Hao Tian International Securities Ltd v. Ng Shui Cheong

HCA 2487/2018

[2020] HKCFI 1590

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2487 of 2018

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Before:  Deputy High Court Judge Rachel Lam SC in Chambers

Date of Hearing:  7 July 2020

Date of Decision: 24 July 2020

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D E C I S I O N

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A.   INTRODUCTION

1.This was the hearing of the Defendant’s appeal against the decision of Master Jack Wong granting summary judgment in this matter.

2.By Summons dated 16 May 2019, the Plaintiff, Hao Tian International Securities Limited, sought summary judgment against the Defendant.  Following the substantive hearing before the Master, judgment was given in the Plaintiff’s favour on 25 October 2019.

3.The Defendant originally adopted an erroneous approach by appealing to the Court of Appeal rather than to a Judge.  The correct form of the Notice of Appeal was only filed on 5 December 2019, outside of the 14‑day time limit specified in Order 58, rule 1(3), Rules of the High Court.  No application for extension of time was made at that time.

4.On 23 June 2020 the Defendant’s solicitors filed the affirmation of the Defendant’s solicitor Mr Ching Ming Yu (“Mr Ching”), seeking to explain that the failure to use the proper procedure arose out of a mistake of the firm.  On 29 June 2020, a summons seeking extension of time was filed.

5.Having regard to the principles on enlargement of time (Hong Kong Civil Procedure 2020, §58/1/9), I have taken into account the explanation offered by Mr Ching, the surrounding circumstances, and the fact that relatively limited prejudice has been caused to the Plaintiff.  I note that the merits of the appeal are also a factor to be considered.  In the circumstances, at the hearing, I asked parties to address me on the substantive arguments on the appeal as well, and indicated that I would give my decision on the extension of time and the substantive appeal (if the extension was permitted) at the same time.

6.Taking all factors into account, and notwithstanding my decision on the merits set out below, I have exercised my discretion to extend time and allow the substantive appeal to proceed.

7.At this hearing, the Plaintiff was represented by Counsel Mr Justin Lam and Mr Jonathan T. H. Lee, and the Defendant was represented by Mr Ching of Ching & Co.

B.   BACKGROUND

8.The relevant background, the crucial aspects of which are essentially undisputed or indisputable, is summarized below.

9.The Plaintiff is part of the Hao Tian group of companies, which carries on business inter alia dealing in securities.  One of the entities within the group is Hao Tian Financial Holdings Limited (“Hao Tian Financial”, which, until 1 February 2018, was known as King International Financial Holdings Limited).  The Plaintiff is a subsidiary of Hao Tian Financial.

10.As to the Defendant:

(1)  He holds a BBA in Business Economics from the City University of Hong Kong, having graduated in 2006.

(2)  He had, since 27 February 2017, been employed by Hao Tian Financial as a Deputy Manager for Dealing.  On 31 April 2017, he became Deputy Manager of Business Development, with a salary increase.  From 1 May 2018 onwards, he was appointed Vice President of Futures Business.  At the time of the commencement of his employment by Hao Tian Financial, he had already been in the securities business for 10 years, and was a licensed individual under the Securities and Futures Ordinance (“SFO”).  He was subsequently appointed as a Director and Responsible Officer of one of the Hao Tian group entities in January 2018.  He was also a member on the Credit Committee of Hao Tian Financial (being one of seven members in total).

(3)  He had signed an Account Executive Agreement (“AEA”) dated 1 March 2018 with the Plaintiff.  It is this AEA which forms the basis of the Plaintiff’s claim against the Defendant in these proceedings.  As discussed below, it is the Plaintiff’s case that pursuant to the AEA, the Defendant is liable to indemnify them for liabilities owed by a particular client which he had introduced to the Plaintiff.

(4)  Prior to the AEA, he had signed three other agent or appointment agreements with, variously, the Plaintiff and/or other entities within the Hao Tian group of companies.  The material particulars of these agreements, insofar as they are relevant, are discussed below.

