Chan Yuk Bun v. Tsoi Yan Yee Lily and Another

HCA 1153/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1153 OF 2014

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JUDGMENT

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Background

1.In this case, the plaintiff, Madam Chan Yuk Bun, claims against the 1^st defendant, Tsoi Yan Yee Lily, as borrower, and the 2^nd defendant, Wong Chi Fai, as guarantor under four separate written loan agreements (“the Loan Agreements”) pursuant to which the plaintiff advanced four sums of loans to the 1^st defendant and such loans were guaranteed by the 2^nd defendant.

2.There is no dispute that the 1^st defendant and the 2^nd Defendant signed the Loan Agreements as borrower and guarantor and the 1^st defendant did receive the loans (“the Loans”) from the plaintiff.  The details are as follows:

(1)   HK$144,000 was lent to the 1^st defendant on 20 January 2014 with 24 February 2014 as the agreed repayment date.  This loan is interest free.

(2)   HK$500,000 was lent to the 1^st defendant on 27 January 2014 with 27 February 2014 as the agreed repayment date.   The agreed interest is HK$7,500.

(3)   HK$1,100,000 was lent to the 1^st defendant on 1 February 2015 with 1 March 2015 as the agreed repayment date.  The agreed interest is HK$16,500. 

(4)   HK$800,000 was lent to the 1^st defendant on 20 February 2015 with 20 March 2015 as the agreed repayment date.  The agreed interest is HK$20,000.

3.In consideration of the plaintiff agreeing to advance the Loans to the 1^st defendant, the 2^nd defendant signed on the Loan Agreements as the guarantor of the Loans.  To support the Loan Agreements, four post-dated cheques for the respective loan amounts and agreed interest payments were drawn in favour of the plaintiff by one Man Woo Construction Company Limited.  The 1^st defendant signed on behalf of Man Woo Construction Company Limited on the four post-dated cheques.   

4.The plaintiff’s case is a very simple one.  The 1^st defendant and the 2^nd defendant have breached the Loan Agreements and duties as guarantor in that none of the Loans and agreed interest payments have been repaid to the plaintiff despite repeated demands by the plaintiff.  The plaintiff had presented the four post-dated cheques and they had all been dishonoured. 

5.On 30 April 2014, the plaintiff instructed Messrs.  Chung & Kwan, Solicitors, to issue a letter to demand for the repayment of the Loans and the agreed interest payments.   

6.On 12 May 2014, Messrs Jacqueline Ching, Solicitors, replied and asked for copies of the Loan Agreements.  In the said letter, the defendants also requested the plaintiff to withhold legal proceedings pending the provision and perusal of the Loan Agreements.

7.On 21 May 2014, Messrs Chung & Kwan, Solicitors, provided the Loan Agreements to Messrs.  Jacqueline Ching, Solicitors and final notice was given to the defendants to settle the outstanding sums with interest accruing within 5 days failing which a writ of summons would be issued. 

8.Thereafter, there was no reply from Messrs Jacqueline Ching, Solicitors.

9.On 23 June 2014, the plaintiff issued the writ of summons in the present action together with a statement of claim. 

10.On 8 September 2014, the 1^st and 2^nd defendants filed their defence (“the Defence”).  In the Defence, first, the defendants raise the defence that the plaintiff was and is at all material times carrying on a business as a money lender in Hong Kong without a money lender’s licence and as such the Loan Agreements are unenforceable.  (“The Money Lender Licence Issue”)

11.Secondly, the 2^nd defendant also avers that even if the Loan Agreements are valid and enforceable, the 2^nd defendant only signed on the Loan Agreements as a guarantor, but not as a primary obligor.  (“The Guarantor Issue”)

The Money Lender Licence Issue

12.The burden of proof lies squarely on the defendants to prove that, on a balance of probabilities, the plaintiff did, at the material time, carry on a business of money lending which required a money lender’s licence under Section 2 of the Money Lenders Ordinance, Cap 163 of the Laws of Hong Kong. 

