Swiss Finance Mortgage Services Ltd v. Wong Kam Fan and Another

HCA 1244/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1244 OF 2015

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BETWEEN

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J U D G M E N T

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Introduction

1.This is an appeal by the defendants (“Ds”) against Master A Ho’s decision to enter judgment against them for the sum of HK$1.32m plus interest.

2.The plaintiff (“P”) was/is at all times a money lender licensed under the Money Lenders Ordinance, Cap 163 (“MLO”).

3.By a loan agreement dated 17 April 2015 (“Loan Agreement”), P lent to Ds the sum of HK$1.32m with interest thereon at 30% per annum.  The loan was repayable by 12 equal monthly instalments, commencing on 17 May 2015 (“Loan”).  On the same day, Ds also signed a schedule setting out the interest rate, the monthly instalments of interest payable by them, and the date of repayment (“Repayment Schedule”).

4.At the time of entering into the Loan Agreement, Ds disclosed that they were registered owners of a property in Lei Cheng Uk Estate (“Property”) and they signed a letter of declaration to P at the same time as the Loan Agreement, to declare, among other things, all the then credit facility/loan in respect of the Property (“Letter of Declaration”). In the Letter of Declaration, Ds declared that there were : (i) the outstanding balance of principal and interest under a legal charge to Bank of China (Hong Kong) Limited of HK$233,200 (“1^st Mortgage”) and (ii) the outstanding balance under a deed of loan from EGO Finance Limited of HK$900,000 (“2^nd Mortgage”).

5.Pursuant to Clause (5) of the Letter of Declaration, Ds agreed to notify P in writing and to obtain prior written approval from P should there be any change in the information given to P in the Letter of Declaration.

6.However, on 30 April 2015, Ds entered into another loan agreement with one Gain Wealth Global Credit & Investment Limited for an amount of HK$800,000.  Ds failed to notify P in writing or to obtain P’s prior written approval for this loan.

7.Upon discovery, P demanded immediate repayment from Ds on 18 May 2015 the outstanding balance of the Loan with interest.  Despite P’s repeated requests, Ds failed to repay the outstanding balance of the Loan.

8.This led to P issuing the writ herein in June 2015, followed by a summons issued in August 2015 to enter default judgment against Ds (“P’s Summons”).  It was only in December 2015 that Ds issued a summons for leave to file their defence and counterclaim (“D&C”) out of time (“Ds’ Summons”).

9.The two summonses were heard together and on 13 July 2016, Master Ho ordered that final judgment be entered for P, and ordered Ds to pay P the sum of HK$1.32m plus interest and costs.

10.Notwithstanding lodging the appeal, Ds had not applied for any stay of execution of the order.

11.Mr Dennis To appeared for P and Ms Alison Choy appeared for Ds at the appeal before this court.

D’s evidence

12.The 1^st and the 2^nd defendants (respectively “D1” and “D2”) are husband and wife.  Their evidence was that in February 2015 they intended to take out a loan of HK$1.32m from P, and were requested by P’s director, Mr Chan Hoi Leung (“Mr Chan”), to make a total payment of HK$12,000 as legal fees in February and in March 2015.  Thereafter, they met with  Mr Chan on 17 April 2015 (“Meeting”).  Ds had understood that the principal of the Loan would be HK$1.32m and the interest thereon would be HK$33,000 payable per month on the 17^th day of each month and the principal would be repayable in 12 months’ time.  They alleged they were also told to pay handling fees, at 2 % of the principal (“Handling Fees”).

13.According to Ds, at the Meeting:

(i) Mr Chan had already prepared all the necessary documents beforehand;

(ii) Mr Chan did not explain to Ds the contents of the documents before asking them to sign;

(iii) Mr Chan assured them that the signing of the documents was just for formalities;

(iv) Ds were not advised to take independent legal advice;

(v) There was no cooling off period given to Ds to discuss further with their family members and were pressurized to sign everything on spot; and

(vi) Mr Chan told them the cheque was with P’s solicitors Messrs Ho & Associates, and that Ds had to hurry up, sign the documents and to arrive at the solicitors’ office before close of business that day, as the solicitors’ office would not be open the next day which was a Saturday;

(vii) The Meeting only lasted for about 15 to 20 minutes;

(viii) During the Meeting, Mr Chan was informed of Ds’ financial situation, namely Ds were not in employment and had no income and Mr Chan lured them into signing the Loan Agreement.

