Premier Capital Management Ltd v. So Wang Fung By So Wang Ming His Guardian Ad Litem and Another
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HCA 2337/2015 [2024] HKCFI 849 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 2337 OF 2015 ________________________ BETWEEN
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________________________ J U D G M E N T ________________________ A. INTRODUCTION 1.In this action, the Plaintiff (“Premier Capital”) claims against the Defendants (“Mr So” and “Ms Ma”), inter alia, a sum of $2,917,500 (comprising $885,000 by way of principal and $2,032,500 interest as at 10th April 2023). The Defendants say that they are not liable by reason of the operation of various provisions of the Money Lenders Ordinance (Cap.163) (“MLO”). B. THE BACKGROUND FACTS 2.The following are not disputed and I find them as facts. Some of the facts are taken from the witness statements of So Wang Ming (“Mr WM So”), the guardian ad litem for the Defendants, and of Mr So. In respect of Mr WM So’s witness statements, I have borne in mind that on the one hand, they were not challenged at trial, but on the other hand, some of it consisted of hearsay evidence. In assessing the weight to be placed on such evidence, I have had regard to the considerations set out in s.49 Evidence Ordinance (Cap.8), and also to the fact that some of Mr WM So’s evidence was based on information he pieced together after questioning Mr So and Ms Ma, who may have had difficulty in remembering events or expressing themselves. I bear in mind that Mr WM So questioned Mr So about the events of November 2014 relatively closer in time to their happening than the date when Mr So came to make his witness statement, by which time Mr So may have had less recollection of the events. Mr WM So also was able to review documents such as cheques and receipts to assist him in piecing together what had happened. These matters would account for the fuller account in Mr WM So’s witness statements. 3.Premier Capital was at all material times a registered money lender under the MLO. B1. The Defendants 4.The Defendants are husband and wife. There is no dispute, given the parties’ medical experts’ opinions and the confirmation of Mr Kenneth Lee (appearing with Mr Jack Hui), counsel for Premier Capital at the trial,[1] that at all material times:
5.Both of the Defendants have been certified by Dr Cheung Hung Kin as being mentally incapacitated persons as defined under Part II of the Mental Health Ordinance (Cap.136). 6.Mr So holds a Registration Card for People with Disabilities issued by the Central Registry for Rehabilitation, certifying that he is medically handicapped. According to Mr WM So, most people could easily tell from Mr So’s behaviour and speech that he is mentally handicapped as he behaves uniquely and slurs his words in daily life, so that he attracts others’ attention and is recognised as mentally handicapped. Mr WM So also said that when talking to Ms Ma, one easily notices that she sometimes talks to herself and looks around unnaturally, so that it also easy to tell that she is mentally handicapped. 7.Over the years, Mr So has been employed in a number of different jobs, including work as a cleaner. In 2014, he was employed as a general service worker and his monthly salary was about $7,000 to $8,000. 8.Mr So married Ms Ma in 2000. 9.Ms Ma also holds a Registration Card for People with Disabilities issued by the Central Registry for Rehabilitation, certifying that she is medically handicapped. In 2014, she was employed as a general service worker, earning about $7,000 to $8,000 per month. 10.Mr So’s parents worried that Mr So might not be able to take care of himself after they passed away. In 2001, therefore, they financed Mr So’s purchase of a residential property in his name (“the Property”) so that he and Ms Ma would have a property to live in. B2. Mr CY Chan; Jone’s Consultant; Ms Chan 11.In about 2014, Mr So got to know one Chan Cheong Yin (“Mr CY Chan”). Mr So considered Mr CY Chan to be his good friend. They played, went shopping, and had meals together, but it was always Mr So who paid the bills. Mr CY Chan even registered for cable television services for his house under Ms Ma’s name, and asked Ms Ma to pay the bills. 12.In around June 2014, Mr CY Chan told the Defendants that he could borrow money from finance companies for them, so as to improve their life and pay off their credit card and other debts. The Defendants rejected his offers several times. Mr So told Mr CY Chan that he did not need a lot of money to meet his living expenses. However, Mr CY Chan continued to lobby the Defendants, and eventually they relented, because they did not want to lose him as a friend. 