EASY FORTUNE PROPERTY LTD v. YUNG CHUN HIM

HCA 1484/2014

[2024] HKCFI 615

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1484 OF 2014

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J U D G M E N T

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1.  This case was commenced in 2014 by the Plaintiff, a licensed money lender, against the Defendant borrower for the repayment of the entire principal of the loan in the sum of HK$5,000,000 (“the Loan”) and interest at 21.6% per annum since default and for the enforcement of a legal charge executed as security.

2.  In the procedural history and circumstances explained below, the main live issue for determination at this trial is whether in all the circumstances it would be inequitable that the legal charge in question be enforced or to what extent it should be ordered to be enforced, pursuant to section 18(3) and/or section 22(2) of the Money Lenders Ordinance Cap 163 (“MLO”).

3.  The Plaintiff appeared by Mr Hariman of counsel, and it only called one witness Mr Wong Man Ho Anthony (“Wong”).

4.  The Defendant is well educated. He said he has a MBA master’s degree and was an experienced banker. He acted in person in this action all along, including at this trial. He was the only witness for his own case.

The Basic Undisputed Facts

5.  The Plaintiff and the Defendant entered into a loan agreement in English (“Loan Agreement”)[1] and a supplemental agreement in Chinese entitled “貸款優惠書” (“Supplemental Agreement”)[2], both dated 24 May 2012. The Plaintiff did not dispute that 2 other Chinese documents respectively entitled “合約附加條款” (“附加條款”)[3] and “貸款金額及供款方法確認書” (“確認書”)[4] were also signed by the Defendant on the same day and that these 2 Chinese documents form part of the contractual arrangement between the parties.

6.  The Loan Agreement provided that the Loan was to be repaid in a lump sum on or before 24 May 2013 and that the Defendant was to make monthly interest payment at the rate of 21.6% per annum (i.e. 1.8% per month).

7.  The following provisions are contained in the contractual documents identified below:

a.  Clause (4) of the Loan Agreement entitled “Additional interest in Default of Payment” (“the Additional Interest Clause”):

“4.1 In additional [sic], the Borrower is liable to pay the Lender a further interest of the whole sum of the Principal and interest from the date of default until the whole sum being full payment [sic]. It is clearly declared and agreed by the parties that the aforesaid additional interest payable by the Borrower shall not be reckoned and deemed as part payment of the Principal Sum and interest aforesaid.

4.2 It is clearly and expressly agreed by the parties that the Lender is entitled to recover the interest after judgment at the same interest rate of 21.6% per annum notwithstanding that there is a prescribed court judgment rate.”

b.  By the Supplemental Agreement, it was provided:

「本公司現提供以下優惠予此客戶:

借款人 … 如能於每月準時供款，而不超過5日，可以獲得本公司之優惠利率0.8%。 如若借款人未能履行貸款合約，此優惠協議便作無效及作廢，借款人亦需將按照所供之款項以月息1.8%計算。本公司對上述物業貸款之優惠，只是雙方協議提出。」 (“the Preferential Interest” and “the Preferential Interest Clause”);

c.  Clause 1 of 附加條款provided:

「借款人如於6個月內清還全數或部分貸款，借款人須繳付貸款金額之5%作為提前還款手續費。」(“the Early Repayment Charge” and “the Early Repayment Clause”); and

d.  Clause 3 of 附加條款provided:

「借款人如於每一期到期供款日未能供款，並逾期超過30天，貸款人將會派員、委託收帳公司向借款人追討該期欠款，借款人必須承擔貸款人為追討該期欠款之費用支出，而繳付相當於該期應邀款項之30%作為追收之行政費用。」(“the Collection Charge” and “the Collection Charge Clause”).

8.  As security for the Loan, a legal charge dated 4 May 2012 (“the Legal Charge”) was executed in favour of the Plaintiff against the residential property registered in the Defendant’s name and known as Flat E, 7^th Floor, Tower 11, No 11 Parc Oasis Road, Parc Oasis, Kowloon, Hong Kong (“the Property”) as security for the Loan.

