Gain Wealth Global Credit & Investment Ltd v. Lam Hau Kay
Read the full judgment text of DCCJ 2610/2015 on BabelCite. This District Court judgment was delivered on 19 July 2018.
1. This case concerns a claim by the plaintiff money lender against the defendant borrower for a loan of $350,000 at an interest of 36% per annum.
Cited by 11 cases · Cites 4 cases
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DCCJ 2610/2015 [2018] HKDC 796 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 2610 OF 2015 -------------------------
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--------------------- JUDGMENT ---------------------- 1.This case concerns a claim by the plaintiff money lender against the defendant borrower for a loan of $350,000 at an interest of 36% per annum. 2.An unusual feature of this case is that after the loan was drawn down, the defendant paid out the entire sum of the loan to satisfy various fees, charges and costs on account in relation to the loan. As a result, the defendant effectively received nothing after the loan. The plaintiff accepts that the defendant has been deceived by the intermediary. 3.The main issue to be determined in this case is whether an intermediary who introduced the defendant to the plaintiff to obtain the loan ‘colluded’ with the plaintiff in the circumstances, such that a sizeable application fee of $313,000 charged by the intermediary may be set off against the loan under s 27(3)&(4) of the Money Lenders Ordinance (Cap 163)(“MLO”). BACKGROUND 4.The plaintiff was and is a registered money lender under the MLO. 5.The defendant was and is a joint tenant of Flat 2, 21/F, Tin Tun House, Tin King Estate, No 10 Tin King Road, Tuen Mun, New Territories (the “Flat”). The other joint tenant of the Flat was and is his mother. 6.In or around April 2015, the defendant was working as a warehouse clerk earning a salary of about $11,000 per month, and he was indebted to various financial institutions for a total amount of $284,643. 7.On or around 15 to 20 April 2015, the defendant received a cold call from a person holding himself out to be a staff of Standard Chartered Bank, purportedly promoting a low-interest mortgage-free loan. The defendant was informed that this loan could clear all his existing debts and allow him to re-finance his debts at a lower monthly instalment. However, by reason of certain alleged restrictions imposed on the bank in promoting the loan, the person explained that another company would follow up with the defendant on the proposed loan. The defendant expressed his interest and provided his phone number for further contact. 8.On 21 April 2015, the defendant received a call from a person named Peter to follow up on the proposed loan. An appointment was made for the defendant to attend a meeting on 23 April 2015 at an office in Mongkok, which later transpired to be the office of Hong Kong Four Edges Enterprise Limited (“Four Edges”). On the same date, the defendant added Peter as a contact in his WeChat account for text communication. 9.On 22 April 2015, Peter texted the defendant and requested him to bring along various documents to the meeting on the next day for the purpose of the application of the loan, including his ID card copy, address proof, bank statements, TransUnion credit report, tax return, loan records and rates records. 10.On 23 April 2015 at 7 pm, the defendant attended the office of Four Edges, and noted at the entrance of the office the name of the company he was dealing with for the first time. He met Peter who introduced Edward Wong (“Edward”), a senior manager of Four Edges, to him. The defendant provided the documents he brought in support of his loan application to Edward. 11.In the said meeting, Edward explained that he could procure a loan for the defendant such that:-
12.Edward explained to the defendant that no additional fees would be charged by Four Edges for the Re-financing Scheme, and the defendant took it to mean that it had already priced in its fees. 13.On 24 April 2015, Peter texted the defendant to remind him of the provision of the missing bank statements to Edward. The defendant emailed them to Edward on the same date. 14.On 27 April 2015 at 1:29 pm, the defendant was informed by Edward that a bank would be willing to provide the intermediate loan to him. Edward explained that for the intermediate process, a loan of $300,000 for a period of 3 months would be sufficient, and the Re-financing Scheme is therefore changed accordingly. 15.On 29 April 2015, Peter texted the defendant that there would be further news regarding his loan application later in the week or next week. 16.On 4 May 2015, the defendant added Edward to his WhatsApp, and the defendant saved Edward’s phone number in his mobile phone for further contact. 17.On 6 May 2015, the defendant was informed by Edward over the phone that in arranging the intermediate loan, an encumbrance would be created on the Flat. Edward explained that it was a procedural matter to protect the lender and it would not affect the Flat in any way. Edward further requested the defendant to reserve half day on 8 May 2015 to allow a representative of the lender to inspect the Flat and the defendant to sign some documents. 18.On 7 May 2015 at 12:46 pm, a staff of the plaintiff calling from the number 5339 6723 (the “Client’s Line”) contacted the defendant by phone (“P’s Phone Call”) to confirm, inter alia, the arrangement of the Flat inspection on 8 May 2015. After P’s Phone Call, the defendant immediately tried to reach Edward and Peter by phone and/or by text messaging to inform them of the call received from the lender. Peter then texted the defendant and asked him to attend the office of Four Edges on the next day at 11 am. 19.On 8 May 2015 at around 11 am, the defendant attended the office of Four Edges. Edward briefed the defendant as to the Flat inspection and the signing of documents. Peter would accompany the defendant to attend all these events. 20.In the course of this briefing, a clerk of the plaintiff, Chan Wai Lung (“Mr Chan”), called the defendant to urge him to attend the Flat for inspection. The defendant and Peter rushed to the Flat. The defendant opened the door to allow Mr Chan to inspect the Flat. After the inspection, the defendant was asked to sign a record for the Flat inspection. 21.On the same day at 2 pm, the defendant and Peter attended the office of Messrs K B Chau & Co. The defendant attended a conference room with a representative from the plaintiff and a staff of the law firm, while Peter waited at the reception area. Peter asked the defendant not to mention anything about the intermediate process in the signing. Whilst the defendant was in the conference room, the content of the loan documents was succinctly explained to him. Before signing the documents, the defendant went out of the conference room to consult Peter and was reassured by him that there would be no problem for the defendant to sign the documents as they were part and parcel of the Re-financing Scheme. The defendant signed all the documents presented to him, including a loan application form dated 30 April 2015, two loan agreements, various declarations and confirmations, and other miscellaneous documents. The loan as evidenced by the two loan documents both dated 8 May 2015 contains the following key terms:-
