Mortgage 360 Ltd (Formerly Known As Topway Finance Ltd) v. Sy Man Kit and Another

DCCJ 1882/2019

[2021] HKDC 59

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1882 OF 2019

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BETWEEN

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Before:  Deputy District Judge George Lam in Chambers

Date of Hearing:  27 October 2020

Date of Decision:  27 October 2020

Date of Reasons for Decision:  27 January 2021

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REASONS FOR DECISION

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Introduction

1.On 27 November 2019, the plaintiff obtained judgment before Master Jacqueline Lee against the 1^st and 2^nd defendants by way of money lenders’ action and mortgage action under Order 83A and Order 88 of the RDC.

2.On 4 August 2020, the 2^nd defendant filed a Notice of Appeal against the Master’s decision under Order 58 rule 1.

3.I heard the 2^nd defendant’s appeal on 27 October 2020 and allowed the appeal.  Full reasons have been given to the parties orally at the hearing.  However, as the 2^nd defendant acted in person and it might be for her benefit to have a written decision from the court, I promised to give one.

Background

4.The plaintiff is a money lender registered and licensed under the Money Lenders Ordinance (Cap 163).

5.The mortgaged property is a retail premises located at Shop Space No. G-17, G/F, TST Plaza of Chevalier House, 45-51 Chatham Road South, Kowloon (“the Property”), of which the 1^st and 2^nd defendants own as 2/3 and 1/3 tenants-in-common.

6.There were two loan agreements entered into between the plaintiff as lender of the one part and the 1^st and 2^nd defendants as borrowers of the other part in writing on 13 June 2018 and 5 October 2018, respectively.

7.By the 1^st Loan Agreement dated 13 June 2018, the defendants borrowed the sum of HK$1,800,000 for a term of 12 months by way of a ‘second mortgage’ of the Property.  The Second Mortgage was executed on the same day. 

8.By the 2^nd Loan Agreement dated 5 October 2018, the defendants borrowed another sum of HK$200,000 for a term of 8 months by way of a ‘third mortgage’ of the Property.  A Third Legal Charge was executed accordingly on the same day. 

9.A repayment schedule of monthly interest payments in respect of the loan agreements was given to the defendants on the respective dates of the signing of the agreement.  At maturity, the defendants would need to repay the loan amount in full by one lump sum payment.

10.The defendants had become in default of the monthly repayments since 13 November 2018.

11.On 12 April 2019, the plaintiff issued the Writ to claim for all the outstanding amounts and vacant possession of the Property.

12.On 10 June 2019, the plaintiff took out the summons under O 83A and O 88 to enter judgment against the defendants in default of defence.

13.The defendants acted in person and filed affirmations in opposition. In summary, the 1^st defendant did not dispute that he had borrowed money from the plaintiff.  However, he just wanted to point out that, as to the 1^st Loan Agreement and the Second Mortgage, he was the only borrower and therefore he mortgaged his 2/3 share of the Property to secure the loan; the 2^nd defendant should not be involved although she had signed on those documents.  The defendants relied on WhatsApp messages and audio recording of conversations to show how they were being misled by one Mr Yeung of the plaintiff to have the 2^nd defendant signed.  Further, the 2^nd defendant was reassured by Mr Yeung that only the 1^st defendant was named as borrower under the 1^st Loan Agreement before she signed.  In any event, the 2^nd Loan Agreement and the Third Legal Charge were not in dispute.  The defendants also argued that they did not sign the documents at the plaintiff’s address, as stated in the agreements, but they were arranged to sign at another solicitors’ office.

14.On 27 November 2019 at the hearing, the Master found against both the 1^st and the 2^nd defendants and made the following Order (“the Master’s Order”):-

(1)  In respect of the 1^st Loan Agreement, the 1^st and 2^nd defendants do pay to the plaintiff:

(a)  The sum of HK$1,905,651.76;

(b)  Interest accrued on the sum of HK$1,862,682.53 at 14% per annum from 13 April 2019 to the date of payment;

(c)  Interest accrued on the sum of HK$42,962.23 at judgment rate from the date of judgment to the date of payment.