13.The Defendants went with Mr CY Chan to the office of one Jone’s Consultant (HK) Co (“Jone’s”), where he introduced them to a Ms Chan, an employee of Jone’s Consultant. Mr CY Chan told Ms Chan that the Defendants wished to borrow money, and he told Mr So to do whatever Ms Chan asked of him. B3. The Loan Agreement 14.On 10th November 2014, Ms Chan and Mr CY Chan took the Defendants to a finance company in Yau Ma Tei, which was Premier Capital. At the lobby of the building in which Premier Capital was located, they met a man who later turned out to be one Franky Lee, from Jone’s (“Mr Franky Lee”). They all went to the office of Premier Capital, where they were taken to a room to meet Raymond Siu (“Mr Siu”), a manager of Premier Capital (“the Meeting”). (In these proceedings, Premier Capital disclosed[2] a videotape of the Meeting. Prior to the disclosure of the videotape, Mr WM So said that Mr So and Ms Ma had only mentioned that Ms Chan and Mr CY Chan were present on this occasion. After the videotape was disclosed, Mr WM So played it to Mr So and Ms Ma, and they identified Ms Chan and Mr CY Chan. They also recognised the other man in the room (now known to have been Mr Franky Lee) as being as being someone they had met in the lobby of the building in which Premier Capital was located. At the trial, a transcript of the videotape (“the Meeting Transcript”) was referred to in the evidence. One of the persons identified in the transcript was Mr Franky Lee (Mr Lee Pui Yu).) 15.Mr Siu asked Mr So and Ms Ma to sign various documents. After that, Mr So and Ms Ma were taken to the office of Messrs KB Chau & Co (“KB Chau”) by Ms Chan and Mr CY Chan, where they signed a loan agreement dated 10th November 2014 (“the Loan Agreement”), under which Premier Capital was to lend $900,000 to the Defendants (“the Loan”). Mr So saw the figure of $900,000 on the document and asked why there was such a large figure; Mr CY Chan and Ms Chan answered that there was no problem with the document and asked Mr So to sign it; Mr So told them that he did not understand the document but Mr CY Chan and Ms Chan did not explain it and just urged Mr So and Ms Ma to sign it; there was a female employee of KB Chau present but she did not explain the document either; Mr So eventually did sign the document although he was confused, because he was afraid that Mr CY Chan would get angry. 16.Under the Loan Agreement, the rate of interest stated was 30%. Interest was to accrue on a monthly basis. The Loan of $900,000 and interest were to be repaid by twelve monthly instalments. The first eleven instalments were to be of interest of $22,500; the last instalment was to be for $922,500, being the principal and last instalment of interest. The first instalment was to be payable on 10th December 2014, and the last instalment on 9th November 2015. 17.Another of the documents which Mr So and Ms Ma were asked to sign was an Instruction and Confirmation Letter (“the Withholding Letter”), instructing KB Chau to withhold $180,000 for repayment of the first eight instalments under the Loan Agreement, and to issue a cheque each month to make repayment to Premier Capital. B4. The proceeds of the Loan 18.$15,000 (comprising $6,000 “legal fees” and $9,000 “upfront fee”) was deducted from the loan principal by Premier Capital. It was never paid to the Defendants. 19.The $180,000 which was retained by KB Chau was paid to Premier Capital via eight cheques, each for $22,500, from December 2014 to July 2015. It was never paid to the Defendants. 20.KB Chau issued two cheques, both dated 11th November 2014, with Mr So as payee. The first was a cheque marked “Account Payee Only”, in the amount of $205,000. The second was a cheque with “bearer” crossed out, in the amount of $500,000. 21.On 11th November 2014, Mr So took the cheque for $205,000 to the Bank of China to deposit into his account. He was accompanied by Ms Chan of Jone’s (as Ms Chan subsequently told Mr WM So).
22.Mr So took the cheque for $500,000, which had been issued by DBS Bank (Hong Kong) Limited, to a branch of DBS Bank. He was accompanied by Ms Chan of Jone’s, and he handed over $500,000 in cash to Ms Chan, for her to assist in settling the credit card bills and other debts of Mr So and Ms Ma (as Ms Chan subsequently told Mr WM So). 23.$166,583 was used by Jone’s Consultant to repay other credit card and other debts of Mr So and Ms Ma. This was ascertained by Mr WM So, who went to speak to Ms Chan at Jone’s. Ms Chan showed him a number of receipts in this regard. 24.$333,417 was charged by Jone’s Consultant as administrative and intermediary fees. Mr WM So ascertained this when he asked Ms Chan what happened to the balance of the loan proceeds after the $180,000 retained by KB Chau, $205,000 cheque paid in by Mr So at the Bank of China, and the $166,583 used by Jone’s to settle other debts of Mr So and Ms Ma (at the time when he asked Ms Chan, he was not aware that a further $15,000 had been charged by Premier Capital). Ms Chan had told him that the balance had been used to pay Jone’s fees. Mr WM So asked Ms Chan for a breakdown of these fees, but never received an answer. The fees were never returned to Mr So. 25.To summarise, the proceeds of the $900,000 Loan were used as follows.