22.Among the documents signed, there was a document that required the defendant to promise to repay the Loan in full on or before 15 May 2015 (ie 7 days after the Loan). The document also expressly allowed the plaintiff to take legal action against the defendant should he fail to repay in full on 15 May 2015. 23.There was another document signed by the defendant which authorized the plaintiff to issue the Loan by cheques in the following manner:-
24.Curiously, in the same document, the defendant is asked to confirm that the plaintiff did not charge any fees from the defendant when the plaintiff had plainly charged $7,000 as the upfront or set up fees. 25.The defendant also signed a document entitled ‘Supplemental Declaration’ (附加聲明書) to state his understanding that the loan documents did not create any mortgage against the Flat. However, in the same document, the defendant was asked to declare his understanding that in default of the Loan, the plaintiff has the right to immediately take action to possess the Flat. 26.By an ‘Important Declaration and Notice’ (重要聲明及提示) signed by the defendant, he was asked to confirm, inter alia, that fees charged by the intermediaries had nothing to do with the plaintiff. 27.Upon the signing of all the documents, after deducting the $7,000 fees charged by the plaintiff, the plaintiff issued two cheques. The first cheque was a crossed one, made payable to Messrs H Y Leung & Co in the amount of $30,000. The second cheque was a cash cheque, made payable to the defendant in the amount of $313,000. 28.Having been presented with the cash cheque, the defendant was requested by Peter to cash it immediately and passed the whole sum to him. Peter explained that the sum would be used for the repayment of the intermediate loan. Peter then escorted the defendant to a bank to cash the cheque and received the full amount of $313,000 from the defendant. Peter gave him a printed receipt prepared in advance under the heading of Four Edges with its chop on it, which stated that $313,000 was received from the defendant as an ‘application fee’. 29.On 15 May 2015, the 1st instalment of the Loan was due, and the defendant defaulted on the payment as he expected that it would be Four Edges who would be responsible for the repayment of the Loan. 30.On 17 May 2015, the defendant enquired about the repayment of the Loan and was reassured by Peter that it would be well taken care of. 31.On 21 May 2015, the defendant received a demand letter from the plaintiff. Peter and Edward assured the defendant that it was only a standard letter, and they would take care of it. 32.On 10 June 2015, the writ of summons of this action was taken out. 33.On 12 June 2015, the defendant received a set of court documents regarding these proceedings. The defendant was again reassured by Peter and Edward that they would handle it, and there was nothing to be worried about. Similar assurance was provided by Edward to the defendant from 16 to 21 June 2015. 34.On 22 June 2015, the defendant attended the office of Four Edges and found that it was closed. Both Peter and Edward became unreachable, and the defendant reported the matter to the police. THE PARTIES’ CASES 35.The plaintiff claims that the defendant breached the terms of the Loan by failing to repay its principal and interest. The plaintiff denies any relationship with Four Edges save and except that it referred the defendant to the plaintiff for the application of the Loan. The plaintiff suggests that the relevant staff who was contacted by Four Edges for the referral had left the plaintiff, and there was no record as to their communication, including the name and position of the staff of Four Edges who called. The plaintiff also pleads that it has lost the record of the name(s) and position(s) of its staff who contacted the defendant and handled the Loan application, and does not know the time when its staff contacted the defendant. 36.The defendant relies on s 27(3) of the MLO as the main plank of his case. In essence, he suggests that the plaintiff and Four Edges colluded in running a dishonest scheme in imposing various unlawful charges on him which amounted to the entire Loan, and these charges may be set off against the Loan. The defendant also contends that by taking into account these unlawful charges, the effective interest rate of the Loan goes way beyond the 60% ceiling permitted under s 24 of the MLO, rendering the Loan unenforceable. The defendant further contends that the Loan agreement is illegal under s 22 of the MLO as it provides a heightened interest rate in the event of default. The defendant also suggests that the plaintiff contravened ss 7 and 18 of the MLO as to the provision of the memorandum of the Loan and the place of negotiation for the Loan. 37.In proving collusion under s 27(3) of the MLO, the defendant relies on the steps taken by the plaintiff and Four Edges, both individually and collectively, in the course of procuring, approving, and drawing down the Loan. WITNESSES 38.Leung Kai Chung (“Mr Leung”), the operational manager of the plaintiff, was called to give evidence. He has been the head of operation of the plaintiff, overseeing the business operation of the plaintiff. 39.Importantly, he only joined the plaintiff on 1 November 2015, after the Loan was released on 8 May 2015. He accepted that he could only give evidence as to the general lending practice of the plaintiff after he joined, but not the arrangement of the particular Loan in issue. 