “Mr Saunders”. It was because she had deleted them all. She did not want anyone to see her intimate communications with “Steve” and she wanted to block communication with the scammers. She thought deleting those materials were a way to block further communication and she did it without much consideration.

36.  Subsequently, the defendant made another police report to the Mong Kok police station against the plaintiff for the suspected fraud in relation to the Deducted Sum. However, the police officer told the defendant that there was no case given the Deducted Sum was small and therefore not illegal. The police did not show much sympathy and suggested to the defendant that the Deducted Sum was small and there are many more victims who suffered much larger damages. The police officer refused to take a statement for the defendant and only issued a report card (with a report number) for the defendant. The defendant and her family found it unreasonable and therefore started seeking legal advice.

The Plaintiff’s evidence

37.  Four witnesses testified for the plaintiff, namely Chan Kwai Leong (ie Stanley Chan), Leung Chi Kin (“Kenneth Leung”, the proprietor of Krina), Ms Wong (the person in charge of the inspection of the Property), and Ms Fanny Chan.

Stanley Chan

38.  Stanley Chan was the mortgage loan marketing manager of the plaintiff who was in charge of the defendant’s application for the Loan.

39.  On 14 October 2020, Stanley Chan received a referral from Kenneth Leung of Krina regarding the proposed loan application by the defendant. Stanley Chan understood from Kenneth Leung was introduced to the defendant by another person in the trade. However, Stanley Chan did not inquire the identity of the source of such referral, as the trade was small and it was worried that the immediate referee would be circumvented if the ultimate source of the referral was revealed.

40.  Krina was at that time one of the promoters of the plaintiff which would refer individual or entities to the plaintiff for loans in return for a promotion fee. There was an agreement signed between the plaintiff and Krina on 28 July 2020 (“Promoter Agreement”). In fact, the defendant had known Kenneth Leung for over 10 years. Since the defendant had joined the plaintiff (the timing of which the defendant could not recall), Kenneth Leung had introduced four to five borrowers to the plaintiff, and the defendant was the only one who had complaints.

41.  In order for the plaintiff to process the intended loan application, Kenneth Leung provided to Stanley Chan via WhatsApp the background information of the defendant, including proof of the defendant’s identity, income, ownership of the Property and the agreement for the UA Loan.

42.  On 15 October 2020, Kenneth Leung informed Stanley Chan over a phone call that the defendant would apply to the Housing Authority for remortgaging the Property and asked for a loan of around HK$1,000,000 to HK$12,000,000. Certain documents in relation to the financial situation of the defendant was provided to Stanley Chan through WhatsApp.

43.  Stanley Chan considered that the defendant was eligible for the plaintiff’s “home owner” loan, which was a bridging loan for owners of residential property pending their refinancing of the property with banks in due course.

44.  Stanley Chan and the staff of the plaintiff in charge of approving loan applications had further considered the following factors in processing the defendant’s intended application for loan:

(a) The income of the defendant and her age, so as to estimate how much the defendant could borrow from the bank through re-mortgaging the Property.

(b) The market value of the Property.

45.  As a result, the plaintiff was willing to extend the Loan to the defendant. The amount of the Loan was 50% of the market value of the Property minus (i) the outstanding mortgage with Hang Seng Bank and (ii) the HSB Loan. No further reduction of the loan amount was made for the UA Loan, as the UA Loan carried higher interest rate and therefore the plaintiff imposed a condition that part of the Loan would be directly applied to repay the UA Loan. No similar condition was imposed in relation to the HSB Loan because HSB Loan carried much lower interest, and it was up to the defendant to decide whether she wanted to discharge the HSB Loan and when.

46.  On 19 October 2020:

(a) Stanley Chan telephoned and informed the defendant of the terms of the Loan that the plaintiff was willing to grant. The whole telephone conversation was conducted in Cantonese, and the defendant never indicated that she did not understand the terms of the Loan or the substance of the said telephone conversation.

(b) Stanley Chan then proceeded to instruct Ms Wong Suet Yuk to inspect the Property and to verify whether the defendant actually lived at the Property on 21 October 2020 at 10:30 am and to transport the defendant to the plaintiff’s office afterwards for a meeting with Stanley Chan.

(c) Further, the defendant was informed of such arrangements through WhatsApp messages from Stanley Chan, who also requested the defendant to bring various documents pertaining to her identity, ownership of the Property and its outstanding mortgage, income and finance proof, as well as the agreement for the UA Loan.

47.  On 21 October 2020, upon meeting the defendant, Stanley Chan explained and interpreted ten documents to the defendant:

(a) A loan application form;

(b) The Memorandum of Loan Agreement pursuant to s 18(1) of the Ordinance;

(c) Form of summary of provisions of the Ordinance;

(d) A disclosure of the 3^rd party form by the borrower;

(e) A letter in Chinese wherein the defendant acknowledged that she had the right but had elected not to seek independent legal advice;

(f) A declaration from the borrower about her financial status;

(g) TU Consent Form (Form 1);

(h) An information leaflet titled “To borrow a loan – what you must know”;

(i) A questionnaire on criteria regarding the application to the Housing Authority for remortgaging the Property; and

(j) A direct debit authorization.

48.  The defendant indicated that she understood, agreed and signed to the above documents save and except the Agreement. Stanley Chan requested the defendant to go to the office of Messrs C. O. Yu & Co to meet Ms Fanny Chan and to execute the Agreement there. The defendant duly complied.

