Field Finance Ltd v. Sit Ka Man
Read the full judgment text of DCCJ 828/2019 on BabelCite. This District Court judgment was delivered on 26 August 2021.
1. This is the trial of two consolidated actions.
Cited by 4 cases · Cites 9 cases
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DCCJ 828/2019 [2021] HKDC 864 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 828 OF 2019 -------------------------
------------------------- IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 318 OF 2019 -------------------------
(Consolidated by the Order of Master Catherine Cheng dated the 10th day of April 2019) ------------------------- Before: Deputy District Judge Tara Liao in Court Dates of hearing: 7-9 June 2021 and 5 July 2021 Dates of Supplemental Written Submissions: 16 July 2021 & 5 August 2021 Date of Judgment: 26 August 2021 ----------------------- JUDGMENT ----------------------- A. INTRODUCTION 1.This is the trial of two consolidated actions. 2.The Plaintiff is a money lender licensed under the Money Lenders Ordinance (Cap 163) (“MLO”) seeking to enforce the loan agreement dated 16 August 2018 (the “Loan Agreement”) pursuant to which the Plaintiff advanced a loan of HK$1,800,000 to the defendant (“Mr Sit”), which was secured by a second legal charge (the “Second Legal Charge”) over a property solely owned by Mr Sit. The Plaintiff also seeks an order for the delivery of vacant possession of the Property. 3.It is the parties’ common ground that:-
4.At trial, Counsel for the Plaintiff Ms Kwok fairly concedes that the HK$108,000 retained by PTFW on its behalf should be deducted from the principal sum and the Plaintiff only seeks to recover the principal sum of HK$1,692,000 and interest accrued on the sum. 5.Mr Sit’s case is that he was induced into entering into the Loan Agreement by a Mr Yip, a Mr Shek who held themselves out as representatives of a company “Fung Ming Global Int’l Limited” (“Fung Ming”) and who acted in collusion with the Plaintiff. Mr Sit alleged that of the loan proceeds received from the Plaintiff on 16 August 2018, he was induced into paying HK$1,442,000 to Mr Shek on the same day. By way of counterclaim, Mr Sit seeks:-
6.Although not expressly pleaded in Mr Sit’s Defence and Counterclaim, it was indicated in the opening submissions of Mr Cheng (Counsel for Mr Sit) that insofar as necessary, Mr Sit also seeks to rely on section 25 of the MLO to reopen the transaction on the basis that the transaction is extortionate. 7.As it has transpired, methods which were allegedly designed to expedite payment of loan proceeds to those acting in collusion with the Plaintiff, ie the Split-Cheque Arrangement and the release of funds from PTFW’s BEA account[1], became the subject of much contention at trial. B. THE PLAINTIFF’S EVIDENCE 8.The Plaintiff called three witnesses at trial:-
9.In assessing the credibility of a witness, the court normally attaches much weight to undisputed contemporaneous documents, inherent probabilities, motive or the lack of it, logic and common sense (see Hui Cheung Fai v Daiwa Development Ltd, unrep, HCA 1734/2009, at §§76-83) B1. Mr Chang’s evidence 10.Mr Chang’s evidence in chief is in summary as follows:-
11.During cross examination, Mr Chang stated:-
12.I note that Mr Chang appeared to be rather defensive at times in particular when he was questioned about the Plaintiff’s dealings with intermediaries and the preparation of the loan documents. In his attempt to avoid Counsel’s questions regarding the Plaintiff’s practice in the preparation of loan documents, Mr Chang said the Plaintiff used several law firms in these loan transactions, but he was unable to name any one of them other than PTFW. His evidence in this regard is also contradicted by Mr Chan who unequivocally confirmed that during his employment with the Plaintiff he only ever worked with PTFW. This is not a material matter per se in the context of this case but it does call into question Mr Chang’s credibility as a witness. B2. Mr Chan’s evidence 13.Mr Chan was the Plaintiff’s employee at the time until he left the Plaintiff’s employment in January 2020. He was responsible for contacting and meeting clients and arranging for the execution of loan documents with clients. He would also liaise with Ms Lai of PTFW to arrange for meetings with clients at PTFW’s office but he was not responsible for the preparation of loan documents, which were prepared by the two administrative staff of the Plaintiff. 14.Mr Chan said he received instructions from Mr Chang that the Plaintiff had received Mr Sit’s online application and pre-approved HK$1,800,000 loan to the defendant with mortgage. Therefore he called Mr Sit on 14 August 2018 on behalf of the Plaintiff. According to Mr Chan’s witness statement, in that telephone conversation:-
