Honip Credit Ltd v. Tang Wing Hong and Another

HCMP 393/2017

[2018] HKCFI 56

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCCEEDINGS NO. 393 OF 2017

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D E C I S I O N

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INTRODUCTION

1.This is the plaintiff’s Originating Summons issued under Order 88 for an order against the 1^st defendant for (1) payment of all monies due to the plaintiff under a mortgage dated 6 August 2013 (the “1^st Mortgage”) and a second mortgage dated 6 October 2016 (the “2^nd Mortgage”) both in the plaintiff’s favour; and (2) delivery of the vacant possession of the property known as the Remaining Portion of Section B of Lot No.1768 in Demarcation District No.125, Yuen Long (the “Property”) charged by the 1^st defendant to the plaintiff in respect of the monies advanced thereunder.  The plaintiff also seeks an order against the 2^nd defendant as a guarantor under a Guarantee dated 13 October 2016 (the “Guarantee”) to secure the repayment of monies by the 1^st defendant.

PLAINTIFF’S EVIDENCE

2.The plaintiff is a registered money-lender.  By the 1^st Mortgage and the 2^nd Mortgage both in the plaintiff’s favour, the 1^st defendant charged the Property up to HK$5,300,000 and HK$1,500,000 respectively.  Further, the 1^st defendant as the mortgagor of the Property covenants with the plaintiff to pay on demand to the plaintiff all sums of money and charged the Property to the plaintiff as security for the payment.  Shortly after the 2^nd Mortgage, the plaintiff as lender and the 1^st defendant as borrower entered into a loan agreement dated 13 October 2016 (the “Loan Agreement”) for a sum of HK$6,466,639.00 (the “Loan”) together with interest at 24% per annum by 12 monthly instalments.  Further, by the Loan Agreement, the 1^st defendant agreed to charge the Property to the plaintiff as security for prompt repayment thereunder.  The 1^st defendant did not make the monthly payment under the Loan Agreement since 13 November 2016.  Despite the plaintiff’s demand by letter of 19 January 2017, neither the 1^st defendant nor the 2^nd defendant has paid.  In its supporting affirmation filed on 24 March 2017, the outstanding amount worked out by the plaintiff, taking into account the interest on the outstanding amounts as at 23 March 2017, was HK$7,181,761.41.

DEFENDANTS’ DEFENCES

3.The defendants’ position is that the Originating Summons cannot be disposed of on paper, and that I should order it to continue as if begun by writ or cross-examination on affidavits.  Although in their affirmations, the defendants raise various factual allegations in support of their such position, the defendants’ counsel, Mr Eric Chau, has sensibly and realistically relied on the following two grounds only:-

(1)   The Loan Agreement is illegal and thus cannot be enforced by virtue of section 22 of the Money Lenders Ordinance (Cap 163) (the “MLO”).  I shall refer to it as the Moneylenders Defence.

(2)   Further or alternatively, if the Loan Agreement is legal, the outstanding amount as claimed of HK$7,181,761,41 as at 23 March 2017 is inaccurate.  I shall refer to it as the Inaccuracy Defence.

MONEYLENDERS DEFENCE

4.In respect of the Moneylenders Defence, the defendants submit that the Loan Agreement was in fact a device for the plaintiff to charge compound interest, and hence the Loan Agreement provides directly or indirectly for payment of compound interest, thus rendered illegal by section 22 of the MLO.  The defendants further submit that the Loan Agreement is tainted by illegality of a previous loan which was discharged by the Loan, and thus is rendered unenforceable.

5.In support of this defence, the defendants did not adduce any evidence on their own.  In fact, the defendants raised this Moneylenders Defence for the first time in their counsel’s skeleton submissions.  Now, they rely on the plaintiff’s reply affirmation setting out the whole history of borrowing by the 1^st defendant.  In gist:-

(1)   On 6 August 2013, the plaintiff as lender and the 1^st defendant as borrower entered into a loan agreement for a sum of HK$3,700,000 (the “Tang Wing Hong 3.7m Loan”), secured by the 1^st Mortgage.

(2)   On 2 April 2014, the plaintiff as lender and the 1^st defendant as borrower entered into a loan agreement for a sum of HK$4,050,000 (the “Tang Wing Hong 4.05m Loan”).  The HK$4,050,000 under the Tang Wing Hong 4.05m Loan was applied to discharge the Tang Wing Hong 3.7m Loan with interest accrued thereon, with the remaining after the discharge paid to the 1^st defendant in the sum of HK$120,821.40.