(2)  In respect of the 2^nd Loan Agreement, the 1^st and 2^nd defendants do pay to the plaintiff:

(a)  The sum of HK$212,709.59;

(b)  Interest accrued on the sum of HK$206,570.79 at 14% per annum from 13 April 2019 to the date of payment;

(c)  Interest accrued on the sum of HK$6,138.80 at judgment rate from the date of judgment to the date of payment.

(3)  The 1^st and 2^nd defendants do deliver vacant possession of the Property to the plaintiff upon service of the order; and

(4)  The 1^st and 2^nd defendants do, joint and severally, pay to the plaintiff the costs of the action, including the costs of the summons, summarily assessed at HK$55,000.

The 2^nd defendant’s appeal

15.On 4 August 2020, the 2^nd defendant filed the Notice of Appeal for setting aside paragraphs (1) and (4) of the Master’s Order.

16.The 2^nd defendant’s grounds of appeal can be summarized as follows:-

(1)  The defendants were prejudiced by the fact that all the legal documents received in this action before the Master’s hearing were in English.  The defendants (especially the 1^st defendant) were unable to read English, and the plaintiff failed to provide a translation of the documents after the change of the plaintiff’s solicitors.

(2)  She had never agreed to sign the 1^st Loan Agreement and the 2^nd Mortgage as a borrower.  She was misled by Mr Yeung of the plaintiff that she was only required to sign as acknowledging the 1^st defendant’s borrowing against his own 2/3 interest of the Property and giving her consent to it.

17.It is well established that an appeal from a master to a judge under Order 58 rule 1 is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time:  Hong Kong Civil Procedure 2020, Note 58/1/2.

18.Therefore, I would hear the plaintiff’s application under O83A and O 88 afresh.

Should the 2^nd defendant have leave to appeal out of time?

19.There were eight months in delay for the 2^nd defendant to have taken out the appeal.  The plaintiff opposed the 2^nd defendant’s appeal being out of time.

20.The 2^nd defendant explained that she had difficulties in coming up with the money to instruct solicitors for the appeal in the first place.  Further, she thought the plaintiff would have foreclosed the Property for auction to cover what the 1^st defendant owed to the plaintiff. She said, however, probably due to the social event happening at the time, the plaintiff did not proceed to arrange any auction of the Property but chose to go after her by filing the Bankruptcy Petition against her on 26 May 2020.  It was only by that time she began to realize that she had to deal with the situation.  Therefore, she then filed the Notice of Appeal on 4 August 2020 and applied for legal aid.  She said that it was not fair to her as she maintained that she had never borrowed the HK$1,800,000.

21.Mr Ngai, counsel for the plaintiff, informed the court that Statutory Demand was served on the 2^nd defendant on 21 January 2020 (immediately within one month for the Master’s Order being perfected). Bankruptcy Petition (HCB 3497/2020) has also been issued against her on 26 May 2020.  The Bankruptcy Petition was originally scheduled to be heard three weeks before this hearing, and it was adjourned until the determination of the present appeal.  It was submitted that the 2^nd defendant’s inaction was only a delaying tactic.

22.I noted from the court file that the 2^nd defendant had applied for legal aid for the present appeal on 17 August 2020, but it was refused on 14 October 2020 right before this hearing.  The 2^nd defendant said she had passed the means test but failed to provide further information for the appeal, and therefore legal aid was declined.

23.So far, so much had happened to the 2^nd defendant.  I considered that it might be true that the 2^nd defendant, as a layman, was expecting the plaintiff to proceed with an auction of the Property and in such way the 1^st defendant’s debt could have been met.  I also accepted the 2^nd defendant’s explanation that the delay was caused by her lack of money to instruct solicitors to assist.  It was apparent from the fact that there were bankruptcy proceedings against her and an application for legal aid was filed after serving the Notice of Appeal.

