VINSON FINANCE LIMITED v CHU QINGZHU (褚慶祝)

HCA 996/2021

[2022] HKCFI 449

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 996 OF 2021

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Before: Hon Cheng J in Chambers

Date of Hearing: 26 January 2022

Date of Judgment: 24 February 2022

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J U D G M E N T

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A.   INTRODUCTION

1.  By a summons of 2 August 2021, the Plaintiff applied for summary judgment against the 1^st Defendant, and his wife the 2^nd Defendant.  The Plaintiff’s claim is for repayment of a loan in the amount of $170,388.581.00, comprising principal and interest as at 29 June 2021, and interest continuing from 30 June 2021 on the outstanding principal of $103,700,000.  The sums are said to be owed by the 1^st Defendant as borrower, and by the 2^nd Defendant as guarantor.

B.   THE BACKGROUND

2.  The Plaintiff is a licensed money lender.  It says that on 1 November 2019, the 1^st Defendant entered into a loan agreement to borrow $150,000,000 (“the Loan Agreement”), and that the 2^nd Defendant executed a personal guarantee in favour of the Plaintiff (“the Guarantee”), being the security required under the Loan Agreement.

3.  There is no dispute that between 2012 and 2015, the 1^st Defendant took out four loans from the Plaintiff, either directly or in the name of his brother, and that he was unable to make repayments punctually.  In about June 2018, the 1^st Defendant took out a fifth loan from the Plaintiff to pay off the interest under the first four loans.  The Plaintiff says that this was on the 1^st Defendant’s own initiative; the 1^st Defendant says it was done only under pressure.  In about May 2019, the 1^st Defendant took out a sixth loan from the Plaintiff to pay off further amounts under the earlier loans.  Again, the Plaintiff says that this was on the 1^st Defendant’s own initiative, but the 1^st Defendant says that it was on the Plaintiff’s request.

4.  In November 2019, the 1^st Defendant says that he was pressured into procuring the 2^nd Defendant into executing personal guarantees to secure his indebtedness.  He says that on 7 November 2019, they signed some documents in the lobby of the building in which their daughter lived, and he only later learned that they included a seventh and eighth loan agreement (on his part) with the Plaintiff, and two personal guarantees (by the 2^nd Defendant).  The eighth loan agreement is the Loan Agreement which is the subject of the present proceedings.  The corresponding personal guarantee by the 2^nd Defendant is the Guarantee which is the subject of the present proceedings.  The Plaintiff denies giving undue pressure to the 1^st Defendant, and points out that the 1^st Defendant had repeatedly been in breach of his repayment obligations under the various loans.  The drawdown notices for the seventh and eighth loans indicate that the amounts borrowed thereunder were to repay amounts outstanding under the sixth loan.

5.  The 2^nd Defendant also denies that she signed any document on 1 November 2019.  She recalls that at the 1^st Defendant’s request, she signed some documents at the lobby of her daughter’s residence, a few days before a trip to Macau on 15 November 2019.

6.  The evidence of So Man (“Ms So”), a director of the Plaintiff, is that on 1 November 2019, at the Plaintiff’s registered office, the 1^st Defendant signed (1) the Loan Agreement, (2) an acknowledgment of receipt of the Loan Agreement and other related documents, and (3) a drawdown notice.  The principal under the Loan Agreement was thereupon advanced on the same day.  Ms So further says that the 2^nd Defendant executed the Guarantee on the same day, also at the Plaintiff’s office, after the terms of the same were explained to her.

7.  There is no dispute that the 1^st Defendant has, over the years since the making of the first loan, been making intermittent repayments to the Plaintiff for the amounts outstanding under the various loans.

C.   THE DEFENDANTS’ DEFENCES

8.  The 1^st Defendant says that:

 (1)  by reason of s.18(1) of the Money Lenders Ordinance, Cap.163 (“the MLO”), the Loan Agreement is not enforceable as it was not signed before money was lent thereunder;

 (2)  the Plaintiff was in breach of s.7 MLO as the Loan Agreement was not executed at the Plaintiff’s office;

 (3)  the Plaintiff has failed to account for two cheques for repayment of amounts outstanding.

