Lai Yiu Keung v. Ke Jun Xiang

HCA 336/2019

[2022] HKCFI 1798

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 336 OF 2019

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JUDGMENT

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INTRODUCTION

1.In this action, the plaintiff (“P”) seeks to recover from the defendant (“D”) a loan in the principal sum of HKD 3,276,478.14 with interests and costs on indemnity basis.

2.D’s case is that as the loan carried an interest rate exceeding 60% per annum, the loan agreement was therefore illegal and unenforceable by virtue of section 24 of the Money Lenders Ordinance, Cap 163 (“MLO”).

BACKGROUND

3.P is said to be a businessman, and his business includes property development, property rental, renovation services and property management. According to P, as his business transactions with renovation workers and contractors were mostly conducted in cash, he would keep cash in his safe in his office.

4.D is the Chairman of CIL Holdings Limited, a company publicly listed on the Hong Kong Stock Exchange.

5.According to P, he first met D through a friend and business partner Mr Ho Pui Chuen. In March 2011, D through Mr Ho approached P for a loan, and P agreed to arrange for his related company Nice Plan Development Limited (“Nice Plan”) to advance to D a sum of HKD 30 million, for 3 months and at interest rate of 3% per month, and that D had to repay HKD 5m and interest on 6 April 2011, and the balance of the principal of HKD 25m and interests before 30 June 2011. D failed to repay the loan and interests to Nice Plan.

6.Nice Plan issued a writ on 9 April 2014 against D under HCA 652/2014 (“Nice Plan Action”) and applied for summary judgment for the sum of HKD 30m together with interests and costs, which was granted by Deputy High Court Judge Mayo, as he then was, on 24 November 2014. D appealed against the decision but his appeal was dismissed by the Court of Appeal on 25 June 2015[1]. Notwithstanding his appeal being dismissed, D continued to fail to settle the judgment debt.

7.In mid 2015, as D had failed to pay, Nice Plan issued a statutory demand for the judgment sum of HKD 30m plus interest of HKD 45,774,246.57, which was published in a newspaper on 10 July 2015. It was only thereafter on 30 July 2015 that D then entered into an agreement with Nice Plan to repay the judgment debt and interests by instalments pursuant to which Nice Plan had also waived interests of over HKD 12m. According to P, Nice Plan eventually recovered the total agreed amount of HKD 66,400,000 from D only on 7 November 2017.

8.Further, according to P, as D eventually paid off the judgment debt and interests to Nice Plan, he and D had maintained a cordial relationship and that they would greet each other when they happened to meet during races at the Jockey Club of which they are both members. Their communications were mainly by telephone and by WeChat.

9.P’s evidence in his witness statement was that around end of August 2018, D telephoned him to say that he wanted to borrow HKD 1m from P for about two to three weeks and that D could repay at end of October 2018. P said he did not promise D at the time, but after a few days, D telephoned him again. According to P, as D had eventually paid off the debt to Nice Plan, and that they were both businessmen and would often encounter situations with urgent need for cash, P agreed to lend to D HKD 1m, but as this was a small amount for a short period, P agreed not to charge interests (“1^st Loan”). It was P’s evidence that at about end of September2018 D drove his car to the bottom of the building of P’s office, and P handed to D the cash of HKD 1m in an envelope. It was also P’s evidence that at the time he had requested D for a post dated cheque, but D said he did not have his cheque book with him and would provide it as soon as possible.

10.Then according to P, in early October 2008, D approached P again and requested for a loan of HKD 5m. P said he declined but D begged for his help and eventually P agreed (“2^nd Loan”). This time P instructed his solicitors to prepare the documentation, and P transferred the HKD 5m to his solicitors in advance. When his solicitors sent him the draft loan agreement for the 2^nd Loan, P said he then asked colleagues in his office to prepare another loan agreement for the 1^st Loan based on the draft prepared by the solicitors.

11.On 18 October 2018, P and D both attended the solicitors’ office. P had told D to bring along 3 cheques, namely (i) a cheque post-dated 30 November 2018 in the sum of HKD 5.2m (being HKD 5m for the 2^nd Loan + interests of HKD 200,000), (ii) a cheque post-dated 30 October 2018 in the sum of HKD 1m (being the principal of the 1^st Loan) and (iii) a cheque for HKD 15,000 for the solicitors’ fees.