11.In or around February 2018, prior to the signing of the AEA, the Defendant had procured a Well Born Industrial Group Limited (“Well Born”) to agree to transfer its shares in Hosa International Limited (“Hosa”) to a securities trading account with the Plaintiff (“the Account”).  The account opening documents were handled and signed by the Defendant as the relevant Account Executive and licensed person.

12.By a Margin Facility Letter dated 12 February 2018 (“Margin Facility Letter”), the Plaintiff agreed to grant a margin facility to Well Born.  On 23 March 2018, Well Born applied for a margin facility.  The application form identified the Defendant in his capacity as Account Executive for Well Born.

13.On or about 27 March 2018, $10,000,000 was withdrawn from the Account as a loan under the Margin Facility Letter, and 15,029,032 shares of Hosa (“Hosa Shares”) were transferred into the Account as collateral for the said loan.

14.Since 7 June 2018, the trading price of the Hosa Shares dropped such that the market value thereof was significantly below the margin limit for the Account.  Since that date and up to 29 June 2018, the Plaintiff issued a number of margin calls to Well Born, all of which were unmet.

15.On 29 June 2018, the outstanding principal from Well Born was HK$10,151,878.91.  The Plaintiff sold 5,062,000 of the Hosa Shares and recovered HK$1,789,864.94 after deduction of expenses.  Demands for repayment of the balance due and owing were similarly unmet by Well Born.

16.In July 2018, the Plaintiff liquidated the remainder of the Hosa Shares in several lots, using this to further reduce the outstanding amount due and owing from Well Born; the result being that the outstanding principal and interest as at 15 August 2018 was HK$4,456,325.73 (being HK$4,429,698.78 in outstanding principal and $26,626.95 in outstanding interest, “the Sum”).  This amount remains unpaid.  The Plaintiff has commenced proceedings against Well Born and a Mr Shi Hongliu, the guarantor for Well Born.

17.There are various clauses in the AEA which are relied upon by the Plaintiff to assert the present claim against the Defendant. It is the Plaintiff’s case that pursuant to the AEA, the Defendant agreed to indemnify the Plaintiff in respect of liabilities owed by clients procured by him for the Plaintiff.  The relevant clauses include the following:

Clause 1.3:

“1.3 As an inducement for HTISL [the Plaintiff] agreeing to engage the A/E [the Defendant] as HTISL’s licensed representative, the A/E has represented, and shall continuously represent, to HTISL that the A/E shall:

(1) direct any and all securities business of any persons procured by him or her to engage or transact in the same (‘the Clients’) to HTISL for acceptance and execution through HTISL;

(2) direct to HTISL any and all margin financing requirements of the Clients in connection with their securities trading, subject to the separate approval or instructions of HTISL.”

Clause 4.1:

“4.1 Client’s Liabilities: In this Agreement, ‘Client’s Liabilities’, in relation to any Client, means all and any of such Client’s obligations and liabilities to HTISL, of any kind and in any currency, whether present or future, actual or contingent and whether as principal or surety or incurred alone or jointly with another, and for the purpose of Clause 4.2.2 below includes any purported obligation or liability of such Client to HTISL which if valid would comprise in such obligations and liabilities.”

Clause 4.2:

“4.2 Guarantee and indemnity: In consideration of HTISL providing ‘Securities’ / ‘Futures’ trading and/or margin financing facilities and other financing facilities, subject to separate approval or instruction of HTISL, to any Client, the A/E:

4.2.1 guarantees to discharge on demand by HTISL from time to time the Client’s Liabilities in relation to each Client;

4.2.2   agrees as an additional and independent on-going and continuous obligation that, if any of the Client’s Liabilities of any Client are not recoverable from the A/E or subsidiary A/E under the guarantee in Clause 4.2.1 above for any reason, the A/E shall be liable to HTISL or, as appropriate, as a principal debtor by way of indemnity for the same amount as that for which it would have been liable had those Client’s Liabilities been so recoverable and the A/E shall discharge that liability on demand by HTISL from time to time.”

18.On 15 October 2018, the Plaintiff sent a demand letter to the Defendant in respect of the Sum.  The present action was commenced on 23 October 2018.