C. RELEVANT PROVISIONS OF THE MLO 26.Section 2 MLO includes the following definitions:
27.Section 2(3) MLO provides that:
28.Sections 24(1) and (2) MLO provide that:
29.Sections 25(1) and 25(3) MLO provide that:
30.Sections 27(1), 27(3) and 27(4) MLO provide that:
D. THE ISSUES 31.A number of defences were pleaded on behalf of the Defendants. Taking Mr So’s Defence, I note that, amongst other defences, it was pleaded that Mr So did not have the mental capacity to enter into the Loan Agreement, and that Premier Capital was aware of this at the time of the Meeting. The parties obtained expert evidence to deal with this issue – both parties’ experts agreed that Mr So did not have the requisite mental capacity, but they had a difference of opinion as to whether this would have been apparent to a third party observer – the Defendants’ expert opined that it would have been discernible to a lay person if he had paid attention; Premier Capital’s expert opined that it “may” not have been obvious. After the experts viewed the video, their respective opinions were reinforced. 32.However, at the pre-trial review, counsel for the Defendants, Mr BK Ho indicated that he would not be running any of the defences based on Mr So’s (or Ms Ma’s) mental incapacity and would only rely on defences under the MLO, in particular, the defence that the effective interest rate of the Loan exceeded 60% and that the Loan Agreement was therefore unenforceable. 33.The parties agreed that the issues for my determination are as follows.
34.Notwithstanding the parties’ arrangement of the issues above, it seems to me convenient to regroup the issues as follows:
E. THE EFFECTIVE RATE OF INTEREST UNDER S.24(1) MLO E1. The $180,000 withheld by KB Chau
36.In relation to the $180,000, the dispute between the parties is whether this amount should also be added to the interest of the Loan for the purposes of the s.24 MLO calculation. Indeed, the primary contention of Mr Ho, was that once this amount was added to the interest of the Loan, the effective interest rate of the Loan would exceed 60% per annum, rendering the Loan Agreement unenforceable and therefore disposing of the entire claim. 37.The competing calculations were as follows.
38.Mr Ho’s argument was that as $180,000 did not constitute principal under s.2(1) MLO, it was therefore an amount in excess of the principal paid or payable in consideration of or otherwise in respect of a loan, and therefore constituted interest under s.2(1). He further relied on Gain Wealth Global Credit & Investment Ltd and Skyline Credit Ltd v Leung Hing Chung [2022] 4 HKLRD 561, which were cases in which various amounts were deducted from the principal and added to the interest for the purpose of the s.24 calculation. 39.Mr Lee submitted that to include the $180,000 would constitute double counting, as interest had already been included in the contractual interest. He relied on Field Finance Ltd v Cheung Mo Ching [2023] HKCFI 3311 at [203] to [211], where DHCJ Tsui analysed a similar situation and came to the conclusion that to include the retained interest for the purpose of the s.24 calculation would amount to double counting. 40.Leaving aside the authorities, as a matter of simple arithmetic, I agree that to add the $180,000 to the interest would amount to double counting. It is common ground that the principal of the Loan as ascertained under s.2(1) is $705,000. The amount which the Defendants were to pay under the Loan Agreement in consideration of the Loan (aside from the $15,000 in fees) was the contractual interest of $270,000,[3] albeit that $180,000 of this was (later) paid from the amount withheld by KB Chau. The Defendants did not have to pay $180,000 on top of the $270,000. Under the definition of “interest” in s.2(1), therefore, the amount to be paid in excess of the principal in consideration of the Loan was $270,000 (and the $15,000 in fees). 41.The next question is whether Gain Wealth Global Credit & Investment Ltd and Skyline Credit Ltd suggest otherwise.
42.I am therefore of the view that the $180,000 retained by KB Chau should not be included in the calculation of the effective interest rate under s.24 MLO. E2. The $85,000 paid to Mr CY Chan and the $333,417 paid to Jone’s Consultant 43.Mr Ho submitted that Mr CY Chan, Ms Chan and Mr Franky Lee were acting in collusion with Premier Capital to extract money from the Defendants, and that therefore, the $85,000 paid to Mr CY Chan and the $333,417 paid to Jone’s Consultant came within s.27(3) MLO, and these amounts should also be deducted from the principal of the Loan for the purpose of calculating the effective interest rate under s.24 MLO.