9.  The 2^nd Defendant says that:

 (1)  she signed the Guarantee under the undue influence of the 1^st Defendant, so that it is unenforceable against her;

 (2)  as guarantor, she is entitled to rely on any successful defence relied on by the 1^st Defendant (this would include those under ss.7 and 18 MLO).

C1.   Signing of the Loan Agreement

10.  As mentioned above, the Plaintiff says that the Loan Agreement was executed by the 1^st Defendant at the Plaintiff’s office on 1 November 2019, and that the Guarantee was executed by the 2^nd Defendant at the Plaintiff’s office on the same day.

11.  The 1^st Defendant says that the Plaintiff’s account of events is not correct.  He says that he was pressured into procuring his wife to act as guarantor, and he finally relented on 7 November 2019.  Thereupon Ms So took the documents to the lobby of the Defendants’ daughter’s residence, and the 1^st Defendant took the 2^nd Defendant downstairs to meet Ms So.  After the 2^nd Defendant signed certain documents, she went back upstairs, and the 1^st Defendant stayed on to sign other documents.  The 1^st Defendant says that Ms So did not explain the contents of the documents and they were not sure exactly what they had signed.

12.  This being an application for summary judgment, the issue is whether the 1^st Defendant has raised a credible defence.  It is not the occasion for a mini-trial by affidavit.

13.  In my view, the 1^st Defendant has raised a credible defence that the Loan Agreement was not signed on 1 November 2019, so that s.18(1) MLO is prima facie engaged.

14.  Section 18(1) MLO provides as follows.

“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 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.”

15.  The first piece of evidence relied on by the 1^st Defendant is a transcript of the WeChat texts which he exchanged with Ms So from 1 November to 11 November 2019 (“the WeChat Transcript”).  Those texts show that between 1 November to 6 November, Ms So was chasing the 1^st Defendant to get a document or documents signed.

 (1)  Given the dates of the texts, it is credible that they relate to the loan under the Loan Agreement.  Counsel for the Plaintiff, Mr Sunny Chan, argued that the WeChat Transcript did not refer to either the Loan Agreement or the Guarantee, and must have been referring to something else.  However, Ms So did not provide any explanation in her reply affirmation as to what documents she was chasing to be signed, if they did not relate to the loan under the Loan Agreement.

 (2)  I note that whilst Ms So appeared to be chasing for the signing of a document (or documents) by the 2^nd Defendant rather than the 1^st Defendant, this is not inconsistent with the 1^st Defendant’s claim that Ms So had been pressing him to procure his wife to sign a guarantee, and that it was only at the meeting at the lobby of his daughter’s residence that Ms So also provided documents for the 1^st Defendant to sign.

 (3)  The significance of the WeChat Transcript is that it undermines the Plaintiff’s claim that the 1^st and 2^nd Defendants signed the Loan Agreement and Guarantee respectively on 1 November 2019 at the Plaintiff’s premises.[1]  Even if it could be said that WeChat Transcript only refers to the signing of documents by the 2^nd Defendant and not the 1^st Defendant, this is inconsistent with the Plaintiff’s case that both Defendants signed on 1 November 2019 at the Plaintiff’s premises.

16.  In this regard, I note that another document which the 1^st Defendant is said to have signed on 1 November 2019 is an acknowledgment of receipt of various documents, including a personal guarantee signed by the 2^nd Defendant of the same date.  However, if the Guarantee was not in fact signed by the 2^nd Defendant till 7 November 2019 and therefore could not have been copied for the 1^st Defendant on 1 November 2019, this contradicts the Plaintiff’s case that the 1^st Defendant executed the Loan Agreement and related documents on 1 November 2019.

17.  The 1^st Defendant further says that it was the case with some of the previous loans from the Plaintiff that the relevant loan documentation was not signed on the date stated on the face of such documentation, but instead, after the event, and never at the Plaintiff’s office.  However, whether other agreements between the 1^st Defendant and the Plaintiff were signed on the date stated on the face of the agreements is not necessarily indicative of whether this was the case with the Loan Agreement.