12.The loan agreement for the 2^nd Loan (“2^nd Loan Agreement”) was signed at the solicitors’ office, and according to P’s evidence in his witness statement, when the staff left the room after collecting HKD 15,000 cash from D for the solicitors’ costs, P then produced the loan agreement for the 1^st Loan (“1^st Loan Agreement”) and also an acknowledgment of the receipt of the 1^st Loan (“Receipt Acknowledgment”) for D to sign, both of which were duly signed by D and dated 29 September 2018.

13.D denied there was the 1^st Loan. It was D’s pleaded case that on about 18 October 2018, D approached P seeking a loan in the principal sum of HKD 5m, and that it was eventually agreed between P and D (“Agreement”) that[2]:

(1)  P would lend a principal sum of HKD 5m to D;

(2)  the HKD 5m loan would be repayable by 30 November 2018 for a period of 43 days;

(3)  interest on the HKD 5m would be HKD 1.2m;

(4)  D was required to issue 3 post-dated cheques , namely (a) one cheque drawn in favour of P in the sum of HKD 1m dated 30 October 2018 for part payment of the agreed interest (“Interest Cheque”) and (b) one cheque drawn in favour of P in the sum of HKD 5.2m dated 30 November 2018 (“ Balance Cheque”)[3] for payment of the balance of the agreed interest and repayment of the loan principal and (c) a cheque in the sum of HKD 15,000 for legal costs.

14.It was D’s pleaded case that the loan carried an interest rate of 24 % for 43 days, translating into an effective interest rate of 203.72% per annum, and as this exceeded 60% per annum, the Agreement was illegal and unenforceable by virtue of section 24 of the MLO.

15.Thus, according to P, there were two loans, but according to D, the 1^st Loan Agreement alleged by P was a sham which was intended to give an appearance that the loan of HKD 5m only carried an interest of about HKD 200,000 for 43 days when in fact the agreed interest was HKD 1.2m. Further, according to D, the 2^nd Loan Agreement was also a sham in that it was executed to give an appearance that the loan of HKD 5m carried an interest of about HKD 200,000 only to evade the consequence of section 24 of the MLO.

16.In any event, it was not disputed that D had made payments/repayments to P totalling HKD 3.3m as follows:

(i)  HKD 300,000 on about 1 November 2018 by cash;

(ii)  HKD 400,000 on about 17 November 2018 by cash;

(iii)  HKD 200,000 on about 6 December 2018 by cash;

(iv)  HKD 200,000 on about 8 December 2018 by cash;

(v)  HKD 2m on about 4 January 2019 by transferring the fund into P’s designated bank account; and

(vi)  HKD 200,000 on or about 25 March 2019 by way of cash.

17.P had applied the payments in (i), (ii) and (iii) and HKD 100,000 out of (iv) for the repayment of the 1^st Loan and the rest of (iv), and (v) and (vi) for part repayment of the 2^nd Loan and interests. According to P, as at 24 May 2019 (the date of the amended writ herein), the outstanding principal of the 2^nd Loan was HKD 3,276,478.14 and accrued interests as at 24 May 2019 in the sum of HKD 256,593.08, plus interests on the said sum of HKD 3,276,478.14 at the contractual rate of 3% per month from 25 May 2019 to date of judgment and thereafter at judgment rate until payment.

18.P applied for summary judgment under Order 14 RHC on 23 September 2019 (“O14 Application”) but his application was dismissed.

DISPUTED ISSUES

19.There were 3 agreed disputed issues in the present trial, namely:

(1)  Whether P advanced a loan of HKD 1m to D on 29 September 2018 (“Issue (1)”)

(2)  Whether the 1^st and the 2^nd Loan Agreements are “shams” intending to conceal excessive interest rates for a HKD 5m loan in contravention of MLO (“Issue (2)”)

(3)  How much, if any, should D repay P (“Issue (3)”)

ISSUE (1) - WHETHER P HAD ADVANCED D HKD 1M ON 29 SEPTEMBER 2018

20.The burden of proof was on P to prove that he had advanced to D a loan of HKD 1m on 29 September 2018. For reasons set out hereinafter, I find that P was not able to discharge the burden on him.