[4] 44.I will deal with the issue of collusion further below. In this section, I address the issue of whether, assuming collusion has been made out, this would affect the calculation of the effective interest rate under s.24 MLO. 45.Mr Ho’s argument was that if the payments came within s.27(3) MLO, then by reason of s.27(4), they could be recovered from the recipient, or set off against the amount actually lent, so that the principal would be reduced; and this reduced principal would then be used for the calculation of the effective interest rate under s.24.[5] 46.However, as Mr Lee submitted, the Court of Appeal has held that the setting off relief under s.27(4) MLO provides remedies to the borrower which are additional and alternative to the ones under (inter alia) s.24. See Gain Wealth Global Credit & Investment Ltd at [54] and Skyline Credit Ltd at [51] to [52]. In both cases, the Court of Appeal held that s.27(4) could not be used to expand the meaning of “interest” in s.2(1). It seems to me that the same applies in respect of the meaning of “principal”. Section 27(4) entitles a borrower to recover amounts paid in contravention of s.27 from the recipient, or, where the recipient is the money lender (or associated with the money lender in the specified ways) to set off the amounts against the amount actually lent. 47.Mr Ho also argued that Mr Franky Lee and Ms Chan of Jone’s procured the Loan on behalf of Premier Capital as its agent, so that the payment of $333,417 to Jone’s should also be taken into account in the calculation of the effective interest rate under s.24 MLO.[6] As Mr Lee submitted, the threshold for establishing agency is higher than that for collusion: Gain Wealth Global Credit & Investment Ltd at [48] to [49] (Kwan VP). I set out further below the reasons why I do not consider that the claim of agency has been made out on the facts. In the circumstances, the claim of agency does not affect the calculation of the effective interest rate. E3. Whether effective interest rate of Loan exceeds 60% 48.The effective interest rate of the Loan is therefore 40.43% per annum. It cannot be said that the Loan is unenforceable for breach of s.24 MLO. F. SECTION 25 MLO 49.Mr Ho argued that in the event that I were to find that the effective interest rate did not exceed 60% per annum, but did exceed 48% per annum, then the Loan transaction would be extortionate under the presumption in s.25(3) MLO. 50.As I have found in section E above, the effective rate of interest of the Loan is 40.43% per annum, so that s.25(3) does not apply. 51.Mr Ho clarified in his oral closing submissions that he was not seeking to argue that the transaction was extortionate by reference to the other factors referred to in s.25.[7] G. SECTION 27 MLO G1. The meaning of “collusion” under s.27(3) MLO 52.In Gain Wealth Global Credit & Investment Ltd, Kwan VP, giving the judgment of the Court, said at [49]:
53.This was reiterated in Skyline Credit Ltd at [33] where Chu JA (as she then was), giving the judgment of the Court, rejected an argument that there was no basis to adopt a wide interpretation of “collusion”. Chu JA then went on to say:
G2. Whether collusion established on the facts 54.At the trial, Mr Siu gave evidence on behalf of Premier Capital. Mr So gave evidence on behalf of the Defendants. He was unable to read out the title of his witness statement save for his name and the word “的”. His witness statement was not challenged, although he was briefly cross examined along the lines that during the process of purchasing the Property, solicitors and bankers had not raised questions regarding his mental capacity. Mr WM So also gave evidence on behalf of the Defendants. He was not cross examined. 55.The Defendants’ case is that Jone’s (and Mr Franky Lee and Ms Chan), Mr Chan and Premier Capital acted in collusion to obtain the payments of $333,417 (paid to Jone’s) and $85,000 (paid to Mr Chan). 56.I first deal with Jone’s, Mr Franky Lee and Ms Chan. Ms Chan was an employee of Jone’s, as Mr WM So testified. Mr Franky Lee was the Supervisor of the Mortgage & IVA Department of Jone’s, as Mr Siu knew. 57.Mr Siu’s evidence about whether he knew Mr Franky Lee was self-inconsistent.
58.Mr Siu gave shifting evidence as to his understanding of Mr Franky Lee’s role, and in the end admitted that he knew Mr Franky Lee was facilitating the Loan transaction.
59.Indeed, Mr Siu did not deny that he might have discussed the details of the Loan with Mr Franky Lee, that Mr Franky Lee might have provided him with documents relating to the Loan, and that he might not actually have spoken to Mr So before the Meeting. 60.Mr Siu’s claim not to have known that Jone’s charged Mr So a fee was not credible.
61.Mr Siu’s evidence as to how Premier Capital came to lend $900,000 to the Defendants was not credible.
62.Mr Siu could hardly give any evidence as to the details of what actually happened in the present case.