9.  The Loan was drawn down on 24 May 2012, and it was not disputed that the Defendant had received the Loan.

10.  According to the Defendant, not admitted nor seriously disputed by the Plaintiff, that at the time the Defendant paid HK$40,000 “set-up charge” to one Forever Property Finance Company Limited (“FPF”).

11.  It is common ground that the Loan was renewable and was renewed for one year on the same terms. The Defendant had in total paid $800,000 as interest payment. The Defendant has since 24 February 2014 defaulted in his payment obligation.

12.  Days before he defaulted his payment, and on 20 February 2014, the Defendant petitioned for his own bankruptcy (HCB 1233/2014).

13.  On 17 March 2014, the Plaintiff issued a demand letter to the Defendant (“P’s Demand Letter”)[5].

14.  On, 1 April 2014, the Defendant was adjudicated bankrupt.

15.  Having obtained leave of the court, the Plaintiff commenced this action on 1 August 2014.

Relevant Procedural History, the Judgment of Recorder Pow SC and of the Court of Appeal

16.  The defence, in a nutshell, was that the Loan Agreement and the Legal Charge are void and/or unenforceable due to various contraventions of the MLO.

17.  I will skip through many of the procedural history which have no bearing on the dispute at hand and pick up from the judgment dated 12 August 2016 of Recorder Pow SC (“the Recorder’s Judgment”).

18.  The Recorder’s Judgment concerned the Defendant’s appeal against an Order of Master Jack Wong striking out the Defence and ordering judgment be entered against the Defendant in respect of all of the Plaintiff’s claims save that the Defendant might continue to defend the claim for interest at $40,000 per month from 27 January 2014.

19.  By the Recorder’s Judgment, the learned Recorder set aside the Master’s said order and ordered that (a) judgment be entered in favour of the Plaintiff in the sum of HK$4,160,000 with interest at judgment rate from 12 August 2016 until full payment, (b) the Defence be struck out insofar as it sought to avoid the obligation to pay the said sum of HK$4,160,000, but leave be granted to defend any further claim by the Plaintiff over and above the said sum of HK$4,160,000, (c) the Defendant do deliver up the possession of the Property within 28 days, and (d) the Defendant do pay the Plaintiff’s costs of this action save that there be no order as to costs in relation to the costs of the application and hearing before him and before the Master.

20.  For reasons that will become clear, it is pertinent to set out what the learned Recorder has decided by the Recorder’s Judgment (“§” refers to the paragraph(s) in the Recorder’s Judgment):

a.  On the Plaintiff’s own admission, there was a breach of section 18 (§23);

b.  Rejecting the Defendant’s argument to the contrary, holding that the existence of the Early Repayment Clause imposing the Early Repayment Charge did not contravene section 21 (§§25 & 26);

c.  Rejecting the Defendant’s contention and accepting the Plaintiff’s, holding that on proper construction of the Collection Charge Clause, the 30% Collection Charge would be calculated by reference to the amount of the instalment that has been overdue for over 30 days (§§27 to 30);

d.  Rejecting the Defendant’s argument to the contrary, holding that levying the Collection Charge did not contravene sections 27(3) and section 29(10) (§§31 & 32);

e.  That the collection of HK$40,000 “set-up charge” arguably contravene section 27(3) (§§33 & 34);

f.  That the arrangement provided in the loan documents that the Preferential Interest Clause would become void and ineffective if the Defendant failed to comply with his obligations under the Loan Agreement arguably was a disguise for charging default interest and hence arguably a contravention of section 22(1)(c) (§§35 to 37);

g.  Rejecting the Defendant’s contentions and calculations to the contrary, holding that the effective rate of interest of the Loan was that as stated in the “Memorandum of the Loan Agreement”[6] namely, 21.6% per annum; and hence there was no contravention of section 24 (§42), and that “… when one seeks to analyze whether section 24 has been contravened, one does not analyze it on a scenario of default. One simply looks at the rate of interest agreed to be charged and compare it with the statutory maximum of 60% per annum.” (§§38 to 41, at §41);

h.  The learned Recorder therefore found that there was no reasonable cause of defence up to HK$4,160,000, after deducting from the Loan the interest payment of HK$800,000 (treating it for now as payment towards the principal) and the “set-up charge” of HK$40,000; and

i.  The learned Recorder held that, under sections 18(3) and 22(2), it was not inequitable to enforce the Loan and the Legal Charge up to HK$4,160,000.