14.Ds claimed they were feeling pressurized and that after the signing of the documents which they came to know later as the Loan Agreement and the Letter of Declaration[1], Ds immediately went to P’s solicitors’ office and received a cheque for HK$775,100.According to Ds,  this amount was part of the principal of the Loan minus (i) HK$6,000 being further legal fees; and (ii) HK$26,400 being the Handling Fees.

15.It was not quite clear as to how the balance of the Loan was paid, but Ds did not dispute that the balance had been paid by P.

16.Mr Chan had made 5 affirmations on behalf of P. He confirmed that he did explain the contents of the Loan Agreement and the Letter of Declaration to Ds and that he did advise Ds that they were free to instruct their own legal representatives, and that he never pressurized Ds to sign anything or to push them to attend P’s solicitors’ office.  On the other hand, it was Ds who were simply desperate for money and they wished to have the money as soon as possible.

17.Mr Chan said that as the Property was a housing unit under the Home Ownership Scheme, Ds would first need to apply for permission from the Housing Authority before they could mortgage the Property as security for the Loan, and as Ds did not have money, they sought immediate financial assistance from P and P granted them the fund upfront which then became part of the Loan.  Thus, according to P, the HK$26,400 was for “upfront fees” requested by Ds which were comprised of the application fees of HK$3,860 and the legal fees to arrange for the said application of HK$22,540.

Draft D & C

18.Ds’ proposed defence in the draft D & C is mainly as follows:

(i) The Loan Agreement was in breach of the provisions of the MLO, rendering it illegal and unenforceable;

(ii) P exerted undue influence on Ds at the time of entering into the Loan Agreement which rendered it void ab initio;

(iii) P was in breach of the Unconscionable Contracts Ordinance, Cap 458 (“UCO”) which rendered the Loan Agreement illegal and unenforceable.

19.In Ds’ proposed counterclaim, they sought, among other things, a declaration that the Loan Agreement was void and further sought damages for nuisance.

General Legal Principles

20.It is trite that an appeal from the Master is dealt with by way of an actual rehearing of the application and that while this court may give weight to the Master’s decision, this court is not bound by the decision.

21.There is no dispute to the general legal principles in relation to an appeal from a Master’s decision.

22.I will consider first Ds’ allegations of undue influence and/or breach of UCO. 

Undue influence and/or UCO

23.It was Ms Choy’s submission that the common law of equitable doctrine of undue influence has now been “subsumed” under section 6(1)(d) of the UCO, and Ms Choy relied on Chitty on Contracts, Hong Kong Specific Contracts, 3^rd Ed, where it is stated that it is recognised by Hong Kong courts that while equity also affords the court with power to grant relief on the ground of unconscionableness, the new power given to the court by the UCO is much wider[2].

24.Ms Choy further referred this court to Hang Seng Credit Ltd & Ors v Tsang Nga Lee & Ors [2000] 3 HKLRD 33 and the factors listed out therein for consideration in relation to unconscionability.

25.Section 6(1) of the UCO provides:

“(1) In determining whether a contract or part of a contract was unconscionable in the circumstances relating to the contract at the time it was made, the court may have regard to (among other things) –

(a) the relative strengths of the bargaining positions of the consumer and the other party;

(b) whether, as a result of conduct engaged in by the other party, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party;

(c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services;

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the other party or a person acting on behalf of the other party or a person acting on behalf of the other party in relation to the supply or possible supply of the goods or services; and

(e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the other party.