40.In fact, as he conceded in live evidence, his knowledge bears little relevance to the lending practice of the plaintiff at the time when the defendant borrowed the Loan. Mr Leung accepted that the procedure and documentary requirements for loan applications with the plaintiff could be materially different at the time before and after his employment with the plaintiff. He accepted that there could be material difference between the way the Loan was obtained and the way he understood how a borrower may obtain a loan from the plaintiff, which was based on his understanding developed after November 2015. When being asked how his evidence could reflect the practice of the plaintiff at the time when the defendant borrowed the Loan, Mr Leung could only reluctantly state that he was assigned by the plaintiff to act as a witness of this case. 41.I therefore place little to no weight on the evidence of Mr Leung insofar as the lending practice of the plaintiff is concerned before 1 November 2015, which in effect covered the material period when the defendant applied for and was granted the Loan. 42.As to the calling of other witnesses, Mr Leung fails to explain why the plaintiff’s ex-employees who had direct contact with the defendant in handling the Loan were not called or subpoenaed. Mr Leung referred to one Leung Wai Kit Ryan (“Ryan”) who had been responsible for communicating with the defendant in relation to the Loan. In fact, Ryan had prepared 2 affirmations in support of the plaintiff’s summary judgment application. On the first day of the trial during examination-in-chief, Mr Leung stated that it was Ryan who filled in the application form of the Loan dated 30 April 2015 (although signed by the defendant on 8 May 2015), and arranged the Flat inspection with the defendant. On the second day of the trial during cross examination, Mr Leung gave evidence that he was not sure if Ryan was the one who followed up with the defendant’s Loan. I reject this part of Mr Leung’s evidence given in the second day of the trial, as it was only changed after Mr Leung had been heavily cross-examined on this during the first day of the trial. Mr Leung also referred to one ‘Law Ming Chi’ (“Mr Law”) who assisted the defendant in signing the relevant documents relating to the Loan on 8 May 2015. 43.It was Mr Leung’s evidence that both Ryan and Mr Law have left the plaintiff. Mr Leung first gave evidence that neither of them could be located, but then admitted that no attempt was made to locate them. Later, he said that the plaintiff did try to locate them but could not find them. He also suggested that even himself had tried to find them, but later told the court that he could not remember. Most tellingly of all is his admission that the plaintiff had detailed record of their personal information when they were first employed. On the first day of trial, the counsel of the defendant, Mr Ho, invited Mr Leung to go back to the office of the plaintiff after court to check their personal information and tried to locate them. On the second day of the trial, Mr Leung gave evidence that when he went back to the office the day before, everyone had left and no one could assist him to search for the relevant information. 44.No reasonable explanation has been provided by the plaintiff as to why the witnesses who could have provided direct evidence as to the procurement of the Loan and the signing of the documents relating to the Loan were not called. I accept that I am entitled to draw adverse inference against the plaintiff as to its communication with the defendant, the arrangement of the Flat inspection and the signing of the Loan documents on 8 May 2015: Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434 at 443E-444C; Hongkong and Shanghai Banking Corp v Chan Yiu Wah [1988] 1 HKLR 457 at 467B-F. 45.As a whole, I find that Mr Leung is an evasive and unreliable witness. He tried very hard to impress the court on the general lending practice of the plaintiff which (he said) must have been applicable to the defendant when he applied for the Loan. However, when being confronted with a signed document dated 8 May 2015 prepared by the plaintiff requiring the defendant to declare that he would repay the entire Loan within 7 days, Mr Leung had no hesitation in saying that he had never seen this kind of documents before and did not understand the lending practice of the plaintiff before he joined. In dealing with the plaintiff’s relationship with Four Edges, Mr Leung was more than prepared to provide an answer that makes no commercial sense. He gave evidence that the plaintiff had no relationship with Four Edges and did not contact it further after the referral, and he did not know of any benefit provided by the plaintiff to Four Edges for its successful referral. Bearing in mind that he has been the head of operation of the plaintiff, he must have possessed a comprehensive understanding of the overall lending practice of the plaintiff, including its relationship with key counterparts such as the intermediaries, from whom the plaintiff obtains more than half of its business. 46.The plaintiff also called Mr Chan Wai Lung (“Mr Chan”) to give evidence. Mr Chan is a clerk of the plaintiff, who has been responsible for conducting property inspections. Mr Chan was the person who conducted the defendant’s Flat inspection. As he explained, the primary purpose of the Flat inspection was to verify the defendant’s identity. However, Mr Chan accepted that, on 8 May 2015, there was more than one person attending the Flat inspection on the part of the defendant, and he took no step to verify the identities of the people attending. He said that all was required from the borrower was that he could use a key to open the door of the Flat. As such, Mr Chan said that he had no idea as to whom the other person was, and whether he was attending on behalf of Four Edges. Mr Chan’s evidence seems to make little sense. If the primary purpose of the Flat inspection was to verify the identity of the defendant being an owner of the Flat, then, who was the person holding the key and opening the door of the Flat would make a lot of difference to the lender. It is inconceivable that Mr Chan would not even check the ID cards of the people attending the Flat inspection and tried to find out who they were, and their relationship with the owner. For instance, other occupants of the Flat may also possess the key, but their opening of the door does not mean that they could be identified as the owner. 47.Mr Chan also gave firm oral evidence that he did not enter the Flat for inspection. However, this contradicted directly with his own witness statement, which stated that he did enter the Flat and recorded its conditions and details. Mr Chan explained that he could not recall as he attended at least a few hundreds of property inspections each year, for 4 to 5 different lenders associated with the plaintiff. I find that Mr Chan’s evidence is unreliable, as he does not appear to have any clear recollection of what happened during the particular Flat inspection attended by the defendant and Peter. 48.The defendant called himself as his only witness. He has been a warehouse clerk with an income of about $11,000 per month (although it was stated to be $12,000 on the loan application form). He had secondary schooling and can read Chinese. He had little difficulties in reading and understanding most of the Loan documents he signed. In cross-examination, his factual case was shown to be largely supported by documentary evidence, in particular, by the telephone and text records. 