C.   DISCUSSION

19.The relevant legal principles for summary judgment are well settled.  In short (Hong Kong Civil Procedure 2020, §§14/4/1, 14/4/4, 14/4/9 – 14/4/9B):

(1)  It is incumbent on the defendant to raise a defence or triable issue, and in so doing to condescend upon particulars.  The issue is not whether the defendant is believed, but whether the assertions are believable (Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 at 158; Toy Major Trading Co Ltd v Plastic Toys Ltd [2007] 3 HKLRD 345 at §12).

(2)  Unless it is obvious that the defence is frivolous and practically moonshine, Order 14 ought not be applied.

(3)  Where there are doubts or suspicion as to the validity of the plaintiff’s case or if possibly genuine weaknesses were exposed in the plaintiff’s case, then summary judgment ought not be granted (Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262 at 268C-D).

(4)  The Court will not embark on a mini trial on affidavits.

20.An appeal from a master to a judge proceeds by way of rehearing.  Fresh points may be taken upon such hearing (Hong Kong Civil Procedure 2020, §§58/1/1 & 58/1/5).

21.In contesting the Plaintiff’s claim, the Defendant relies on:

(1)  A defence filed on 30 November 2018;

(2)  An affirmation filed on 11 July 2019; and

(3)  A draft Amended Defence attached to a summons filed on 26 July 2019.

All of the aforementioned documents were prepared by the Defendant himself.

22.For the purposes of this decision, I have had regard to the parties’ pleadings (including the draft Amended Defence), the affidavits filed for the purposes of this application (and evidence exhibited therein), the parties’ respective skeleton submissions, and the oral arguments at the substantive hearing.

23.At the hearing before the Master, the Defendant sought to argue two possible defences, namely:

(1)  A point regarding the loan to Well Born and the Money Lenders Ordinance (“MLO”); and

(2)  An argument on unconscionable conduct.

24.At the present hearing, this was expanded upon by Mr Ching, who by his skeleton submissions and oral submissions sought to argue a total of four possible defences:

(1)  Arguments on the construction of the AEA, suggesting that:

(a)  Well Born does not fall within the definition of “Client” at Clause 1.3, and thus, the AEA provisions as to guarantee and indemnity do not apply in respect of the debt owed by them.

(b)  There was no good consideration for the indemnity under Clause 4.2, given the introduction of Well Born was done in February 2018, whereas the AEA was only entered into in March 2018.

(2)  An argument that the AEA was an unconscionable bargain.

(3)  An argument that the AEA was liable to be set aside on the ground of undue influence.

(4)  An argument that there is a “difficult point of law” in that because the loan to Well Born was not “securities margin financing”, it would not be caught or governed by the provisions of the SFO, but could instead by caught by the MLO, and in those circumstances, it would be liable to be set aside.

25.The arguments at paragraphs 24(1) and 24(3) above are fresh points.  The argument at paragraph 24(4) was taken before the Master, but was not mentioned in any of the Defendant’s documents set out at paragraph 21 above.

26.Each of the arguments raised by the Defendant are considered below.

C1.    Construction of the AEA

27.It is suggested by the Defendant that:

(1)  Well Born had been introduced to the Plaintiff prior to the signing of the agreement, and there was no further “procurement or acceptance” after the signing of the AEA.  Thus, Well Born does not fall within the definition of “Clients” of the AEA; the consequence being that none of the provisions therein would be applicable (including the guarantee and indemnity provisions).

(2)  Further, on a proper understanding of Clause 4.2, there was no good consideration for the Defendant providing the guarantee and/or indemnity, since the agreement for Well Born’s margin financing had already been concluded on 12 February 2018, prior to the signing of the AEA.

28.In addition to the above two construction points, various other arguments as to the applicability or “truthfulness” of numerous clauses in the AEA were also taken in the skeleton submissions.

29.As to these latter arguments, the starting point must be the agreed fact that the Defendant had signed the AEA.  In those circumstances, the trite principle is that parties of full age and ordinary understanding will be held to documents which they have chosen to sign unless there is a recognised legal basis for concluding that their apparent consent has been vitiated; or that reliance on that document by some other person falls within some category of unconscionable conduct justifying relief in equity (Ming Shiu Chung & Ors v Ming Shiu Shum & Ors (2006) 9 HKCFAR 334 at 361J-362I).