21.First, it was always P’s pleaded case and P’s evidence in his 2^nd and 3^rd affirmations filed respectively in September 2019 and December 2019 in support for his O14 Application that the 1^st Loan Agreement was executed by D on 29 September 2018[4]. Thus, P’s evidence in his witness statement (filed on 23 November 2020) and his subsequent evidence that the 1^st Loan Agreement was in fact signed on 18 October 2018 in the circumstances described by him was a departure from his pleaded case and his evidence in his previous affirmations.

22.Second, according to P, there were two requests made by D for the loan of HKD 1m. In P’s witness statement, D first requested for the loan of HKD 1m at about end of August 2018 and when P did not agree, D requested it again “after a few days” (“過了數天”). During the trial, it was however P’s evidence that D requested for the loan in early September 2018 to which P said he would consider but not yet agreed, and that at about end of September 2018, D made his request again to which P then agreed. P’s evidence during the trial about the timing of D’s requests for the loan of HKD 1m was thus not consistent with his written evidence.

23.Further, P’s above evidence showed that even on P’s case, D’s request for the HKD 1m was not that urgent and thus P should have had ample time at the time of D’s requests whether in August/September 2018 to prepare a loan agreement or a simple acknowledgment/receipt of the loan for D to sign when P allegedly handed the cash to P. There was however no contemporaneous documentary evidence to support P’s allegation of the 1^st Loan.

24.Third, it was P’s own evidence that he and D were only business acquaintances and that there were no other dealings between them apart from the loan transactions. It was also P’s own evidence that D was unreasonable (“橫蠻無理”)[5]during the Nice Plan Action and that D had raised various unreasonable challenges (“不合理質疑理由”) to the claim of Nice Plan, including the source of the funds for the loan in the Nice Plan Action. Further, after D lost in the appeal, it was only after Nice Plan issued a statutory demand that D was willing to settle and eventually only repaid the agreed settlement amount on 7 November 2017, which was over 6 years after Nice Plan lent D the sum of HKD 33m in March 2011.

25.In light of P’s above evidence and complaints about D’s conduct in the Nice Plan Action and the time it took for Nice Plan to recover the outstanding amounts, it does not seem probable that P would not have insisted on something in writing as evidence of this alleged 1^st Loan at the time of P handing over the loan in cash to D. When P was asked during the trial as to why there was not even a receipt, P’s answer was he paid D in a car and that it was in a rush. According to P, there was not even counting of the cash. However, as P took the cash from his office and put the cash in an envelope, it would have been easy for him or his staff to prepare a simple receipt for D to sign and to acknowledge the sum. There was also no reason why P could not have reminded D to bring along a post–dated cheque for the repayment of the loan, and even if D had said he had forgotten, there was no reason why P could not have asked D to return later with a post-dated cheque or at least asked him to sign a receipt then and there. All this seemed inherently improbable.

26.Fourth, P had admitted under cross examination there was no discussion as to what was to happen if D failed to repay the 1^st Loan. When asked why he was not concerned that D might not repay, P only said as the amount was small, D would definitely repay. As P is said to be a businessman and his transactions with D were business transactions, even if P thought it was a small amount, it made no commercial sense for there not being any contemporaneous documentary evidence in relation to the alleged 1^st Loan, and in any event, P’s evidence was contradictory to his own case of later asking D to sign the 1^st Loan Agreement and the Receipt Acknowledgment.

27.As for why there were no interests charged by him, P had said in his witness statement that he agreed not to charge D any interest because (i) D was the Chairman of a publicly listed company; (ii) the amount was small; (iii) the loan was for a short period; and (iv) D had repaid Nice Plan eventually. It was also P’s written evidence that as interests would only be several tens of thousands of dollars (數萬元)[6], he did not ask D to pay interests. P’s evidence in his witness statement was in fact again inconsistent with his evidence in his 3^rd affirmation when he stated that his willingness to advance an interest-free loan was because he was satisfied with the safeguards being put in place under the terms of the 1^st Loan Agreement, namely D was to execute the Receipt Acknowledgment and D’s post-dated cheque. However, as P later changed his evidence to the 1^st Loan Agreement being only post-signed on 18 October 2018, what he said in his 3^rd affirmation could not have been correct. Further, during the trial P had said that D had voluntarily offered to pay him interest for the 1^st Loan, but as the period was short, P declined to accept any interest. It was clear from the WeChat Records (defined hereinafter) that at end of September 2018, P did not even have D’s residential address or D’s HKID card. I have to say I do not find P’s evidence as to why at the time when he allegedly advanced the sum of HKD 1m to D, he was not concerned that D would not repay or why he did not charge D any interests made any commercial sense.