49.The plaintiff suggested that the defendant’s police statements were not in line with the telephone and text records adduced, especially when they stated that telephone calls, texting and emails were made/sent to Peter and Edward when only around 4 of the 6 sets of communication were actually made. I accepted the defendant’s explanation that it was the police officer who prepared the police statements, and he did not pay enough attention to whether the relevant part of the statements suggest more permutations of contact than what he orally told the police officer. In any event, the discrepancy does not alter the gist of the defendant’s evidence that he tried hard to contact Peter and Edward immediately after he first received a phone call from the defendant on 7 May 2015. 50.The defendant accepted that he could read and did understand that only $313,000 would actually be provided to him by the plaintiff. He also accepted that he would provide $313,000 to Peter in any event, as he was under the impression that Four Edges would serve the Loan as part of the Re-financing Scheme. APPLICABLE LEGAL PRINCIPLES Unlawful charges under s 27 of MLO 51.S 27 of the MLO stipulates that:-
52.By relying on the phrase “in collusion with” under both s 27(3) & (4) of the MLO, the statutory scheme is able to cover the entities who may have a less well-defined relationship with the money lender but nonetheless involved in part of the lending process, such as the intermediaries. However, the term ‘collusion’ is not defined under s 2 of the MLO, and the nature of the requisite ‘collusion’ is unclear. 53.In HKSAR v Wong Kwok Wai (2013) 16 HKCFAR 191, in the context of s 29(10) of the MLO, the defendant was convicted of acting in collusion with a money lender to demand a remuneration or reward for or in connection with or preliminary to procuring, negotiating or obtaining a loan or guaranteeing or securing the repayment thereof. S 29(10) basically sets out the corresponding criminal offence for someone who acts in breach of s 27(3) of the MLO. 54.In Wong Kwok Wai, the borrower went to company A seeking a loan of $15,000. After approval of the loan, she was directed to company B, but was informed by Wong that a loan of only $6,000 was approved and she had to pay $3,600 to company B to guarantee its repayment. A back-out fee of $1,500 would be imposed. The borrower agreed and was escorted to company C to be handed a cheque of $6,000. Having cashed the cheque, the borrower was required to pay an additional $1,500 administrative fee. With a prior payment of $200, the borrower in effect obtained a loan of $700 only but she repaid a total of $6,580. The Appeal Committee of the Court of Final Appeal affirmed the findings of the Magistrate. Bokhary NPJ said at §8:-
55.Tang PJ agreed and added at §11:-
The permanent judge footnoted the phrase ‘playing the same game’ by referring to Famous Zone Electronics Ltd v Hong Kong and Shanghai Banking Corp Ltd [1998] 3 HKC 723,727. 56.Famous Zone concerns a set of interpleader proceedings, and the Court had to decide the meaning of collusion under O 17 r 3(4) of the RHC, in particular, whether the applicant colluded with any of the claimants to the subject-matter. Sakhrani J said at 727F-H:-
57.The morally non-culpable nature of collusion under O17 is based on the unique position of an interpleader, namely, one of impartiality. Sakhrani J in Famous Zone at 727H-728A:-
58.Not infrequently, ‘collusion’ is understood in other context as a ‘deceitful agreement, or compact, between two or more, for the one party to bring an action against the other for some evil purpose’: Stroud’s Judicial Dictionary of Words and Phrase, p 429. 59.By adopting the phrase ‘playing the same game’ and referring to Famous Zone, I am of the view that Tang PJ in Wong Kwok Wai endorsed no more than the short phrase to be applicable in the context of s 29(10) of the MLO. In other words, ‘playing the same game’ under s 29(10) of the MLO does not necessarily entail the non-culpable nature of the collusion. The word ‘collusion’ should be understood in the context of the MLO, and the different facets of ‘playing the same game’ should also be understood accordingly. This is relevant to understanding what is required under s 27(3) of the MLO as to what game is to be played and by whom the game is played. 60.As to what game is to be played, s 27(3) of the MLO refers to the charging, recovering and receiving of any fees, on top of stamp duties or similar charges, by the money lender and other entities for or in connection with the procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan. The game is therefore the stripping away of the borrower’s assets (whether from the loan or otherwise) by imposing additional fees on top of the interest. 61.As to whom the game is played, other than the money lender and others with a more explicit and well-defined relationship with the money lender, the only cue from s 27(3) of the MLO is someone ‘in collusion with any money lender’. 62.In order to understand the word ‘collusion’ under s 27(3) of the MLO and what it entails, the statutory context of the MLO should be examined. The long title of MLO provides:-
63.The objective and intent of s 27(3) is to control and regulate any additional fees, on top of the interest, and stamp duties or similar charges, to be charged by the money lender and other entities concerned in connection with the procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan. Under the long title, these are matters which are viewed as part and parcel to the lending transactions, or matters connected with or incidental to them. 64.S 27(3) provides that it shall not be lawful for money lenders and other entities concerned to impose additional charges, other than stamp duties or similar charges, in connection with the procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan. The clear mischief the provision seeks to remedy is the imposition of charges by the lending side (whether by the money lenders or entities acting with them) on the borrowing side, on top of the interest charged and security provided under the loan. The objective is to protect the borrowers from being imposed these additional fees in the course of obtaining and repaying the loan. 65.As such, the word ‘collusion’ should not be interpreted narrowly. To construe otherwise, an intermediary who somewhat involves in the lending and borrowing process would, by reason of its ambiguous relationship with the lender, fall outside the statutory net and would be able to impose charges on the borrower, which is the evil the Ordinance intends to avoid. 66.This approach is in line with the broad phrase ‘playing the same game’ adopted by Tang PJ in Wong Kwok Wai who also said that it ‘should not be made more complicated’. 67.Although the term ‘collusion’ is often interpreted as ‘agreeing together’ (per Bramwell B, Gill v Continental Gas Co L R 7 Ex 337) or ‘by agreement, or acting in concert’ (Edison General Electric Co v Westminster and Vancouver Tramway Co, etc [1897] A C 193), the broad definition of ‘playing the same game’ does not require any explicit or implicit agreement to be found. 68.In the article entitled The Money Lenders Ordinance by Bob Allcock HKLJ 11 (1981) 293, 332 at footnotes 89, the learned author provided an example of someone ‘connected to’ the money lender who charged a procurement fee on the borrower as an example of a breach of s 27(3). 69.In Ever-Long Finance Ltd v Yeung Wah Lung [2017] 1 HKLRD 500, DDJ Simon Ho said at §90:-