(2) In determining whether a contract or part of a contract was unconscionable in the circumstances relating to the contract at the time it was made-the court shall not have regards to my unconscionability arising from circumstances that were not reasonably foreseeable at the time the contract was made; and the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this Ordinance.  In considering the exercise of its powers under section 5 to grant relief in respect of a contract or part of a contract found to be unconscionable, the court may have regards to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made.”

26.The UCO came into effect on 20 October 1996.  Although accept section 6(1) is wider and sets out a number of factors including undue influence, there is no authority from Ms Choy to the effect that the common law principles no longer need to be considered.

27.As pointed out by Mr To, the Court of Appeal in Tong Kwok Cheong and Tong Wai Lin [2014] 1 HKLRD 339, applying the statements of law laid down by the Privy Council in Boustany v Pigott (1995) 69 P & CR 298, had held that, generally speaking, the burden rested on the party who sought relief to establish an unconscionable bargain by showing objectionable terms and some moral culpability or impropriety of the stronger party in taking an unconscientious advantage of a disabling condition or circumstances[3].

28.As for undue influence, as seen in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773 and Li Sau Ying and Bank of China (Hong Kong ) Ltd (2004) 7 HKCFAR 579, there are two major classes for undue inference.  Class 1 is actual undue influence and Class 2 consists of cases of presumed undue influence and is sub-divided into Class 2(A) of a relationship where a presumption arises as a matter of law and Class 2(B) when there is no such relationship.

29.Ds were essentially relying on Class 1 in their proposed defence, which means it would be necessary for them to prove affirmatively that they entered into the impugned transaction not of their own free will but as a result of actual undue influence exerted against them.

30.Having considered all the evidence, I am of the view that Ds have not been able to make out a triable issue on the proposed defence of undue influence and/or unconscionability, for reasons including the following :-

(i) I accept that the blank Loan Agreement appeared to be P’s standard agreement consisting of two pages, the 1^st page with clauses in English followed by a 2^nd page, the top part, with the standard clauses in Chinese, and the bottom part setting out in summary the provisions of sections 18(i) and 54 of the MLO in both English and Chinese, and I accept such standard agreement would be prepared with P’s interest in mind; however, money lending business must be conducted subject to the MLO, which contains various provisions governing the terms of lending by a money lender. I accept what was submitted by Mr To that the bargaining position and the standard form agreement of P have to a certain extent been restricted by the MLO and this should not give rise to any special disability or situation of disadvantage on the part of Ds[4];

(ii) The evidence showed that it was Ds who approached P for a loan and there was no evidence to indicate that they were not aware that P was a money lender; Ds’ own evidence was they had intended to take out the Loan from P in February 2015 and they paid P on about 25 February 2015 a sum of HK$6,000 for legal fees for the preparation of the documents, and on 18 March 2015, they paid another sum of HK$6,000 as legal fees.  They did not sign the Loan Agreement and other documents until 17 April 2015, some 7 weeks later after they paid the first HK$6,000.  In my view, they had had plenty of time to consider the matter and/or to obtain independent legal advice had they wanted to and/or to approach a licensed bank with a much lower interest rate;

(iii) From the Land Registry record of the Property, as set out earlier, Ds had already borrowed one loan under the 1^st Mortgage from a licensed bank, and further they had borrowed another loan from a finance company EOG Finance Limited under the 2^nd Mortgage, and had in fact executed two deed of loans with this finance company, and in my view, they were experienced borrowers;

(iv) D1 is retired and D2 is a housewife and both of them were 60 odd years of age at the time of signing the Loan Agreement. However, as submitted by Mr To, this would not mean that they are unsophisticated or that any transaction done with them would be unconscionable per se.  D1 was born in 1952 and he used to work in the logistics industry.  There was no evidence that Ds are uneducated such that they did not understand the terms of the Loan Agreement.  In fact, D1 admitted in his own affirmation that he and D2 understood they would be borrowing an amount of HK$1.32m and that the interest payable per month would be HK$33,000 on the 17^th day of each month.[5]

(v) Although D1 claimed that he and D2 did not read English, Mr Chan had said that the contents of the Loan Agreement and other documents had been read to them before the signing of the same.  In any event, even if this was disputed, as mentioned earlier, the Loan Agreement had a 2^nd page, or a separate page with a Chinese part and the relevant provisions of MLO, which had been signed by Ds, and even though this page did not contain Chinese versions of Clauses 10 and 11 of the Loan Agreement and that Ds claimed no knowledge of those clauses, they should at least be able to understand all the other relevant clauses in the Loan Agreement. 