18.  Mr Chan submitted that the 1^st Defendant has all along acknowledged his indebtedness to the Plaintiff and has been making repayments, so that this should sufficiently evidence the existence of the Loan and the 1^st Defendant’s acknowledgment of liability thereunder.  However, whilst it is the case that the 1^st Defendant has all along been making intermittent repayments to the Plaintiff from December 2012 to April 2021 for the various loans obtained from the Plaintiff, there is no evidence currently before me that the 1st Defendant earmarked any of the repayments specifically towards repayment under the Loan Agreement.  (The Plaintiff produced a number of tables setting out repayments made towards the various loans, but there is no evidence that the 1^st Defendant had in fact earmarked any of the payments to any particular loan.)

19.  Mr Chan next submitted that the 1^st Defendant was not entitled to rely on s.18 MLO as the parties had expressly stated in the Loan Agreement that it was signed at 3pm on 1 November 2019 at the Plaintiff’s office.  The argument was that the 1^st Defendant was contractually estopped from relying on the WeChat Transcript to argue otherwise, citing Peekay Intermark Ltd v. ANZ Banking Group Ltd [2006] 1 CLC 582 at [57].

20.  However, it would seem to me that it is, at the very least, arguable that no such estoppel would operate so as to override the provisions of the MLO.  In Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 at 1016, Viscount Radcliffe said:

“It has been said that the question whether an estoppel is to be allowed or not depends on whether the enactment or rule of law relied upon is imposed in the public interest or “on grounds of general public policy” … In their Lordships’ opinion a more direct test to apply in any case such as the present, where the laws of moneylending or monetary security are involved, is to ask whether the law that confronts the estoppel can be seen to represent a social policy to which the court must give effect in the interests of the public generally or some section of the public, despite any rules of evidence as between themselves that the parties may have created by their conduct or otherwise.”

21.  Mr Chan submitted that even if it were the case that the requirements of s.18(1) MLO had not been complied with, the Plaintiff could rely on s.18(3) MLO, asking the court to exercise its discretion in favour of enforcing the Loan Agreement.  He cited Swiss Finance Mortgage Services v Wong Kam Fan, unreported, HCA 1244/2015, 22 December 2016 at [53] to [58], for the proposition that the discretion can be exercised even in O.14 proceedings.

22.  Whilst the discretion can be exercised at this stage, the question is whether it would be right to do so.

 (1)  As Deputy High Court Judge Le Pichon held in Ontone Finance Company Limited v Leung Lai Ching Margaret, unreported, HCA 372/2011, 13 August 2012, at [34], whether the discretion should be exercised is necessarily fact-sensitive, and regard must be had to all the facts and circumstances of the particular case; the court must be satisfied it has sufficient evidence before it to warrant the exercise of the discretion.

 (2)  In Emperor Finance Ltd v La Belle Fashions Ltd & others (2003) 6 HKCFAR 402 at [119], Ribeiro PJ noted that in exercising its discretion under s.18(3), the court should examine the breach or breaches in question, their consequences for the parties to the transaction and any other circumstances which may make it inequitable to hold the agreement unenforceable.

23.  Counsel for the 2^nd Defendant, Mr Kenny Lin, pointed out that this is not a case where the Plaintiff has acknowledged that there was a breach of s.18(1) MLO and the relevant facts and circumstances of the breach are therefore before the court so that an exercise of discretion can be made on the basis of such facts and circumstances.  I agree.  The Plaintiff continues to argue that the Loan Agreement and Guarantee were both signed at the Plaintiff’s office on 1 November 2019.  The 1^st Defendant has raised a credible case that they were not.  He also says that the terms of the Loan Agreement were not explained to him and that he did not receive a copy of the agreement at the time.  These are matters which may be relevant to the exercise of the court’s discretion, but they are at the moment in dispute.

24.  The burden lies on the Plaintiff to establish that the circumstances are such that the discretion should be exercised in its favour: see Fast Billion Holdings Ltd v Sun Pui Yuk [2019] 2 HKLRD 906 at [26].  Given the diametrically opposing versions as to the circumstances in which the Loan Agreement came to be signed, it cannot be said that there is no triable issue as to whether the s.18(3) discretion should be exercised in favour of the Plaintiff.  The court is simply not in a position to exercise its discretion when there is a dispute as to the circumstances which are to be taken into account in the exercise of that discretion, and when the dispute cannot be resolved summarily.