21.  The Defendant appealed against the Recorder’s Judgment. The Plaintiff did not.

22.  In its judgment handed down on 27 September 2019 ([2019] HKCA 1055) (“the CA Judgment”), the Court of Appeal rejected all of the Defendant’s grounds of appeal, upheld all of the learned Recorder’s reasoning and holdings, except one, and dismissed the rest of the appeal.

23.  The sole matter over which the appeal was allowed was this. The CA held that the learned Recorder has not given consideration as to whether the Plaintiff should be allowed to enforce the Legal Charge in light of the admitted breach of section 18, the arguable contraventions of sections 22(1)(c) and 27(3) and the arguable attempt to disguise the charging of default interest. The CA thus set aside the order for possession of the Property and gave leave to the Defendant to defend the Plaintiff’s claim for possession.

24.  Hence, this action is alive only as concern further claims the Plaintiff might have for payment of any sum over and above HK$4,160,000 and of interest over that awarded by the learned Recorder (namely, interest at judgment rate from 12 August 2016 until full payment), and as concern the enforcement of the Legal Charge.

The Parties’ respective stance and issues to be decided

25.  The Plaintiff had earlier informed the Defendant and has confirmed at trial that it only sought to enforce the Legal Charge and was not pursuing such further claims.

26.  In other words and as the Plaintiff indicated, it was prepared to accept, as consequence of the breach of section 18 of the MLO and other breaches which this court may find against the Plaintiff (which it disputed), the foregoing of (a) part of the principal in the amount of HK$840,000, and (b) all interest on the loan at contractual rate of 21.6% per annum as from 24 May 2012, save having received total interest in the sum of HK$800,000 and recovering interest on HK$4,160,000 at judgment rate from 12 August 2016 onwards until full payment.

27.  Save the admitted breach of section 18, the Plaintiff disputed all other allegations by the Defendant of breach of the MLO or improper conducts on its part.

28.  The Defendant alleged against the Plaintiff:

a.  In gist, that it colluded with FPF, that it was dishonest, unethical, and unconscionable in the conduct of negotiating the Loan through one Ms Winnie Chan, thereby exploited him by forcing him to sign the set of documents containing onerous terms (“the Impropriety Complaint”);

b.  In the enforcement of the repayment of the Loan, the Plaintiff made an unjustified demand of interest causing him great financial pressure and ruin (“the Unjustified Demand Complaint”);

c.  The Plaintiff has breached the following sections of the MLO:

i.  section 18, in that the Memorandum did not contain the terms as provided by the Supplemental Agreement, 附加條款 and 確認書;

ii.  section 21(1), by the provision of the Early Repayment Clause;

iii.  section 22(1)(a), in that the loan arrangement provided for the payment of compound interest;

iv.  section 22(1)(c), in that the rate or amount of interest was increased by reason of default as provided by the Additional Interest Clause and/or the Preferential Interest Clause;

v.  section 24, in that the effective rate of interest exceed 60%[7];

vi.  section 25, in that the transaction was extortionate; and

vii.  section 27, in that the “set-up charge” was paid to, and allowed to be paid to, FPF as a company acting in collusion with the Plaintiff.

29.  The Defendant said that in light of all these matters, the Court should hold that the Legal Charge ought not be enforced in its entirety or at all as against him.

30.  The Defendant’s complaint of breach of section 21(1) was abandoned in the course of trial, in my view rightly, as such alleged breach has been held against in the Recorder’s Judgment and the Defendant’s appeal against it was not successful.