63.I bear in mind that the events took place a long time ago, and that Mr Siu would have dealt with many loans, so that a claim not to remember the details of the Loan is not, in itself, inherently incredible. This does, however, mean that one should scrutinise with care his claim to have remembered certain details. For example, he claimed to have had a “deeper” impression that Mr So went to the Meeting with three persons who were family members (in Siu II, which did not refer to the fact that the Meeting had been videotaped[10] or the Meeting Transcript) – when in fact he never asked the identities of the persons who went to the Meeting, and when in fact he was well aware that one of the three persons was Mr Franky Lee. 64.Morever, in Siu II paragraph 20, Mr Siu condescended into great detail about the Meeting, stating that the persons at the Meeting were Mr Franky Lee,[11] an old man around 60 to 70 years old, a woman about 30 to 40 years old; that he asked Mr So who the three persons were; that Mr So answered that they were his family members; that he asked Mr So and Ms Ma to produce their identity cards and original income proof; that he confirmed all the documents were originals and then passed them to his colleague for photocopying; that he explained seven specific documents one by one to Mr So and his wife; that he confirmed with them that they understood the documents; that he arranged for them to sign all the documents for confirmation; that he passed copies of all the signed documents to Mr So; and that Mr So and Ms Ma then left and went to KB Chau to sign the Loan Agreements and collect the cheques. This witness statement was supposedly prepared at a time when Mr Siu had not watched the video of the Meeting.[12] Yet Mr Siu was supposedly able to give such a detailed account of the Meeting in a statement of September 2019, which was already years after the Meeting in November 2014. 65.Given the above, I do not find Mr Siu to be a credible or reliable witness. Contrary to his avowed ignorance of Jone’s and Mr Franky Lee, he in fact knew Mr Franky Lee and that he was facilitating the Loan transaction, providing documents to Premier Credit, accompanying Mr So to Premier Credit and then arranging for him to go to KB Chau. I do not place any credence on Mr Siu’s denial that the purpose of arranging for part of the Loan to be disbursed by way of the $500,000 cheque was to accommodate the making of payments to third parties such as Mr Franky Lee. (The Meeting Transcript records Mr Siu telling Mr So that the law firm had called him (Mr Siu, not Mr So) to say that it could issue a cash cheque for up to $600,000, that the balance would be by way of a bank cheque, that he would be told how to handle the cheques when he got to the law firm, and that $180,000 would be deducted as prepayments of interest.) 66.I therefore find that Jone’s and its employee Mr Franky Lee were acting in collusion with Premier Capital within the meaning of s.27 MLO. They were cooperating with each other with a view to facilitating the conclusion of the Loan transaction, against the interest of the Defendants, who, as Mr Siu knew on the basis of the information available to him, had no need for a loan as large as $900,000, no ability to make monthly interest repayments of $22,500 (let alone the principal), and no known intention to obtain a mortgage in order to fund such repayments. They were playing the same game. 67.I do not, however, go further to find that Jone’s was Premier Capital’s agent in the legal sense, as it does not seem to me that there was evidence that the payments made to Jone’s were sought, or received, on behalf of Premier Capital. See Gain Wealth Global Credit & Investment Ltd at [48] to [49] (Kwan VP). 68.As for Mr Chan, whilst Mr Siu’s evidence that he thought Mr So (and Ms Ma) went to the Meeting with three family members is not credible, Mr Ho did not cross examine Mr Siu as to his links with Mr Chan or knowledge of Mr Chan’s role. G3. The operation of s.27(4) in relation to payments made to third parties 69.Jone’s received $333,417 in contravention of s.27(3) MLO. Pursuant to s.27(4), the amount should be set off against the amount actually lent, and the amount should be reduced accordingly. This will in turn affect the amount due by way of interest under the Loan. G4. Costs, charges or expenses paid to Premier Capital under s.27(1) MLO; the operation of s.27(4) in relation thereto G4.1 Preliminary observation - $180,000 should be deducted from principal by virtue of concession 70.Whilst issue 1.2 asks whether the $180,000 were costs, charges or expenses that should be set off from the Loan under s.27(1) MLO, it seems to me that even leaving aside s.27(1), the $180,000 should be deducted from the principal of the Loan (and therefore set off from the Loan), simply by virtue of Premier Capital’s concession that the $180,000 should be deducted from the principal of the Loan by virtue of s.2(3) MLO. Whilst I have earlier referred to this concession in the context of the calculation of the effective interest rate under s.24(1) MLO, the concession was a general one under issue 1 and not limited to the calculation under s.24(1) MLO.[13] G4.2 Application of s.27(1) MLO 71.In any event, the same result in relation to the $180,000 is reached by the application of s.27(1) MLO. 72.It will be recalled that the $180,000 was withheld by KB Chau, supposedly as prepayments of interest to Premier Capital. The face of the Withholding Letter, which was a pre-printed standard form with various blanks filled in, contained a “declaration” that the instruction to withhold the $180,000 was made at the request of the borrower and had no direct or indirect link to KB Chau or Premier Capital. However, Mr Siu confirmed in cross-examination that the arrangement to prepay the eight instalments was one agreed between the Defendants and Premier Capital albeit not written into the Loan Agreement, and that the Loan would not have been approved had the Defendants not been willing to make the prepayment. In other words, it was not a voluntary request at all. In the Meeting Transcript, Mr Siu is recorded as having told Mr So that $180,000 would be deducted from the Loan proceeds, to be withheld, and the lawyer would pay Premier Capital on the Defendants’ behalf. In any event, I have no doubt that Mr So was simply incapable of making any voluntary request as suggested on the face of the Withholding Letter, given the common ground that Mr So did not have the mental capacity to enter into the Loan Agreement. 73.Mr Lee’s submission was that s.27 MLO did not apply to this amount as the retained interest was for the purpose of repaying contractual interest, and had nothing to do with “costs, charges or expenses”, or “remuneration or reward” obtained in connection with the negotiation of a loan.[14] 74.However, s.27(1) MLO provides that (emphasis added):