28.Fifth, P’s evidence about the preparation and the signing of the 1^st Loan Agreement also did not make sense. Bearing in mind that it was P’s own evidence that the amount of the 1^st Loan was small and there was no discussion as to what was to happen if there was no repayment, and that he was not concerned about D not repaying, it was not clear why P then suddenly asked D to sign a loan agreement on 18 October 2018 and back-dated to 29 September 2018. It was P’s evidence during the trial that as D had to sign a loan agreement in relation to the HKD 5m loan, it would be convenient for P to sign a loan agreement in relation to the HKD 1m as well (“順便”). Thus, it would appear from P’s evidence that if there had been no 2^nd Loan and no 2^nd Loan Agreement to be signed, then it would not have been necessary for D to sign any loan agreement for the 1^st Loan to sign the Receipt Acknowledgment. When P was asked about this, his answer was simply that he would continue to press for a post-dated cheque. However, there was no sufficient evidence that he had ever pressed D for a post-dated cheque for the sum of HKD 1m during the period between 29 September 2018 and 18 October 2018. P had produced the WeChat records between him and D commencing from 18 October 2018 at 10:45 until 4 April 2019 14:37 (“WeChat Records”)[7], but he did not produce any of the WeChat Records between 29 September 2018 and 18 October 2018, which according to P were deleted. In any event, there was nothing in the WeChat Records to show that P had ever chased D for a post-dated cheque for the sum HKD 1m prior to 18 October 2018. Nor was there any WeChat Record to show that the post-dated cheque of HKD 1m was for the repayment of a loan, ie the 1^st Loan.

29.Sixth, since P was instructing solicitors to prepare the 2^nd Loan Agreement, there was also no reasonable explanation as to why P did not instruct the solicitors to draft and prepare the 1^st Loan Agreement as well. There was no evidence that preparing an agreement for the 1^st Loan would have incurred any substantial increase in the solicitors’ costs and in any event it would be D who would have to pay such legal costs. P had said during the trial that there was no need for him to instruct solicitors to prepare the 1^st Loan Agreement as it was a past transaction. P also said the 1^st Loan Agreement had nothing to do with the solicitors who did not know anything about it, and that it was not proper for solicitors to be involved since they did not witness the payment of the HKD 1m. P’s explanations simply did not make sense. It was further not clear why P, without letting his solicitors know, instructed his own staff/colleagues to prepare the 1^st Loan Agreement based on his solicitors’ draft for the 2^nd Loan Agreement, which ended up with the 1^st Loan Agreement containing various inconsistencies, such as HKD 1m was stated in clause 1 to be the loan principal, and clause 2 stated there was no interest, but clause 4.1 then referred to HKD 1m being the principal plus interest. Also Clause 4.2 referred to D having to provide a post-dated cheque to P on 29 September 2018 when he received the sum of HKD 1m, but in fact the post-dated cheque was only provided to P on 18 October 2018.

30.Seventh, it was submitted on behalf of P[8] that it was inherently improbable that the parties would agree to an upfront payment of interest as high as 14% of the principal sum to be paid within 12 days after P had been expressly told by D about his cashflow problems and that he could only repay the HKD 5m loan by end of November 2018, and that it was a more plausible explanation as to why D repaid HKD 300,000 to P on 1 November 2018 and HKD 400,000 on 17 November 2018 and why P had asked for repayment of the HKD 700,000 on 8 November 2018 because there was the earlier 1^st Loan.