24.Further, I have read the 2^nd defendant’s grounds of appeal and all the court documents provided for this hearing.  I considered that there is merit to her appeal.

25.Therefore, it would be unjust to refuse the 2^nd defendant leave to appeal out of time, and I granted leave accordingly.

Should the 2^nd defendant’s appeal against the Master’s Order be allowed?

26.I considered that there was no substance on the first ground.  We moved on to the second ground.

27.Mr Ngai said that the defendants had signed on each and every page of the 1^st Loan Agreement, and they have signed the Second Mortgage. It was submitted that, therefore, the 2^nd defendant was bound by those documents, and any suggestion of misrepresentation or non est factum could not be made out.

28.However, I noted that it was stated very clearly that the 1^st defendant was the only borrower in the 1^st Loan Agreement:-

“ BY THIS LOAN AGREEMENT made on 13 June 2018 between the Lender and the Borrower(s) (as hereinafter respectively defined), the Lender agrees to grant and the Borrower(s) agree(s) to borrow the Loan (as hereinafter defined) upon the following terms and conditions:

1.  Name and address of the money lender

TOPWAYFINANCE LIMITED whose registered office is situated at (address) (the ‘Lender’).

2.  Name and address of the borrower(s)

Sy Man Kit (HKID No.) of (address) (the ‘Borrower(s)’).”

The 2^nd defendant’s name was not specified there as the borrower.          

29.Mr Ngai argued that the 2^nd defendant had signed on the followings as borrower:-

(1)  On the last page of the 1^st Loan Agreement, there were spaces designated for “Signature of Borrower”, and the 1^st and 2^nd defendants signed at those spaces, respectively;

(2)  Both the 1^st and 2^nd defendants signed at the lower right corner of each page of the agreement;

(3)  The 2^nd defendant also signed together with the 1^st defendant on the ‘preamble’ of the 1^st Loan Agreement; and

(4)  The loan application was also signed by the 2^nd defendant.

30.In support, Mr Ngai cited the case of Ming Shiu Chung & Others v Ming Shiu Sum & Others [2006] 2 HKLRD 83 (CFA), to which the learned Master referred and accepted when making her decision.  Mr Ngai quoted the passage given by Rebeiro PJ in paragraph 84,

“Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”

31.With respect, I was unable to accept Mr Ngai’s submission.  I found that his reliance on Ming Shiu Chung has been misplaced.  What the 2^nd defendant said is not that she signed without knowing the contents of the document.  Technically speaking, I do not think that the 2^nd defendant’s defence to the 1^st Loan Agreement is one of misrepresentation or non est factum.  So far I did not see the Master had specifically dealt with Clause 2 of the 1^st Loan Agreement.  Even if she did and thereby accepted the plaintiff’s submission, I would, with respect, consider that was wrong and hold a different opinion.  

32.The 2^nd defendant’s case was that she had been shown the loan agreement which stated only the 1^st defendant as the borrower, and she was only required to sign to acknowledge and consent to the 1^st defendant’s borrowing as a co-owner of the Property.  She said that Mr Yeung of the plaintiff had reassured her before she signed.  She only realized she became liable as borrower of the HK$1,800,000 under the 1^st Loan Agreement after the 1^st defendant was in default of the instalments.  Since then, she had been told by the staff of the plaintiff, and she got the impression, that she must have been liable because she had signed on all the relevant documents.

33.The fact is that what the 2^nd defendant signed was indeed the 1^st Loan Agreement that clearly stated, under Clause 2 of the agreement, only the 1^st defendant was the borrower.  The answer is simple – she was not the borrower of the 1^st Loan Agreement. 