13.Whether the plaintiff did carry on a business of money lending is a question of fact.  The test for determining whether a person was carrying on the business of a money lender was whether at the time of the loan, the business of the person was that of making loans, which is a question of fact to be decided by reference to the facts and circumstances of each case (Conroy v Kenny [1999] 1 WLR 1340).  In Chitty on Contracts, Hong Kong Specific Contracts, 5^th Ed at 9-046 the learned editors stated:

“ ‘Moneylenders’. This is defined in s.2(1) of the MLO to mean every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but excluding the persons set out in Pt 1 of Sch. 1 or, in respect of the loans set out in Pt 2 of Sch. 1, those persons who make such loans.

14.At 9-048, the learned editors further stated:

“The identity of the borrower and its relationship with the moneylender has also been a factor considered relevant by the courts in determining whether someone is a moneylender. In Cheung Chow v Cheung Ng Sheong Steven, the plaintiff had advanced a loan to his brother. The court rejected the submission that any loan by a person to another irrespective of his relationship with the borrower and the circumstances in which the loan was made would be caught by the MLO. Accordingly, one would not become a moneylender requiring a licence if one made a loan to a friend or relative free of interest and without security.”

15.At the trial, the 1^st defendant was absent but the 2^nd defendant, her husband, appeared in person.  The Court was told that the 1^st defendant was informed about the trial dates but chose not to appear for reasons which the 2^nd defendant said he was not aware of.

16.Having heard the plaintiff and the 2^nd defendant’s oral testimony and in particular, having read the contemporaneous telephone messages between the plaintiff and the defendants, I have no hesitation to come to the conclusion that the plaintiff at all material times did not carry on a business of money lending.   It is quite clear to me that the plaintiff lent the sums to the 1^st defendant out of her friendship with the 1^st defendant’s mother who was the plaintiff’s primary school friend and indeed her good friend prior to this incident. 

17.I find the plaintiff to be a very honest witness and a person with integrity.  I accept the plaintiff’s evidence that she has never carried on any business, let alone money lending business, in her life.  I also accept her evidence that she did not know word processing and the Loan Agreements were all prepared by the 1^st defendant.  I further accept her evidence that the information as stated in the Loan Agreements including the amounts of interest, repayment dates were all prepared by the 1^st defendant.  All these evidence were not challenged by the 2^nd defendant during the trial.

18.Further, the only evidence that the defendants rely upon to suggest that the plaintiff did carry on a business of money lending was that:

“ The 1^st time the Plaintiff lent money to the 1^st Defendant was around 2009 wherein the Plaintiff lent a total sum of HK$500,000.00. The 1^st Defendant had to pay a monthly interest of HK$7,500 to the Plaintiff until full payment. In total, the 1^st Defendant borrowed from the Plaintiff about 8 times from 2009 onwards, ranging from HK$250,000.00 to HK$1,100,000.00 with interest repayment on every loan. In reality, the Defendants do not convince that the Plaintiff would have lent such large amount of money, in the total sum of HK$2,544,000.00 to the 1^st Defendant in the last four times on that level of friendship.”

(See Answers to the Plaintiff’s Request for Further and Better Particulars of the Defence of the 1^st and 2^nd defendants filed on 30 October 2014)

19.I have no hesitation in rejecting the defendants’ argument.   I cannot see how the plaintiff’s good faith in lending money to the 1^st defendant can somehow be turned against her.  The defendants’ suggestion that because of the large number of times that the plaintiff advanced loans to help the defendants on a friendly basis can somehow turn the plaintiff into a moneylender is both wrong and ungrateful.  I said this because such defence is in sharp contrast with the attitude of the defendants in their telephone messages with the plaintiff where the 1^st defendant expressed gratitude to the plaintiff’s assistance and said that the plaintiff was her most respected person.  The 1^st defendant also asked for forgiveness from the plaintiff.  In a telephone message dated 13 April 2014 at 21:04, the 1^st defendant specifically admitted that it was all her fault in not being able to repay the outstanding loans and interest in good time and asked for further indulgence.   

20.I accept that the Loans originated from money left to the plaintiff by her late husband and out of friendship, the plaintiff loaned the same to the 1^st defendant with the 2^nd defendant as guarantor.  In fact, the 2^nd defendant chose not to cross-examine the plaintiff at all.  No question was put to her at all.  Hence, there are no merits whatsoever in the defence that the plaintiff was carrying on a money lending business.   I find that this is a mere excuse put up by the defendants to delay repayment to the plaintiff, rather unjustly. 