31.I do not quite follow the logic of Ms Yu’s submission. It was in fact D’s evidence that he believed he would be able to pay HKD 1m on or before 30 October 2018 and that was why he issued the Interest Cheque. In any event, D did make a payment of HKD 300,000 to P on 1 November 2018 and another HKD 400,000 on 17 November 2018, both before the deadline of the repayment of the loan principal. The issue was really whether those payments before 30 November 2018 were for the part repayment of the alleged 1^st Loan or part payment for interests on the 2^nd Loan. P had also relied on the chats he sent to D on 8 November 2018 at 16:57 and on 21 November at 12:12 when he was said to be chasing “repayment” of the HKD 1m[9]. In the chat on 8 November 2018 at 16:57, P was asking D whether D was to “repay all tomorrow? 70 + 520”. This was in fact in response to D’s chat that he was hoping to repay HKD 5m early due to a receipt of HKD 30m on 10 November 2018. As for the chat on 21 November 2018 at 12:12, this was after P’s receipt of HKD 400,000, and P was asking D about the balance of HKD 300,000. These chats showed that P was pressing for the payment of HKD 1m, being the amount of the cheque issued by D dated 30 October 2018, but would not be sufficient to support P’s case that the HKD 1m was a loan.

32.Having considered all the above and the evidence, I find that P has not been able to satisfy this Court that he had advanced a sum of HKD 1m to D in cash by way of a loan on 29 September 2018 as pleaded in his amended statement of claim. There was no sufficient evidence to support the existence of the 1^st Loan as alleged by P. In short, I find there was no 1^st Loan.

ISSUE (2) – WHETHER THE 1^ST AND 2^ND LOAN AGREEMENTS ARE “SHAMS”

33.In light of my above finding in relation to there being no 1^st Loan, it follows that the 1^st Loan Agreement would be a sham.

34.D did not dispute that P had advanced him a loan of HKD 5m and the main dispute between the parties was whether the interest on the HKD 5m loan was HKD 1.2m or HKS 200,000. It was D’s pleaded case that the 1^st Loan Agreement was made to give an appearance that the loan of HKD 5m carried a lower interest rate than it in fact did by purporting that part of the interest payable was repayment of a principal sum under a fictitious loan and that the 1^st Loan Agreement was a sham intending to give an appearance that the loan of HKD 5m only carried an interest of about HKD 200,000 for 43 days when in fact the interest was HKD 1.2m.

35.D’s evidence in his witness statement was that in about October 2018, he needed HKD 5m to repay outstanding margin finance to his security firm, otherwise his securities might be sold at a loss and that the matter was quite urgent.

36.He said he telephoned P on about 18 October 2018 to seek a loan and that P had told him that he might be able to lend him the money and asked P to send him a WeChat message stating the particulars of the loan. It was D’s case that after he made his request to P through WeChat, there was a telephone conversation between P and him in which he and P arrived at the Agreement, namely P agreed to lend him HKD 5m which would be repayable by 30 November 2018 and that P requested interest on the HKD 5m loan to be HKD 1.2m with HKD 1m payable on 30 October 2018[10].

37.During the trial, D had said it was in fact on the day 18 October 2018 that he first telephoned P regarding a loan of HKD 5m, and that after he telephoned P, P then sent him a chat at 10:45 asking D to send a chat regarding the loan amount requested by D, when the loan was required, when it would be repaid, and the interest rate and that P would try to ask a friend to help[11]. D then sent his chat at 10:51 providing P with the information requested by P, and according to D, this was followed by P telephoning him and asking him for his residential address and HKID card number. During the trial, D’s evidence was P did not mention who the lender would be but so far as D was concerned, it was P who made the arrangement for the loan. Anyway, it was D’s evidence during the trial that there were in fact 3 telephone conversations between P and D before they went to the solicitors’ firm, and that it was P who asked him to provide a bank account at Wing Lung Bank to expedite the transfer of funds.

38.Although D said it was P who had requested interest on the HKD 5m to be HKD 1.2m, the evidence in the WeChat Records showed that in fact it was D who had offered “profits” of HKD 1m to HKD 1.5m to P. D had said “profits” meant interests.

39.According to D, when he arrived at P’s solicitors office at around 3:47 pm on 18 October 2018, P was there to meet him, and that he was taken by P into a conference room at the solicitors’ office, and then a staff of P’s solicitors entered the conference room with documents. According to D, he was then shown both the 1^st and the 2^nd Loan Agreement and the staff later left the room. D had said when he discovered that there were two Loan Agreements, he had asked P and P then explained that it was not so convenient (“唔係咁方便”) to state that interests were HKD 1.2m, and therefore the interests had to be provided by a separate agreement, and as he needed the money urgently, he then signed the two Loan Agreements.