70.In my view, the cooperation may take many forms. The lender and the entities in collusion may act together or separately. They may act simultaneously, or in disjunctive temporal periods. They may act complementarily or supplementarily. They may appear to act independently, but if the arrangement including their roles and conduct taken as a whole is to facilitate the imposition of a charge or the receipt of a sum in connection with the procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan, such conduct should also be caught by the Ordinance. Illegal agreements under s 22 of MLO 71.S 22 of the MLO provides:-
Prohibition of excessive interest rates under s 24 of MLO 72.S 24 of MLO provides:-
DISCUSSION Collusion under s 27 of MLO 73.The plaintiff conceded in its opening and closing submissions that the charging of the following sums is unlawful under s 27(1) and s 27(3) of MLO respectively:-
74.It is clear that as a money lender, the upfront or set up fees charged by the plaintiff is caught by s 27(1) of the MLO as a sum in connection with or preliminary to procuring, negotiating and obtaining of the Loan. 75.As to the payment to Messrs H Y Leung & Co as ‘security money for further legal fee (where applicable)’, it is caught by s 27(3) of the MLO as a sum paid to an agent or a person acting for the plaintiff who held it as costs on account. The defendant gave evidence that no explanation was provided by the plaintiff as to these charges. He was further told by Peter that he could simply ignore them, as under the Re-financing Scheme, Four Edges would fully take care of the repayment of the Loan. Mr Leung gave evidence that these charges were explained to the defendant in P’s Phone Call. 76.However, Mr Leung only joined the plaintiff after P’s Phone Call, and he accepted that the lending practice before and after his employment with the plaintiff could be materially different. I fail to see how he could give any reliable evidence in this regard, especially when it is the plaintiff’s case that the person responsible for communicating with the defendant, Ryan, could not be or had not been located. 77.If Messrs H Y Leung & Co is an agent of or acts for the defendant solely, there would not be any reason why he would have to advance any costs on account when there is nothing in relation to the Loan pending which requires the provision of legal services. It is not the plaintiff’s case that there was any need for further legal services in relation to the Loan. It is inherently improbably that a borrower would set aside a meaningful sum of the loaned amount as costs on account in a law firm for the provision of legal services which was not then foreseeable. This is particularly so when one takes into account the accumulation of interest on this $30,000. The short term of the Loan (ie 1 year) and the expectation of the defendant that it only represented an intermediate process of 3 months make it even more unlikely that the defendant would engage his own agent at that stage. The reasonable inference must be that Messrs H Y Leung & Co was intended as an agent of or acted for the plaintiff or for both the plaintiff and the defendant concerning the Loan should the need arise. The term ‘security money’ adds to the basis of drawing such an inference. There would be no need for the defendant to provide any security for himself, nor would there be any need to provide security to a law firm when there were no foreseeable legal services to be provided. The word ‘security’ should naturally be understood as a security provided to the plaintiff in dealing with future matters concerning the Loan that may require the assistance of lawyers. It is the only sense that the word ‘security’ would carry any relevant meaning. 78.As such, both of the above charges were caught by s 27 of the MLO which trigger the operation of s 27(4). 79.As to the collusion between the plaintiff and Four Edges, I accept that they were playing the same game, and they played roles which were both complimentary and supplementary to the each other in causing the imposition of charges on the defendant. 80.First, I have little hesitation in rejecting the relationship and mode of operation between these two companies as proffered by the plaintiff. 81.There is no dispute that it was the Four Edges who sourced the Loan and referred to the plaintiff for lending. In fact, Mr Leung stated that more than half of the plaintiff’s business came from referrals by intermediaries. Nonetheless, the plaintiff pleaded that it did not contact the ‘introducing entity’ further after it received the Loan referral. The plaintiff went so far to plead that ‘all that the [p]laintiff knew about Four Edges was from a form entitled “Important Declaration and Notice” dated 8 May 2015’. It contends that it had no connection or relationship with Four Edges ‘whatsoever’. 82.Mr Leung did not deny that Four Edges was carrying out the role as an intermediary in the form of a business with a view to generating profit. However, he denied that there would be any sort of benefit or fees provided by the plaintiff to Four Edges upon a successful referral. Mr Leung ventured to suggest that Four Edges may instead charge the applicant of the loan. If it was indeed the case, it would provide no incentive for Four Edges to refer any loan application to the plaintiff in the first place. If by referring the loan application to other lenders, Four Edges would be able to obtain a benefit from them (on top of what it may or may not charge the applicant), Four Edges would unlikely refer any loan application to the plaintiff. The alleged arrangement between Four Edges as an intermediary and the plaintiff as a lender makes no commercial sense. If this was the way the plaintiff would arrange its affairs with the intermediaries, there would be little reason why it could build up a business model whereby half of its business came from them. 83.Fees and benefits apart, the plaintiff went so far to suggest that it had neither any prior relationship with Four Edges, nor any further contact with it. Given more than half of the plaintiff’s business relies on the introduction by intermediaries, the plaintiff would have every incentive to maintain a cordial and long-term relationship with them. It is the plaintiff’s evidence that it would carry out marketing by advertising on Facebook and by sending letters to public housing estates. The purpose of doing these is obviously to create more business opportunities. It would only be natural for the plaintiff to seek to maintain a relationship with the intermediaries who could possibly bring in future business opportunities. For those intermediaries who did generate real business for the plaintiff, such as Four Edges, they would likely be regarded by the plaintiff as more important and valuable. By staying in touch, if not in close contact, with the intermediaries would likely be how the plaintiff could maintain its largely referral-based business in the commercial ecosystem. By suggesting that the plaintiff only learnt about Four Edges in a form on 8 May 2015 (but not at the time of referral or earlier) and had no relationship with Four Edges ‘whatsoever’ is not only inherently improbably, but extreme. 