75.It seems to me that the $180,000, which was never paid to the Defendants, constituted “costs, charges or expenses” which were “incidental to or relating to … the granting of the loan … or the guaranteeing or securing of the repayment thereof”. It is not correct to say that the amount was used and enjoyed by the Defendants for the purpose of repaying contractual interest. The fact is that the Defendants never received the $180,000, which was withheld by KB Chau right from the drawdown of the Loan, even though none of the interest payments had either accrued or fallen due for payment at that time. The Defendants effectively paid the $180,000 upfront, which was not in discharge of any contractual obligation under the Loan Agreement, but pursuant to a separate arrangement imposed by Premier Capital on the Defendants. The fact that the amount of $180,000 was subsequently used to pay interest amounts under the Loan Agreement does not change the nature of the $180,000 at the time it was withheld. 76.Insofar as it was argued that the $180,000 was used for the benefit of the Defendants in creating a good credit record for the purposes of applying for a loan secured by a mortgage on the Property, I have already noted above that there was simply no evidence that the Defendants were seeking to obtain such a loan or that they had told Mr Siu that this was what they wanted to do. 77.For completeness, I note that it was not suggested that the fact that the $180,000 was held by KB Chau rather than by Premier Capital made any difference to the application of s.27(1) MLO. I consider that is correct. The focus of s.27(1) MLO is on whether there is any payment by the borrower of costs, charges or expenses. Whether Premier Capital required the payment to be made to it, or to KB Chau to be held for onward payments to it, does not affect the fact that from the point of view of the Defendants, the $180,000 was paid by them right from the start (and that it was to be paid to Premier Capital albeit via the conduit of KB Chau). The Defendants never enjoyed the use of the $180,000 as loan principal. The amount should be set off under s.27(4) MLO, not being an amount truly lent to the Defendants. 78.Incidentally, I would further note that on Premier Capital’s case, the $180,000 constitutes part of the Loan principal on which interest accrues, so that the effect of Premier Capital’s case regarding the $180,000 in substance is that the $180,000 was lent to the Defendants, who were obliged to pay interest at 30% per annum on this amount, although they never received it and it was paid out at the time of the drawdown of the Loan at Premier Capital’s direction, standing as security for the Defendants’ future obligations to pay interest. 79.Premier Capital also received $15,000 in fees. Mr Lee’s submission was that s.27 MLO did not apply to this amount as the amount was never paid by the Defendants, and the sum does not have to be set off from the Loan as it is no longer being claimed.[15] The effect of this submission is that the principal of the Loan should be reduced by $15,000. It seems to me that the same result would be reached by virtue of s.27(4) (in other words, it is not the case that s.27 does not apply). 80.The amounts of $180,000 and $15,000 should therefore be set off against the amount actually lent, and the amount should be reduced accordingly, pursuant to s.27(4). As with the setting off of the $333,417, this will in turn affect the amount due by way of interest under the Loan. G5. Whether the Loan Agreement illegal and unenforceable pursuant to s.27 MLO 81.The fact that there were charges or payments which contravened s.27 MLO and are illegal by virtue of the section does not in itself make the Loan unenforceable. The mere fact that a transaction is illegal does not necessarily mean that it is unenforceable. In the case of payments which contravene s.27 MLO, s.27(4) MLO expressly provides for the applicable remedies – the illegal payments may be set off against the amount actually lent or may be recovered by the borrower. In other words, whilst the loan is unenforceable to the extent provided for by s.27(4), it is at the same time otherwise enforceable. See K Cash Ltd v So Wang Fung [2021] 4 HKLRD 796 at [27], [30] (Cheung JA). H. DELAY; INTEREST PERIOD 82.Premier Capital initiated proceedings in October 2015. The trial did not commence until 26th February 2024. On any view, that is an extremely long lapse of time. At the pre-trial review, I ordered that Premier Capital should explain the length of time taken to bring this matter to trial. As a result, Premier Capital’s solicitors (“Fongs”) filed a letter of 7th December 2023, and the Defendants’ solicitors (“LC”) filed a letter of 21st December 2023. I make reference in this section to matters set out in those letters, and matters appearing from the court’s file. 83.There is no dispute as to the relevant principles, which I summarise as follows.
See Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2017] 2 HKLRD 477 at [39], [44], [47] (Peter Ng J); Challinor v Juliet Bellis & Co [2013] EWHC 620 (Ch) at [48]. 84.Mr Lee submitted that:
85.The following matters are relevant to the assessment of whether there has been unreasonable, exceptional and inexcusable delay, and the length of such delay. 86.LC has pointed out that HYL delayed in giving discovery. In this regard, I note the following, by way of background.
87.LC also says that Premier Capital delayed in exchanging its supplemental witness statements. Its account of events, not disputed by Premier Capital, is as follows.