(vi) The Loan Agreement was also accompanied by the Repayment Schedule, which was in Chinese and separately signed by Ds, which clearly indicated the principal of the Loan, the terms of the Loan, including monthly interest of 2.5%/annual interest of 30%, monthly amount of interest and date of payment of each monthly instalment commencing from 17 May 2015; Ds must be fully aware of the interest and the repayment terms of the Loan;

(vii) The Letter of Declaration was in Chinese and signed by Ds, and again they must be fully aware of the contents thereof;

(viii) There was no complaint about the size of the fonts printed on the Loan Agreement, the Letter of Declaration and/or the Repayment Schedule from Ds;

(ix) Further, on Ds’ own evidence, they were accompanied by one of their sons Mr Wong Ka Yin at the Meeting, and there was no independent evidence from their son as to any conduct on P’s part.  There was no sufficient evidence of conduct engaged by Mr Chan of P that Ds were required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of P;

(x) There was evidence from Mr Chan that Ds had been advised to consult independent legal advice before signing the Loan Agreement.  Even if this was disputed, as I have said earlier, there was a time lapse from when they formed the intention to borrow from P and the date of they actually signing the Loan Agreement and the Letter of Declaration.

(xi) The interest rate of 30 % per annum under the Loan Agreement was within the permissible ambit under the MLO.  As pointed out by Master Lai in Freeway Finance Company Limited v Lai Sau Kei, unrep, HCA 561/2014, 28 June 2016[6], such interest rate would not per se render the transaction unconscionable.

31.In fact, Ds did pay two instalments of interest. There were 3 receipts respectively of HK$20,000 on 19 May 2015, HK$13,000 on 20 May 2015, and HK$33,000 on 17 August 2015 indicating Ds’ payments of interests.  This further confirmed that they knew of the interest rate and the monthly instalment.  The first payment of interest was one month after Ds signed the Loan Agreement, and there had been adequate time for Ds to find out all the terms and/or to reflect on the Loan Agreement even if as they claimed, they were not aware of what they signed at time of signing.  In fact, the 1^st and 2^nd payments of interest were immediately after P had sent its demand letter and the 3^rd payment of interest was after P’s Summons was issued.  There was no evidence that Ds had raised any queries on the Loan Agreement or any matters in relation to P’s conduct.

32.Having considered all the evidence, I do not see any sufficient evidence that P had knowingly taken advantage of Ds’ vulnerability, nor could the terms of the Loan Agreement be said to be oppressive or that Ds were suffering from a bargaining disadvantage.  I do not see sufficient evidence to support Ds’ allegation that P had exerted undue influence on Ds or that P had engaged in any unconscionable conduct in inducing Ds in signing the Loan Agreement.

Breach of MLO

33.Ds relied on sections 21, 22, and 27 of MLO for their main ground of defence.

34.Section 21(1) of MLO sets out as follows:

“(1) A borrower under any agreement for the loan of money by a money lender shall be entitled at any time by notice in writing to the money lender and the payment to the money lender of all amounts payable as principal by the borrower which are outstanding under the agreement, together with interest computed up to the date of such payment, to discharge his indebtedness under the agreement:

Provided that the effective rate of such interest shall not exceed the effective rate at which interest would have been payable under the agreement if the borrower had not exercised his right under this section to discharge his indebtedness.”