25.  Given my view that the 1^st Defendant has a credible defence under s.18(1) MLO, it follows that the 2^nd Defendant should also be given leave to defend the Plaintiff’s claim, since s.18(1) MLO provides that no agreement for the repayment of money lent by a money lender, “and no security given to any money lender in respect of any such agreement”, shall be enforceable if the written note of the agreement was not signed by the borrower before the money was lent or the security was given.  The Plaintiff did not disagree with the 2^nd Defendant’s submission that the Guarantee constituted “security” in respect of the Loan Agreement.

C2.    Place of carrying on business

26.  The 1^st Defendant says that the Plaintiff was in breach of s.7(1) MLO in carrying out its business other than at the premises specified in its licence.  He relies on his evidence that the various loan agreements he entered into with the Plaintiff were not signed at the Plaintiff’s office.

27.  However, even if the agreements were not signed at the Plaintiff’s office, it does not follow, without more, that the Plaintiff did not carry on its business at the premises specified in its licence.  Section 7 does not require that every step of the Plaintiff’s money lending business has to be carried out at the specified premises: Hao Tian Finance Co Ltd v Hung Yuk Ming [2020] HKCFI 465 at [121] to [122].

28.  This point does not, in my view, raise a triable issue.

C3.   Cheques which are said to have not been taken into account

29.  The 1^st Defendant says that the Plaintiff has failed to account for two cheques, one drawn by his friend in the amount of $40,000,000, and the other drawn by the 2^nd Defendant in the amount of $14,000,000, both in favour of Ms So, which were for the purpose of repaying amounts owed to the Plaintiff.

30.  However, both cheques were drawn in 2017 and therefore predated the Loan Agreement.  Whether or not the cheques were fully taken into account in calculating the amounts repaid under earlier loans from the Plaintiff does not, on the basis of the evidence currently before the court, appear to raise any triable issue as to the Loan Agreement of November 2019.

C4.    Undue influence

31.  The 2^nd Defendant says that she signed the Guarantee as a result of undue influence exercised by her husband, both actual and presumed, and that she is therefore entitled to set aside the Guarantee.

32.  To establish actual undue influence, a complainant needs to show that another party had the capacity to, and did, influence him; that the exercise of the influence was undue, and that it resulted in the transaction complained of (or was a significant reason for it).  It is not necessary to demonstrate that the transaction was manifestly disadvantageous to the complainant.  See Bank of China (Hong Kong) Limited v Wong King Sing & others [2002] 1 HKLRD 358 at [38] to [39], Recorder Ma SC (as he then was).  The undue influence is typically some express conduct overbearing the other party’s will, and can include conduct which might give a defence at law, for example, duress and misrepresentation.  See Royal Bank of Scotland plc v Etridge (No.2) at [103].

33.  To establish presumed undue influence in a case (such as that of husband and wife) where the parties do not fall within one of the classes of relationship in which the law presumes the existence of a relationship of influence, a claimant typically needs to show that he placed trust and confidence in the other party or that the influencer has acquired an ascendancy or domination over him, and that the transaction cannot be readily explained by reference to the parties’ relationship.  Once these matters are established, then, in the absence of a satisfactory explanation from the influencer, the court may infer that the transaction was procured by undue influence.  The greater the disadvantage to the complainant, the more cogent the explanation must be before the presumption of undue influence will be rebutted.  See Etridge, supra, at [13] to [14], [21], [24].

34.  In the ordinary course, the provision of a guarantee by a wife for her husband should not be regarded as a transaction which is explicable only on the basis that it was procured by the exercise of undue influence.  There will, however, be cases where a husband does abuse his wife’s trust and confidence, for example by positive misrepresentation of his business intentions, or of the nature of the security he is asking his wife to grant him.  See Etridge at [30], [159] to [162].

35.  Where a wife offers to stand surety for her husband’s debts, the third party creditor will be “put on inquiry”; it is sufficient that the creditor knows of the husband-wife relationship: see Etridge at [44], [84].  He will need to take reasonable steps to satisfy himself that the wife has had brought home to her, in a meaningful way, the practical implications of the proposed transaction: see Etridge at [54].