88.In Fongs’ letter of 7th December 2023 to the court, it was said that there were two matters which required immediate attention after Fongs took over conduct of the action on 19th June 2019. One of these was that “additional depositions had to be made and additional exhibits had to be disclosed by [Premier Capital], in particular relating to the [turnaround loan plan]”. It will be recalled that Siu II raised for the first time that the Loan was made pursuant to a “turnaround loan plan”, and indeed this was the main subject of the witness statement. However, as LC has pointed out, there is no reason why, if this was thought to be relevant and important, it was raised for the first time only some four years after the commencement of the proceedings, and more than a year after the parties had originally agreed that the action was ready to be set down in May and June 2018. 89.The other matter that Fongs said required their immediate attention upon their taking over conduct of the action in June 2019 was that a joint psychiatric report had been prepared only in respect of Mr So but not Ms Ma. LC has pointed out that the original joint psychiatric examination of Mr So in September 2018 did not extend to an examination of Ms Ma as legal aid had not yet been granted for her at the time. Legal aid was granted in October 2018, and Ms Ma filed her Defence on 26th November 2018. Premier Capital did not file any Reply within time (and indeed not until years later on 13th April 2022). Whilst of course there is an implied joinder of issue even in the absence of a Reply, no positive case was put forward to dispute Ms Ma’s pleaded case that (inter alia) she suffered from mental incapacity, that she had been examined by a psychiatric specialist on 10th September 2018 who found that she suffered from mild grade mental handicap and was vulnerable to exploitation by others, that Premier Capital knew or ought to have known of this at the time of signing the Loan Agreement, and that it would have been obvious to Premier Capital that Ms Ma signed documents at the Meeting under the undue influence of Mr Chan, Ms Chan and Mr Franky Lee. Furthermore:
90.The reality is that Premier Capital’s focus was never on Ms Ma (who is not an owner of the Property) until several years after the commencement of proceedings. Although Ms Ma acknowledged service of proceedings in October 2015 and did not file any Defence (until November 2018 after was granted legal aid), no attempt was made to enter judgment in default. Nor was any application made for expert evidence in relation to Ms Ma upon the filing of her Defence in November 2018. (And as mentioned above, no Reply was even filed until April 2022.) 91.It was only in Premier Capital’s timetabling questionnaire of 16th July 2019 that it indicated that it would seek to adduce expert psychiatric evidence in relation to Ms Ma. Eventually the parties agreed that Ms Ma would be examined by the parties’ experts jointly and that a joint expert report would be filed. Even then, Premier Capital continued to delay the matter.
92.As mentioned above, there was further delay occasioned by Premier Capital’s late disclosure of the video of the Meeting on 29th November 2019, leading to a further round of expert evidence in relation to Mr So. A supplemental joint expert report was not filed until 7th April 2021. Had the video been disclosed promptly back in 2016, this further delay would not have been necessitated – the matter could have been dealt with by the time of the original reports at the latest. 93.The late disclosure also caused the Defendants to apply on 10th June 2021 to amend their pleadings and WM So III. Here again, Premier Capital failed to act expeditiously.
94.To a certain extent, it could be said that the Defendants could have applied earlier to amend their Defences and file WM So III, although it can be seen that they were first awaiting the outcome of the supplemental expert report before seeking to amend their pleadings. However, the fundamental cause of the delay lay in the fact of the inexplicably late disclosure of the video of the Meeting. Had this been disclosed back in 2016, the Defendants could have addressed it in their earlier rounds of pleadings and witness statements. Furthermore, despite the late disclosure, Premier Capital compounded the delay by a further six months of delay in filing their amended pleadings and supplemental witness statement. 95.Taking the above matters into account, and adopting a broad-brush approach, I first of all note that the parties had originally both indicated that the matter was ready to be set down for trial in May/Jun 2018. There was then Ms Ma’s application for legal aid in July 2018, which was not granted until October 2018. Ms Ma filed her Defence in November 2018. After Fongs took over in June 2019, they considered that two matters needed to be addressed, namely (1) obtaining expert evidence in relation to Ms Ma, and (2) disclosing additional evidence. 96.As to (1), it will be recalled that Premier Capital’s original stance as set out in its timetabling questionnaire in mid 2018 was that it did not need expert evidence in relation to Ms Ma. It was only in its timetabling questionnaire of 16th July 2019 that Premier Capital indicated that it would apply for expert evidence. Whilst it is true that in the interim, Ms Ma had filed her Defence in November 2018, it does not seem that Premier Capital’s change of mind was caused by this, since some eight months passed before any application was made in July 2019, and since Fongs have said that it was after they took over in June 2019 that they considered that expert evidence needed to be obtained. 