35.Ms Choy submitted on behalf of Ds that Clause 10 of the Loan Agreement which allowed Ds to make early repayment of the whole or part of the principal at any time subject to two mandatory conditions was in contravention of section 21(1) above.

36.The two mandatory conditions were:

(i) Ds must give P one month’s notice in writing; and

(ii) Ds must pay P a sum equivalent to 6 months’ interest on the Loan principal.

37.However, as pointed out by Mr To, the present case is not a case where Ds seek an early repayment of the Loan principal, in which case it may be arguable that the provisions of Clause 10 and/or the two conditions may not be effective, as seen from Chitty on Contracts, Hong Kong Specific Contracts, 3^rd Ed[7].

38.In any event, even if Clause 10 was in contravention of section, I accept the submission of Mr To that section 21 of MLO is a right-conferring provision and it guarantees the borrower a right to early repayment, and a contravention of section 21 does not render the entire Loan Agreement void for illegality.

39.Ms Choy further submitted that Clause 11 of the Loan Agreement was in contravention of section 22 of MLO.  Clause 11 states :

“In the event of default of payment by the Borrowers and without prejudice to all other rights under the said Loan Agreement, we as the Lender reserve all rights to charge default interest at the rate of 4% per month on the outstanding loan and overdue interest (if any).”

40.Section 22 provided that:

“(1) Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for-

(a) the payment of compound interest;

(b) prohibiting the repayment of the loan by instalments; or

(c) the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement:

Provided that provision may be made by any such agreement that if default is made in the payment upon the due date of any sum payable to the money lender under the agreement, whether in respect of principal or interest, the money lender shall be entitled, subject to Part IV, to charge simple interest on that sum from the date of the default until the sum is paid at an effective rate not exceeding the effective rate payable in respect of the principal apart from any default, and any interest so charged shall not be reckoned for the purposes of this Ordinance as part of the interest charged in respect of the loan.

(2) Notwithstanding subsection (1), if the court before which the legality of any agreement comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement which does not comply with this section should be held to be unenforceable, the court may order that such agreement is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.”

41.Ms Choy submitted that Clause 11 of the Loan Agreement was clearly in contravention of section 22(1)(c) of MLO, in providing for the charging of default interest rate above the agreed lending rate.

42.Mr To conceded that Clause 11 of the Loan Agreement was in contravention of section 22 (1)(c) of MLO but submitted that in light of the overall circumstances of the case the court is entitled to exercise its discretion to enforce the Loan Agreement with suitable variations, modifications and exceptions as this court thinks equitable.

43.I will consider the question of discretion later in the judgment.

44.I now turn to Ms Choy’s submission that the Handling Fees collected by P were in contravention of s 27 of MLO.  Section 27 provides that:

“(1) Any agreement entered into between a money lender and a borrower or intending borrower for the payment by the borrower or intending borrower to the money lender of any sum for or on account of costs, charges or expenses (other than stamp duties or similar duties) incidental to or relating to the negotiations for or the granting of the loan or proposed loan or the guaranteeing or securing of the repayment thereof shall be illegal.

(2) (repealed)

(3) Subject to section 33A(5), it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof.

(4) If any money or money's worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount or value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the money lender or a partner, employer, employee, principal or agent of the money lender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly) or may be recovered by the borrower from such person or from the money lender.”

45.Ms Choy submitted that the Handling Fees were charged “for or in connection with or preliminary to procuring, negotiating or obtaining any loan made”, thus by virtue of s 27(1) the agreement shall be illegal, and by virtue of s 27(3), P’s act of receiving the Handling Fees shall be unlawful.

46.Further, Ms Choy submitted that once the Loan Agreement was in contravention of s 27 and was thus illegal, the Court would not have any residual discretion as in s 22 to enforce the agreement notwithstanding the breach.  She also submitted that if the Court were not minded to treat the sum of HK$26,400 as Handling Fees, such sum should not be treated as loan principal as suggested by P either.  In any event, it was her submission that the matter should be resolved at a full trial.