15.During cross examination, Mr Chan confirmed that this was the very first time he ever contacted Mr Sit on behalf of the Plaintiff. According to Mr Chan’s telephone record, this conversation with Mr Sit on 14 August 2018 lasted for no more than one minute. It was put to him on behalf of Mr Sit that Mr Chan did not talk Mr Sit through all those matters as he alleged, as Mr Chan could not have managed to go through all those matters within one minute. There is force in this observation. Mr Chan maintained that he should have gone through those matters with Mr Sit as these were mandated under the Plaintiff’s internal guideline. However, he acknowledged that during his employment with the Plaintiff he had many calls with prospective borrowers routinely and could not possibly recall every detail of these calls. 16.In any event, as the evidence unfolds, it transpired that the accuracy of Mr Chan’s recollection of the call is not so material as the date of the call, which is not in question. 17.In cross examination, Mr Chan confirmed that on 15 August 2018:-
18.On 16 August 2018, Mr Chan met with Mr Sit and talked him through a number of documents. The meeting lasted for 20-30 minutes but only part of the process (around 7 minutes) was recorded on tape. According to Mr Chan, this was done pursuant to the Plaintiff’s internal guideline which emphasised the need to ensure that no intermediary was involved in loan transactions. It appears from the video recording that after Mr Chan read out the relevant parts of a confirmation form and asked Mr Sit to confirm that no intermediary was involved in the arrangement/obtaining of the loan and no one requested him to make any payment from the proceeds of the loan, Mr Sit signed the confirmation form. 19.When asked what he would have done if a borrower told him in the process that an intermediary was involved, Mr Chan said that according to the Plaintiff’s guideline he would stop the process and report to Mr Chang immediately. However, he said during his time with the Plaintiff, he had never come across such a situation. 20.There was some confusion on Mr Chan’s part when he was asked to confirm whether he had seen certain documents setting out distribution of the loan proceeds. However, he was very clear that he did not give Ms Lai any instructions on the Split-Cheque Arrangement; he said it was Ms Lai who informed him of the Split-Cheque Arrangement and he accordingly informed Mr Sit of this in the unrecorded part of the meeting. Mr Chan said he recalled that PTFW started the practice of splitting cheques at some time before Mr Sit’s case but he was not sure why PTFW adopted this practice. 21.I find Mr Chan to be a generally forthcoming and honest witness. Although he did not address the Split-Cheque Arrangement in the witness statement, his answer in the witness box as to his knowledge of this matter was spontaneous and direct. His answer was also consistent with Ms Lai’s evidence. It is understandable that his recollection of the details may not be entirely accurate due to the passage of time, but he was mostly quick to accept his mistakes when directed to a relevant contemporaneous document and I find that the material aspects of his evidence reliable. B3. Ms Lai’s evidence 22.Ms Lai was a clerk of PTFW from May 2016 to April 2019 and she handled loan transactions for money lenders who were PTFW’s clients including the Plaintiff. 23.In her witness statement, Ms Lai said she received phone calls from Mr Chan on 15 August 2018 to arrange for a meeting with Mr Sit in PTFW on 16 August 2018 and gave her instructions to prepare legal documents and cheques the next day. During cross examination, Ms Lai’s attention was drawn to a note dated 10 August 2018 issued by PTFW’s account department confirming that HK$1.8 million was received from the Plaintiff to be used as Mr Sit’s mortgage money to be secured by the Property. She then confirmed that in that case she should have received instructions from the Plaintiff about Mr Sit’s case at least with respect to the Property and the loan amount on 10 August 2018. 24.In her witness statement, Ms Lai said that PTFW usually released loan proceeds from its BEA account as the Plaintiff usually deposited the loan proceeds into PTFW’s account and PTFW therefore released funds from the BEA account directly in order to reduce bank charges. 25.As to the Split-Cheque Arrangement:-
