K Cash Ltd v. So Wang Fung By So Wang Ming His Guardian Ad Litem

DCCJ 5085/2014

[2018] HKDC 1588

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5085 OF 2014

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Before: His Honour Judge Edmond Lee in Court

Dates of Hearing: 15-17 May and 26 June 2017

Date of Judgment: 27 December 2018

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JUDGMENT

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BACKGROUND

1.This is a loan agreement dispute.  The plaintiff claimed against the defendant for repayment of a loan with interest under a Loan Agreement dated 12 Nov 2014 (“Agreement”).

2.The plaintiff is and was at all material times a money lender licensed under the Money Lenders Ordinance, Cap. 163.

3.On 12 November 2014, the plaintiff and the defendant entered into the Agreement for a loan of HK$600,000 (“Loan”) at an interest rate of 29.76% per annum.  The defendant was required to repay the Loan by 120 monthly instalments with the first instalment of HK$14,719 due on 10 December 2014 and each of the subsequent instalments of HK$15,711 due on the 10^th day of each month.

4.A total of three cheques totalling HK$600,000 were issued as follows:-

(a) a cheque dated 12 November 2014 for the sum of HK$226,896 issued to the defendant and marked “A/C Payee Only”, which was cleared by the defendant through his Dah Sing Bank account on 14 November 2014;

(b) a cheque also dated 12 November 2014 for the sum of HK$226,896 issued to the defendant but not marked “A/C Payee Only”, which was cashed by the defendant over the bank counter on the same day; and

(c) a cheque dated 12 November 2014 for the sum HK$146,208 issued to the Bank of China Credit Card (International) Company Limited to clear the defendant’s credit card debt.

5.The defendant failed to make any repayment as per the repayment schedule.

6.By a Writ of Summons filed on 31 December 2014, the plaintiff commenced the present proceedings to claim against the defendant for the outstanding sum with interest and costs.

7.On 6 January 2015, a sum of HK$30,743 was paid in cash into the plaintiff’s account.

PLAINTIFF’S CASE

8.The plaintiff’s case is straightforward.  The parties entered into a valid loan agreement and as a result, the defendant received the Loan of HK$600,000 through three cheques. The defendant failed to repay any of the instalments when they fell due.

9.The defendant’s mental state or conditions did not affect the validity of the Agreement.  The plaintiff did not have any knowledge, actual or otherwise, of the defendant’s mental incapacity.

10.It is irrelevant as to whether the defendant had received the loan money for his own use or for the use of any third party.

11.The defendant had acknowledged his obligation to repay under the Agreement by making part payment of HK$30,743 on 6 January 2015 and as such, had affirmed the Agreement.

12.There is no evidence of collusion between the plaintiff and others as alleged by the defendant, and sections 27 and/or 29 of the Money Lenders Ordinance, Cap. 163 (charging the borrower costs etc. for granting a loan renders the agreement illegal and constitutes a criminal offence) are inapplicable in these proceedings.

13.The plaintiff called one witness at the trial, i.e. Cheung Hoi Ning (PW1), who was an assistant customer service officer of the plaintiff. PW1 was the handling staff of the plaintiff for the Loan.   She was the one who was all along responsible for discussing with the defendant over the phone about the Loan and eventually met with the defendant on 12 November 2014 for the signing of the Agreement.  The meeting was audio-recorded in a disc which was produced as exhibit P1 with transcripts.

14.The plaintiff contended that it should be entitled to the outstanding principal sum of HK$596,890.73 with interest and costs.  In the event that the Agreement is found to be void and of no legal effect, the plaintiff should be entitled to HK$569,257 being loan amount less the part repayment on the ground of restitution and unjust enrichment.

DEFENDANT’S CASE

15.It is the defence case that the defendant has been since childhood a mentally incapacitated person as defined under the Mental Health Ordinance, Cap. 136.  The present proceedings are therefore defended by the defendant’s elder brother, So Wang Ming, as guardian ad litem.