49.  The defendant returned to the plaintiff’s office after executing the Agreement and received the UA Cheque and the Balance Cheque. As far as the Retained Cheques are concerned, when Stanley Chan was going through the details of the Loan with the defendant, the defendant asked if the interest would be frozen for the first six months. Stanley Chan replied that there was no such practice. Stanley Chan then suggested that the defendant could withhold the drawdown of the amount equivalent to six months’ interest as prepayments. Upon the defendant’s agreement to such suggestion, Stanley Chan obtained the approval from his supervisor and instructed the account to issue the Retained Cheques in such manner. Stanley Chan did not inquire with the defendant who suggested the idea of frozen interest to her, but he did subsequently inquire with Kenneth Leung, who denied suggesting that to the defendant. Since Stanley Chan had already handled the defendant’s concern, he did not pursue this matter further.

50.  During the whole of 21 October 2020 when Stanley Chan attended to the defendant, he communicated with the defendant in Cantonese throughout with no communication problem or any indication by the defendant that she did not understand the conversations.

51.  There was a problem in relation to the repayment of the UA Loan given the miscalculation of the relevant interest. The issue was subsequently resolved in November 2020.

52.  From November 2020 onwards, Stanley Chan constantly liaised with the defendant through WhatsApp messages to follow up on the progress of the intended application for remortgaging the Property. However, the defendant repeatedly alleged that she was busy without any concrete reply.

53.  On 24 December 2020, the plaintiff sent a letter to the defendant to remind her of the need to follow up on the application for remortgaging the Property without further delay. Eventually, the defendant ceased to reply to Stanley Chan or the plaintiff’s further letters dated 5 February 2021 and 22 March 2021.

54.  The defendant further cancelled the direct debit authorization that she had set up for the repayment of the Loan, and defaulted on repayment since the 7^th instalment due on 21 May 2021, ie after the lapse of the six months as represented by the Retained Cheques.

55.  In respect of the Loan, the plaintiff had paid HK$33,000 to Krina as commissions as well as HK$5,000 to C. O. Yu & Co as the legal fee. Throughout the transaction, Stanley Chan was not aware of how Kenneth Leung dealt with the defendant, including the fact that Kenneth Leung never met the defendant but only liaise with her through his “sub-agents” (下綫) exclusively. However, Stanley Chan did obtain the confirmation from Kenneth Leung that he had not received any charges from the defendant, otherwise he would have told the plaintiff not to pay Krina any commission.

Kenneth Leung

56.  Kenneth Leung was the proprietor of Krina, which had been in the business of acting as an intermediary between potential borrowers and financial institutions or money lenders in return for a promotion fee since its establishment in 2017. Krina was also registered with the Companies Registry for such business, which was a requirement in the relatively new regime for the purpose supervising the intermediaries.

57.  Krina has also entered into the Promoter Agreement with the plaintiff on 28 July 2020. Under the said agreement, Krina would be entitled to, inter alia, 3% of the loan amount for unsecured loan.

58.  On or about 4 October 2020, one Raymond Cheung who had known Kenneth Leung for over 10 years, informed the latter that he knew someone who would like to obtain a loan. Kenneth Leung suggested that he would share the commission with Raymond Cheung if he could introduce such potential lender to him. Raymond Cheung agreed and passed the particulars of the defendant and her relevant documents to Kenneth Leung for his handling.

59.  On 14 October 2020, Kenneth Leung referred the defendant to the plaintiff and one Konew Financial Express to ascertain the feasibility of obtaining loan from either from of them. Stanley Chan immediately followed up on Kenneth Leung’s referral and therefore Kenneth Leung sent the defendant’s documents to Stanley Chan for follow up.

60.  On 15 October 2020, Raymond Cheung informed Kenneth Leung that the defendant would apply to the Housing Authority to remortgage the Property and would like to obtain a loan of around HK$1,000,000 and HK$1,200,000. Kenneth Leung then informed Stanley Chan of the same.

61.  On 19 October 2020:

(a) Stanley Chan informed Kenneth Leung that the plaintiff had approved a loan of HK$1,100,000 for the defendant.

(b) Kenneth Leung then put Krina’s company chop on the Referral Agreement, signed the same and handed it to Raymond Cheung for the purpose of obtaining the defendant’s signature on it.

(c) Kenneth Leung also sent the plaintiff a proforma letter declaring that, inter alia, (i) Krina would not charge the defendant whatsoever, and (ii) Krina had clearly explained and trained its “frontline colleagues” (前線同事) in respect of the requirement of not charging the defendant whatsoever (“Declaration Letter”).

62.  On 21 October 2020, upon the completion of the application of the Loan, Kenneth Leung issued a debit note for HK$33,000 to the plaintiff, which settled the same on 30 October 2020.