26.Mr Cheng submits that Ms Lai’s evidence is not reliable, and the letter setting out the Split-Cheque Arrangement is a self-serving document, on the basis that it was completely unnecessary given that the Plaintiff already prepared the letter setting out the three-way division of the loan proceed. 27.I am not persuaded that it is sound to draw such an inference because it could equally be said that the fact that Ms Lai prepared the letter setting out the Split-Cheque Arrangement on top of the Plaintiff’s letter setting out the three-way division of the loan proceeds tends to corroborate her evidence that the Split-Cheque Arrangement was initiated on PTFW’s end and rather than from the Plaintiff. 28.Overall, I find Ms Lai to be an honest and forthcoming witness. Her evidence with respect to the Split-Cheque Arrangement is also consistent with Mr Chan’s evidence. I accept her evidence in this regard. C. THE DEFENDANT’S EVIDENCE 29.Mr Sit previously worked as a foreman and started his own refurbishment business towards the end of 2016; it was not profitable and was closed down in February 2018. By that time he owed around HK$700,000 to his contractors and suppliers. After closing down his business, he worked as a supervisor. Although figures varying from HK$30,000 to HK$37,692 were given as Mr Sit’s monthly income in 2018 in Mr Sit’s witness statement and various documentary evidence (including payroll receipts issued by his employer and his HSBC transaction record which were received by the Plaintiff online), the difference is not material for the present purpose. 30.Mr Sit said he applied the proceeds from the PrimeCredit Loan and the UA Loan to settle debts to his contractors and suppliers, following which the outstanding sum was around HK$300,000 to HK$400,000 in August 2018. He was keen to clear all his debts to his contractors and suppliers. 31.According to Mr Sit’s witness statement:-
32.Pausing here, I note that this part of Mr Sit’s witness statement is largely consistent with his evidence at trial, save that in cross examination, he said he could not recall whether he learned about the address of PTFW from Mr Yip over the phone, or whether he learned about it from Mr Chan’s Whatsapp message. Save for this detail, Mr Sit’s evidence is largely consistent with the contemporaneous evidence:-
33.As to his contact with Mr Chan, Mr Sit said he did not recall receiving the call on 14 August 2018 from Mr Chan at all. This is perhaps not surprising, since according to Mr Chan’s telephone record, the conversation lasted for no more than 1 minute. But Mr Sit confirmed that he received Mr Chan’s Whatsapp message on 15 August 2018 informing him of the meeting on 16 August 2018 at PTFW. 34.Mr Sit’s account of the events on 16 August 2018 in his witness statement is in summary as follows:-
35.As recorded on tape, Mr Chan asked Mr Sit to confirm inter alia that (1) it was an online application, (2) no affiliates, staff or agents of the Plaintiff were involved or would receive any commission in the loan, (3) no intermediary was involved or charged any fees, and (4) no individual/institution asked Mr Sit to pass the loan proceeds or any part of it to them. Mr Sit signed the relevant confirmation as requested. 36.When Mr Sit was asked why he signed the confirmation despite knowing the involvement of Fung Ming, Mr Shek and Mr Yip, he said he simply did not pay attention to what Mr Chan said at all or read the documents in detail even though he knew that as a result of the Second Legal Charge he could lose the Property if he defaulted. He said this is because in his mind the bulk of the loan would be repaid immediately and it was just an intermediate step towards the revolving facility application he had discussed with Mr Yip and Mr Shek. 37.Mr Sit confirmed that Ms Lai did inform him of the Split-Cheque Arrangement, which he accepted without question. As to whether he received copies of the loan documents, Mr Sit evidence in the witness statement was that he never did but he admitted during cross examination that he could not remember whether he received them or not. 38.Mr Sit continued to be in touch with Mr Yip who requested him to provide various documents for the purpose of the revolving facility, and only realised that he had been scammed when he was directed by Mr Yip to visit a manager at an ICBC branch in November 2018 but was told that there was no such person upon visiting the branch. Since then he was unable to contact Mr Yip or Mr Shek. 39.Ms Kwok submits that Mr Sit’s evidence is not credible for a number of reasons:-