16.The defendant was at the material time taken advantage of by his friend Chan Cheong Yin (“Chan”) who, together with others, arranged the defendant to take out three loans from three different money lenders as follows:-

(a) On 10 November 2014, Chan took the defendant and his wife, also a mentally incapacitated person, to see a Miss Chan (“Ms Chan”) of Jone’s Consultant (HK) Company (“Jone’s”).  Ms Chan took the defendant and his wife to a Premier Capital Management Limited (“Premier”) on the same dayto borrow HK$900,000.

(b) The Loan in this case was the second one.  On 12 November 2014, Chan asked the defendant to make arrangements to meet Ms Cheung (PW1) of the plaintiff and eventually accompanied the defendant to go to plaintiff’s office to borrow the Loan of HK$600,000 under the Agreement.

(c) A few months later, on 19 May 2015, through the arrangement of Chan and Ms Chan, the defendant took out another loan from another money lender, M Success Finance Limited (“M Success”), for HK$1,900,000.

17.The defendant called one witness at the trial, i.e. So Wang Ming (DW1), the defendant’s elder brother and guardian ad litem.

18.The defences are essentially that:-

(a) the plaintiff, acting in collusion with others, induced or deceived the defendant into signing the Agreement which should be illegal and unenforceable against the defendant;

(b) the plaintiff knew or ought to have known the defendant’s mental handicap but acted in collusion with others to deceive the defendant; and

(c) the Agreement is illegal by virtue of s. 27 of the Money Lenders Ordinance, Cap. 163.

19.The parties agreed that the triable issues in these proceedings are:-

Issue (1) – Whether the plaintiff had made out the Loan of HK$600,000 to the defendant or for the defendant’s use

Issue (2) – Whether the defendant was suffering from mental incapacity at the time of the signing of the Agreement

Issue (3) – If the defendant was suffering from mental incapacity, whether and how the plaintiff knew

Issue (4) – Whether the defendant had acknowledged the validity of the Agreement by the part payment in cash on 6 January 2015

Issue (5) – Whether and how the plaintiff had been colluding with other parties to deceive the defendant as alleged

Issue (6) – What acts or conduct the plaintiff had committed in colluding with others to deceive the defendant as alleged

Issue (7) – Whether the Agreement is unenforceable as alleged

Issue (8) – If the Agreement is unenforceable, whether the defendant is liable to repay the balance of the Loan to the plaintiff on the ground of restitution and unjust enrichment

ANALYSIS

Issue (1) – Whether the plaintiff had made out the Loan of HK$600,000 to the defendant or for the defendant’s use

20.There is clear and unchallenged evidence that three cheques totalling HK$600,000 had been issued to the defendant, either in his own name or to a credit card company to clear his debts, on 12 November 2014, the day of signing of the Agreement^[1]. It was accepted by the defence at the trial that the defendant received those three cheques from the plaintiff and they were all honoured^[2].  As such, even if the defendant subsequently gave the money to another (in his case, to Chan, who cheated him), the Loan was made out by the plaintiff to the defendant or for his use.  This is, however, subject to my findings in the following paragraphs (in particular when deciding on Issues (5) and (6)) as to whether the defendant had been deceived and whether the plaintiff was a party to the scam.

Issue (2) – Whether the defendant was suffering from mental incapacity at the time of the signing of the Agreement

21.Again, there is clear and unchallenged evidence that the defendant was suffering from mental incapacity at the time of the signing of the Agreement, not only from DW1 but also from Dr Cheung Hung-kin^[3]. Dr Cheung confirmed that the defendant is a “Mentally Incapacitated Person” under the Mental Health Ordinance, Cap. 136 and that he is “a known case of Mild-Grade Mental Handicap”^[4] .  It was also produced as evidence, by way of the defendant’s Registration Card for People with Disabilities, that his type of disability is “Mental Handicap”^[5].

Issue (3) – If the defendant was suffering from mental incapacity, whether and how the plaintiff knew

22.First of all, there is a disagreement between the parties as to the state of knowledge required in this aspect.  The plaintiff argued that actual knowledge (i.e. the plaintiff “knew” that the defendant was suffering from mental incapacity) was required whereas the defendant argued that even constructive knowledge (i.e. the plaintiff either knew or “ought to have known” that the defendant was suffering from mental incapacity) would suffice.   