30.Thus, as was put to Mr Ching at the hearing, and as he quite properly accepted, it is unhelpful to discuss the truthfulness (or lack thereof) of various clauses in a vacuum.  These points would, at most, be considered in the context of the arguments on unconscionable bargain and/or undue influence.  However, they do not form standalone points insofar as construction and applicability of the AEA is concerned.

31.Turning back to the construction points summarized at paragraph 27 above, these can be briefly dealt with.

32.First, the definition of “Clients” is clear on the face of Clause 1.3.  These are “any persons procured by him or her to engage or transact in the [securities business]”.  There is no requirement in the clause that the procurement of the said person or entity must be after the date of the AEA.  Nor is there any requirement or specification that the transaction of business must post date the date of entry of the AEA.  In fact, the term “procured” itself would tend to suggest that it covers clients previously introduced by the Defendant.

33.As set out above, there is no dispute that Well Born was procured or introduced by the Defendant.  In those circumstances, I do not consider the construction point on the definition of “Client” to be a believable or arguable one.

34.Second, as to the argument on “lack of consideration”, this seems to be a complete misreading or misunderstanding of the plain terms of Clause 4.2 and the AEA as a whole:

(1)  There can be no dispute that the provision of the guarantee and/or indemnity was a general one applying to any and all Clients which had been procured by the Defendant.

(2)  The purpose of entering into the AEA was for the Defendant to introduce clients to the Plaintiff, and in exchange, for there to be a commission sharing arrangement between him and the Plaintiff.  The general consideration in exchange for the Defendant’s side of the bargain (including the provision of his guarantee and/or indemnity) is found in Clause 6 of the AEA, which sets out the terms of the commission sharing between HTISL and the Defendant.

(3)  Looking at the wording of Clause 4.2 itself, the Plaintiff had provided financing facilities to Well Born from February 2018 onwards, and as the undisputed facts demonstrate, this continued after the 1 March 2018 date (with the loan and deposit of the Hosa Shares occurring after that date).  Whilst it is true this agreement for provision of facilities took place before the signing of the AEA, this clearly also continued after the 1 March 2018 date.  In the circumstances, the continued provision of such facilities would constitute good consideration pursuant to the terms of the clause.

35.In those circumstances, I do not consider the construction point on the alleged lack of consideration to be a believable or arguable one.

C2.    Unconscionable Bargain

36.The parties are ad idem on the principles generally applicable in relation to the concept of unconscionable bargain.

37.Mr Ching referred to Lo Wo & Ors v Cheung Chan Ka & Anor [2000] 2 HKLRD 370 at 381.  In that case, Waung J noted that whilst there was not any unifying principle or comprehensive requirements for the operation of the unconscionable bargain principle, in the circumstances of that particular case, he applied three criteria to be considered.  These were:

(1)  The serious disadvantage of the exploitee (such as age, poverty, ignorance, lack of assistance or independent legal advice or inability to judge what is in his best interests) giving rise to the opportunity for the exploiter to take unconscionable advantage of him;

(2)  The terms of the bargain being oppressive; and

(3)  Morally culpable conduct of the exploiter.

38.As to the first criteria above, Mr Lam referred to Ming Shiu Chung & Ors v Ming Shiu Shum & Ors, supra, at 367G-369H, which explores what constitutes the “special disadvantage” of the exploitee (at paragraphs 98-99), and also what elements must be pleaded or asserted in order to advance a case based on unconscientious dealing (at paragraph 100).

39.The Defendant relied upon a host of allegations (set out at considerable length in the various his pleadings and evidence, and repeated in the skeleton submissions) in an attempt to substantiate this defence.  I have considered these matters, and would summarise them as follows:

(1)  Allegations that he felt pressure as an employee to obtain more business and appease his bosses, and in connection therewith, an allegation that he felt bound to sign the AEA.