40.I also find Mr Sit’s trust in Mr Yip and Mr Shek illogical and with respect, his lack of judgment most unfortunate. However, Mr Sit strikes me as an unsophisticated and somewhat naïve individual. He gave evidence in a forthcoming manner. While he was not always accurate in his recollection of details, he was generally quick to admit to his mistakes or concede that his recollection was not clear when he was confronted with contemporaneous evidence without any attempt to make up excuses. He also did not try to spin his evidence to his advantage: an example was when he was asked to describe the floor on which both Fung Ming and a registered agent of the Plaintiff was situated, he simply admitted that he did not pay any attention to the offices on that floor without any exaggeration. More importantly, as I observed above, material aspects of Mr Sit’s account are largely consistent with contemporaneous evidence. 41.As to documents relating to the UA Loan/PrimeCredit Loan which were submitted to the Plaintiff online on 9 August 2018, Mr Cheng submits that these are older documents which may have been obtained by Mr Yip/Mr Shek via channels other than Mr Sit. The only up-to-date document submitted to the Plaintiff online on 9 August 2018 was Mr Sit’s HSBC transaction record from 29 June 2018 to 6 August 2018 which he provided to Mr Yip by Whatsapp on the same date. 42.Further, in a WhatsApp message sent by Mr Yip to Mr Sit on 24 September 2018, Mr Yip seemed to be under the impression that the amount of the loan was HK$2,000,000 rather than HK$1,800,000 which was the amount eventually approved by the Plaintiff. It is conceivable that Mr Yip had that impression because he had a hand in or was aware of the online application which asked for HK$2,000,000 instead of HK$1,800,000. 43.There is no evidence before me to conclude one way or another the source of documents relating to the UA Loan/PrimeCredit Loan which were submitted to the Plaintiff online on 9 August 2018. 44.However, the material question is not who submitted the online application but whether Mr Sit approached the Plaintiff on his own volition via the online application or whether the online application was a step choreographed by Mr Yip/Mr Shek/Fung Ming in their plan. The fact that Mr Sit continued to follow Mr Yip’s instructions and send further supporting documents to Mr Yip (and not directly to the Plaintiff) subsequent to the online application suggests that it is the later. 45.Regardless of who submitted the online application, the overall picture as reflected by the available evidence (in particular the Whatsapp messages between Mr Sit and Mr Yip, the authenticity of which is not disputed by Ms Kwok) shows that Mr Sit was following Mr Yip’s instructions faithfully almost every step of the way. I do not consider this particularly surprising, having observed Mr Sit giving evidence in person and finding him to be unsophisticated and somewhat naïve. Mr Sit’s concealment of Fung Ming’s involvement from the Plaintiff is merely the evidence of his blind following of Mr Yip and Mr Shek’s instructions rather than any deliberate deception on his part. I find Mr Sit to be an honest witness and accept material aspects of his evidence. 46.As further discussed in paragraph 54 below, when Mr Sit’s evidence, the Whatsapp messages and the other contemporaneous documentary evidence are considered as a whole, the overall picture is that Mr Sit’s actions and the Plaintiff’s processing of the loan are highly in sync with the matters discussed in the Whatsapp messages between Mr Yip and Mr Sit, even before 14 August 2018 when Mr Chan made the first contact with Mr Sit on behalf of the Plaintiff. D. WHETEHR SECTIONS 27 & 29 ARE ENGAGED D1. Applicable principles 47.The relevant part of section 27(3) of the MLO reads as follows:-