84.In any event, Mr Leung was not in a position to comment on these, and for any comments he made on this issue, they should be viewed in light of the fact that the plaintiff did not adduce any evidence from the staff who received the referral call and the relevant staff who may be responsible for liaising with the intermediaries at the time. 85.Second, I accept that Four Edges played a role in liaising with the defendant in obtaining the relevant documents from the defendant and passed them onto the plaintiff for the application and approval of the Loan. These documents included the defendant’s ID card copy, address proof, bank statements, TransUnion credit report, tax return, loan records and rates records. 86.The defendant confirmed that he had not passed any documents to the plaintiff directly. There is abundant documentary proof in showing how Four Edges obtained these documents from the defendant before the signing of the agreements for the Loan (eg Peter’s texts to the defendant on 22 & 24 April 2015, and 7 May 2015) and after the said signing (eg Peter’s texts to the defendant on 17 May 2015). There is no record of any communication between the plaintiff and the defendant save and except P’s Phone Call made on 7 May 2015 through the Client’s Line which was the only phone line the plaintiff would use to contact its clients (apart from the calls made by Mr Chan solely for the purpose of Flat inspection). At least part of the information and/or documents must have reached the plaintiff the application form dated 30 April 2015 to be filled in. In other words, even if the representative of the plaintiff obtained information from the defendant over the phone on 7 May 2015, it would not be possible for the plaintiff to fill in the application form on 30 April 2015. 87.Without collecting and relaying the defendant’s information by Four Edges before the signing of the documents for the Loan, I fail to see how the plaintiff may prepare for the loan application form dated 30 April 2015 and approve the Loan before the Flat inspection and the signing of the Loan documents. It is indeed the plaintiff’s case that before the approval of the Loan, the plaintiff would not incur costs and resources on arranging Flat inspection and instructing Messrs K B Chau & Co for the execution of the agreements. In other words, the approval must have been made before P’s Phone Call on 7 May 2015. It follows that the plaintiff had obtained the defendant’s documents and information before, if not way before, that. In other words, someone must have assisted the plaintiff in collecting and relaying the defendant’s information to it. 88.Third, I accept that the Re-financing Scheme was explained to the defendant by Peter and Edward, and he understood the Loan as an intermediate process to improve his credit rating in order to put him in a position to obtain a low-interest loan to re-finance his debts. I also accept that Peter and Edward had represented to the defendant that they would keep the principal of the Loan and handled all the repayment, with no charge to be paid by the defendant to Four Edges. These are supported by documentary evidence (eg Edward’s text to the defendant on 18 May 2015; Peter’s text to the defendant on 17 May 2015). Contemporaneous documentary evidence also shows that on 23 April 2015, after the first meeting at Four Edges, the defendant referred to the intended borrowing as ‘the whole scheme’ (成個計劃) rather than simply as a loan. This is in line with the defendant’s case of the Re-financing Scheme. 89.The importance of these representations is to provide a sense of security to the defendant that matters relating to the repayment of the Loan would be dealt with and handled by Four Edges. This lowered the guard of the defendant in a way that matters concerning the Loan would be regarded as matters to be taken care of by Peter and Edward. It followed that Peter and Edward were the persons to be relied on in dealing with the Loan, including its arrangement, documentation, payment and repayment. 90.These representations and reassurance substantially facilitated the signing of the documents of the Loan provided by the plaintiff. Without the explanation of the overall Re-Financing Scheme and the full responsibility of Four Edges for the Loan, the plaintiff would likely face many requisitions and difficulties in procuring the signature from the defendant in signing all the documents. It should be noted, as illustrated below, that many of these documents were drafted in such a way that made little sense if they were viewed under the original understanding as conveyed to the defendant. The role played by Four Edges was therefore part and parcel to the plaintiff’s successful procurement of the defendant’s signatures on these documents. These documents, of course, include the one that evidenced the defendant’s consent to provide $30,000 to Messrs H Y Leung & Co as costs on account and $7,000 to the plaintiff as charges. 91.Fourth, I accept that the plaintiff provided information to Four Edges as to the application process and the granting of the Loan. Peter and Edward as representatives of Four Edges were in a position to brief the defendant as to what to be happened in the lending process concerning the particular Loan of the defendant. In the morning of 8 May 2015, when the defendant attended the office of Four Edges, Peter and Edward were able to brief the defendant on what would be happening for the rest of the day in fulfilling the lending requirements of the plaintiff. 