(2)  Allegations that he was not warned about the risks and the exorbitant amounts for which he would be found liable for insofar as margin financing by clients was concerned (in the context of his salary being HK$35,000 per month).

(3)  Allegations that he never agreed to be guarantor for Well Born’s liabilities.

(4)  Allegations that he was inexperienced insofar as margin financing was concerned.

(5)  Allegations that he did not have the opportunity to seek independent legal advice and was not warned that he should do so.

(6)  Allegations that he had relied upon the Plaintiff and the credit committee to assess the risk of the Well Born transaction, and/or that they had been negligent in failing to properly assess it.

(7)  Allegations that in fact many aspects of the AEA (such as the express clauses as to the warning as to independent legal advice having been given, the recognition that contra preferentum did not apply, etc) were untrue.

40.I do not consider that the defence of unconscionable bargain to be a believable or credible one in the circumstances of this case.

41.First, the allegations summarized above must be seen in the context of the undisputed facts, most particularly the Defendant’s own admission that he had more than 10 years of experience in the securities industry.  He was a licensed person (and later on, a director and responsible officer), and it was he himself who had introduced Well Born to the Plaintiff.

42.Second, and in any event, the various rambling statements in the Defence, the draft Amended Defence and the Defendant’s evidence do not meet the summary judgment threshold in raising a credible assertion or allegation as to “special” or “serious” disadvantage.

43.Taken at their highest, essentially what the Defendant is saying that he was an employee who felt the pressure to comply with his employer’s requests.  An employer‑employee relationship, in and of itself, does not and cannot constitute a “special disadvantage” relationship.

44.Moreover, the Defendant’s statements as to the pressure he felt are tempered by and interspersed with statements which reflect the Defendant’s full self‑awareness and acknowledgment of his own experience and position.  By way of non‑exhaustive example (and summarizing his various assertions):

(1)  He openly recognized his responsibility to seek business opportunities for the Hao Tian group of companies and readily admitted he had been actively seeking such business opportunities for the company.

(2)  He acknowledged he had procured Well Born as a client.

(3)  He acknowledged that he had ongoing, lengthy dialogues with his superiors as to the business of the companies, and that he had worked hard to perform in his various roles.

(4)  He acknowledged that he had signed the AEA on the understanding that it was in order to obtain commission sharing.

45.In the circumstances, I take the view that the Defendant cannot possibly raise a credible or believable assertion that he was in a position of special or serious disadvantage (bearing in mind the various dicta cited in Ming Shiu Chung & Ors v Ming Shiu Shum & Ors, supra, at paragraphs 98 to 99).

46.In addition, and in any event, I also take the view that none of the Defence, draft Amended Defence, nor the evidence in opposition properly raise the requisite elements of a proper plea of unconscionable bargain.  In this regard, in addition to there being no credible evidence to support the assertion of special or serious disadvantage:

(1)  The suggestion that the AEA (and, in particular, the guarantee and indemnity clause) was oppressive must be seen in light of the fact that the Defendant readily admitted he had signed three other similar agreements with the Hao Tian group companies.  Whilst an assertion was made that one of those three was entered into as a result of similar pressure, Mr Ching confirmed at the hearing that the other two agreements had been willingly entered into by the Defendant.

(2)  Each of those three agreements contained indemnity clauses regarding clients’ liabilities.  By way of example:

In the agreement dated 25 October 2017:

“7a. The Representative shall indemnify the Company against all loss or damage which it may suffer as a result of amounts due from any client(s) introduced or handled by the Representative together with all costs and expenses that may be incurred by the Company in claiming against the relevant client(s) and/or the Representative pursuant to this clause. …”

In the agreement dated 12 July 2017:

“5a. Consultant shall indemnify the Company and its associates, and hold the Company and its associates harmless against all claims, costs, expenses and losses whatsoever which may be brought against, incurred and/or suffered by the Company and its associates by reason of, or arising out of any transactions entered into by the Company and its associates in relation to any business introduced and/or handled by Consultant, or by reason arising out of any breach of the obligations hereunder and/or any negligence, dishonesty or misconduct on the part of Consultant.”