63.  Upon cross-examination, Kenneth Leung admitted that:

(a) Raymond Cheung was his “sub-agent” (下綫) in the referral of the defendant;

(b) In or around mid-2021, he was informed by Stanley Chan about the defendant’s assertion that she was defrauded in relation to the Loan;

(c) Before he prepared for the witness statement for the present proceedings (which was filed on 27 April 2022), he inquired with Raymond Cheung about how he came across the defendant, and Raymond Cheung suggested that the defendant was referred to him by a person called “James” (whose surname was unknown);

(d) He had never met “James” but he had heard of this name in the trade;

(e) He did not ask Raymond Cheung for further details of “James” as he was not the police, and Raymond Cheung suggested that he had lost contact with “James”;

(f) He had never met the defendant;

(g) He only passed on the relevant information or documents in relation to the defendant that he had obtained from Raymond Cheung to Stanley Chan;

(h) He had asked Raymond Cheung whether the latter had charged the defendant in respect of the Loan;

(i) Upon Raymond Cheung’s confirmation that he had not charged the defendant, Kenneth Leung shared half of the $33,000 commission with him;

(j) He never inquired how much commission Raymond Cheung had shared with “James”, or whether Raymond Cheung had ever told “James” not to charge the defendant as it was their own business.

Ms Wong

64.  Ms Wong was the assistant manager of the plaintiff’s mortgage department.

65.  In respect of the Loan, Ms Wong was in charge of:

(a) the inspection of the Property on 21 October 2020; and

(b) the issuing of six receipt, each for HK$27,500, from 20 November 2020 to April 2021 by mailing the same to the defendant’s address.

Ms Fanny Chan

66.  On 21 October 2021, Ms Fanny Chan, the senior conveyancing executive of C O Yu & Co, attended to the defendant for the purpose of execution of the Agreement.

67.  In accordance to the attendance note that Ms Fanny Chan had kept, the defendant was given 20 minutes to read the Agreement, and she started to explain the contents of it to the defendant thereafter.

68.  I shall make it clear that the above is a summary of the evidence that I consider (with a substantial degree of latitude) to be more pertinent to the issues in the present proceedings. I have indeed considered the rest of the evidence which is not set out in the summary above or the further analysis below.

Assessment of credibility

69.  As apparent from the summary of evidence above, the witnesses were giving evidence on very different aspects of the material events, and on the areas where their evidence overlaps, they mostly agree with each other. The only substantial disagreement is between the defendant and Stanley Chan in respect of the circumstances in which the Retained Cheques came to be issued and whether the relevant receipts were sent to the defendant, which I will analyze further below.

70.  Insofar as the defendant is concerned, there are certain aspects of her evidence that was unsatisfactory. Significant details, such as the assertion made by “John Liu” that the Commission and part of the Service Fee were to be paid to the plaintiff, were not mentioned in the witness statement. They only came out for the first time in the later part of cross-examination whilst she still failed to mention the same when she was asked of similar questions earlier. There were also incidences of backtracking on what was stated in the witness statement, such as the assertion that “John Liu” signed on the Referral Agreement in front of her at the “Jollibee” restaurant on 19 October 2020 that she withdrew during cross examination. According to the defendant, she had already given a written statement to her lawyer when she started to seek legal advice in December 2020, and therefore the witness statement was supposed to be her best account of the events. She has not given any satisfactory explanations about the omissions or the mistake in her witness statement.

71.  On the other hand, given the lapse of time, the number of events that were happening in the material period as well as the traumatic nature of them, I do not regard the shift in those details to be detrimental to the credibility of the defendant. The defendant was fair and forthcoming in her evidence, such as whether she could understand the documents in relation to the Loan which were mostly prepared in English. Nor has she shown any tendency to put blame on or to implicate the plaintiff’s staff or representatives at any possible opportunities. On the contrary, there is no prejudicial allegations against Stanley Chan, Ms Wong or Ms Fanny Chan in the defendant’s evidence at all.

72.  Having considered all evidence, I accept the defendant as a credible witness, and I accept her evidence in respect of the primary facts that:

(a) She had fallen victim of an internet scam which caused her to take out various loans to satisfy the demands of the scammers.

(b) She was approached by someone who claimed to be the staff of Hang Seng Bank who appeared to know her financial conditions, in particular the mortgage situation of the Property, and as a result she was referred to “John Liu”.

(c) “John Liu” had obtained the Deducted Sum out of the available proceeds of the Loan from the defendant as purported commission and “service charge” in respect of the intended application to the Housing Authority for remortgaging the Property.

(d) Having obtained the Deducted Sum, “John Liu” did not actually assist the defendant to remortgage the Property and eventually disappeared altogether.

73.  Nevertheless, I do not find the defendant a reliable witness on matters of details that were never mentioned in the witness statement, such as the assertion made by “John Liu” that the Commission and part of the Service Fee was meant to be paid to the plaintiff. I will therefore not give such evidence any weight in deciding the material issues to be set out below.

74.  Insofar as the credibility of Stanley Chan is concerned, I have considered all evidence in detail and concluded that he is also a credible witness. Save as to the part of evidence which concerned the issuing of the Retained Cheques, all of Stanley Chan’s evidence, including the evidence in relation to the detail of the WhatsApp messages between him and the defendant since November 2020, was highly consistent with his own witness statement as well as the contemporaneous documentary evidence.

75.  In respect of the circumstances in which the Retained Cheques were issued, Stanley Chan admitted during the cross-examination that he had made a mistake in his witness statement which (i) did not mention the reason why the Retained Cheques were issued in such manner, and (ii) suggested that the Retained Cheques were in fact handed over to the defendant together with the UA Cheque and the Balance Cheque on 21 October 2020.