31.  Upon the objection by the Plaintiff and after the parties completed their opening submissions, I orally ruled that the Defendant was precluded from raising the contentions that the Plaintiff has breached section 22(1)(a) and section 24 of the MLO, with written reasons to be provided in this Judgment. The following were my reasons:

a.  Effectively, the Defendant was seeking to put a new spin on his argument that because the Collection Charge was charged at 30% of the principal of HK$5,000,000 and overdue interest, therefore, the loan arrangement provided for the payment of compound interest, contrary to section 22(1)(a).

b.  The same interpretation of the Collection Charge Clause in relation to how the Collection Charge was calculated was argued before the Recorder and was rejected by him (see paragraph 20(c) above).

c.  The same interpretation was again argued before the CA which has considered and dealt with that argument in length and again rejected it (see paragraph 69 to 80 of the CA Judgment).

d.  Thus, the basis of the Defendant’s present complaint of breach of section 22(1)(a) - his contended interpretation of the Collection Charge Clause – has been adjudged and rejected on its merits by the learned Recorder and the CA, and therefore was res-judicata. He therefore was not entitled to re-argue that interpretation again before this court.

e.  The alleged section 24 breach, again, was res-judicata. It has been considered and rejected by the learned Recorder (see paragraph 20(g) above). The CA has also considered it at length and has rejected it (paragraphs 31 to 54 of the CA Judgment).

Legal Principles

32.  The applicable principles concerning the exercise of discretion under sections 18(3) and 22(2) were not disputed. They were elucidated by the CA in considering the Defendant’s afore-mentioned appeal :

“56. Under section 18(3), the burden falls on the money lender to satisfy the court that in all the circumstances it would be inequitable to refuse enforcement notwithstanding non-compliance of section 18(1) and (2). The principles on the exercise of discretion have been set out by the Court of Final Appeal in Emperor Finance Ltd v La Belle Fashions Ltd & Ors (2003) 6 HKCFAR 402 and Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529. In short, in exercising its discretion the court examines the breaches in question, their consequences for the parties to the transactions and any other circumstances which may make it inequitable to hold the agreements unenforceable: Emperor Finance Ltd at [119] and Strong Offer Investment Ltd at [29] and [61]. In Emperor Finance Ltd at [102], Ribeiro PJ pointed out that:

‘… The policy of section 18 is to ensure that potentially unsophisticated borrowers are left in no doubt as to how much money exactly they are borrowing by way of principal and what interest they will have to pay on that loan, to which end, such information has to be set out and expressed in the prescribed manner in the memorandum to be signed by the borrower.’

57. It was additionally pointed out in Strong Offer Investment Ltd that section 18 offers one of the key protections to uneducated, ignorant and unsophisticated borrowers who may not be aware of all the terms and conditions under which the loans are made to them (at [18]), and that the court has to bear in mind the parties’ respective rights and obligations under the statute as well as the agreement made by them (at [20]).

58. As for the discretion under section 22(2), Chan PJ observed obiter in Strong Offer Investment Ltd at [42] that:

‘Although the wording is similar to that in s.18(3), this discretion serves a different function and provides a different protection to borrowers, namely, from a contractual requirement to pay compound interest. … In my view, the object of the discretion is to allow the money lender to recover the loan together with any amount or rate of interest which is permitted under the provisions of the Ordinance, where the court considers it equitable to make such an order.’ ”

My Findings on Further Facts

33.  I find the further facts as set out in this section for the accompanying reasons.

34.  As accepted by the Defendant in oral evidence and shown by the land search records[8], since late 2005, the Defendant had been charging or mortgaging the Property to various lenders, from one to another, with redemption and then borrowing from another lender occurring roughly once every year. The Defendant admitted in cross-examination, and I find, that he would seek out advantageous deals offered by different lenders and took them if it was financially advantageous to him.

35.  Immediately prior to the present events, the Property was mortgaged to ETC Finance Limited and also charged to Hong Kong Finance Company Limited by way of a second legal charge.

36.  The Defendant received a marketing call from one Winnie Chan (“Chan”) in April 2012 touting for mortgage financing business.

37.  In his witness statement the Defendant claimed :

a.  that a “verbal agreement” was reached between him and Chan (or her company) over the phone, the detail terms of which were set out in Table 1 of paragraph 3 of his witness statement[9]. The salient terms, among others, included that a total of HK$5,700,000 would be lent to him by way of 2 loans (1^st loan of HK$5,000,000 at 9.6% per annum interest and the 2^nd of HK$700,000 at 21.6% per annum interest), that a bridging loan in the sum of HK$150,000 would be immediately granted on 4 May 2012 when the Defendant attended the lender’s office, that there would be a “set-up charge” of HK$40,000, and that there would be a 5% early repayment;