36.  In my view, the 2^nd Defendant has raised a credible defence that she signed the Guarantee by reason of undue influence exercised by the 1^st Defendant, whether actual or presumed.

 (1)  The 2^nd Defendant’s evidence is that she placed trust and confidence in the 1^st Defendant and relied on him to deal with her assets.  The 2^nd Defendant further says that she learnt not to ask too much about her husband’s finances and business in order not to upset him, and she would obey his decisions.  The Plaintiff has not put forward evidence to challenge this.

 (2)  On the face of it, the transaction was manifestly disadvantageous to the 2^nd Defendant, being a guarantee for a loan of $150,000,000, and an undertaking to observe the 1^st Defendant’s obligations as a primary obligor, with no apparent benefit offered to the 2^nd Defendant in return.

 (3)  The 2^nd Defendant says that the 1^st Defendant told her that Ms So was assisting him in dealing with matters relating to his companies, and that Ms So would ask her to sign some “companies documents”, which were merely some “general” documents and “nothing special to worry about”.  In other words, the 2^nd Defendant’s case is that there was an abuse of the trust and confidence placed in the 1^st Defendant.

37.  Insofar as the presumption of undue influence is concerned, I consider that there is a triable issue as to whether the Plaintiff took sufficient steps to be satisfied that the 2^nd Defendant was aware of the implications of the transaction.

 (1)  The 2^nd Defendant says that the whole signing process took two or three minutes, and nobody explained the content of the documents to her.  The Plaintiff’s account is that the 2^nd Defendant signed the Guarantee at the Plaintiff’s office, where the terms were explained to her.  As already set out above, the WeChat Transcript gives credence to the 2^nd Defendant’s account, rather than that of the Plaintiff.

 (2)  The 1^st Defendant was said to have been present during the signing process.  There is no suggestion that the 1^st Defendant was separately or independently advised, or was asked to take such advice.

 (3)  The documents which were said to have been given to the 2^nd Defendant upon the signing of the Guarantee included a copy of a note to intending borrowers, but that did not address the position of guarantors.  They also included a copy of the Loan Agreement, but it is not said that the 2^nd Defendant’s attention was drawn to the interest rate of 36% and that the loan together with interest was repayable in 28 days’ time.

38.  The Plaintiff said that the 2^nd Defendant’s claim not to have known what the Guarantee was a lie, because she signed various letters and cheques in 2015 in repayment of the 1^st Defendant’s earlier loans from the Plaintiff.  However, the fact that the 2^nd Defendant may have signed letters and cheques in 2015 does not shed light on whether or not she knew that she was signing a personal guarantee in November 2019.

39.  The Plaintiff also said that the 2^nd Defendant was not a mere housewife, but in fact a professional investor holding shares in various companies, and a habitual borrower from lenders in mainland PRC.  The 2^nd Defendant’s evidence was that she had accumulated some savings and investments using what the 1^st Defendant had given over her years, but that due to illness, she relied on the 1^st Defendant to handle them for her, and would sign documents when requested to do so for this purpose.  It is not possible for me to say at this stage that the 2^nd Defendant’s evidence in this regard is not credible.

40.  The Plaintiff then said that if the 2^nd Defendant had been ignorant of the Guarantee, she would have raised objections when she received Ms So’s pre-action demand sent on 22 May 2021 by WeChat.  However, the pre-action demand did not specifically refer to the Guarantee (or indeed the Loan Agreement), and simply said that because of the long period during which repayments had not been made, and because the Defendants had not been taking Ms So’s calls, she could no longer wait and proceedings would be commenced against the Defendants.

41.  I therefore consider that the 2^nd Defendant should also be given leave to defend the Plaintiff’s claim on the basis of her defence of undue influence.

D.   THE DEFENDANTS’ APPLICATION TO ADDUCE FURTHER EVIDENCE

42.  By summonses of 31 December 2021, both Defendants applied for leave to file a further affirmation in response to matters which were said to have arisen from So’s 2^nd Affirmation, which was dated 22 December 2021.

43.  At the hearing of the Plaintiff’s application for summary judgment, Mr Chan indicated that whilst he opposed the applications, he was content for the affirmations to be considered de bene esse and that in the event that I should give leave for them to be admitted, the Plaintiff did not seek to file any further evidence in reply.