23.The plaintiff, by relying on the English Court of Appeal decision in The Imperial Loan Company Limited v Stone [1892] 1 Q.B. 599, the Privy Council decision in Hart v O’Connor and others [1985] 1 AC 1000 and a paragraph in Chitty on Contracts (32^nd Edition) Vol. 1, paragraph 9-093 on p. 885, argued that the defendant had to prove that the plaintiff knew that he was suffering from mental incapacity at the time of the signing of the Agreement before he could challenge the validity of the same.  The defendant did not seek to argue against that principle except that the principle had been “enlarged” to include the “ought to have known” scenario as mentioned in Dunhill v Burgin [2014] UKSC 18 at p. 11, as per Lady Hale.  The plaintiff in reply argued that the Supreme Court decision in Dunhill v Burgin was not binding in Hong Kong, what was said by Lady Hale in this regard was obiter dictum and that case was only decided in its particular circumstances.

24.For reasons which would be apparent in the following paragraphs, this argument has become academic and it is not required to be resolved for the purpose of this case.

25.In deciding the issue of whether PW1, the handling staff of the plaintiff for the Loan, knew that the defendant was suffering from any mental incapacity, I have carefully considered the following:-

(a)   There was clear evidence from DW1, the defendant’s elder brother, that “ordinary people could easily notice from his words and behaviour that the defendant is a mentally retarded person; because of his unique behaviour, his slurred speech, every act of his would easily attract attention of others and he would be quickly identified by others as a mentally retarded person”[6] and that the defendant’s “speech was disorganized, most of the time failing to express himself, the listener had to be very patient, listen to him slowly and to sort out what he said before (the listener) could understand what he was trying to express”[7].  It is important to note that this is not hearsay evidence.  DW1 who is the elder brother of the defendant must be able to give evidence on that.  The plaintiff’s main attack on DW1 is that he was not present when the Agreement was entered into and that he had no personal knowledge of the circumstances that occurred prior to and/or preceded the Agreement so that what DW1 could give was at best hearsay evidence.  It is not the credibility but the reliability of DW1 which was the subject matter of criticism by the plaintiff.  In any event, DW1 is of good education and a lecturer by occupation.  I have carefully observed his demeanour when giving evidence during the trial.  I find PW1 an honest and credible witness and accept his evidence in this regard, which is not hearsay, on how easy it could be for ordinary people to notice the defendant’s mental incapacity.  

(b)   DW1’s evidence in this regard is consistent with and to a certain extent supported by Dr Cheung Hung-kin who opined that the defendant is a “Mentally Incapacitated Person”, “he is a known case of Mild-Grade Mental Handicap”, “he was forgetful and frequently lost things”, his “Mini-Mental State Examination done on 2/4/15 revealed a score of 19 out of 30, which is consistent with the above diagnosis”, “he is eager for recognition and endorsement by friends, and therefore easily influenced and taken advantage of by friends”; and Dr Cheung concluded that “In summary, although his Mental Handicap is only mild-grade and he is apparently capable of performing the ordinary activities of daily living, he is vulnerable to exploitation by others and mentally incapable of managing and administering his property and finance”[8].

(c)   According to PW1’s own version, she had several contacts, by telephone and face-to-face, with the defendant prior to and at the time of the signing of the Agreement. In early November 2014, she came to know that the defendant was interested in applying for a loan by referral; she then made a telephone call to the defendant and confirmed certain basic information including his personal details, the intended loan amount, his property address and obtained his permission to conduct Trans Union check on his financial status; then PW1 and the defendant had made several attempts to have a telephone conference with the Bank of China to ascertain the defendant’s credit card debt (but failed to get in touch with the officer in charge and gave up); on or about 11 November 2014, PW1 called the defendant again and informed him that the loan application had been approved and told him the details of the Loan including the interest rate and the repayment arrangements as well as how the Loan would be split into 3 cheques as per their standard business practice; and finally on 12 November 2014 PW1 had a meeting with the defendant to sign the Agreement[9].  PW1 in her evidence in court confirmed that the meeting with the defendant on 12 November 2014 lasted for 10 odd minutes. As such, there were in fact ample opportunities for PW1 to observe and communicate with the defendant.