48.Section 29(10) provides as follows:-
49.The legal principles in relation to collusion are trite. In summary:-
50.As to the burden and standard of proof of collusion, whilst the standard of proof remains the balance of probabilities, when assessing the probabilities, the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probabilities. (China Yinsheng Finance Limited v Wong Ping Shing [2020] HKCFI 3072 at §30, citing §69 of Chun Sang Plastics Company Limited v Y. T. Cheng (Ching Tai) Limited & Ors [2011] 4 HKLRD 74. 51.In Chan Suk Fong, Kwan JA held at §35 that in deciding whether the defrauded monies would come within “costs, charges or expenses” or “remuneration or reward” of the plaintiff’s loan:-
D2. Whether there was collusion 52.Mr Cheng submits that the inference of collusion between the Plaintiff and Mr Yip/Mr Shek/Fung Ming can be drawn from the following circumstances:-
53.Collusion is of course a serious allegation. I bear in mind the principles set out in paragraphs 49-50 above and that such an inference should only be drawn where it is justified by the primary facts, and set out my analysis of the facts and evidence below. 54.First, as I observed at paragraph 46 above, one notable feature is that the Plaintiff’s processing of the loan appears to be highly in sync with the matters discussed in the Whatsapp messages between Mr Yip and Mr Sit even before the Plaintiff’s first contact with Mr Sit on 14 August 2018. In particular, the following matters are inexplicable unless Mr Yip/Mr Shek/Fung Ming’s camp had direct communication with the Plaintiff:-
55.Second, although I accept the material aspects of Mr Chan and Ms Lai’s evidence, their evidence provides no answer to the matters set out at paragraph 54 above. It is entirely conceivable that Mr Chan and Ms Lai had no knowledge of the collusion, and the collusion stemmed from somewhere else within the Plaintiff. Viewed in this context, the various confirmations Mr Chan had Mr Sit sign are no more than self-serving documents and a façade designed to conceal the involvement of intermediaries. 56.Third, although there is no direct evidence as to the Plaintiff’s knowledge of the precise way in which Mr Yip, Mr Shek/Fung Ming were to extract a financial reward, given that the Plaintiff was aware that intermediaries were involved, it can be safely inferred that the Plaintiff must have expected that the intermediaries would derive a financial award in some way even though it might not know precisely how. Since I accept Mr Chan and Ms Lai’s evidence that the Split-Cheque Arrangement was initiated by PTFW and not on the Plaintiff’s instructions, I do not take into account the Split-Cheque Arrangement in the finding of collusion. 57.Fourth, there is no question that the Loan Agreement and the Second Legal Charge were to Mr Sit’s detriment. His monthly earnings were insufficient to cover monthly payments to the Plaintiff and the other creditors, which put him at considerable risk of defaulting under the Loan Agreement and losing the Property. This would have been plain to the Plaintiff and Mr Yip/Mr Shek/Fung Ming. 58.Having said that, I do not think the Plaintiff’s casual attitude in the approval of the loan and the disregard for Mr Sit’s ability to repay can, without more, be regarded as evidence that the Plaintiff expected to recoup a substantial part of the loan proceeds from the financial award Mr Yip/Mr Shek/Fung Ming extracted from the Plaintiff. I do not think it is commercially unreasonable for the Plaintiff as a money lender to take the view that its interest would be sufficiently secured by the Second Legal Charge. I also discuss at paragraphs 60-61 below the evidence which tends to show that the extent and scope of the collusion was somewhat limited. However, for the purpose of finding collusion under section 27(3) and (4) it is unnecessary for me to find that the collusion went that far or was that specific. 59.Fifth, as to Mr Yip’s request for Mr Sit to open a BEA account, I agree with Ms Kwok that this of and in itself is not necessarily indicative of insider knowledge on Mr Yip’s part, since anyone who had past dealings with the Plaintiff might learn that the Plaintiff usually released loan proceeds via PTFW’s BEA account. I observe that this is consistent with Mr Sit’s case that Mr Yip had insider knowledge, and I put it no higher than that. 60.Sixth, Ms Kwok relies on the WhatsApp message sent by Mr Yip to Mr Sit on 24 September 2018 where Mr Yip seemed to be under the impression that the amount of the loan was HK$2,000,000 rather than HK$1,800,000. Ms Kwok submits that this contradicts the allegation that Mr Yip and the Plaintiff were “playing the same game”. 