40.D’s evidence during the trial was that he did not know that the interests of HKD 1.2m would be over the statutory limit and that it was illegal. When asked about the Receipt Acknowledgment, D said he agreed to sign as he had understood the HKD 1m was to be part of the interest and that it did not matter how P packaged the transaction, D would sign and that had to repay a total of HKD 6.2m. D denied that he had ever received the sum of HKD 1m earlier whether as a loan or otherwise. In fact, the exact calculations of interests at 3% per annum would yield an amount over HKD 200,000, but according to D, his understanding was that HKD 1.2m was interest. D said he had also signed a receipt to the solicitors firm for the loan principal HKD 5m.

41.When asked why D had agreed to the payment of HKD 1m in advance of the repayment of HKD 5m, D said that he had other shares and could afford to pay HKD 1m earlier although when he issued the post-dated cheques from his Bank of Communications account on 18 October 2018, there were no sufficient funds in that bank account.

42.Although there were discrepancies between D’s written evidence and his oral evidence including how the parties came to the terms of the Agreement for the loan of HKD 5m, and/or the number of telephone calls D had the P before arriving at the Agreement, such discrepancies did not in my view affect the overall credibility of D’s case of the Agreement was the one arrived at between the parties. Whether both Loan Agreements were signed in presence of the staff or the 1^st Loan Agreement only signed after the staff left the room, they were clearly signed one after another or during the same meeting at the solicitors’ office. The almost simultaneous signing of the 1^st and the 2^nd Loan Agreement, coupled with my earlier finding that there was in fact no 1^st Loan led me to conclude that the interests on the loan of HKD 5m were more probable than not HKD 1.2m.

43.In the above circumstances, I find D’s version of the terms of the Agreement was more probable. The 2^nd Loan Agreement was thus also a sham. The Agreement was and is illegal and unenforceable under section 24 of MLO.

Contractual estoppel

44.In P’s reply to the defence, P had averred that as D had signed the Receipt Acknowledgment and had acknowledged receipt of the sum of HKD 1m under the 1^st Loan Agreement on 29 September 2018, D was estopped from denying that this was the case[12].

45.P’s counsel Ms Christine Yu had submitted that in the absence of vitiating factors such as illegality or misrepresentation, D was estopped from denying that (a) the 1^st Loan Agreement was executed on 29 September 2018 and (b) he received the HKD 1m even if the Court were to find that P and D knew that to be untrue[13].

46.Counsel Mr Wong had referred the Court to Prime Sight Ltd v Lavarello [2014] AC 436 in which estoppel by deed was raised and it was held by Lord Toulson amongst other things that[14] in accordance with the principle of party autonomy which underlay the common law of contract, where parties, knowing the facts to the full, were shown to have entered into a transaction by assuming a different state of facts or law as between themselves for the purposes of that transaction, a convention would be established under which the parties would be estopped from denying or challenging the assumed state of facts or law; that declaratory statements in a deed which were intended to be a contractually binding agreement to treat something as if it were true even though the parties knew that it was not, and which were not vitiated by factors such as illegality or misrepresentation, were as effective for that purpose as any other express or implied contractual convention; and that, while contractual estoppels were subject to the same limits under the general law of contract as other contractual provisions, there was nothing inherently contrary to public policy in parties agreeing to contract on the basis that certain facts were to be treated as established for the purposes of their transaction, although they knew the facts to be otherwise.

47.As I have found that D’s version of the Agreement for the loan of HKD 5m was the more probable one and that both the 1^st Loan Agreement and the 2^nd Loan Agreement were shams, P should not be allowed to rely on contractual estoppel.

CONCLUSION

48.In light of my above findings, I do not need to deal with Issue (3). I dismiss P’s claims. Costs should follow the event, and I order P to pay D’s costs of this action, to be taxed if not agreed, on party and party basis.

Ms Christine Yu, instructed by Au, Thong & Tsang, for the Plaintiff

Mr Alexsander Wong, instructed by Chong & Partners LLP, for the Defendant