Parklane Mortgage Services Ltd v. Li Ho Jacob

HCA 1133/2019

[2021] HKCFI 537

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1133 OF 2019

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Before: Mr Recorder Manzoni, SC, in Chambers (Open to the Public)

Date of Hearing: 22 February 2021

Date of Decision: 22 February 2021

Date of Reasons for Decision: 17 March 2021

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REASONS FOR DECISION

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1.On 8 January 2020, the plaintiff applied for summary judgment against the defendant in respect of a loan which it had made to the defendant.

2.By a decision dated 20 August 2020, Master Anthony H K Chan gave the defendant conditional leave to defend, the condition being that unless the defendant pays HK$4,782,842 into court within 28 days from the date thereof, the plaintiff may enter final judgment against the defendant in the amount of the statement of claim dated 24 June 2019 with interest thereon and as claimed and costs.

3.The defendant lodged an appeal against that order on 30 September 2020 which it is accepted was out of time.  The defendant is seeking an extension of time or, alternatively, leave to appeal out of time as well as seeking to appeal the decision. 

4.Insofar as the application is made out of time the plaintiff accepts that the delay is not substantial and it suggests that what I should do is to look at the merits of the defence and make an assessment as against those merits. 

5.In this context, I accept that there has been some explanation for the delay and that the most important question for the court is to make an assessment of what is the best way  to secure the just resolution of the dispute.  Therefore, I turn to the merits of the defence.

6.The loan which is being sued upon is the third loan of a series which had been made.  The first one was dated 27 July 2018 and that was then rolled into a second loan on 23 August 2018 which itself was also rolled into a third loan, the loan that these proceedings are based upon, dated 3 October 2018.  The loan amount is stated on the written loan agreement as being in the sum of HK$4 million with a monthly interest rate of 2.2 per cent giving an effective annual interest rate of 26.4 per cent.

7.There are written terms of the loan agreement which do not appear to be in dispute and in addition to the written terms it appears that there are numerous other documents that the defendant was required to sign contemporaneously with the loan document and which there is no dispute effectively form part of the loan agreement.

8.The defendant essentially puts up four primary defences.  The first is that the plaintiff has failed to plead within the statement of claim that the loan was a “rollover” loan such that it was deemed paid by the payment or the repayment of the second loan.  The defendant seems to suggest that this means no consideration has been received for the third loan and, therefore, the pleading in itself is defective.  I do not agree. 

9.It seems to me inevitable that as a matter of pleading, as opposed to a question under the Money Lenders Ordinance which I shall address separately, the loan is effective and consideration is validly given by using the money under the loan to repay the second loan.  Therefore, I do not consider the lack of a pleading of the rollover such as to render the statement of claim defective.

10.The second defence is related to the same point.  The second defence contends that under section 18(2) of the Money Lenders Ordinance (Cap 163) it is a requirement, subject to the exercise of a discretion by the court under subsection (3), that the note or memorandum of the loan shall contain all the terms of the agreement including various particulars set out within that subsection.

11.The defendant complains that the loan agreement does not set out all of the terms because it does not set out that one of the conditions of the loan was that it should, in fact, be used to repay the second loan.  In this context, the defendant relies upon a decision of du Parcq J in Egan v Langham Investments Limited [1937] 1 KB 667, which was a decision under the Money Lenders Act of 1927 in the United Kingdom which was similar to section 18 of the Money Lenders Ordinance in Hong Kong.

12.Du Parcq J commented that section 27 required the memorandum of the agreement to set out all terms including a term that the money under the loan was to be used to repay a prior loan that had been taken out.  I do not understand it to be disputed that the written agreement for the third loan  did not include such a requirement.

13.It seems to me that there is the essence of a defence in relation to this point.  It may or may not work either under the terms of the Money Lenders Ordinance itself, which is not something I have identified with great particularity and I have not been shown any particular cases under that ordinance which may make good the proposition.  It may also depend upon various of the communications that passed between the parties at or around that time.  However, at this stage, I am not prepared to say that the defence is so vague as to be simply moonshine.

14.The third defence is that there is an excessive interest rate which according to the two appendices to the defendant’s skeleton run to approximately, if not slightly over, 60 per cent.  The defendant gets to that position by taking into account various payments which he made for, he says, the purposes of the loan to, in particular, a Mr Leung and a Mr So, as well as the sum of HK$7,000 paid as legal fees.

15.He says that under the ordinance all of those payments are properly to be taken into account and if one does take that into account, it gives rise to an effective interest rate of 76 per cent on one basis and 62 per cent on another basis, each of these bases having been set out in appendix 1 and 2 to the skeleton arguments.

16.Mr Wong on behalf of the plaintiff says that is wrong.  He says, first of all, that there is no evidence that Mr Leung and/or Mr So are, in fact, connected with the plaintiff and he points to the affidavit evidence which confirms that as far as the plaintiff is concerned.  He also says that if one actually takes into account the payments to Mr Leung and Mr So the interest rate only comes out at 34 per cent, rather than the 60 per cent, and he says that 34 per cent is a reasonable rate of interest, in any event.

17.I am not in a position to be able to resolve those disputes and it seems to me that once again this is something that probably ought to go to trial in order properly to be resolved.

18.The fourth defence which is run by the defendant is that contrary to section 18 there are various particulars within the agreement which are not correct.  In particular, the agreement identifies the loan amount in the sum of 4 million, whereas according to the defendant it should be somewhat less because one has to take into account legal fees and other payments that had to be made.