26.Having carefully considered all the above, I draw the reasonable inference and find that PW1, at the material time i.e. on or before the signing of the Agreement, knew that the defendant was suffering from mental incapacity.  In other words, I do not find PW1 an honest and credible witness and reject her claim of lack of knowledge of the defendant’s mental incapacity.   It follows that the plaintiff, through PW1, knew that the defendant was suffering from mental incapacity at the material time.

27.The plaintiff had, during closing submissions, reminded me of the principle under Browne v Dunn on a party’s duty to put his case.  Although it was not specifically put to PW1 during cross-examination by the defence about her knowledge of the defendant’s mental incapacity, her collusion with others to cheat the defendant etc., those issues were clear to both parties as early as the pleading stage[10]  and repeated in the Defence’s Opening Submission[11].  On the other hand, it was all along PW1’s and the plaintiff’s case that they had no knowledge of the defendant’s mental incapacity and no association or collusion with any other parties[12].  There is no unfairness in any way to the plaintiff.

Issue (4) – Whether the defendant had acknowledged the validity of the Agreement by the part payment in cash on 6 January 2015

28.It is not in dispute that a sum of HK$30,743 was paid in cash to the plaintiff on 6 January 2015.  The defendant denied having made that payment.  As such, there is simply no evidence to show from whom this payment was made and for what purpose.  It is also noted that the first instalment under the Agreement should be HK$14,719 (due on 10 December 2014) and the second instalment (and each of the following instalments) should be HK$15,711 (due on 10 January 2015)^[13]. The paid amount of HK$30,743 does not match either one or the added sum of both. There is no evidence that the sum was paid by the defendant or whoever on his behalf nor is there any evidence to show that it represented part repayment of the Loan.  It follows that the plaintiff’s argument that the defendant by making that part payment acknowledged the validity of the Agreement must fail.

Issue (5) – Whether and how the plaintiff had been colluding with other parties to deceive the defendant as alleged

Issue (6) – What acts or conduct the plaintiff had committed in colluding with others to deceive the defendant as alleged

Issue (7) – Whether the Agreement is unenforceable as alleged

29.These three issues, being the key issues in this case, can be conveniently dealt with together.

30.To start with, as said, I bear in mind the plaintiff’s criticism of DW1’s evidence, a significant portion of which was hearsay evidence i.e. what he heard and understood from the defendant.  I am aware of the defendant’s mental handicap which would adversely affect his memory of the events and his ability of accurately describing the same to DW1.   I noted what DW1 admitted in his live evidence that the defendant had not been frank with him at the outset when he said he was borrowing money for a friend with surname “Ma” but subsequently disclosed another version of being persuaded by Chan to obtain the Loan.  I also noted from DW1’s evidence that the matter was once reported to the Police but no investigation had been proceeded with.  I remind myself, as the plaintiff submitted, that I would be entitled to draw adverse inference against the defence for not calling the defendant as witness to give viva voce evidence.  I also remind myself, as invited by the plaintiff, of all the considerations relevant to weighing of hearsay evidence as prescribed under s. 49 of the Evidence Ordinance, Cap. 8.

31.While I have found DW1 to be an honest and credible witness, I am cautious about handing his hearsay evidence, bearing in mind reliability is a completely different matter from credibility.  As what would be apparent in the following paragraphs, I would come to my findings mainly by relying on the undisputed facts and the reasonable inferences to be drawn instead of relying on the hearsay evidence of DW1 alone.  Also, I bear in mind that there is no evidence from the defendant to rebut the plaintiff’s case or to support the defence case.  Nevertheless, I am not prepared to draw any adverse inference against the defendant from his absence of evidence, in view of the peculiar circumstances, in particular his mental handicap, in this case.