b.  that on 4 May 2012, he was “baffled” and found himself “coaxed” and was dealing with “predatory lenders” in that there were “deviations” from the original “verbal agreement”; and

c.  the “deviations” were (i) the 2 loans would actually be made by 2 lenders – the Plaintiff and FPF, (ii) the 9.6% per annum interest rate for the 1^st loan of HK$5,000,000 and 21.6% per annum interest rate for the 2^nd loan of HK$700,000 now became “preferential rates” only applicable when there was no default, and upon default, 21.6% and 36% would become the respective applicable interest rates, and (iii) there would be the Collection Charge at 30% (“the Revised Terms”).

38.  From these alleged “deviations” and his allegation that as he had already orally informed ETC Finance Limited and Hong Kong Finance Company Limited that he would be redeeming the respective mortgage and charge in their favour, the Defendant complained that he had suffered much detriment and made the Impropriety Complaint.

39.  The Defendant’s evidence was that in respect of the loan made by FPF (explained in due course) and the Loan, Chan was the only person he negotiated with, such that Chan also acted for the Plaintiff in respect of the Loan. I accept the Defendant’s evidence in this regard and so find as (a) Wong never mentioned in his witness statement how the Plaintiff came to know the Defendant and enter into the Loan Agreement, which witness statement was filed after the Recorder’s Judgment and the CA Judgment and despite the Defendant had already made the allegation of collusion between the Plaintiff and FPF, (b) Wong nonetheless admitted (which I find) that the Loan was referred to the Plaintiff by FPF, (c), however, Wong was clearly evasive in his oral testimony regarding these matters, and was unable to provide answers to questions on these matters, and (d) I find it most incredible that the Plaintiff did not have any record or information as to who was the person responsible for negotiating the Loan with the Defendant.

40.  However, I do not accept the Defendant’s evidence or case that Chan has promised or has committed to the extent that an oral agreement proper had been reached. Nor do I accept that the Defendant understood it to be so, as he seemed to claim. Firstly and evidently, the Defendant was, and is, a very sophisticated and well-educated person. In my view, he clearly understood that unless and until contractual documents were signed, there was yet no binding obligations. Such was put to him in cross-examination and he was not able to refute it. Secondly, it makes no commercial sense and is highly improbable that Chan would enter into an oral agreement proper with the Defendant over, as the Defendant said, touting tele-marketing calls when she had not even met the Defendant in person nor did she have his personal information or details.

41.  I therefore find that it was perfectly within the right of the Plaintiff, as a money lender, to offer terms, in the meeting on 4 May 2012 before the signing of a binding loan agreement, which might be different from what had been discussed between Chan and the Defendant.

42.  I do not accept the Defendant’s evidence or case that because of the earlier “promise” by Chan on the alleged terms and then the “abrupt” change in the terms offered on 4 May 2012, he was coerced or oppressed into taking up the Loan. All he was saying in oral evidence was that, and I find, according to his own calculations and planning, if he repaid the earlier 2 loans on certain exact dates, he would save the maximum amount of interest or handling charges, which therefore required him to give notice to the 2 earlier lenders on a certain date. Therefore, and I find, to synchronize and obtain the maximum financial benefits, he informed (or notified) the earlier lenders even though at the time he had not yet signed the loan agreements with FPF or the Plaintiff. It was only in that sense that he found himself “trapped” on 4 May 2012 such that he had “little choice” but to take up the loans from FPF and the Plaintiff on the Revised Terms. Evidently, legally and commercially, he had a choice before signing any contractual documents as to whether to borrow money from the Plaintiff on the Revised Terms, or not.

43.  Thus, in my judgment, in offering the Revised Terms on 4 May 2012, the Plaintiff was conducting its commercial activities within its rights, and was not coercing, oppressing, unfairly or unconscionably manipulating or tricking the Defendant. The so-called difficulty, dilemma or even detriment the Defendant “found himself in” was the Defendant’s own making, and the Plaintiff should not be visited with any fault.

44.  The Defendant in oral evidence confirmed that he did not have any other allegation of improper conducts against Chan or the Plaintiff that substantiated his Impropriety Complaint.