76.  For reasons that I will set out further in my analysis of the legal implication of the Retained Sum below, the fact that the Retained Sum was withheld was nothing sinister. The only disadvantage of such arrangement from the defendant’s perspective was that the actual proceeds of the Loan that were made available to her was reduced. However, the outstanding interest was reduced accordingly as well. I therefore do not see any reason as to why Stanley Chan would fabricate his account of the circumstances in which the Retained Cheques were issued in such manner. On the other hand, had the defendant’s account been true, I also see no reason why the Agreement could not have been drafted in a way to accurately reflect the fact that the Retained Sum was withheld at draw down. In fact, the defendant’s witness statement (paragraph 39 in particular) was brief on this matter and was not irreconcilable with Stanley Chan’s account, even though she strongly denied Stanley Chan’s evidence under cross-examination. Having carefully considered the relevant evidence, I accept Stanley Chan’s account in respect of the circumstances in which the Retained Cheques were issued.

77.  Insofar as Kenneth Leung, Ms Wong and Ms Fanny Chan are concerned, the defendant’s Counsel, Mr B K Ho, in his closing submissions did not attempt to attack the credibility of any of those individuals.

78.  The only exception was on Ms Wong’s evidence as to whether the receipts in relation to the Retained Sum were ever issued by the plaintiff to the defendant. According to Ms Wong, it was her responsibility for issuing the relevant receipts. She had explained the process through which she generated the receipt and mailed to the defendant. The defendant could adduce no evidence to contradict her account. I have considered the evidence and do not see any suspicious feature in respect of the issuing of the receipt. It was simply a deeming process to give effect to the arrangement for prepayment of interest. Again, I see no reason for Ms Wong to fabricate her evidence as such. Also, in claiming she had never received any of those receipts, the defendant might have simply neglected the receipts at the material times given what she was going through at that stage. Their respective evidence, again, is not irreconcilable.

79.  Having considered all evidence, I find that Kenneth Leung, Ms Wong and Ms Fanny Chan were all credible witnesses.

Issues 1: The Retained Sum of HK$165,000

80.  The defendant pleads that the fact that Retained Sum was not released to the defendant constituted a breach of section 27(1) of the Ordinance which provides that:

“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.”

81.  In fact, much of the factual arguments of the defendant were premised upon and assumption that the plaintiff’s treatment of the Retained Sum were in fact illegal and the plaintiff was conscious of such illegality, such that the plaintiff needed to design the relevant paperwork as a charade. However, the defendant has advanced no legal arguments whatsoever to support the legal proposition she pleaded in the first place.

82.  It was apparent from the documentary evidence that the Retained Sum was simply treated by the plaintiff as the prepayment of the first six instalments of interest under the Agreement. Accordingly, the plaintiff’s case that the defendant only started to default at the seventh instalment of interest due and payable on 21 May 2021.

83.  As such, I do not find that the proceeds represented by the Retained Cheques were “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” under the section 27(1).

84.  Instead, section 2(3) of the Ordinance is the directly relevant provision in respect of the Retained Sum:

“For the purpose of determining the amount of the principal of a loan, any amount thereof which is not shown to have been lent except for the purpose of treating it as an instalment paid by the borrower in repayment of the loan and which is so treated by the lender shall be disregarded.”

85.  Therefore, for the purpose of calculating the effective interest rate in the present case, the Retained Sum should be excluded from the principal of HK$1,100,000. This is the only significance of the plaintiff’s treatment of the Retained Sum. The factual arguments which was premised upon the opposite assumption were therefore, with respect, misconceived.

Issue 2a: Whether “John Liu” was the agent of the plaintiff

86.  The basis of the defendant’s assertion that “John Liu” was the sub-agent of the plaintiff, whether on pleadings or in submissions, is vague.

87.  In paragraph 42 of the Amended Defence, the defendant asserted that “Mr Liu of Anson was in fact a party of a group including Ms Chan, Mr Cheng, Ms Wong and Mr Chan who acted as employees, or agents for or in collusion with the Plaintiff to charge or obtain from the Defendant (other than stamp duties or similar duties) in connection with the obtaining and securing the Loan under the Loan Agreement.” The defendant then pleaded 9 sub-paragraphs of particulars which basically relied on all matters that happened since the defendant was approached by “Ms Chan” who purported to be the staff of Hang Seng Bank in early October with a conclusion that “The role played by the Plaintiff in the game was the banker to supply the proceeds of the game for the benefits of the agents who were players of the game”.

88.  In the closing submissions, in arguing that “John Liu” was the sub-agent of the plaintiff, the defendant focused on certain obligations imposed upon Krina under the Promoter Agreement, the lack of rigor on the part of Stanley Chan in ensuring Krina’s compliance with the same, as well as the circumstances in which the defendant’s documents were passed to Stanley Chan through Kenneth Leung.

89.  Having considered all evidence, I do not find that “John Liu” was the agent of the plaintiff.

90.  Agent does not have a specific definition within the Ordinance, whether within section 27 or otherwise. In the absence of a statutory definition, I shall adopt the definition of an agent under the common law, which was not disputed by counsel for both parties at the closing submissions.

91.  Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation: Bowstead & Reynolds on Agency, 32ed, para 1-001.

92.  Having considered the evidence of Kenneth Leung, I am of the view that “John Liu” was clearly the sub-agent of Krina. From the beginning to the end of the defendant’s application for the Loan, Kenneth Leung relied on Raymond Cheung to liaise with the defendant. He never asked to meet the defendant. He even signed on the blank Referral Agreement and handed it over to Raymond Cheung for obtaining the defendant’s signature. In such arrangement, it was also obvious that Kenneth Leung had impliedly agreed to let Raymond Cheung’s sub-agent (who turned out to be “John Liu”) to represent Krina in the handling of the defendant’s application for the Loan.