32.There are, however, a number of important matters which are not in dispute or not challenged.  They can be summarised as follows:-

(a) The plaintiff is a licensed money lender with a paid up capital of HK$100,000.  It changed its name for three times in a period of seven years.  On 27 May 2009, it changed its name from Ever Concept Holdings Limited to Maxcolm Credit Limited.  On 30 November 2015, it changed its name to mtree.money Limited.  On 25 July 2016, it changed its name to K Cash Limited.

(b) The defendant was born in 1965 and was 49 years old at the time of the signing of the Agreement.  He is a mentally incapacitated person (mental handicap) and so is his wife.  He studied in a special school up to Form 3 and had been a cleaning worker in different companies.  He was earning about HK$7,000 to HK$8,000 a month at the material time.  He is the registered owner of a flat in Tseung Kwan O, which was a gift from his parents.

(c) The Loan was first arranged by referral, through an intermediary company (“中介公司”) called “Ho Tin” (“浩天”).  

(d) On 12 November 2014, the day when PW1 and the defendant met and eventually signed the Agreement, the defendant was all along accompanied by a male.  The meeting was audio-recorded in a disc (Exhibit P1).

(e) The three cheques totalling HK$600,000, which represented the Loan, were issued by a solicitors’ firm which was placed in funds prior to the signing of the Agreement.  The cheques were split at the prior instruction of the plaintiff. It was the plaintiff’s standard business practice to have the loan amount split into three cheques, one cheque to clear the overdue credit card debt of the client and the balance of the loan amount be split equally into a crossed cheque and an uncrossed cheque both payable to the client.

33.I am prepared to accept all the above undisputed or unchallenged matters.  I shall consider them together with my factual finding, as detailed in paragraphs 25 and 26 above, that the plaintiff, through PW1, knew that the defendant was suffering from mental incapacity at the material time.

34.I find the circumstances surrounding the granting of the Loan suspicious in the following aspects:-

(a) According to PW1, this loan application by the defendant was first arranged and referred by an intermediary company called “Ho Tin”[14]. Strange enough, except disclosing the contact person of “Ho Tin” being a person named “Winnie”, PW1 failed to provide any further information and was evasive during cross-examination.  She could not even tell the full name of “Winnie” or any details of “Ho Tin” at all.   She said she had a group of intermediary persons/companies (around 20) to work with but did not have a list of their details.  She agreed under cross-examination that she would not care about which intermediary person/company gave her the referral and she did not care what fees, if any, the latter charged.  Notwithstanding that, during the meeting with the defendant which was audio-recorded, PW1 specifically said to the defendant, that they and the intermediary company were two different and independent companies, the plaintiff did not charge any fees, and if there were handling charges involved, the defendant should go to the intermediary company[15].   Right after that, PW1 told the defendant to sign on the document and at the same time, PW1 said to the defendant that he clearly understood the Agreement and signed it without any duress by any third party.  It is simply unnecessary and apparently artificial for PW1 to say all these during the meeting.  It is contrary to common sense that “Ho Tin” or whatever intermediary person/company would derive no benefit at all in referring the defendant to the plaintiff for borrowing the Loan. Apparently, PW1, knowing full well that the meeting was audio-recorded, said all these only for the record and tried to distance herself and the plaintiff from the intermediary company in this case.