47.As mentioned earlier, Mr Chan had said that the sum of HK$26,500 was an upfront payment given to Ds as per their request, and that it was not a handling fee.

48.In any event, there was no stipulation for the payment or a charge of 2% of the principal of the Loan as service fees or handling fees in the Loan Agreement.  There was no evidence as to how the alleged Handling Fee was agreed to by the parties, and there was no receipt or any other payment document to support Ds’ allegation that the sum of HK$26,500 was a handling fee which would fall within the s 27 of MLO. 

49.I agree with Mr To that the allegation was a bare assertion on the part of Ds.

Exercise of discretion

50.Section 22(2) of the MLO states as follows:-

“Notwithstanding subsection (1), if the court before which the legality of any agreement comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement which does not comply with this section should be held to be unenforceable, the court may order that such agreement is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.”

51.Mr To referred this court to Ontone Finance Company Limited v Leung Lai Ching Margaret, HCA 372/2011, unrep,13.08.12.  As held by Le Pichon J, there is nothing in the language of the provision that would preclude the exercise of the wide discretion in Order 14 proceedings. The learned Judge observed that:-

“34. Whether the discretion should be exercised is necessarily fact-sensitive. Clearly regard must be hard to all the facts and circumstances of the particular case. The court must be satisfied it has sufficient evidence before it to warrant the exercise of the discretion.”

52.Mr To submitted that there were authorities which discussed the discretion of the court in the context of section 18(3) of the MLO, the provision of which is substantially similar to section 22(2).

53.Both subsections provide for the same test of whether it would be inequitable not to enforce the loan agreement, and in considering whether to exercise the discretion under the relevant provision under the MLO, the court will genuinely balance the interest of the borrower and the money lender in determining disputes.

54.Further, as observed by Chan PJ in Strong Offer Investment v Nyeu Ting Chuang(2007) 10 HKCFAR 529:

“17. One of the principal objects of the Ordinance is to control and regulate money-lending transactions and to provide protection and relief against excessive interest rates and extortionate stipulations in respect of loans.

…

19. On the other hand, the statute is not intended to stifle genuine money-lending transactions or to let the money lender lose all the money he has lent out and all the security he has because of a failure to comply with all such requirements, however trivial or unintentional the breach may be. Hence, where it is not inequitable to do so, the court would enforce the loan agreement with suitable variations, modifications and exceptions…

…

33. All these are valid criticisms. But the matter does not end there. Such breaches do not automatically disentitle Strong Offer from recovering its loans. The court still has to conduct a balancing exercise having regard to the equities in the case and decide whether it would be inequitable not to enforce the loan agreement…”

55.The Court of Final Appeal in Emperor Finance Ltd v La Belle Fashions Ltd & Ors(2003) 6 HKCFAR 402 has also set out some guidelines as to how such discretion shall be exercised.  Ribeiro PJ observed that[8]:-

“117. The question which therefore arises is whether the Court should exercise its discretion under s18(3) to permit Finance to enforce its claims, wholly or in part, and with or without modification … This discretion can only be exercised if the court is “satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable”.

…

119. In exercising its discretion, the court should examine the breach or 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…”

56.The Court of Final Appeal took into account a wide range of factors relating to the borrower in the above case, including the fact that the borrower in question had not been misled or uncertain about the terms of the loan transaction notwithstanding the fact that she did not receive the memoranda required under section 18.

57.As further submitted by Mr To, the courts had also considered the knowledge and experience of the borrower when deciding whether to exercise their discretion, as in CA Pacific Finance Ltd (in liq) v Tsui Yun Bun Barry (unrep, HCA 632/2005, Reyes J, 20 July 2009)[9]:-

“… it would be inequitable not to enforce the agreement as far as principal amount is concerned. Plainly, [the borrower] realised and understood at the time what a margin facility was and how it operated … I do not think that non-inclusion of the details specified in MLO s 18 would have made any difference to [the borrower]’s decision to open a margin account …”