19.He says that one of the contemporaneous documents which forms an annex (and in particular the translation of which is at page 76 of the bundle) says that there is no security for the agreement but, in fact, there is security in the form of a mortgage over property, that mortgage also being contained in the bundle.  He says that it identifies the interest rate at 26.4 per cent, but when one calculates it properly by reference to the Money Lenders Ordinance it is, in fact, over 60 per cent.

20.The most obvious error appears in the repayment date. Page 76 of the bundle identifies the repayment of the mortgage as being due on 3 October 2018, whereas in the repayment schedule in the agreement itself it is shown as being on 3 November 2018.  That is an obvious error contained within the documents.  It seems to me that once again whether that invalidates or has any effect under section 18 is something which ought to be addressed.

21.Mr Tsui on behalf of the defendant refers also to various aspects of the way in which the defendant says the plaintiff has behaved inappropriately.  He asks the court to (to use his words) investigate the matter.  I decline tocomment on those matters.  It seems to me that the only way in which this court can make an assessment of where the justice lies is by reference to the law and not by reference to some arbitrary assessment of whether there has been or has not been bad behaviour.

22.Mr Wong on behalf of the plaintiff has pointed out that none of the matters which Mr Tsui has raised on behalf of the defendant are, in fact, pleaded by the defendant in his defence.  There may be some merit in that proposition, but I accept what Mr Tsui said in reply that the defence was drafted by the defendant whilst acting in person, and it is not always the case that a defendant acting in person is able to analyse matters with quite the clarity that lawyers should be able to when they are instructed. 

23.Therefore, although they are not pleaded with the sort of particularity that one would expect, it seems to me that on an Order 14 application the court should have regard to what the case really is rather than what the pleadings actually say. 

24.Certainly, insofar as a plaintiff is concerned, it has always been my understanding of the law that when a plaintiff comes to court seeking Order 14, its pleadings and its evidence must all be in proper order because it is only on the basis of those documents that the court can possibly grant an Order 14, judgment.  However, insofar as the defence is concerned, a defendant normally, at least in my experience, has a slightly greater leeway to go outside the true ambit of its pleading.

25.There has been some debate before me about the date on which the mortgage was registered but it seems to me that that is not a relevant question for the purposes of this application and, therefore, I do not consider it any further.

26.The question that I must grapple with in the circumstances is what should the court do.  There is an appeal out of time, there are defences which I think probably ought to go to trial, but I do not at this stage see them as being necessarily particularly strong defences.  

27.In my view, given that the application for leave to appeal has been made out of time, given that notwithstanding the absence of a stay, no money has been paid into court even though a stay was applied for and refused in November 2020.  The appropriate course is not to alter from the approach which the master took.

28.I bear in mind the affidavit of means which the defendant has served, and I bear in mind his professed difficulty of raising the finance.  However, he has borrowed the money and even if he is correct about the allegations of breach of the Money Lenders Ordinance, it remains open to the court in all of those circumstances to enforce the agreement if it considers it just and equitable to do so. 

29.I make no assessment of that because the justice and equity of that situation will have to be addressed at trial.  However, it does seem to me to be appropriate that in circumstances where he has borrowed the $4 million, he is and always has or always appears to have worked in the finance industry and so cannot profess complete ignorance as to these matters, it is appropriate that he should be given leave to defend but that it be conditional that he pay the full sum of the claim into court.

30.I have addressed this matter without identifying the extent to which I have, in fact, allowed the appeal to be heard.  I think it is appropriate having regard to the analysis which I have set out that I should allow the appeal to be lodged out of time, but I dismiss the appeal.

31.In all the circumstances, the defendant has leave to defend the claim conditional upon payment of the sum of HK$4,782,842 into court within 28 days of today, failing which, the plaintiff may enter final judgment against the defendant in that amount.

32.I note that this amount is somewhat different to the figure that Mr Wong handed up to me as being what he described as the new and updated calculation of the amounts outstanding.  As I have said, it is incumbent upon the plaintiff to have pleadings in proper order and I do not think it open to the court to give summary judgment on a sum which is not pleaded.  Therefore, I decline to require that sum to be paid into court in those circumstances.  Any subsequent interest or subsequent costs will have to be addressed separately if it ever gets to that stage.  

33.The parties are to draw up an order reflecting this judgment. 

(Submissions on costs)

34.I make a costs order that the defendant is to pay the plaintiff’s costs of the appeal on a summary assessed basis. 

POST SCRIPT

1.  This Judgment was delivered ex tempore on 22 February 2021, and was transcribed later.  Before transcription had occurred the parties had served their respective documents concerning the summary assessment.  As a result, on 17 March 2021 I was able to undertake a summary assessment of the plaintiff’s costs.

2.  The plaintiff claimed a total of HK$102,100.  The defendant raised two objections:

2.1.  A suggestion that 1 hour of attendance on client should be allowed instead of the 4 hours claimed.

2.2.  1 hour for perusal of documents should be allowed instead of 2 hours claimed.

3.  The total reduction sought is HK$14,000.

4.  I allow the reductions, and I summarily assess the plaintiff’s costs at HK$88,100.

Mr Jason Wong, instructed by Matthew Ng & Co, for the plaintiff

Mr Raymond W N Tsui, instructed by Raymond Cheung & Chan, for the defendant