(3)  The Defendant seems to suggest that the quantum of the loan and the alleged lack of internal procedures in risk assessment of Well Born renders the Plaintiff’s conduct morally culpable.  This, however, must be seen in light of the admitted fact that the Defendant was the one who introduced Well Born as the client to the Plaintiff in the first place, and was the one who was responsible for handling the account all along.

47.In summary, taking into account the undisputed facts, I do not consider the unconscionable bargain defence to be a credible or believable one in the circumstances.

C3.    Undue Influence

48.The principles applicable to undue influence claims are set out in the decision of Bank of China (Hong Kong) Limited v Wong King Sing & Ors [2002] 1 HKLRD 358:

(1)  As set out in paragraph 37, there are three possible categories of undue influence, namely – Class 1: actual undue influence, Class 2: presumed undue influence (which is further divided into Class 2A: relationships which raise the presumption of undue influence and Class 2B: although not within a fixed category of relationships, the de facto relationship of trust and confidence between the complainant and the wrongdoer raises the presumption of undue influence).

(2)  As stated in paragraph 38, in cases of actual undue influence, the complainant must demonstrate:

(a) The person who allegedly influenced had the capacity to influence the complainant;

(b) Influence was in fact exerted;

(c) The exercise of influence by the influencer was undue; and

(d) The exercise of undue influence resulted in the transaction complained about.

(3)  As stated in paragraph 47, as to presumed undue influence Class 2B, the complainant must show that:

(a)  He placed trust and confidence in the influencer or that the influencer had acquired an ascendancy or domination over him; and

(b)  The transaction cannot be readily explicable by the relationship of the parties.

49.Whilst Mr Ching originally advanced arguments in his skeleton on presumed undue influence Classes 2A and 2B, at the hearing he confirmed that he was only pursuing the Class 2B argument (conceding that he could not find any authorities where the employer‑employee relationship would fall within Class 2A).  It was not entirely clear whether he relied upon actual undue influence as well.

50.The Defendant relies on the same facts as summarized above in the section on unconscionable bargain for the purposes of his argument on undue influence.

51.Insofar as there may be any suggestion that there was actual undue influence, the short point is that nowhere in the evidence or pleadings as filed is there a clear plea or assertion of the requisite elements set out in paragraph 48(2) above.  Mr Ching asks the Court to infer the same from the evidence filed.  However, for the reasons set out above, I do not find such inferences to be credible or believable in the circumstances.

52.As to the suggestion that there is Class 2B presumed undue influence, I similarly consider that:

(1)  The relationship of employer-employee in and of itself cannot give rise to a relationship of trust and confidence;

(2)  The evidence relied upon by the Defendant does not, seen in totality, give rise to a credible assertion of such relationship of trust and confidence; and

(3)  The AEA is readily explicable by the relationship of the parties.  This is supported not least by the fact that the Defendant had signed three other similar agreements.

53.Reference was also made to the case of Credit Lyonnais Bank Nederland N.V. v Burch 29 HLR 513.  Mr Ching sought to use this case to demonstrate that the relationship between a company director and a junior employee was capable of developing into one of trust and confidence.  Whilst I agree that this is, of course, a possibility given the appropriate factual circumstances, I do not consider the case to be of particular assistance beyond stating general principles (noting, in any event, that the case pre-dates the case of Royal Bank of Scotland Plc v Etridge (No 2) [2001] 3 WLR 1021).

54.The facts of Credit Lyonnais are quite different, concerning an impressionable 18 year old junior employee who had been persuaded to execute a charge over her own property in support of her employer’s liabilities.  The short point is that it is incumbent upon the Defendant to raise credible or believable assertions in the circumstances of his own case which would support a defence of undue influence.  For the reasons I have already set out above, I do not consider he has done so to meet the threshold of asserting a credible or believable defence.

55.In coming to my conclusions above, I have also taken into account the fact that these alleged defences (ie on unconscionable bargain and undue influence) were not raised until legal proceedings were initiated, and the Defendant has never previously queried the operation of the four agreements for commission sharing.  Indeed, he was quite happy to receive commission previously under the terms of those agreements in relation to other clients.