93.  Nevertheless, the crucial question for the defendant’s case is whether “John Liu” was the sub-agent of the plaintiff.

94.  If Krina was the agent of the plaintiff, then by extension, “John Liu” would be the sub-agent of the plaintiff as well. However, having considered the available evidence, I do not find Krina to be the agent of the plaintiff.

95.  The starting point of the relationship between the plaintiff and Krina is the Promoter Agreement:

(a) The preamble of the Promoter Agreement provided that: “The [plaintiff] is desirous of engaging [Krina] as its agent to refer individuals or entities to the [plaintiff] or any of its branches on the terms set out in this Agreement.” (emphasis added) However, the reference of “agent” must be understood in the context of the whole of the Promoter Agreement.

(b) Various obligations were imposed on Krina under clause 2.

(c) Clause 2.4 provides that: “[Krina] represents, undertakes and agrees that:- (i) it shall inform each of the prospective Clients from time to time that [Krina] is only a promoter which carries out advertising activities for the [plaintiff] and that the prospective Client’s applications for the Loan shall be subject to the approval of the [plaintiff] and the [plaintiff] reserves the right and shall have absolute discretion to approve or reject the application of the Loan without giving any reasons therefore” (emphasis added)

(d) Clause 2.5 provides that: “[Krina] shall not represent or hold out to any prospective Client that it has any authority from the [plaintiff] to make any agreement with the Client which will bind the [plaintiff] in any way in relation to the processing and approval of any application for the Loan or the granting of the Loan, nor have any authority whether express or implied from the [plaintiff] to obtain any information from any prospective Client in connection with its application.”

(e) Further, Clause 2.9 provides that: “[Krina] acknowledges that it is an independent contractor and is not an employee, partner or agent of the [plaintiff] and that [Krina] shall be solely responsible for all liabilities and expense of whatever nature relating to [Krina]. Nothing in this Agreement shall make [Krina] an employee, partner or agent of the [plaintiff] and [Krina] should not at any time hold itself out as being an employee, partner or agent of the [plaintiff]…”

(f) The contractual relationship between the plaintiff and Krina is therefore unequivocal. Krina was engaged by the plaintiff as a promoter/advertiser but not as an agent in the sense that the plaintiff had authorized Krina to enter into any legal relationship with potential/actual borrowers on the plaintiff’s behalf.

(g) In the closing submissions, the defendant did not seem to argue for a contrary conclusion based on the terms of the Promoter Agreement. Instead, the defendant highlighted various obligations imposed upon Krina by clause 2, including clauses 2.7 and 2.13 where Krina undertook not to demand any charges from the borrowers and to establish a proper system and procedure to ensure its employees and agents, etc, would be informed of and observed all licensing conditions imposed upon the plaintiff under the Ordinance.

(h) In doing so, the defendant fairly accepted that she was not seeking to submit that failing to comply with any of those obligations would affect the validity or the enforceability of the Agreement. It was accepted that such failures might give rise to regulatory consequences in relation to the license of the plaintiff and the registration of Krina which were not pertinent to the material issues herein.

96.  The defendant argued that the lack of rigor in ensuring Krina’s compliance with the Promoter Agreement was a “theme” under which the conducts of the plaintiff and the evidence of Stanley Chan should be assessed. In particular, the defendant focused on two aspects of Stanley Chan’s conducts and his evidence, namely (i) the treatment of the Retained Cheques and the receipts of those six instalments, and (ii) the manner in which the defendant’s documents were forwarded by Kenneth Leung to Stanley Chan.

97.  With respect, the arguments in relation to the Retained Cheques and forwarding of the defendant’s documents are without substance.

98.  In order to prove that “John Liu” was the agent of the plaintiff, the defendant needs to establish that the plaintiff had conferred any kinds of authority, whether actual or ostensible, expressly or impliedly upon “John Liu”.

99.  The defendant has adduced no evidence whatsoever that could prove that Stanley Chan had any knowledge of the existence of “John Liu”. There is no suggestion, let alone evidence, that Stanley Chan had come across “John Liu” at all, whether physically or otherwise.

100.  Neither the Retained Cheques nor the forwarding of the defendant’s documents could prove the existence of an agency relationship:

(a) Insofar as the Retained Cheques and the six relevant receipts are concerned, the defendant criticized them as a “sheer charade”. It was argued that the fact that all the Retained Cheques were dated the same date, namely 21 October 2021, was irregular.

(b) I am unable to accept such argument. Given the drawdown of the Loan took place on 21 October 2021, it was normal to date all the Retained Cheques the same date. The contrary treatment would render the drawdown incomplete on paper. It therefore was understandable for the plaintiff to date the Retained Cheques as such.

(c) I am also unable to see how the fact that six receipts were issued to the Defendant monthly in respect of the Retained Sums was an irregularity, let alone one that could prove that the plaintiff had authorized “John Liu” as an agent. It was a treatment to deem the Retained Sum having been drawn down and repaid by the defendant.

(d) The Retained Cheques and the receipts may have an impact on the calculation of the effective interest rate under s 2(3) of the Ordinance, but they were nothing sinister which could prove the existence of an agency relationship between the plaintiff and “John Liu”.