61.However, taking account of the evidence as a whole (in particular the matters set out at paragraph 54 above), this only shows that the extent and scope of the collusion is probably limited; it does not serve to negate the existence of the collusion. After all, collusion in the context of sections 27(3) and (4) is a wider concept than conspiracy; there was no need to establish a prior agreement and some tacit understanding or cooperation may suffice. (see Ever-Long Finance Ltd v Yeung Wah Lung [2017]1 HKLRD 500 and E-Way (Hong Kong) Property Credit Limited at §75) 62.Ms Kwok’s other submissions rest largely on the credibility of Mr Sit’s evidence in particular his concealment of Mr Yip/Mr Shek/Fung Ming’s involvement from the Plaintiff, which I have dealt with at paragraphs 39-45 above. 63.In these circumstances, the inferences of collusion are compelling. I find that there is on the balance of probabilities collusion between Mr Yip, Mr Shek/Fung Ming on the one hand and the Plaintiff on the other in that there was some tacit understanding and cooperation to induce Mr Sit into entering into the Loan Agreement and the Second Legal Charge to Mr Sit’s detriment and for Mr Yip, Mr Shek/Fung Ming to derive some financial reward. D3. Consequence of collusion 64.For the purpose of ascertaining “remuneration or reward” received by persons acting in collusion with the Plaintiff in obtaining the loan for Mr Sit, it is not necessary to find that the Plaintiff was somehow involved in the fraud pertaining to the payments to the fraudsters, and the object of the Plaintiff’s collusion is irrelevant (Chan Suk Fong at §35). 65.Having regard to the true nature or substance of the payments (and not with regard to the falsehood under which Mr Sit was labouring under), it is clear that the sum of HK$1,442,000 was charged by Mr Shek and his camp as financial reward in obtaining the loan transaction. For this sum to constitute “remuneration or reward” under section 27(3) of the MLO, it is not necessary to find that the Plaintiff was somehow involved in the payment to Mr Shek and his camp. 66.Accordingly, I find that the sum of HK$1,442,000 is recoverable from the Plaintiff under section 27(4) of the MLO and Mr Sit is entitled to set off this sum against the amount actually lent under the Loan Agreement. E. WHETHER INTEREST WAS EXCESSIVE E1. What is the principal 67.Under section 2(1) of the MLO, “principal” in relation to a loan means “the amount actually lent”. 68.In Chan Suk Fong at §§60-68, the Court found that only the upfront fee charged by the plaintiff and the proceeds of the cash cheque (but not the cross cheque) issued to the defendant should be deducted from the contractual sum of HK$1 million to arrive at “the amount actually lent”. In coming to the conclusion that the proceeds of the cash cheque should be deducted, Kwan JA held at §66:-
69.I do not understand Kwan JA to be mean that where a cash cheque was used it must invariably be inferred that the lender expected an intermediary to be remunerated out of the proceeds of the cash cheque. Mr Cheng accepts that, properly understood, Kwan JA was saying if it can be inferred from the evidence that a certain payment method was used by the lender to facilitate or expediate payment to the intermediary, such payment should be deducted from the principal. Whether or not a certain sum (whether derived from a cash cheque or some other payment method) should be deducted from the principal must depend on the circumstances of each case. 70.Mr Cheng draws support from §66 of Chan Suk Fong and argues that:-
71.I am unable to accept Mr Cheng’s submissions. On the facts of this case:-