44.  Where (as here) there has been a direction that no further affirmation is to be filed without the leave of the court, leave will not be granted in the absence of exceptional circumstances: Jose Miranda da Costa Junior v Lorenzo, unreported, HCA 156/2010, 28 April 2014 at [11] to [13].

45.  The 1^st Defendant sought to file a further affirmation in response to the allegation in paragraph 40 of So’s 2^nd Affirmation that the 1^st Defendant was untruthful in saying that the loan agreement in respect of the sixth loan was signed at the Regal Airport Hotel, rather than at the Plaintiff’s office, on 27 May 2019.  Ms So had exhibited a WeChat record showing that she had invited the 1st Defendant to go to the Plaintiff’s office on 26 May 2019.  The 1^st Defendant sought to adduce further parts of the WeChat record showing that there were further discussions on 27 May 2019, with the 1^st Defendant saying that he had just disembarked from a flight and would meet Ms So’s father within a few minutes.  It was therefore said that paragraph 40 of So’s 2^nd Affirmation was unfounded, as the 1^st Defendant could not have reached the Plaintiff’s office within a few minutes’ travel from the airport.

46.  I do not consider that there are exceptional circumstances justifying the admission of the 1^st Defendant’s further affirmation.

 (1)  The 1^st Defendant could have exhibited the WeChat record in his original affirmation in support of his allegation that the loan agreement in respect of the sixth loan was signed at the Regal Airport Hotel.

 (2)  Whether or not this loan agreement, signed in May 2019, was signed at the Regal Airport Hotel or the Plaintiff’s office has little probative value to the question of whether the Loan Agreement of November 2019 was signed at the Plaintiff’s office or the lobby of the Defendants’ daughter’s residence.

47.  The 2^nd Defendant sought to file a further affirmation to say that:

 (1)  first, she accumulated various investments and assets over the years, was not a constant borrower, and was involved in litigation in mainland PRC only in a passive role, with the 1^st Defendant taking charge;

 (2)  second, the letters apparently signed by her on certain dates in 2015, with cheques drawn by her for repayment of amounts owed by the 1^st Defendant to the Plaintiff, could not have been signed in Macau on the dates stated on the face of the letters, as she was not in Macau on those dates.  She might have signed the letters and blank cheques on the 1st Defendant’s instructions; and

 (3)  third, as regards Ms So’s claim that the 2^nd Defendant did not object when she received Ms So’s pre-action demand sent on 22 May 2021 by WeChat (thus showing that the 2^nd Defendant was aware of the existence of the Guarantee), the 2^nd Defendant had in fact told Ms So that she had no idea what was happening.

48.  I do not consider that there are exceptional circumstances justifying the admission of the 2^nd Defendant’s further affirmation.

 (1)  As to the first matter, the 2^nd Defendant had already made similar points in her original affirmation.  To the extent that she did not, they were points that could have been included in her original affirmation.

 (2)  As to the second matter, I have earlier indicated that the letters and cheques signed by the 2^nd Defendant in 2015 are of little probative value as to whether or not the 2^nd Defendant knew what she was signing in November 2019.

 (3)  As to the third matter, the 2^nd Defendant could have set out this evidence in her original affirmation when she sought to say that she did not know that she had signed the Guarantee.

E.   DISPOSITION

49.  I therefore dismiss the 1^st Defendant’s and 2^nd Defendant’s summonses of 31 December 2021, and make a costs order nisi that the costs of and occasioned by the summonses be to the Plaintiff, such costs to include the hearing of 19 January 2022, to be taxed if not agreed.

50.  As to the Plaintiff’s summons of 2 August 2021, I grant unconditional leave to the Defendants to defend the action, and make an order nisi that the costs of the summons be in the cause.

Mr Sunny Chan, instructed by K C Ho & Fong, for the Plaintiff

Mr Lincoln Cheung and Ms Sabrina Leung, instructed by Simon C W Yung & Co, for the 1^st Defendant

Mr Kenny Lin and Mr Ken Cheung, instructed by Cheung Yan & Associates, for the 2^nd Defendant