(e) The manner in which the defendant’s documents were forwarded to Stanley Chan also falls far short of proving any agency relationship between the plaintiff and “John Liu”.

(f) One could derive from the WhatsApp communications between Kenneth Leung and Stanley Chan the fact that the defendant’s documents as well as her background information were forwarded by another person to Kenneth Leung who then forwarded to Stanley Chan in turn, i.e. Kenneth Leung was not the ultimate source.

(g) However, such evidence does not establish any agency relationship between the plaintiff and “John Liu”, particularly when the defendant did not seek to argue that Krina was the plaintiff’s agent for the purpose of the Ordinance.

101.  The allegation that “John Liu” was the agent of the plaintiff is a substantive allegation which requires substantive proof. As analyzed above, the defendant has no evidential basis to substantiate such allegation. I therefore find that the defendant has failed to prove that there was any agency relationship between the plaintiff and “John Liu”.

Issue 2b: Whether “John Liu” was in collusion with the plaintiff

The law

102.  The term “collusion” is not defined in the Ordinance, but it has been subject to extensive discussions in the case law.

103.  The starting point is the decision of the Appeal Committee of the Court of Final Appeal in HKSAR v Wong Kwok Wai (2013) 16 HKCFAR 191, a case in which the applicant was convicted of acting in collusion with a money lender to demand remuneration or reward for or in connection with or preliminary to procuring, negotiating or obtaining a loan or guaranteeing or securing the repayment thereof, contrary to section 29(10) of the Ordinance. Tang PJ held, at §11, as dicta that:-

“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)

104.  In Ever-Long Finance Ltd v Yeung Wah Lung [2017] 1 HKLRD 500, concerning an application to set aside a default judgment entered by the money lender against the borrower, Deputy District Judge Simon Ho first considered that the term “collusion” under section 27(3) and (4) of Ordinance had to be construed in its own statutory context against the whole of the Ordinance with its objective and intent in mind. The learned Deputy Judge, after considering the purposes of the Ordinance, and Tang PJ’s dicta as the “guiding test”, attempted to articulate the circumstances that would fall within the meaning of “collusion”:-

“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 section 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.” (emphasis added)

105.  The learned Deputy Judge also rejected the plaintiff’s submission that collusion meant “conspiracy”, and held (at §92) that while proving conspiracy was one way to prove collusion, the term “collusion” under the Ordinance was a wider concept, as it would otherwise unnecessarily hamper the effectiveness of sections 27(3) and (4) in protecting the borrower under the statutory framework of Ordinance.

106.  In Gain Wealth Global Credit & Investment Limited v Lam Hau Kay [2018] HKDC 796, a money lender’s action, the issue before the Court was whether there was collusion under sections 27(3) and (4) of the Ordinance between the money lender and the intermediary who introduced the borrower to the money lender. Deputy District Judge C To, at §52, first held that sections 27(3) and (4) covered entities who might have a “less well-defined relationship” with the money lender but nonetheless involved in part of the lending process, such as the intermediaries. The learned Deputy Judge then referred to HKSAR v Wong Kwok Wai (supra) (including Tang PJ’s dicta), and later analyzed the phrase “playing the same game” in terms of “what game is to be played”, and “by whom the game is played”. For the former, the learned Deputy Judge understood the game to be “the stripping away of the borrower’s assets (whether from the loan or otherwise) by imposing additional fees on top of the interest” (at §60). For the latter, the learned Deputy Judge opined that other than those “with a more explicit and well-defined relationship with the money lender, the only cue from s 27(3) of the MLO is someone ‘in collusion with any money lender’” (at §61).

107.  After considering the objective and intent of s 27(3) and holding that the word “collusion” should not be interpreted narrowly, the learned Deputy Judge held, at §67, that the phrase “playing the same game” did not require any “explicit” or “implicit” agreement, and co-operation could take many forms:-

“67. Although the term ‘collusion’ is often interpreted as ‘agreeing together’ (per Bramwell B, Gill v Continental Gas Co L R 7 Ex 337) or ‘by agreement, or acting in concert’ (Edison General Electric Co v Westminster and Vancouver Tramway Co, etc [1897] A C 193), the broad definition of ‘playing the same game’ does not require any explicit or implicit agreement to be found.

68. In Ever-Long Finance Ltd v Yeung Wah Lung [2017] 1 HKLRD 500, DDJ Simon Ho said at §90:-

“… 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.”

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 Ordinance.” (emphasis added)

108.  Counsel for the defendant referred to two decisions of the Court of First Instance, in addition to the above authorities: Gain Wealth Global Credit & Investment Limited v Chan Suk Fong [2018] HKCFI 2666; Skyline Credit Ltd v Leung Hing Chung [2019] HKCFI 169. The former authority, in my view, did not further develop the definition of “collusion”. DHCJ Sherrington found it sufficient to resolve the issue of collusion in the said proceedings by applying HKSAR v Wong Kwok Wai (supra) and Ever-Long Finance Ltd v Yeung Wah Lung (supra) to the facts of that case.

109.  In Skyline Credit Ltd v Leung Hing Chung (supra), again a money lender’s action, DHCJ William Wong SC, before referring to the above authorities except Gain Wealth Global Credit & Investment Limited v Lam Hau Kay (supra), had this to say on the topic:-

“36. As in the case of conspiracy, one seldom has direct evidence of collusion. What the court needs to be satisfied is that, from the evidence, the parties were acting in concert and playing the same game. 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.” (emphasis added)

This statement of principle remained undisturbed on appeal: see Skyline Credit Ltd v Leung Hing Chung [2022] 4 HKLRD 561, [2022] HKCA 1241.