72.In these circumstances, I do not think that there is sufficient basis to justify the deduction of HK$1,442,000 or HK$721,000 from the principal. I therefore find that the principal should be HK$1,692,000 (ie HK$1,800,000 minus HK$108,000). E2. What is the interest 73.Section 2(1) of the MLO provides that “interest” “does not include any sum lawfully agreed to be paid in accordance with this Ordinance on account of stamp duty or other similar duty, but save as aforesaid includes any amount (by whatever name called) in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan”. (emphasis added) 74.Even where the Court finds collusion between the lender and the intermediary and that a sum paid to an intermediary is caught by s.27(4) of the MLO on that basis, it does not automatically follow that the sum paid to the intermediary must be regarded as “interest” under s.2(1). (See Chan Suk Fong at §54; see also E-way (Hong Kong) Property Credit Ltd at §100) 75.To qualify as “interest” under section 2(1), the sum must be paid or payable in consideration of or otherwise in respect of a loan, but there is no requirement that it must be paid to the lender or the lender’s agent:-
E2.1 Whether the defrauded monies constitute interest 76.In the present case, Mr Cheng is not suggesting that the HK$1,442,000 or any part of it should be regarded as interest. Indeed there is no evidence that the HK$1,442,000 or any part of it was paid or payable in consideration of or otherwise in respect of the loan:-
77.In the premises, neither the HK$1,442,000 nor the HK$721,000 derived from the cash cheque should be regarded as a sum which must be paid or payable in consideration of or otherwise in respect of a loan. Consequently, neither sum qualifies as interest under section 2(1) of the MLO. E2.2 How should the upfront payment of HK$108,000 be accounted for 78.Initially, both parties’ closing submissions suggest that the effective interest should be HK$540,000 consisting of the contractual interest of HK$432,000 and HK$108,000 which was retained on behalf of the Plaintiff on the day of the drawdown. 79.However, there is no dispute between the parties that the upfront payment of HK$108,000 was retained as interest payments for September to November 2018[4]. I therefore direct parties to file further submissions to explain why the contractual interest of HK$432,000 has not taken account of the HK$108,000 already, and why the effective interest should be HK$540,000 and not HK$432,000. 80.Ms Kwok accepts that the effective interest should be HK$432,000 in her written submissions dated 5 August 2021. 81.Mr Cheng relies on Skyline Credit, in which Deputy High Court Judge William Wong SC took into account the upfront payment of HK$49,680 in that case in addition to the contractual interest of the loan in dispute in calculating the effective interest. In his written submissions dated 5 August 2021, Mr Cheng (who was counsel for the Plaintiff in Skyline Credit) enclosed the defendant’s witness statement in Skyline Credit in support of his contention. 82.I decline to take into account the said witness statement, for the following reasons:
83.Contrary to Mr Cheng’s submissions, I am unable to discern any finding in the Skyline Credit judgment by the learned Deputy High Court Judge that the upfront payment of HK$49,680 or any part of it formed part of the contractual interest of the loan in dispute in that case, or that it should be accounted for twice in the calculation of effective interest:
84.It is clear to me that in Skyline Credit, the sum of HK$49,680 was accounted for once only in the calculation of effective interest. 85.The other case which the parties rely on to suggest that the upfront payment of HK$108,000 should be accounted for twice in the calculation of interest is Chan Suk Fong. With respect, such reliance is misplaced. In that case, the upfront payment of HK$37,000 was characterized as an upfront fee/legal fee (see §19 therein), and appears to be an amount paid/payable in addition to the contractual interest. The upfront payment was therefore accounted for once only in the calculation of effective interest. 86.I appreciate that confusion may arise in the calculation of effective interest with respect to upfront payments, but I am unable to discern any general principle from the authorities that an upfront payment must be accounted for in addition to the contractual interest, regardless of whether the contractual interest already takes account of such an upfront payment or not.Ultimately, the question is quite simply what is the amount in excess of principal which “has been or is to be paid or payable in consideration of or otherwise in respect of a loan” (see section 2 of the MLO, and Chan Suk Fong §§37, 53-55). 