45.  On 4 May 2012, (a) the Plaintiff provided a bridging loan to the Defendant in the amount of HK$150,000 (nothing turned on the existence of this bridging loan), (b) the Defendant executed the Legal Charge, and (c) HK$40,000 was paid to FPF.

46.  Regarding the HK$40,000, the Defendant all along said that it was a “set-up charge” and insinuated that it was wrongfully charged and received by FPF as someone acting in collusion with the Plaintiff. At some point, the Defendant argued that the HK$40,000 should be counted as interest for the purpose of calculating the effective rate of interest. However, as seen from the receipt dated 4 May 2012 issued by FPF[10] only now proffered by the Defendant, the sum was stated to be in payment of “set-up & Legal Fee”. In oral evidence, the Defendant confirmed, and I find, that the sum was for the payment of all legal fees in relation to the Loan and the loan to be made by FPF, including all the legal costs and disbursements relating to the Legal Charge and another legal charge executed also on 24 May 2012 in favour of FPF.

47.  More than that, in oral evidence, the Defendant volunteered the evidence that at the time he considered the lump-sum of HK$40,000 as an amount covering all such legal fees and other fees, disbursements and costs “a good deal”. I so find based on his own evidence.

48.  I pause to immediately note that it meant that the Defendant had been presenting a picture about this “set-up charge” to the court which he knew was not entirely true and over which he had hitherto had not produced the said receipt.

49.  On 24 May 2012, the Defendant signed all the documents in relation to the Loan.

50.  On the same occasion, he also signed other documents in relation to another loan made to him by FPF in the amount of HK$700,000. As mentioned, another legal charge in favour of FPF to secure this loan was also executed on that day.

51.  Notably, in oral evidence, the Defendant readily accepted, and I find, that he was given ample time to read all the documents, including the Loan Agreement, the Supplemental Agreement, 附加條, 確認書 and the Memorandum. In fact, he went on to confirm that the date on a number of these documents were hand-written by him, so was the number of post-dated cheques he promised to deposit with the Plaintiff for the purpose of paying the coming monthly interest payment as stated on 確認書. I so find.

52.  I also find that he was able to, and was given the opportunity to, fully understand the contents of the Supplemental Agreement, 附加條款 and 確認書, the terms contained in which have not been referred to or set out in the Memorandum. I also find, as was the Defendant’s own evidence, that there was negotiation on the Preferential Interest with the Plaintiff such that the Plaintiff agreed to give the Defendant a grace period of 5 days as provided in the Preferential Interest Clause.

53.  The Loan was drawn down on that day through the payments made by a number of cheques paying off the said bridging loan, the debts and other costs owed to, and relating to the discharge of, the 2 earlier loans.

54.  In oral evidence, Wong also told the court that the Plaintiff has been paying the Government rent and rates charged on the Property in the last 3 to 4 years, as the Plaintiff had an interest in the Property as a chargee and the Defendant did not pay or refused to pay the same. This were not disputed by the Defendant. I so find. I do not accept the Defendant’s explanation given in oral evidence that he did not pay the same because he was not notified. Clearly, the demands for the same would have been mailed by the Government to the address of the registered owner or the Property. In any case, as such a sophisticated person, the Defendant clearly knew that he had an obligation to pay the same and that it was his duty to obtain the demands for Government Rent and Rates or to enquire if the same were not received. I find that, rather, he had refused to pay and let the incidence of paying fall on the Plaintiff.

55.  I also find, as was not disputed by the Defendant, that at all material times to date the Defendant has been occupying the Property as his residence.

The Impropriety Complaint

56.  By reason of my findings above, I find the Impropriety Complaint not proved.

57.  The Defendant also complained that there was a “split lender plot”, among others, by having Chan, who was associated with FPF, performed all the objectionable acts, thereby the Plaintiff could distant itself from them, and so on. I find that there is no substance in such accusations. Rather, I accept Wong’s evidence that the total amount of loan of HK$5,700,000 was split into 2 loans as FPF found itself unable (or unwilling) to take up the entire loan.