34.As to the preamble which the counsel for the plaintiff suggested, I cannot accept that the front page of the 1^st Loan Agreement was a preamble of the agreement.  It is clearly stated at the top on that page as “Acknowledgement of Documents Receiving”.  It is, in fact, a cover page of the 1^st Loan Agreement setting out what copies of documents the defendants received.  I do not see how one can interpret that into a preamble, let alone discuss the legal effect of a preamble.

35.As to the loan application signed by the 2^nd defendant, it was not produced by affidavit but merely presented by the plaintiff to the court for consideration.  I heard the 2^nd defendant’s explanation (and I accepted) that the plaintiff gave it to her to sign at the same time at the solicitors’ office, and all documents were signed in one go when she was reassured she was not the borrower.  I noted the loan application itself, the 1^st Loan Agreement and the Second Mortgage, together with all the other related documents, were all dated the same day of 13 June 2018.  I would not give much weight to the loan application which was given to the 2^nd defendant to sign at the same time with all other formal documents.  It did not serve the real purpose of an application.  More importantly, it was the 1^st Loan Agreement itself is counted:  it stated abundantly clear that only the 1^st defendant was the borrower of the 1^st Loan Agreement.

36.Despite the above, Mr Ngai submitted that the missing detail of the 2^nd defendant in the party clause (Clause 2) of the agreement was a clerical mistake and it was a technical breach only.  I was not able to accept that either.  I found that if there were ever such a mistake or breach, it would be fundamental and not curable.  It cannot be clear enough that where the contract is in writing, only the persons named in the writing can be parties to the contract (Chitty on Contracts (33^rd edn, 2018), Vol 1, para 3-042).  Where the party is specifically identified in the document, oral or other extrinsic evidence is not admissible to show that the party is someone else (Chitty, para 3-043). 

37.Further, under O 58 r 1(5), no further evidence may be received on the hearing of the appeal excepts on special grounds.  I found that there is no special ground and, therefore, the loan application is not admissible for the purposes of this appeal hearing.

38.I found that Clause 2 of the agreement squared with the 2^nd defendant’s explanation that she was shown with a page of document which showed the 1^st defendant was the only borrower for the 1^st Loan Agreement when she was signing all the documents.

39.I found that the 2^nd defendant was not a party to the 1^st Loan Agreement, and she would not be liable to that agreement even though she had signed on the pages. 

40.I allowed the 2^nd defendant’s appeal and set aside paragraphs (1) and (4) of the Master’s Order for those parts made against and in relation to the 2^nd defendant.

Whether the Second Mortgage is enforceable against the 2^nd defendant?

41.I drew the plaintiff’s attention to s 18 of the Money Lenders Ordinance, which states:-

“18.  Form of agreement

(1)  No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless—

(a)  within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b)  there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.

(2)  The note or memorandum shall contain all the terms of the agreement and in particular shall set out—

(a)  the name and address of the money lender;

(b)  the name and address of the borrower;

(c)  the name and address of the surety, if any;

(d)  the amount of the principal of the loan in words and figures;

(e)  the date of the making of the agreement;

(f)  the date of the making of the loan;

(g)  the terms of repayment of the loan;

(h)  the form of security for the loan, if any;

(i)  the rate of interest charged on the loan expressed as a rate per cent per annum, or the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2; and

(j)  a declaration as to the place of negotiation and completion of the agreement for the loan.”

42.I could not find any note or memorandum given by the plaintiff to the 2^nd defendant in compliance with s 18(1).

43.Counsel for the plaintiff confirmed that there was none.  He submitted, however, that the plaintiff could rely on the followings:-

(1)  The Pre-contractual Explanation to Intending Borrowers given to the defendants; and

(2)  The 1^st Loan Agreement itself.

44.In my view, these can be disposed of directly.  First, the Pre-contractual Explanation was made pre-contract, not ‘after the making of the agreement’ (see s 18(1)(a)).

45.Second, even if I were to accept the plaintiff’s suggestion that the 1^st Loan Agreement could be treated as a note or memorandum (which I do not agree), it still does not state that the Name and Address of the 2^nd defendant as borrower’s (see Clause 2 of the agreement; and s 18(2)(b)).