(3)   The 1^st defendant did not duly repay.  On the plaintiff’s own evidence, after it commenced a legal action HCMP 376/2016 to recover the Tang Wing Hong 4.05m Loan on 19 February 2016, on 6 October 2016, the plaintiff as lender and the 1^st defendant as borrower entered into a loan agreement for a sum of HK$6,437,567 (the “Tang Wing Hong 6.4m Loan”).  The 2^nd Mortgage was executed on the same day. On the plaintiff’s own evidence, the HK$6,437,567 under the Tang Wing Hong 6.4m Loan was applied to discharge the Tang Wing Hong 4.05m Loan with interest accrued thereon and the legal fees charged by the plaintiff’s solicitors in HCMP 376/2016 to be settled upon the discharge.

(4)   The Loan Agreement was entered into on 13 October 2016 to discharge the Tang Wing Hong 6.4m Loan with interest accrued thereon. 

(5)   Also on 13 October 2016, the 2^nd defendant executed the Guarantee in favour of the plaintiff. 

6.The defendant relies on section 22 of the MLO. It provides:-

“22. Illegal agreements

(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;

…

(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.”

7.The defendants’ argument runs like this: although each of the Loans is not illegal by itself, because the Loan (with interest to be accrued) was applied to discharge the Tang Wing Hong 6.4m Loan with interest already accrued thereon, which in turn was applied to discharge the Tang Wing Hong 4.05m Loan, again, with interest accrued thereon, which in turn was applied to discharge the Tang Wing Hong 3.7m Loan, again, with interest accrued thereon, the Tang Wing Hong 4.05m Loan, the Tang Wing Hong 6.4m Loan and the Loan in fact included interest on interest.  Thus, among others, the Loan Agreement has been rendered or tainted illegal and unenforceable by section 22 of the MLO. 

8.The plaintiff’s counsel, Mr Alvin Tsang, refers me to New Japan Securities International (HK) Ltd v Lim Yiong Lin [1987] HKLR 477, for the proposition that the last of the rolled over loans was recoverable as a new loan, and thus the new loan cannot be regarded as charging interest on interest as contended by Mr Chau.  Mr Chau disagrees, trying to distinguish this case on the basis that after that case, section 22(2) of the MLO was added and thus I should give a more liberal interpretation to section 22(1) of the MLO.  I have no hesitation in rejecting this argument because (a) section 22(1) remains the same; and (b) Mr Chau cannot locate any authority to show that despite that section 22(1) remains unchanged, this would carry some wider meanings upon the addition of section 22(2).

9.Mr Chau also refers me to Wa Lee Finance Co Ltd v Staryork Investment Ltd & ors, unrep, 13 May 2003, upheld by the Court of Appeal in CACV 148/2003.  In that case, the subject loan under the subject loan agreement was not illegal by itself, but because it was used to repay an illegal loan and illegal interest, the judge found that it was a sham and a charade to give effect to the illegal loan agreement, and therefore that the subject loan agreement was tainted by illegality and thus unenforceable. There is of course no quarrel with this trite legal principle that a contract tainted by illegality is unenforceable.  The question here is whether the defendants satisfy me that this Moneylenders Defence has raised any substantial factual issues. 

10.As I mentioned above, in their affirmation the defendants never raised any allegation that the Loan Agreement was a sham for charging compound interest.  Mr Chau confirmed to me at the hearing that he did not contend that the Loans were any sham to defeat the MLO.  Given the state of the evidence before me, I think this concession is realistic and sensible, as the defendants at most could only ask me to see whether simply those various agreements mentioned above constitute sufficient evidential basis to raise any substantial factual issues by way of inference that the Loan Agreement was such a sham and thus illegal, and in assessing the sufficiency, I would have to bear in mind that the allegation of shams was a serious allegation of dishonesty and thus cogent evidence is required. 

11.In the circumstances, I am not satisfied that the Moneylenders Defence has raised any triable issue.

INACCURACY DEFENCE

12.In respect of the Inaccuracy Defence, the defendants refer to the repayments made before the Loan Agreement made on 13 October 2016 and contend that the plaintiff has made mistakes in the calculation of the outstanding amounts under the previous loan agreements.  To succeed in this defence, the defendants have to adduce sufficient evidence to show that there is a triable issue over whether the previous loans were part and parcel of the Loan Agreement to defeat the MLO.  However, there is none.

13.It remains for me to say that Mr Chau confirmed to me, sensibly, that he did not run any defence of misrepresentation.  There being no evidence suggesting any concealment of the correct figures from the defendants at the time of the Loan Agreement, there is no reason why the 1^st defendant would not have known how much he had borrowed and repaid.  Any attempt to run the defence of misrepresentation would be bound to fail.

CONCLUSION

14.In conclusion, the defendants having raised no triable defence, I am satisfied that the plaintiff is entitled to the relief sought under the Originating Summons.  I shall hear submissions on the terms of the Order I am to make and submissions on costs.

Mr. Alvin Tsang, instructed by J. Chan & Lai, for the plaintiff

Mr. Eric Chau, instructed by Cham & Co., for the 1^st and 2^nd defendants