(b) On the day of meeting and signing of the Agreement, the defendant was all along accompanied by a male (the defendant said that was Chan, the friend who cheated him).  PW1 under cross-examination said she first met both the defendant and the male at the reception area but never ascertained the identity, the role or anything at all about that male from the beginning to the end.   She agreed that she simply treated that male as non-existing.  She however gave them the application form[16] for them to sign in her absence.  Then the parties, i.e. PW1, the defendant and the male, had the meeting together where the Agreement was signed.  The meeting was audio recorded (Exhibit P1).  Throughout the meeting, as can be seen in the full transcript[17], PW1 did most of the talking and the defendant, whenever being asked, only responded by simply saying “no problem”.  In fact the defendant only gave that short reply thrice[18].  The only other occasion when the defendant spoke during the meeting was, at one stage when he had difficulties as to where to sign and what signature he should put onto the document[19].  The defendant’s response and reaction in the meeting is consistent with what DW1 described in evidence that the defendant acted like a “parrot”.  It is also consistent with Dr Cheung’s observation that the defendant “is eager for recognition and endorsement by friends, and therefore easily influenced and taken advantage of by friends”[20].  Strange enough, at the end of the meeting, that male, who was supposed to have nothing to do with the Loan or the Agreement, was obviously eager to ask (by asking thrice) about the possibility of extending the repayment period[21].  When PW1 said that the repayment period was already almost the longest possible, that male said “will contact you again”[22].  All the above point to the fact that the defendant, who was a mental handicapped, was under the manipulation by that male who apparently had an interest in the Loan to be obtained.  PW1, being the handling person of the defendant’s case throughout, must be fully aware of that.  That explained why PW1 said she did not bother to ask anything about that male and treated him as non-existing on the day of the meeting.  Apparently, PW1, again, tried to distance herself and the plaintiff from that male.      

(c) The most suspicious part is the splitting of the cheques[23], which was a matter under serious cross-examination by the defence.  PW1 kept saying it was the company practice to split cheques like that, one cheque to repay the defendant’s existing credit card debt and the balance of the Loan be equally split into two cheques, one cash cheque (“現金票”) and one cheque for account payee only (“過戶票”).  PW1 said such practice applied to all customers but could not tell why there was such practice.  She said she never had any discussion with the defendant or any customer about that company practice of splitting cheques.  In essence, PW1 gave no valid or reasonable explanation as to why the cheques had to be split that way in this case.  Even assuming there is a legitimate reason to prepare a cheque specifically for the settlement of the existing credit card debt, one can hardly think of a legitimate reason for splitting the balance of the Loan into two cheques with one as a cash cheque.  An irresistible inference to be drawn, from splitting the cheques that way with no valid reason, was to facilitate that male (be it Chan or whoever) and/or others to easily obtain at least a substantial part of the Loan in cash, by way of the cash cheque of $226,896 (which represented more than one-third of the Loan), from the defendant shortly after the signing of the Agreement.      

(d) The relatively modest paid up capital of the plaintiff as a money lender, the change of names of the plaintiff thrice in a few years’ time and the placing of funds with the solicitors’ firm prior to the signing of the Agreement, if viewed in isolation may not be conclusive or indicative of anything sinister. However, those matters, in particular the frequent change of names of the plaintiff, if viewed together with other circumstances of this case, must add to the suspicion.

35.By taking into account all the suspicious circumstances as described above, together with my earlier finding that the plaintiff knew that the defendant was at the material time suffering from mental incapacity, I draw the reasonable inference and find that the plaintiff was in collusion with others, including that male (be it Chan or whoever who accompanied the defendant to the meeting where the Agreement was signed) and/or the intermediary company “Ho Tin”, to deceive the defendant into signing the Agreement and obtaining the Loan so that they could cheat him of the money he purported to have borrowed from the plaintiff.  I, however, am not satisfied on the evidence, that the plaintiff was in collusion with the other parties like Ms Chan, Jone’s, Premier, or M Success in relation to other loans taken out by the defendant which are in fact not subject matter of this action.   This, however, does not affect my finding that the plaintiff was in collusion with Chan and/or “Ho Tin”.  In other words, I do not find PW1 an honest and credible witness and reject her claim of no association or collusion between the plaintiff and others in this case.  As I find the Agreement to be the result of collusion between the plaintiff and others to deceive the defendant, the Agreement is illegal and unenforceable.