92.Indeed, at various stages of the lending process, Peter and Edward were fully equipped with the necessary knowledge to allow them to guide the defendant through it. The request for relevant documentary proof by Four Edges, the indication of the size of the Loan to be reduced from $700,000 to $300,000, and most prominently, the pre-printed receipt of Four Edges after its receipt of $313,000 all supported the existence of prior communication between the plaintiff and Four Edges. The evidence consistently suggested that Four Edges was in a position to know about the details of the application and approval of the Loan before the defendant did. The reasonable inference must be that Four Edges was informed by the plaintiff beforehand, which facilitated both the imposition of charges by the plaintiff and Four Edges on the defendant. 93.Fifth, I accept that P’s Phone Call was the only call made by the plaintiff to the defendant, save and except those made by Mr Chan for the sole purpose of hurrying the defendant to attend the Flat inspection. Mr Leung emphasized that the plaintiff would only use the Client’s Line to contact its clients. The purpose is to make sure that the plaintiff’s clients can identify that the call is made by the plaintiff, but not by other money lenders. This must be important to the plaintiff’s business operation. 94.The defendant’s receipt of this first and only call from the plaintiff is also in line with the strong reaction of the defendant afterward. He wanted to immediately inform both Edward and Peter that the plaintiff called him. (eg defendant’s phone call to Edward on 7 May 2015 at 12:49 pm and 12:50 pm; defendant’s text to Edward on the same date at 12:51 pm; defendant’s text to Peter on the same date at 1 pm). It is also in line with the text record that, all along, the defendant was waiting for news from the lender (eg Peter’s text to the defendant on 24 April 2015 at 2:45 and on 29 April 2015 at 4:57 pm). 95.The plaintiff contends that the defendant has not adduced all the communication records it had with the plaintiff. For instance, it pointed to a phone number at the defendant’s company and suggested that the defendant also used that phone number to communicate with the plaintiff. The defendant denied and gave evidence that he did not have any phone on his desk when he worked at the warehouse then. The plaintiff also relied on the defendant’s evidence that the latter used more than one SIM cards. 96.However, Mr Leung’s evidence that the plaintiff had communication with the defendant on top of P’s Phone Call is inconsistent with the plaintiff’s pleaded case in the Answer to Request for Further and Better Particulars of the Reply (the “Answer”). In the Answer, it is pleaded that the ‘plaintiff has lost the record of the name and position of the staff who contacted the defendant and handled the Loan application, and does not know the time when the staff contacted the defendant’. However, in Mr Leung’s live evidence, he was able to provide the names of Ryan and Mr Law who respectively liaised with the defendant in arranging the Loan and assisted him in signing the documents. Contrary to the plaintiff’s pleaded case, Mr Leung was also able to pinpoint the specific date when the defendant was contacted by the plaintiff. 97.Without having any record of communication between the plaintiff and the defendant, Mr Leung was simply not in a position to give evidence as to what was communicated between the plaintiff and the defendant, and how the communication was effected. This is particularly so when Mr Leung confirmed that the plaintiff could not locate Ryan and Mr Law, and he is not in a position to give any reliable evidence on the lending practice of the plaintiff before November 2015. 98.In any event, if there were indeed undisclosed communication records between the plaintiff and the defendant, it is open to the plaintiff to adduce the same, whether through the phone number as provided by the defendant or otherwise. However, the plaintiff has failed to do so. The only reasonable inference is that there was no telephone communication between the plaintiff and the defendant concerning the Loan other than P’s Phone Call and those relating to the Flat inspection by Mr Chan. The defendant did not use other phone number in contacting the plaintiff. 99.Sixth, as to the content of P’s Phone Call, I accept the defendant’s case that it concerned the Flat inspection to be held on 8 May 2015, but not the content of the Loan and the documents to be signed. It should be pointed out that P’s Phone Call only lasted for around or less than 3 minutes (beginning at 12:46 pm, and ending at or before 12:49 pm). Even for the gist of the documents to be explained to the defendant during P’s Phone Call, it would take much longer to deal with the following documents:-
100.In the plaintiff’s closing submissions, it is suggested that only the key terms of the Loan were explained to the defendant. Even so, I fail to see how a one-year Loan that needs to be repaid within 7 days may be explained to the defendant within a 3-minute call. In fact, even the operational manager, Mr Leung could not explain it, for he said that he had never seen such kind of documents. I also fail to see how only $313,000 would be paid out of a $350,000 Loan could be explained to the defendant in such a short phone call, and why the borrower would not raise any queries on these. Even if the defendant’s queries were not raised then, one would expect that they would be raised with Peter or Edward. However, the contemporaneous text message between Peter and the defendant, and the one between Edward and the defendant, only show that the defendant informed them of the call from the plaintiff without raising any further queries (defendant’s text to Edward text on the same date at 12:51 pm; defendant’s text to Peter on the same date at 1 pm). 101.The plaintiff further contends that it would not incur costs and resources on arranging a Flat inspection and instructing Messrs K B Chau & Co unless it had already obtained the confirmation from the defendant that he agreed to the terms of the Loan and would sign the documents on 8 May 2015. However, this argument is inconsistent with the plaintiff’s case that despite the many declarations and other documents required to be signed by the defendant on 8 May 2015, the defendants were not informed of their terms or probably, their existence. These documents are not insubstantial, as a number of them purported to confer substantive rights on the plaintiff or to limit the rights of the defendant. The plaintiff was nonetheless willing and prepared to incur costs and resources on arranging the Flat inspection and instructing Messrs K B Chau & Co irrespective of the defendant’s prior confirmation (and knowledge) of the terms of these documents. 102.In any event, Mr Leung was not in a position to give any reliable evidence on the content of P’s Phone call. I therefore reject the plaintiff’s arguments. 103.Seventh, I accept that on the date of the signing of the Loan, Peter attended Messrs K B Chau & Co with the defendant and reassured him that there would not be any problem for him to sign the documents being part and parcel of the Re-financing Scheme. Although Peter did not attend the conference room, his reassurance was crucial in procuring the defendant’s signing of the documents in light of the serious discrepancies between the contents of the documents and what he was told by Peter and Edward before. The documents provide, inter alia, the following effect:-