58.The principles set out above have also been applied in a more recent judgment in Treasure Spot Finance Co Ltd v Li Chik Ming(unrep, HCA 5387/2001, by Mr Recorder Patrick Fung SC, 3 December 2007).  The question before the learned Recorder was how he should exercise his discretion under sections 18(3) and 22(2) of the MLO. To that end, he summarized the principles laid down in the two Court of Final Appeal cases and set out the following guidelines[10]:-

“(i) The discretion given by sections 18(3) and 22(2) to the court is extremely wide and empowers it to look at all the circumstances in a particular case in arriving at an equitable result between the moneylender and the borrower. …

(ii) There is no single circumstance or set of circumstances which is decisive as to how the court should exercise its discretion in a particular case. Each case must be decided on its own facts.

(iii) The court will have to go through a balancing exercise in arriving at a decision …

(iv) The fact that an act or omission by a moneylender constitutes an offence (as provided under section 29(4)) or is specified to be illegal (as provided under section 22(1)) is not a factor which is decisive against the money lender in the exercise of the court’s discretion, otherwise sections 18(3) and 22(2) would be meaningless and even self-contradictory.”

59.In the present case :-

(i) There was no dispute that D1 and D2 intended to borrow a loan of HK$1,320,000. The evidence indicated that Ds were in need of cash.  Otherwise they would not have approached P for financial assistance on their own.

(ii) There was also no dispute that a substantial sum of loan money had in fact been received by Ds.

(iii) Ds had always been fully aware of the terms of the Loan Agreement and were able to recall some of the terms in their own words.

(iv) As mentioned earlier, this was not the first time that Ds borrowed money from financial institutions and they were no stranger to documents like the Loan Agreement.  In fact, as set out above, Ds were experienced borrowers. 

(v) Ds were fully aware of their rights and obligations of the terms of the Loan before entering into the Loan Agreement.  As mentioned earlier, there was a Chinese version of the standard Loan Agreement attached to the English version, which Ds could read and understand.

(vi) As said earlier, they had had time to reflect on the matter after they first approached P and before the day when they signed the Loan Agreement.  If Ds had any query about the terms, they could also have raised it with their son who was with them.

(vii) This was not a case where the money lender took advantage of the borrowers by charging an extortionate or excessive interest rate.  The stipulated contractual interest of 30% under the Loan Agreement is well below 48%, being the ceiling of extortionate interest rate provided under section 25 of the MLO, and also the excessive interest rate at 60% prohibited by section 24.

(viii) There was really no sufficient evidence of any prejudice caused to Ds if the Loan Agreement is to be enforced now.  The reliefs P sought in Ps’ Summons are essentially the outstanding principal of the Loan plus the corresponding interests at the contractual rate.  These are sums which Ds ought to have repaid to P had they not breached the Letter of Declaration and/or the Loan Agreement.  There would not be extra loss caused to Ds as a consequence of enforcing the Loan Agreement.

(ix) On the other hand, if the Loan Agreement were to be held unenforceable, D1 and D2 would be unjustly enriched by being able to keep a substantial amount of money under the Loan Agreement.

60.In light of the overall circumstances, I am prepared to exercise my discretion under section 22 (2) of MLO for the terms of the Loan Agreement to be enforced as sought by P.

Nuisance

61.Ms Choy did not really address this issue in her skeleton submissions.  In any event, this mainly relates to Ds’ counterclaim.  Even if the alleged nuisance could be proved, such would have no bearing on the enforceability of the Loan Agreement.

Conclusion

62.In light of the above, I find that Ds’ appeal has no merits.  I dismiss Ds’ appeal and order that they pay P’s costs of and incidental to this appeal.  I order such costs to be summarily assessed and paid forthwith.  P is to submit a statement of costs within 14 days, and Ds are to lodge their list of objections within 14 days thereafter.

Mr Dennis To, instructed by Kevin L H Kwong & Co, for the plaintiff

Ms Alison Choy, instructed by Mandy Wan & Co, for the 1^st and 2^nd defendants