110.  Recently, the Court of Appeal in Gain Wealth Global Credit & Investment Limited v Chan Suk Fong [2020] 4 HKLRD 831, [2020] HKCA 737, whilst mainly addressing issues concerning the nature of the relevant payments, and the calculation of effective rate of interest, made certain statements which are relevant for present purposes. In particular, Kwan VP, at §35, held that for sections 27(3) and (4) to be engaged it was not necessary to show that the money lender was somehow involved in the fraud:-

“35. … Section 27(3) makes it unlawful, not just for the money lender to charge or receive the types of payment specified, but extends it to “any person acting … in collusion” with the money lender and section 27(4) provides that any money paid in contravention may be recovered from “such person or from the money lender”. In charging the defendant and receiving the payments from her, it could fairly be said that the object of the persons acting in collusion with the plaintiff was to receive their “remuneration or reward” in obtaining the loan for the defendant, or it could be said that the payments were the “costs” for obtaining the loan. For these provisions to be engaged, it is not necessary to find that the money lender was somehow involved in the fraud pertaining to these payments. Whatever the object of the plaintiff’s collusion might be as regards the defrauded monies is irrelevant.” (emphasis added)

111.  Her Ladyship further approved the principles summarized by Deputy District Judge Simon Ho in Ever-Long Finance Ltd v Yeung Wah Lung (supra) (§§90-93 thereof) and held, at §49, that there was no need to prove a prior agreement between the money lender and the intermediary to extract payment from the borrower in a fraudulent way:-

“49. We do not accept Mr Ho’s submission that a finding of collusion between the plaintiff and the fraudsters would mean that a party to the collusion should be legally liable for the fraudulent act of the other party. As rightly stated in Ever-Long Finance Ltd v Yeung Wah Lung at §§90 to 93, “collusion” in the context of sections 27(3) and (4) is a wider concept than “conspiracy”; there was no need to establish a prior agreement between the lender and the intermediary to extract payment from the borrower in a fraudulent way, it would be sufficient for the lender and the intermediary to co-operate with each other to do or abstain from doing something with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice. In E-way (Hong Kong) Property Credit Ltd v Fung Wing Tim [2019] HKDC 39, it was held that although the available evidence was sufficient to establish collusion, it was not sufficient to establish an agency relationship between the lender and the fraudster (at §§83, 100). Insofar as the judge has held that payments to the fraudsters were payments to the plaintiff’s agents as agents in the legal sense, we think the judge was in error, as there is no evidence that those payments were sought or received on behalf of the plaintiff.” (emphasis added)

112.  In Credit One Finance Limited v Leong Wun Heng [2023] 3 HKLRD 136, [2023] HKCFI 961, Lisa Wong J, after referring to some of the authorities mentioned above, held that to make out a case for collusion under section 27 the moneylender and the intermediary should be aware of the existence of each other, as a matter of common sense and plain language:-

“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.” (emphasis added)

113.  Drawing the threads together, the relevant principles on “collusion” under sections 27(3) and (4) can be summarized as follows:-

(a) The question is whether the money lender and the intermediary were “playing the same game”;

(b) 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;

(c) One of the circumstances which, if proved, would suffice to make out a case for collusion is that the money lender and the intermediary co-operated with each other (or acted in concert, which amounts to the same thing) to do or abstain from doing something with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice;

(d) Co-operation could take many forms;

(e) While proof of conspiracy to extract payment from the borrower is one way to establish collusion, it is not the only way;

(f) It is a necessary requirement that the money lender and the relevant third party were aware of the existence of each other;

(g) There is however no need to establish a prior agreement between the lender and the intermediary to extract payment from the borrower in a fraudulent way;

(h) It is also unnecessary to show that the money lender was involved in or had knowledge of the fraud practiced by the relevant third party.

The facts

114.  In the amended defence, the defendant’s plea for collusion between “John Liu” and the plaintiff was rolled-up with the plea of agency with the same particulars. The same problem of vagueness and lack of focus therefore applies to the plea of collusion as well.

115.  In the closing submissions, the defendant heavily relied on the “synchronization” between Stanley Chan and “John Liu” in the arrangement of the application for the Loan, ie the timing of when the terms of the Loan in relation to (i) the Retained Sum, and (ii) the charging of Commission and the Service were conveyed to the defendant.

116.  The arguments based on the Retained Sum is, with respect, misconceived:

(a) Much of the defendant’s arguments were premised on the assumption that it was illegal for the plaintiff to withhold the Retained Sum from the principal pursuant to s 27(1) of the Ordinance.

(b) I have already dealt with this question in my analysis of Issue 1 above, and held that the Retained Sum did not fall within the illegal charges under section 27(1) of the Ordinance.

(c) The arguments in respect of the Retained Sum is therefore based on a false premise and, with respect, misconceived.

(d) In any event, I have already rejected the defendant’s evidence and suggestion that there seemed to be some sort of coordination between “John Liu” and Stanley Chan in respect of the manner of issuing the Retained Cheques. I have accepted Stanley Chan’s evidence that the Retained Cheques were issued as a counter-suggestion upon the defendant’s inquiry about freezing the interest of the first six months.