The Unjustified Demand Complaint

58.  The Defendant also complained that the Plaintiff demanded an excessive amount of interest in (a) P’s Demand Letter, demanding interest from default up to 16 March 2014 in the amount of HK$1,158,794.52, and (b) in the affirmation of Wong filed on 18 March 2015 at §9 calculating interest using 21.6% retrospectively concerning even the periods prior to the occurrence of default (over which period the Preferential Interest had been paid).

59.  Mr Hariman on behalf of the Plaintiff admitted and confirmed at the outset that the calculation of the interest on the said 2 instances were wrong, and was at the time based on a mistaken understanding of the Preferential Interest Clause. Wong readily and unequivocally confirmed the same mistake in oral evidence. Mr Hariman also pointed out that the mistaken calculation had not been pursued before the learned Recorder, or before the CA, and clearly has not been pursued for the purpose of this trial.

60.  The Defendant in gist complained that these unjustifiable demands caused him tremendous financial pressure and even financial ruin.

61.  I find such complaint an exaggeration and there is no substance in it.

62.  It is common ground that up to and until the Defendant’s default in paying the monthly payment on 24 February 2014, he was contractually only required to pay the monthly interest payment of HK$40,000 based on the Preferential Interest. It was upon his default on 24 February 2014, and after the grace period of 5 days had lapsed, that he was required to pay interest at the rate of 1.8% per month. It is common ground that 4 days before he defaulted his payment, on 20 February 2014, that the Defendant petitioned for his own bankruptcy.

63.  Therefore, he had already petitioned for his own bankruptcy about a month prior to the date of P’s Demand Letter. It is simply absurd to claim that the excessive demand made by P’s Demand Letter ruined him financially, not to mention the subsequent excessive demand.

64.  I dismiss the Unjustified Demand Complaint completely as baseless accusations against the Plaintiff.

Breaches of the MLO

65.  As said, the breach of section 18 is admitted.

66.  The fact that section 22(1)(c) was breached was not seriously contested in the Plaintiff’s closing submissions. I accept that section 22(1)(c) was breached in that by the Preferential Interest Clause, interest at a higher rate was charged upon default. I hold that the fact that the lower rate was in fact given as, or being referred to as, a preferential rate is neither here nor there for the purpose of section 22(1)(c).

67.  However, I do not think it was also breached by the inclusion of the Additional Interest Clause which does not specify the rate of the “additional interest”. Section 22(1)(c) made a loan agreement illegal “if it provides directly or indirectly for … the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement” (my emphasis). As the focus of the sub-section was on “the rate or amount of interest being increased”, one therefore first looks at whether the offending provision provided for an increased rate of interest or an increased amount of interest. Absent such a specific increase, the Additional Interest Clause, therefore in my view, was not caught by the sub-section. My above view is premised upon my further view that the Additional Interest Clause, in the context of a loan agreement falling within the MLO, would be construed as having no real effect for the same reason that it does not specify a rate or amount.

68.  I do not accept Mr Hariman’s submission that Chan (and therefore FPF) was not a person acting in collusion with the Plaintiff within the meaning of section 27 of the MLO. It is trite that “acting in collusion” for the purpose of this section means “playing the same game”. Based on my finding above that Chan acted for FPF as well as the Plaintiff in negotiating the 2 loans, that the Loan was referred to the Plaintiff by FPF, and further (as pointed out by the Defendant, which I find) that the two sets of loan documents used respectively by the Plaintiff and FPF for the present 2 loans were basically identical, I have no hesitation in concluding that Chan and/or FPF acted in collusion with the Plaintiff. As the HK$40,000 was indeed received by FPF, I find section 27 breached.

69.  Though the Plaintiff breached these sections of the MLO, and having found the facts above narrated and in light of all the circumstances, I have no hesitation in accepting Mr Hariman’s submission that these breaches occurred because the Plaintiff had not been careful in complying with the MLO, and that the breaches were not intentional, and particularly not being intentional attempts on the part of the Plaintiff to evade the various controls imposed by the MLO, or to flout or circumvent the MLO by hiding or misrepresenting certain provisions or liabilities thereby to deceive or harm the borrower. I so accept because

a.  According to the Defendant’s evidence, which I accept, the Revised Terms had been drawn to his attention and/or discussed with him on 4 May 2012, which was 20 days before the actual signing of the Loan Agreement and other relevant documents on 24 May 2012;