21.The defendants also submit that the plaintiff used the terms “Loan Agreements” in the statement of claim which implies a business relationship.  I again have no hesitation in rejecting such argument as being completely unmeritorious.  The fact that the term “Loan Agreements” was used does not imply that the plaintiff carried on a business of money lending.  This is not to mention that I accept that the Loan Agreements were indeed prepared and drafted by the 1^st defendant. 

22.As to the argument that the interest rates charged were alike to those charged by some of the prevailing banks in Hong Kong, I am of the view that that does not make the plaintiff a person carrying on the business of money lending.

23.To sum up, I find that the plaintiff was not carrying on business as a moneylender at the material time, the Loan Agreements are enforceable, and the defendants are in breach of the same. 

The Guarantor Issue

24.As to the 2^nd defendant’s argument that he only signed on the Loan Agreements as a guarantor but not as a primary obligor, with respect, I do not see how that argument helps the 2^nd defendant.  There is no dispute that the 1^st defendant breached the Loan Agreements and that the 2^nd defendant, as guarantor, has to pay the sums due under the Loan Agreements to the plaintiff which the 2^nd defendant fails to perform. 

25.During the 2^nd defendant’s oral opening submissions, he, for the first time, raised the argument that when he signed as guarantor on the Loan Agreement, he did so under some sort of pressure.  His case is that because he signed the Loan Agreements under pressure, he is not liable as a guarantor.  This court has no difficulty in rejecting such agreement.  First, as Mr. Wu correctly pointed out this is a new defence which has never been pleaded and never been covered in the 2^nd defendant’s witness statement. I agree that it is incredible that if indeed the 2^nd defendant signed the Loan Agreements under some sort of pressure, he would not have informed his solicitors about this important factual matter which he now heavily relies upon.  I do not find that the 2^nd defendant is a credible witness.

26.Secondly, in any event, upon cross-examination, the 2^nd defendant gave evidence that the pressure he was talking about was a pressure that he gave it to himself as he was concerned about the fact that there was a press conference about the 1^st defendant’s business on the very day he signed on the Loan Agreements as the guarantor and if he did not sign, there might be a possibility that the plaintiff would come to the press conference and cause embarrassment to the 1^st defendant.  Whatever was the reason or motive that caused the 2^nd defendant to sign on the Loan Agreements as the guarantor, I accept Mr Wu’s submission that it can in no way amounts to duress and/or under influence which can affect the validity of the Loan Agreements and the obligations of the 2^nd defendant as the guarantor.

27.Finally, as a matter of law, as Steyn LJ (as he then was) said in CTN Cash and Carry Ltd V Gallaher Ltd [1994] 4 All ER 714 at 719 c-d:-

“Outside the field of protected relationships, and in a purely commercial context, it might be a relatively rare case in which ‘lawful act duress’ can be established. And it might be particularly difficult to establish duress if the defendant bona fide considered that his demand was valid. In the complex and changing branch of the law I deliberately refrain from saying ‘never’. But as the law stands, I am satisfied that the defendants’ conduct in this case did not amount to duress”

28.In the circumstances, I also find the 2^nd defendant liable to the plaintiff for the Loans and the respective agreed interest payments. 

Deposition

29.In view of my findings and rulings above, I hereby order that the defendants do forthwith pay to the plaintiff, the sum of HK$2,588,000 with interest on the sum of HK$2,544,000 at 1% above the prime rate as charged by the Hongkong and Shanghai Banking Corporation from the respective agreed repayment dates of the four loans and thereafter at the judgment rate from the date of this judgment.   

30.I also order that the defendants do pay the costs of this action to the plaintiff, on a party to party basis, to be taxed, if not agreed. 

31.Lastly, it remains for me to thank Mr Wu (with him Mr. Lam), counsel for the plaintiff for his helpful assistance to the court. 

Mr Paul WU and Mr. Benjamin LAM instructed by Messrs. Chung & Kwan for the Plaintiff.

1^st Defendant in person, absent.

2^nd Defendant in person, present.