Celerity Special Situations Fund I, L. P. (Formerly Known As Donglin Special Situations Fund I, L. P.) v. China Linkage International Ltd

HCA 2993/2016

[2018] HKCFI 259

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2993 OF 2016

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D E C I S I O N

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1.China Linkage International Limited (“the defendant”) issued a summons dated 17 July 2017 to set aside the default judgment obtained by Celerity Special Situations Fund I, LP (“the plaintiff”). On 3 March 2017 the plaintiff (upon abandoning its claim for damages) obtained final judgment in favour of the plaintiff in the sum of $40 million with interest at the rate specified in the Loan Agreement and fixed costs. At the conclusion of the hearing, the Decision was reserved which I now give.

Background facts

2.On 16 November 2016, the plaintiff caused its writ to be served on the defendant at the defendant’s registered office in Admiralty Centre, being the address shown in its annual return filed on 14 November 2016. 

3.On the following day, 17 November 2016, the writ was served by registered post but was returned undelivered on 24 November. It was also served by post on the defendant’s directors being Ye Weimin and Chen Yijie (respectively “Ye” and “Chen”) at their respective addresses in the PRC.  On the same day, Chen signed a Notice of Change of Address of Registered Office but which was not filed until 5 December 2016. 

4.On 7 December 2016, the plaintiff made its application to enter default judgment and informed the court of an updated company search showing the change in the address of the registered office made well after service of the writ. 

5.Following the registrar’s inquiry concerning the service (if any) of the Admission Form 16C at the new address, on 16 February 2017, the plaintiff informed the registrar of the steps that had been taken in the interim establishing service of that Form on the defendant at the new address on 16 January 2017.  On 3 March 2017, final judgment was granted. 

6.The defendant seeks to set aside the default judgment obtained on two grounds: (1) the judgment obtained was irregular; and in any event, (2) it would be unjust and unfair in the circumstance to hold that service had been duly effected. 

(1) Whether service on a company at its registered office is good service

7.Ms Choy, counsel for the defendant, submitted that the judgment obtained was not good service and was irregular despite service having been effected on the defendant at its registered office because two days earlier the plaintiff had attempted to locate the defendant’s directors at its registered office which turned out to be a business centre and the plaintiff knew that the directors were not found there. 

8.It is well-established that service on a company at its registered office is good service.  This is the case notwithstanding that the party effecting service knew that the defendant had moved out at the time of service: see AVC Property Development Company Limited v Joyful Grace Trading Limited and another, unreported, CACV 208/2016, 16 June 2017 being the most recent in a line of Court of Appeal decisions since Ho Kwok Wah v Group Jewellery Arts Ltd [2000] 3 HKC 595. 

9.The defendant sought to distinguish the Ho Kwok Wah case on the ground that the facts there were somewhat unique and the decision should not be seen as establishing a general principle.  In my view the distinction sought to be made is not valid and, in any event, the subsequent authorities (such as the AVC case) decided by the same court have re-affirmed the principle that service on a company at its registered office is good service. 

10.It was then submitted that whether the judgment was regular or irregular was not decisive as the ultimate consideration is what is just and fair in the circumstances, the test being whether the defendant company had an opportunity to defend the action, citing Li Ngan Kwan v Gao Li Hui [2007] 4 HKLRD 592 at §§13 and 27. 

11.However, as Rogers VP explained in Wong King Fun v Keywah International Limited,unreported, CACV 7/2009, 27 August 2009 at §8:

“ 8. ... In [the Li Ngan Kwan] case, it had been arranged that any document that was served on the company would be sent straight back to the Plaintiff and so, not surprisingly, A Cheung J, when he gave judgment, said that service should not be regarded as good. One can understand that, because although the documents were sent to the company, if the only person who would receive them would be the Plaintiff because of an arrangement whereby he would get the documents back, that would not be really any intention for the company at its registered office to keep those documents.

9.         Contrast that with this case, where the only place where proper service on the company could be effected would be the registered office. ...”

12.For good measure Mr Chong, counsel for the plaintiff, mentioned additional distinguishing features: Li Ngan Kwan did not concern a Hong Kong company or section 827 of the Companies Ordinance and also, as A Cheung J noted (at §§29 – 30), on the facts of that case there might be two inconsistent judgments as there were two defendants and the 1^st defendant would be defending the claim in any event. 

13.In my view, the defendant’s reliance on Li Ngan Kwan was misplaced.  After service on it of the Admission Form in January 2017, the defendant took no steps to defend the action for approximately two months.  In those circumstances, I have no doubt that service on the defendant was good service and the judgment obtained was a regular judgment. 

(2)     Whether there is a meritorious defence

14.The defendant submitted that it has a meritorious defence under section 25 of the Money Lenders Ordinance (“the MLO”) that has a real prospect of success.  While the presumption in section 25(3) that the rate was extortionate does not apply (the interest rate in the present case being 36%), it was submitted that the rate is nonetheless extortionate in the circumstances and the transaction should be re-opened to see if its terms are fair and reasonable having regard to the factors set out in subsections (4) to (6) inclusive of section 25 (“the relevant factors”). 