104.With the assistance of Four Edges, the plaintiff was able to procure the defendant to sign all these documents to the advantage of the plaintiff. 105.Eighth, I accept that the discriminatory treatment in the issuance of the two cheques by the plaintiff was a step taken by it to facilitate Four Edges to levy its charge on the defendant. 106.So much for the assistance provided by the defendant to the plaintiff, at the juncture when the plaintiff issued the cheques to Messrs H Y Leung & Co in the amount of $30,000 and to the defendant in the amount of $313,000, the plaintiff saw fit to issue the former one as a crossed cheque, and the latter one as a cash cheque. The practical effect is that when Peter escorted the defendant to the bank to cash the latter cheque, the defendant could pass the cash to Peter immediately. It saves Peter the trouble and risk of waiting for another one or two days before the cheque is cleared, and the uncertainty of what the defendant may do with the money after going back home and re-reading what he had signed earlier. The plaintiff’s special treatment of the $313,000 cheque greatly facilitated Four Edges’ charging of the sum right there and then. 107.Whilst being cross-examined, Mr Leung explained that as the defendant borrower would have to pay interest starting from the date of the Loan, it would be to his disadvantage if the loaned amount could only be cleared one or two days after the depositing of the cheque. However, there is no evidence that the defendant did request to treat the two cheques differently. There is also no evidence that having both cheques crossed, in the defendant’s circumstances, would make any difference to him. After all, he regarded it as part of the intermediate process, and the first instalment of the Loan would not due until 15 May 2015. It would make no practical difference to him whether the cheque of $313,000 was cleared immediately or in two days, as he would need to bear the interest and paid the sum to Edward anyway. Also, if the intent was to effect payment immediately, there is no reason why the cheque to Messrs H Y Leung & Co was not also issued as a cash cheque. To adopt the logic of Mr Leung, it would only be in line with the borrower’s interest to issue the cheque to Messrs H Y Leung & Co by way of a cash cheque. If a borrower changed his mind and wanted to get back the costs on account from the law firm shortly afterward, he would be able to do it earlier than latter should the cheque be issued as a cash cheque. 108.In any event, Mr Leung was not in a position to give any reliable evidence on the plaintiff’s lending practice before November 2015. 109.The plaintiff further submitted that in Hong Kong Property Mortgage Ltd v Ng Lai Ping Cathy (DCCJ 3903/2015; unreported; DDJ Chow; 25/04/2018) at §§20-21, the lender was aware of the fact that the borrower did pay a consultation fee to an intermediary for the urgent procurement of a loan, however, the court found that such knowledge in itself is not sufficient to justify a finding of collusion between the lender and the intermediary. However, in Hong Kong Property Mortgage, the defendant did not file any evidence in the proceedings and did not attend the hearing to give evidence. The court in that case accepted the uncontroverted evidence of the plaintiff that it had nothing to do with the consultation fee. The case can clearly be distinguished from the present case. 110.By reason of the above, I accept that based on the evidence as a whole, the plaintiff and Four Edges did breach s 27(3) of the MLO by cooperating and colluding with each other in imposing charges on the defendant in procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan. They were not only playing the same game, but they were playing it skilfully. 111.Under s 27(4) of the MLO, the amount of $313,000 is therefore set off against the Loan. Together with the amount of $30,000 paid to Messrs H Y Leung & Co and $7,000 paid to the plaintiff, the Loan is thus set off entirely. Illegal agreement under s 22 of MLO 112.The plaintiff accepted that the Loan contains a heightened default interest rate of 5% per month, which is in breach of s 22 of the MLO, and the plaintiff does not rely on this rate for the recovery of the Loan. 113.The defendant sensibly accepted that unless he was able to prove collusion, both s 22 and 24 of the MLO would not get him off the Loan. 114.As such, the defendant was making any submissions on neither s 22 of the MLO, nor clause 11 of the 1-page loan agreement signed by the defendant. Prohibition of excessive interest rate under s 24 of MLO 115.It is the defendant’s case that the $313,000 charged by Four Edges should be regarded as part of the interest charged by the plaintiff. As such, the effective interest rate is well over 60% allowable under s 24 of the MLO. 116.A similar point was raised and rejected in Ever-Long Finance Ltd v Yeung Wah Lung at §109. I agree with Deputy District Court Judge Simon Ho that under the statutory framework of the MLO, it does not provide that a charge imposed by a 3rd party who colluded with a money lender would be treated as part of the interest charged by the money lender. S 27(4) has already provided a remedy for the borrower to set off such a charge from the amount borrowed. 117.In the plaintiff’s pleadings, it also relies on ss 7 and 18 of the MLO. I understand that no submissions were made by the plaintiff on these provisions. 118.In any event, there is no evidence to show that the plaintiff did not carry out its business as a money lender at its address as stated in its licence. The mere signing of documents at the office of a law firm as opposed to its registered address does not mean that the plaintiff did not carry out its business at its registered address. DISPOSITION 119.The plaintiff’s claim is dismissed. 120.I make an order nisi that costs of this action, including all costs ordered to be reserved, be paid by the plaintiff to the defendant. The defendant’s own costs be taxed in accordance with the Legal Aid Regulations. This costs order nisi will become absolute in 14 days from the date of this judgment if no application is taken out to vary the same. 121.I thank Mr Cheng and Mr Ho for their assistance.
Mr Victor Y C Cheng, instructed by H Y Leung & Co, for the plaintiff Mr B K Ho, instructed by Lau & Chan, assigned by the Director of Legal Aid, for the defendant | ||||||||||||||||||||||
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