b.  The additional provisions contained in the Supplemental Agreement, 附加條款 and 確認書 (and not set out in the Memorandum) had been clearly set out in the said 3 documents themselves;

c.  The Defendant was given time and full opportunities to read and consider the same before he signed them;

d.  The interest rate of 21.6% per annum chargeable upon default in the stead of the Preferential Interest, in my view, was not unreasonably high, and a grace period of 5 days was also agreed upon by the Plaintiff before the higher default rate would become applicable;

e.  I do not find that the Preferential Interest Clause was meant to be a purposeful disguise to enable the Plaintiff to secretly or improperly charge default interest, as such an arrangement on the interest rate had been drawn to the Defendant’s attention on 4 May 2012, discussed between the parties, and the Defendant given ample time to consider;

f.  The HK$40,000 paid to FPF was, per the Defendant, a good deal. A formal receipt has been issued to the Defendant for it and the sum indeed covered the legal costs and disbursements and other charges; and

g.  I do not accept the Defendant’s Impropriety Complaint.

70.  In the premises, it is very clear to me, and I so hold against the Defendant’s contention, that the Loan transaction was not an extortionate transaction within the meaning of section 25 of the MLO.

Not Inequitable to Enforce the Legal Charge

71.  In considering how the discretion is to be exercised in respect of the enforcement of the Legal Charge under section 18(3) and 22(2), I fully and respectfully agree with the analysis of the learned Recorder when he considered the same in respect of the Loan (at §§46 to 47 of the Recorder’s Judgment), which in my judgment, applies equally in respect of the Legal Charge:

a.  The HK$5,000,000 was actually lent to and received by the Defendant, the majority part of which was used to discharge the 2 earlier loans and securities. The Defendant thus did receive the actual use of and benefit therefrom; and

b.  The Defendant was an experienced banker and a sophisticated person. Clearly and as I found, he was fully aware of the terms in the 3 other documents and their implications, though those terms were not contained in the Memorandum. The contravention of section 18 created no real prejudice on him.

72.  Moreover,

a.  As I find, the Defendant had had ample time to consider before deciding whether to enter into the loan arrangement.

b.  The “set-up charge” of HK$40,000 the Defendant paid in fact conferred real and substantial benefit to him.

c.  I find the Plaintiff’s breaches were not intentional attempts to evade the various controls imposed by the MLO or to deceive or harm the Defendant.

d.  The Plaintiff paid the Government rent and rates of the Property and the Defendant has been deriving benefit therefrom.

73.  These matters lean in favour of holding that it is not inequitable to enforce the Legal Charge.

74.  Furthermore, I consider the fore-going by the Plaintiff of part of the principal and the substantial interest at contractual rate as aforesaid a very relevant consideration in allowing the enforcement of the Legal Charge at the limited extent. That would be particularly so in relation to the discretion under section 22(2), the function of which, as observed by Chan PJ in Strong Offer Investment Limited, is to provide protection to borrowers from a contractual requirement to pay compound interest or other interest which is not permitted under the provisions of the MLO.

75.  In the round, I have no hesitation to conclude that it is not inequitable for the Plaintiff to enforce the Legal Charge at such a limited extent.

Disposal

76.  In the premises, I grant judgment to the Plaintiff and order that the Legal Charge be enforceable by the Plaintiff against the Defendant up to the amount of HK$4,160,000 with interest at judgement rate from 12 August 2016 until full payment and with the costs of this action.

77.  I also make an order for possession that within 28 days after this order is served on him the Defendant do deliver up to the Plaintiff vacant possession of the Property.

78.  At the end of the closing submissions, Mr Hariman on behalf of the Plaintiff informed this court that the Plaintiff would seek the costs of this action to be paid by the Defendant, for the costs incurred before the CA Judgment to be taxed on party-and-party basis, even though under Clause 5.3 of the Loan Agreement the Plaintiff is entitled to costs at solicitor and own client basis, and costs incurred thereafter at solicitor and own client basis. I provisionally consider the suggested costs order fair and appropriate. I so order on nisi basis which will become absolute in 14 days unless any party applies by summons to vary.

79.  I thank Mr Hariman for his assistance.