(e) Also, the difference between the interest being “frozen” in the first six months according to “John Liu” at the “Jollibee” restaurant on 19 October 2020, and the plaintiff’s treatment of the Retained Sum as prepayment of the interest of the first six months, is neither here nor there. As analyzed in Issue 1 above, I do not see any suspicion arising from the treatment of the Retained Sum.

117.  Having carefully considered all the evidence, I do not find any basis to suggest that the plaintiff was acting in collusion with “John Liu” in respect of the Commission and the Service Charge:

(a) None of the evidence could demonstrate that Stanley Chan was in contact with “John Liu”, or he was aware of the requests made to the defendant for the Commission or the Service Charge.

(b) The defendant’s evidence was clearly that in the limited encounters with Stanley Chan up to 21 October 2020 when the Loan was drawn down, she never revealed to Stanley Chan about the existence of “John Liu” and his demands for the Commission and the Service Fee.

(c) On the contrary, the defendant effectively suggested to Stanley Chan she was not charged by the intermediary.

(d) On 21 October 2020, when the defendant attended the plaintiff’s office for the application for the Loan, she had signed on both the Chinese and English versions of a leaflet entitled “To borrow a loan – what you must know” which was jointly issued by the Money Lenders Unit of the Companies Registry and the Police (“Warning Leaflet”). It contained various specific warnings, including (i) a borrower should not hand over any money to any third party when applying for a loan or after successfully obtaining a loan, and (ii) financial intermediaries must not charge you any fees however named, and such fees are illegal. Effectively, the defendant was confirming to the plaintiff directly that she was not being charged by the intermediary.

(e) Also, the defendant did not dispute that at the plaintiff’s office, she was given time to read the documents, including the Warning Leaflet, and Stanley Chan had explained them to her.

(f) In reply to the question as to why she did not inform Stanley Chan about the existence of “John Liu” and his requests for the Commission and the Service Charge, the defendant simply answered that she expected that Stanley Chan and “John Liu” must have been directly liaising with each other already. In fact, the defendant repeatedly suggested that “John Liu” as an eloquent speaker. It shows that the defendant had substantial trust in “John Liu” at that point of time, such that she did not see the need to verify with Stanley Chan what “John Liu” had all along been telling her.

(g) Furthermore, it was a common ground that in November 2020, Stanley Chan repeatedly chased the defendant for the update about the intended application for remortgaging the Property and the contact information of the person in charge. In the defendant’s evidence, when she relayed Stanley Chan’s request, “John Liu” was effectively delaying in giving her any direct answer. Such evidence does not show any kind of orchestration between Stanley Chan and “John Liu” at all. On the contrary, it demonstrates that Stanley Chan was truly not in contact with “John Liu”. Otherwise, Stanley Chan would not have pushed on a matter that “John Liu” got no answer for.

(h) The defendant’s own evidence alone in fact defeats any suggestion that Stanley Chan was colluding with “John Liu”, such that they were playing the same game.

Effective interest rate

118.  In view of my findings above, the only adjustment that is required for the calculation of the effective interest rate is the deduction of the Retained Sum from the principal pursuant to section 2(3) of the Ordinance.

119.  In the closing submissions, the defendant submitted that the Retained Sum should be counted as deemed interest in addition to the contractual interest of $330,000, while at the same time be deducted from the deemed principal. Again, the said submissions were premised upon the argument that the Retained Sum was an illegal payment under section 27(1) of the Ordinance, which is invalid for reasons I have set out above.

120.  Furthermore, the Retained Sum was actually treated by the plaintiff as interest payments for the first six months, and the claim for the contractual interest had been reduced accordingly. To add the Retained Sum to the total contractual interest of $330,000 would be double-counting. It is probably the reason why section 2(3) of the Ordinance simply mandated that any sums withheld from the loan principal and were treated by the money lender as advance interest payment should be disregarded in the determination of the amount of the principal. There was no further requirement to add the same amount to the deemed interest.

121.  As a result, the effective interest rate for the Loan was:

HK$330,000 / ($1,100,000 - HK$165,000) = 35.3% p.a.

122.  Therefore, the Loan was neither illegal (60% or above) nor extortionate (48% or above) under the Ordinance.

Section 25 of the Money Lenders Ordinance, Cap 163

123.  In the closing submissions, the defendant argued that even if I hold against her case insofar as the Commission and the Service Charge are concerned, the effective interest rate would still be 52.94%, hence extortionate and liable to be reopened, on the basis of the following calculation:

(Deemed interest of HK$330,000 + HK$165,000) / (Deemed principal of HK$1,100,000 - HK$165,000) = 52.94%

124.  I have already ruled against adding the Retained Sum to the deemed interest for reasons stated in paragraph 120 above. The effective interest was 35.3%, which was within the permissible range under the Ordinance.

125.  Therefore, the alternative plea of the defendant to reopen the Agreement is rejected.

Set-off

126.  For the same reasons as above, the defendant’s defence of setting-off the Retained Sum, the Commission and the Service Charge against the plaintiff’s claim is also rejected.

Disposition

127.  I grant judgment in favour of the plaintiff for the principal sum of HK$1,100,000 plus interest accrued from 21 April 2021 at the rate of 30% p.a. until payment.

128.  I also make a cost order nisi that costs be to the plaintiff with certificate for counsel, to be taxed if not agreed, and the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.