97.Even after directions were given for such evidence, Premier Capital compounded the delay by its failure to deal with the instructions to the joint expert and to arrange the joint examination, despite repeated chasers from the Defendants, a total of some five months’ delay. Had the application for expert evidence been made at the same time as it was in relation to Mr So, and had Premier Capital not delayed the process of obtaining the expert evidence, the process could have been completed at the same time that expert evidence was obtained in relation to Mr So (in November 2017). I am mindful of the fact that Ms Ma did not obtain legal aid until October 2018 and therefore was not represented up to that time. However, it was always open to Premier Capital to have sought directions from the court had it wished to conduct an examination of Ms Ma. 98.As to (2) (additional evidence), there is Premier Capital’s late disclosure of the video of the Meeting on 29th November 2019. As I have indicated above, had the video been disclosed promptly back in 2016, the delay caused by the need to obtain supplemental expert evidence in relation to Mr So, amend pleadings and file supplemental witness statements would all have been obviated. Again, Premier Capital compounded the delay with its further delay in amending its pleadings and preparing supplemental witness statements. Even then, had the video been disclosed back in 2016, the factual and expert evidence regarding the video and amendments to pleadings could all have been dealt much earlier – in the case of the factual evidence, in WM So I of 26th April 2017 and Siu I of 23rd May 2017; in the case of the expert evidence, in the joint experts’ report relating to Mr So of 13th November 2017; and in the case of the pleadings, the two rounds of amendments undertaken to Mr So’s Defence in 2017. 99.There is also Premier Capital’s further evidence relating to the “turnaround loan plan” which was raised in Siu II of 16th September 2019. As mentioned above, there is no reason why it was raised for the first time only some four years after the commencement of the proceedings, and more than a year after Premier Capital had originally indicated that the proceedings were ready to be set down in June 2018. There is no reason why it could not have been dealt with in Siu I of 23rd May 2017. 100.The Defendants’ multiple rounds of amendments, complained of by Premier Capital, were either made by 2017 (save for the minor amendments in April 2019 to Ms Ma’s Defence), or arose subsequently because of the additional factual and expert matters raised by Premier Capital, or were made after the matter had already been set down for trial and did not affect the trial dates. 101.In my view, therefore, the delay after Premier Capital had originally indicated that the action was ready to be set down in its listing questionnaire of 7th June 2018, up to the time when it actually eventually applied for setting down on 8th June 2022, was caused by Premier Capital, aside from the two and a half months between 25th July 2018 and 12th October 2018 taken to process Ms Ma’s application for legal aid. 102.I consider that these three years and nine months of delay were unreasonable, exceptional and inexcusable, having regard to the facts that:
103.I disallow three years and nine months’ interest to mark this period of delay. I. DISPOSITION 104.In the light of my findings above, the amount actually lent to the Defendants was $371,583, and no repayment has been made thus far. 105.Interest should run at the contractual rate of 30% per annum until the date of this judgment, less three years and nine months. 106.Having regard to (1) the fact that Premier Capital has been successful on only part of its claim and (2) the costs caused by the additional procedural steps in terms of additional factual evidence, expert evidence (in respect of both Defendants) and amendments to pleadings which were necessitated by its belated discovery and by its application for expert evidence in relation to Ms Ma, I make a costs order nisi that 50% of the costs of the action should be to Premier Capital, to be taxed if not agreed. There should be legal aid taxation in respect of the Defendants’ costs. 107.There is no dispute that costs should be assessed on the District Court scale, having regard to the fact that the action could have been transferred to the District Court some years ago. 108.The parties are to lodge an agreed draft order for approval reflecting the above within fourteen days. In the absence of agreement, the parties are to lodge a joint letter with a draft order indicating which parts are agreed and which parts are disagreed, and the reasons for disagreement.
Mr Kenneth Lee and Mr Jack Hui, instructed by FONGS, for the Plaintiff Mr B.K. Ho, instructed by Lau & Chan, assigned by Director of Legal Aid, for the 1st and 2nd Defendants [1] The experts were not called to give evidence at trial, but their expert reports were put before the court at trial, and there was no dispute that the agreed parts of the opinions formed part of the evidence. [2] Some four years after commencement of the proceedings. [3] Leaving aside the challenge under s.27 MLO, addressed below. [4] Whilst issue 3.2 also referred to the addition of these amounts to the interest of the Loan for the purpose of the s.24 MLO calculation, Mr Ho’s submissions only referred to the deduction of the amounts from the principal (see Defendants’ Opening paragraph 91). [5] See for example Defendants’ Closing paragraphs 60 to 61. [6] Defendants’ Opening paragraph 75. [7] See also Defendants’ Submissions on Agreed List of Issues paragraph 20. [8] Aside from the credit card debts owed to Bank of China. [9] Assuming for present purposes that Mr So had the mental capacity of engaging in discussions with Mr Siu regarding such matters at all. [10] The videotape was not disclosed until 29th November 2019. [11] Inconsistently with his claim in the same statement that he believed the persons were Mr So’s family members. [12] Since Mr Siu subsequently made a Second Supplemental Witness Statement of 13th April 2022 (“Siu III”) in which he sought to correct his evidence regarding certain aspects of the Meeting after, he says watching the video of the Meeting. [13] See Supplemental Opening paragraph 1.1. [14] Opening paragraph 24. [15] Opening paragraph 25. |
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