36.The plaintiff at closing submission stage argued that it was not pleaded by the defendant in the pleadings that the plaintiff was acting in collusion with “Ho Tin” so that the defendant should not be permitted to extend the scope of his case to include that.  It is correct that, in the Amended Defence^[24], it was only the pleaded case of the defendant that the plaintiff was acting in collusion with Chan and/or Jone’s and/or Premier and/or M Success^[25].  The intermediary company “Ho Tin” was not pleaded in the Amended Defence but was only mentioned in the Defendant’s Closing Submission^[26]. Nevertheless, it was only at the trial, when PW1 was giving evidence, that the existence and the role of that intermediary company “Ho Tin” was first revealed.   The inclusion of that “Ho Tin” in the defence case as a party to the collusion resulted in no unfairness to the plaintiff, as it was all along the defence case that the plaintiff was in collusion with others.  The essence of the defence case remained the same and the plaintiff was all along aware of that.

37.I noted that the defendant had previously entered into several agreements, for example, in relation to his Tseung Kwan O property which was a gift from his parents, his bank accounts, his marriage and his employment.  It had never been suggested by the defence that those agreements were invalid because of the defendant’s mental incapacity.  In this case, I do not find the Agreement invalid simply because of the defendant’s mental incapacity.  I find the Agreement illegal and therefore invalid because the defendant had been deceived by others.  The fact that the defendant was suffering from mental incapacity made him more vulnerable to be deceived.

38.I bear in mind that the matter had once been reported to the Police and no investigation had been proceeded with.   Apart from that, I heard no further from the evidence, for instance, it is unclear as to what information had been provided to the Police, what investigation, if any, had been done.  I am unable to and should not speculate as to what had and what had not been done as well as the reason or justification behind.  In any event, the lack of police action and prosecution in this case does not affect my findings in this case where I should apply, and in fact have applied, the civil instead of the criminal standard of proof.

39.It was also argued by the defence that, by operation of s. 27 of the Money Lenders Ordinance, Cap. 163, the Agreement should be illegal.  It is provided under s. 27(1) that any agreement for payment by the borrower to the money lender of “any sum for or on account of costs, charges or expenses (other than stamp duties or similar duties) incidental to or relating to the negotiation for or the granting of the loan” (my emphasis) shall be illegal.  It is now no longer necessary for me to decide on that as I have already found the Agreement illegal for the reasons as detailed above.  For the sake of completeness, I do not consider that section 27 applies in this case as I do not find sufficient evidence to prove that the money deceived from the defendant was for payment of “costs, charges or expenses” and/or it was “incidental to or relating to the negotiations for or the granting of” the Loan.  It was simply money deceived from the defendant.  I am not convinced by the defence argument that the ejusdem generis rule applies and the phrase “costs, charges or expenses” under section 27 should cover “other payments”.  Also, as said, I am not convinced that the money deceived in this case was “incidental to or relating to the negotiations for or the granting of” the Loan.

Issue (8) – If the Agreement is unenforceable, whether the defendant is liable to repay the balance of the Loan to the plaintiff on the ground of restitution and unjust enrichment

40.It was submitted nearly at the end of the Plaintiff’s Closing Submissions that “Even assuming the Agreement was voidable by reason of the Defendant’s mental incapacity, the Plaintiff is still entitled to the return of the money lent less the part payments”^[27]. As explained above, I do not find the Agreement voidable because of the defendant’s mental incapacity, I find the Agreement illegal and therefore unenforceable.

41.It was the pleaded case of the plaintiff in the Re-amended Reply^[28] that “In the event that the Loan Agreement is held to be void and of no legal effect, the Plaintiff is entitled to seek restitution and does seek restitution against the Defendant with regard to the sum of HK$596,257 (the balance after deducting the part payment from the claimed Loan of HK$600,000) on the basis of unjust enrichment as it would be unjust for the Defendant to retain that money”.

42.The relevant principle for restitution under an illegal contract is summarised in Chitty on Contracts (32^nd Edition) Volume 1, para. 29-083 at p. 2159,

“Money paid under illegal contracts. If money is paid under a contract which is illegal, and not merely void, the general rule is that it cannot be recovered [footnote 518] …”

It was then stated at footnote 518 that,

“ … See also Equuscorp Pty Ltd v Haxton [2012] HCA 7, where a loan which was unenforceable by virtue of illegality could not be recovered in a claim for money had and received, because such a restitutionary claim would stultify the policy of the law which rendered the transaction unenforceable.”