87.In the present case, other than the contractual interest of HK$432,000 which already takes into account the upfront payment of HK$108,000, there is no evidence that any other sum was paid or payable in consideration of or otherwise in respect of the Loan. 88.Accordingly, I find that only the contractual interest of HK$432,000 (and not HK$540,000) was paid or payable in consideration of or otherwise in respect of the Loan, and the effective interest is HK$432,000. The effective interest rate is therefore approximately 25.53% (being (430,000/1,692,000)*100%). E3. Discretion under section 25 MLO? 89.There is no particulars in the Defence and Counterclaim on which Mr Sit relies to show that the transaction was extortionate and should be reopened under section 25 of the MLO. In the opening and closing submissions, Mr Cheng relies on (1) the effective interest rate which he submits was in excess of 48%, and (2) the fact that the Plaintiff knew full well that Mr Sit would be unable to repay the loan (see paragraph 52(3) above). Other than these two points, I am unable to detect any factors referred to at section 25(4)-(6) of the MLO in Mr Cheng’s submissions. 90.Given that I have found that the effective interest rate was 25.53%, the first point does not arise. As to the second point, mere business immorality is insufficient to characterise the transaction as extortionate under section 25 of the MLO (see E-way (Hong Kong) Property Credit Ltd at §§102-103). 91.I therefore do not see any basis to reopen the transaction under section 25 of the MLO. F. DISPOSITION 92.I therefore hold that Mr Sit is entitled to set off HK$1,442,000 against the HK1,692,000 being the amount actually lent under the Loan Agreement pursuant to section 27(4) of the MLO. Given my finding on the other matters, this does not otherwise affect the validity of the Loan Agreement or the Second Legal Charge. 93.Mr Cheng confirmed that Mr Sit is willing and able to repay the sum of HK$250,000 together with interest at the contractual rate of 24% per annum to the Plaintiff in the event the Court finds him liable to do so. Mr Sit as the sole owner of the Property retains the equity of redemption and is entitled to redeem the Second Legal Charge. The equity of redemption remains exercisable even after default. (Ding Huirong v China Times Securities Limited [2020] HKCFI 376 at §§37-46, see also [2021] HKCA 419 at §§50-58; Hengshi International Investments Limited v Bayspring International Limited and Another, unreported, HCMP 1916/2015, 18 December 2015, §§26 and 62) 94.In these circumstances, it is not appropriate to make an order for the delivery of vacant possession of the Property, even though Mr Sit may be technically in default of repayment of the principal sum of HK$250,000 and interest under the Loan Agreement. Should Mr Sit continue to fail to repay the amount found due under the Loan Agreement in this Judgment, the Plaintiff is free to seek remedies under the Loan Agreement and the Second Legal Charge which remain available to it. 95.Accordingly, I made the following Orders:-
96.I thank counsel for their assistance.
Ms Breanne Kwok, instructed by K B Chau & Co, for the plaintiff Mr Victor Y C Cheng, instructed by Lui & Law, for the defendant [1] Mr Sit’s case is that just before the drawdown of the loan, he opened a BEA account upon the request of Mr Yip, which expedited the withdrawal and payment of the loan proceeds to Mr Shek and his camp. [2] In his witness statement, Mr Chang stated that he deposited HK$1.8 million to PTFW’s account on 14 August 2018, but during evidence in chief at trial, he corrected his statement and stated that he should have done so on 10 August 2018, as evidenced by the record of PTFW. [3] The Plaintiff has 5 registered intermediaries in total, two of which were registered in 2020 and not relevant for the present purpose. The other three were registered in 2016, one of which has an address which is on the same floor of as Fung Ming. [4] While Mr Chan sent a Whatsapp message to Mr Sit on 7 November 2018 to ask him to pay interest for November 2018, Mr Chan’s evidence at trial was that this was sent by mistake as the interest for November 2018 was covered by the upfront payment of HK$108,000. His evidence in this regard was not challenged. | ||||||||||||||||||||||||||
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