C4.    The MLO Point

56.This point was not taken in the Defence, draft Amended Defence or the evidence in opposition.  As set out above, it was argued for the first time at the hearing before the Master.

57.The argument raised by Counsel for the Defendant (and adopted by Mr Ching), in a nutshell, was as follows:

(1)  Under Part 2, Schedule 5 of the SFO, “securities margin financing” is defined as:

“… providing a financial accommodation in order to facilitate —

(a) the acquisition of securities listed on any stock market, whether a recognized stock market or any other stock market outside Hong Kong; and

(b) (where applicable) the continued holding of those securities,

whether or not those or other securities are pledged as security for the accommodation …”

(2)  The Defendant’s point seems to be that there was no evidence that the loan to Well Born was provided to “facilitate the acquisition of securities”, since the money had been withdrawn from Well Born’s account, and the Hosa Shares were transferred from another securities house into the account with the Plaintiff (ie not acquired using the loan proceeds).  This aspect of the argument is thus premised on a factual assertion that the loan to Well Born was not to facilitate the acquisition of securities.

(3)  The point then taken is that if this was not securities margin financing as so defined, then the loan in question would not be governed by the SFO, but rather should fall within the ambit of the MLO (or perhaps in the no‑man’s land in between the two ordinances).  If it is governed by the MLO, then it is said that the loan to Well Born did not comply with the requirements thereunder, and is therefore unenforceable, and that, accordingly, the Defendant cannot be liable on his guarantee and indemnity thereof.

58.Mr Lam first takes the point that the aforementioned argument falls at the factual hurdle.  I tend to agree:

(1)  Since this matter was not raised in the Defendant’s defence (draft or otherwise) or evidence, the Plaintiff has not, in its evidence in reply, addressed the issue of whether Well Born utilized the loan to “facilitate the acquisition of securities” (quite apart from the Hosa Shares). 

(2)  Regardless of whether the Plaintiff filed positive evidence in this regard, the Defendant’s case relies, at best, on an absence of evidence as to what Well Born actually did with the loaned funds.  There is no positive evidence that can be relied upon by the Defendant that the loaned funds were not utilized to “facilitate the acquisition of securities”.  The matter is simply an unknown.

59.In any event, and even if the Defendant were able to persuade the Court that there is a credible assertion that the loan to Well Born was not “securities margin financing”, I do not consider the construction placed upon the SFO and MLO to be credible.  The short point is that the Plaintiff is clearly exempted from the provisions of the MLO:

(1)  There is no dispute that the Plaintiff is a Type 1 licence holder under the SFO.

(2)  Section 2 of the MLO defines “money lender” as:

“[every person] whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but does not include —

(a) a person specified in Part 1 of Schedule 1…”

(3)  Part 1 of Schedule 1 of the MLO sets out “Exempted Persons”, and within this part at paragraph 11:

“a corporation licensed to carry on, or an authorized financial institution registered for carrying on, a business in dealing in securities under Part V of the Securities and Futures Ordinance (Cap 571) who engages in securities margin financing in order to facilitate acquisitions or holdings or securities by the corporation or institution for its client”

is an exempted person.

(4)  Since the Defendant does not dispute that the Plaintiff is so licensed, it clearly follows that the Plaintiff is an exempted person and does not fall within the definition of “money lender” in the MLO.

60.As such, I do not find that this to be a credible or believable defence.

D.  CONCLUSION

61.For the above reasons, I do not consider there is any merit to the Defendant’s arguments.  There are no credible defences or triable issues raised.  Accordingly, I make the following orders:

(1)  The Defendant’s appeal be dismissed.

(2)  There be a costs order nisi that the Defendant do pay the Plaintiff’s costs, to be assessed by way of gross sum assessment in writing. The Plaintiff shall lodge and serve its statement of costs within 7 days of this Decision, and the Plaintiff shall provide comments thereon within 7 days thereafter.

62.I thank Counsel and Mr Ching for their assistance.

Mr Justin Lam and Mr Jonathan Lee, instructed by Raymond Siu & Lawyers, for the plaintiff

Mr Ching Ming Yu, of Ching & Co., for the defendant