In the earlier chapter of Illegality and Public Policy, at para. 16-015 at p. 1248, where it was stated,

“Illegal contract unenforceable. The “effect of illegality is not substantive but procedural”, it prevents the plaintiff from enforcing the illegal transaction. The “ex turpi causa defence”, as was stated by Kerr L. J. in Euro-Diam Ltd v Bathurst:

‘… rests on a principle of public policy that the courts will not assist a plaintiff who has been guilty of illegal (or immoral) conduct of which the courts should take notice.  It applies if in all the circumstances it would be an affront to public conscience to grant the plaintiff the relief which he seeks because the court thereby would appear to assist or encourage the plaintiff in his illegal conduct or to encourage others in similar acts.’ ”

43.It is noted that the defendant, both at the opening and the closing stages^[29], also sought to rely on the rule of “ex turpi causa” to argue that the Agreement is unenforceable.

44.As far as the law on unjust enrichment is concerned, it was summarised in Chitty on Contracts (32^nd Edition) Volume 1, para. 29-017 at p. 2105,

“The elements of unjust enrichment. A claim in unjust enrichment is a claim in debt and not for damages and is a claim which is not founded on the commission of a wrong. The principle of unjust enrichment requires: first, that the defendant has been enriched by the receipt of a benefit; secondly, that this enrichment is at the expense of the claimant; thirdly that the retention of the enrichment be unjust and finally that there is no defence or bar to the claim.”

45.It is the defendant’s case that he was a victim of this scam and all the money of the Loan under the three cheques were cheated by Chan.  There is not only the hearsay evidence of DW1 (from what he learnt from the defendant) but that version was also partly supported by documents.  For the cash cheque of HK$226,896, it was cashed over the bank counter on the day of signing of the Agreement (i.e. 12 November 2014) and the money was given to Chan right away, who claimed to keep it for the defendant^[30]. For the other cheque of the same amount of HK$226,896 but was marked “A/C payee only”, it was paid into the defendant’s Dah Sing Bank account two days later on 14 November 2014.  According to the relevant bank records^[31],  nearly the whole sum was withdrawn within the next month and the balance on 20 December 2014 was just HK$6.63.  All the money was again given to Chan who claimed to take care of it for the defendant^[32]. Lastly, even the cheque for the sum of HK$146,208 made payable to Bank of China Credit Card (International) Co Ltd, purportedly for the settlement of the defendant’s then credit card debt, was not for the benefit of the defendant and the whereabouts of that cheque was unknown^[33]. According to the relevant records of the defendant’s bank account in Bank of China^[34], the defendant’s then credit card debt had already been settled by another cheque coming from the earlier loan taken from Premier^[35].

46.It is also the defence argument, by relying on the House of Lords authority In Lipkin Gorman (A Firm) v Karpnale Ltd [1991] 2 AC 548, that the defendant has a valid defence of “change of position”, i.e. the defendant acting in good faith and having been cheated had already paid the money to Chan, as a general defence to the plaintiff’s restitutionary claims.

47.I am satisfied that the defendant did not derive any benefit under the Loan and/or not the beneficiary of any unjust enrichment in the circumstances of this case.

48.As I have found the Agreement illegal and unenforceable as aforesaid and that the defendant did not retain any unjust benefit thereof, I refuse the plaintiff’s claim for the balance of the Loan on the ground of restitution and unjust enrichment.

DISPOSAL

49.In summary, for all the above reasons, all the plaintiff’s claims fail and be dismissed.  As a general principle, costs should follow the event.  I make an order nisi that costs of this action be paid by the plaintiff to the defendant, with certificate for counsel, and to be taxed if not agreed; and that the defendant’s own costs be taxed in accordance with the Legal Aid Regulations. The costs order nisi shall become absolute in 14 days in the absence of any application by the parties.

50.Lastly, I thank both counsel for their useful assistance.

Mr Kevin Li, instructed by Au Yeung, Lo & Chung, for the plaintiff

Mr B.K. Ho, instructed by Lau & Chan, assigned by the Director of Legal Aid, for the defendant