46.It is not disputed that the Second Mortgage is a security given to the plaintiff in respect of the 1^st Loan Agreement.  Due to the non-compliance of s 18(1) on the part of the plaintiff, I found that the Second Mortgage is not enforceable against the 2^nd defendant.  As such, I would amend paragraph 3 of the Master’s Order.

47.It might be convenient to deal with the fact that the underlying consideration for the Second Mortgage is the 1^st Loan Agreement. Once the plaintiff’s claim against the 2^nd defendant for the 1^st Loan Agreement has collapsed, I do not see how the Second Mortgage would stand against the 2^nd defendant.  I also note that the Second Mortgage was entered for covering facilities to the extent of HK$3,600,000 instead of the required HK$1,800,000 under Clause 8 of the 1^st Loan Agreement.  In my view, the 2^nd defendant, for the present purposes, would have a good defence of misrepresentation in respect of the Second Mortgage and would be able to rescind it as she received no benefit from the transaction (see Megarry & Wade: The Law of Real Property (9^th edn, 2019), para 24-133). 

48.Further, the plaintiff’s summons did not invoke the Partition Ordinance (Cap 352).  The 1^st and 2^nd defendants are tenants-in-common holding the possession of the Property in unity.  As there were no submissions made in that regard before me, and I have been informed by the plaintiff that the first mortgagee bank had actually taken possession of the Property before this hearing, I would let the plaintiff decide whether it would still proceed to claim vacant possession against the 2^nd defendant under the Second Mortgage.  Therefore, it would be appropriate for me to grant leave for the 2^nd defendant to defend any claims (if any) for vacant possession against her.

Conclusion

49.For the above reasons, I would allow the 2^nd defendant’s appeal with costs, and set aside paragraphs 1 and 4 of the Master’s Order in so far as they are concerned with the 2^nd defendant.  I would also make some amendments to the Master’s Order. 

50.The order I made is as follows:-

(1)  Leave be granted to the 2^nd defendant for the present appeal out of time.

(2)  Appeal allowed.

(3)  The Order of Master Jacqueline Lee made on 27 November 2019 in the District Court be amended as follows:

(a)  In paragraph 1 of the said Order, the party of the 2^nd defendant be deleted;

(b)  Paragraph 2 of the said Order unchanged;

(c)  Paragraph 3 of the said Order be replaced as:

(i)  There be no order as to vacant possession in respect of the Second Mortgage, until further order of the court or trial of the action; and

(ii)  In respect of the Third Legal Charge, the 1^st and 2^nd defendants shall pay to the plaintiff the sum mentioned in paragraph 2 of the said Order within 30 days upon the service of this order, otherwise vacant possession of the property, namely Shop Space No. G-17, G/F, TST Plaza of Chevalier House, 45-51 Chatham Road South, Kowloon, be delivered to the plaintiff (save and except vacant possession of the said property had been obtained by the first mortgagee bank).

(d)  In paragraph 4 of the said Order, the party of the 2^nd defendant and the words “joint and severally” be deleted; the costs of HK$55,000 against the 1^st defendant remains unchanged.

(4)  Leave be granted to the 2^nd defendant to defend should the plaintiff have had any remaining claim (if any) for vacant possession in respect of the said property against her under the Second Mortgage; and

(5)  Costs of the Appeal (including this hearing) be to the 2^nd defendant. 

51.I have pointed out to the 2^nd defendant that the appeal is now allowed in her favour, and it would not cause any prejudice to her if I would give my written reasons in English.  She was delightful to agree.

52.I direct the Court Interpreter to attend the handing down of this Reasons for Decision for interpreting it into punti to the 2^nd defendant, if so required. 

Mr Matthew Ngai, instructed by Simon C W Yung & Co, for the plaintiff

The 2^nd defendant was in person