15.So, it was said, it boils down to a question of statutory interpretation of section 25(3).  The defendant’s stance is that there is jurisdiction for the court to re-open any transaction where the interest rate is below 48% and that on the evidence before the court, the defendant has shown that it has an arguable defence. 

16.The MLO is structured so that loans fall into three categories, namely:

(i) a loan with a rate of 60% or over is illegal and irrecoverable;

(ii) a loan with a rate in excess of 48% but less than 60% is presumed to be extortionate without more, entitling a court to re-open the transaction; and

(iii) a loan with a rate of interest not exceeding 48%. 

17.The plaintiff’s response was two-fold: (a) it is not open to the defendant in the present proceeding to raise the defence now being advanced based on the rate being extortionate; and in any event (b) on the true interpretation of section 25(3), the court has no jurisdiction to re-open a transaction where the rate of interest does not exceed 48%. 

(a) Whether defendant may raise the section 25(3) defence

18.The defendant’s summons was taken out in July 2017 to set aside the default judgment and the plaintiff’s affirmations were directed at the defences raised in the defendant’s affirmations.  The objection is that this defence raised for the first time in the defendant’s written submissions (“the new MLO defence”) is entirely new: it has never been raised in any of the defendant’s affirmations before despite various applications and hearings in the intervening seven months.  

19.The defence under the MLO previously relied upon concerned the question whether the plaintiff was a money lender and not whether the rate was extortionate.  It was submitted that the defendant should not be allowed to raise the new MLO defence now.  It would be unfair as the plaintiff has not had an opportunity to address that issue and to file the necessary evidence.  It is simply too late for the defendant to raise it at this stage. 

20.Having read the affirmations filed in these proceedings, it is clear that the defendant has not once alluded to the interest rate being “extortionate”.  Its defence under the MLO was the old defence based on the allegation that the plaintiff was an unlicensed moneylender and nothing else.  But that old defence has been overtaken by events in that it is now accepted that the plaintiff is entitled to rely on the exception under section 2 of the MLO and Schedule 1(2) which answered the plaintiff’s point taken under the MLO. 

21.In those circumstances, I agree that it is now far too late for the defendant to raise new MLO defence: to permit the defendant to do so would not be fair to the plaintiff as it would be deprived of the opportunity of adducing evidence to show why the rate of 36% was not extortionate. 

(b) The true construction point

22.In any event, as regards the new MLO point (the construction point), the plaintiff’s position is that the court does not have jurisdiction to re-open a transaction where the interest rate does not exceed 48%.  Mr Chong cited three authorities in support: Swiss Finance Mortgage Services Ltd v Wong Kam Fan & Another, HCA 1244/2015, 22 December 2016 at §59(vii); Freeway Finance Co Limited v Lai Sau Kei & Others, HCA 561/2014, 28 June 2016 at §§111 – 112; and Uplink Finance Limited v Lee Sze Tai & Others, DCMP 794/2016, 16 March 2017 at §14. Suffice it to say that there is no reported case of a court re-opening a transaction where the interest rate did not exceed 48%. 

23.While an interest rate in excess of 48% but is below 60% (a category (ii) situation) raises a presumption, that presumption is rebuttable and in determining whether or not the rate of interest is “extortionate”, the court has regard to the relevant factors.  That much is clear.  The issue is whether section 25 (3) gives the court jurisdiction to reopen a transaction at large and “rewrite” the terms of a contract where the rate does not exceed 48%. 

24.The court was referred to the statement as well as an explanation by the Attorney General at the time the bill was introduced as to how the rates of interest were chosen (see Hansard, 28 May 1980 at pp 35 – 36) and to a summary given by an unofficial member during the second reading of the Bill from which the Attorney General did not demur (see Hansard, 25 June 1980, p 933). 

25.Significantly, the following passage from the Attorney General’s explanation (at p 36) throws considerable light on the construction issue:

“ Obviously in the circumstances it is critical that rates of interest are chosen which are high enough not to inhibit ordinary reputable commercial transactions by decent company operating in the personal loan field, and the question of the level at which interest rates become unacceptable was decided by reference to reputable commercial practice in Hong Kong as well as the attitudes taken in other jurisdictions. Most reputable institutions in the personal loan field in Hong Kong charge effective rates of interest between 34% and 44% per annum depending upon the circumstances of the borrower. ... 48% per annum has been chosen as the interest rate rendering a transaction prima facie extortionate and thus giving the court the power to reopen the transaction and adjust the terms. But it is of course envisaged that there may well be circumstances in which interest rates between 48% and 60% fairly and justly may be charged and where accordingly the court will not interfere with that rate.” (Emphasis added)

26.In view of the conclusion reached in §21 above, it becomes unnecessary to express any view on the proper construction of section 25(3).  Nevertheless, were it necessary to do so (in the event that the defendant should be allowed to raise the new MLO defence), I would find in favour of the plaintiff and hold that the court does not have jurisdiction to re-open a transaction under section 25(3) in cases where the interest rate does not exceed 48%. 

27.Accordingly, the defendant’s summons is dismissed.  There is to be an order nisi of costs in favour of the plaintiff, with certificate for counsel. 

Mr Patrick Chong, instructed by Howse Williams Bowers, for the plaintiff

Ms Alison Choy, instructed by Hon & Co, for the defendant