China Tian Yuan Healthcare Group Ltd v. Zhang Shihong

HCMP 40/2024

[2026] HKCFI 427

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 40 OF 2024

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D E C I S I O N

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Introduction

1.P brought this mortgagee’s action by an Originating Summons dated 9 January 2024 (“the OS”) to enforce a legal charge dated 29 March 2018 (“the Second Legal Charge”) against D by, among other things, taking possession of a property known as Flat G, 15^th Floor, Block 10, Sceneway Garden, No. 8 Sceneway Road, Kowloon (“the Property”).

2.D opposes the claim of P on the principal ground that the loan extended by P to Lead Dragon Limited (“the Borrower”) secured by the Second Legal Charge was in multiple contraventions of the Money Lenders Ordinance, Cap. 163 (“the MLO”) and hence the Second Legal Charge is not enforceable.

3.This is the substantive hearing of the OS. Mr Chan appears for P and Ms Chong appears for D.

Background facts

4.Mr Chan in his skeleton submissions helpfully provides a summary of the undisputed background facts and the relevant provisions in some material documents. Ms Chong confirms the accuracy of the summary and agrees the same to be adopted by this court. The summary is as follows.

Parties

5.P, formerly named City e-Solutions Ltd, is a Cayman Islands company listed on the Main Board of the Stock Exchange of Hong Kong (stock code: 557).

6.During the material period between 2017 and 2019, the Chairman of P’s board of directors was Mr Jiang Yulin (“Mr Jiang”).

7.D is an experienced banker/financier who was formerly a director and the Chief Executive Officer of a company known as China Ocean Industry Group Co Ltd (“China Ocean Industry”), a Bermudan company formerly listed on the Main Board of the Stock Exchange of Hong Kong Ltd.

8.D is the registered owner of the Property.

Facility Agreement

9.In or around June 2017, Mr Jiang introduced Mr Li Ming (“Mr Li”) to P.

10.Mr Li:

(1)  was the Chairman of the board of directors of China Ocean Industry;

(2)  graduated from Jiangxi Finance Institute, and acquired extensive in management and business planning prior to joining China Ocean Industry; and

(3)  was the sole director and shareholder of the Borrower.

11.Mr Li, who was a friend of Mr Jiang, represented that the Borrower required a sum of money for the purpose of investment and asked for a loan through P.

12.P, the Borrower and Mr Li subsequently entered into a Facility Agreement dated 14 July 2017 (“Facility Agreement”).

13.The material terms of the Facility Agreement include the following:

Clause 1.1:  P agreed to make available to the Borrower a facility in the aggregate amount of US$13 million (“the Facility”).

Clause 1.5:  There would be a handling charge of 6% on any drawdown on the Facility, to be paid within 3 workings days of the drawdown. The rate of interest on drawdowns would be 12% per annum, and the accrued interest shall be paid on the first day of every three months from the date of drawdown.

Clause 1.6:  Unless otherwise agreed, the Borrower shall repay all drawdowns (together with all accrued interest thereon) 12 months after the date of the Facility Agreement.

Clause 1.7:  If the Borrower fails to pay any amount payable by it under the Facility Agreement 12 months after the date of the Facility Agreement, interest shall accrue at the default rate of 40% per annum on the overdue amount from the said payment date up to the date of actual payment.

Clause 2.1:  Mr Li agreed to guarantee the performance of the Borrower’s obligations under the Facility Agreement, and undertook that whenever the Borrower does not pay any amount due under the Facility Agreement, he would on demand pay that amount as if he was the principal obligor.

Allotment of shares by the Borrower

14.The Borrower drew down the entirety of the Facility, i.e. US$13 million, on the same day (“First Loan”).

15.On 25 July 2017, the Borrower allotted 12,000 shares, with par value of US$100 per share, to Mr Li for the stated consideration of US$1,200,000.

16.The said allotment was followed by (1) a payment of HK$3,000,000 from Mr Li to the Borrower on 16 August 2017, and (2) a payment of HK$7,500,000 from Mr Li to the Borrower on 7 November 2017.

Supplemental Deed to Facility Agreement

17.In or around March 2018, there was a meeting between Mr Jiang, Mr Li and D.

18.D:

(1)  holds a master’s degree in economics;

(2)  by 2019, had accumulated 18 years of experience in finance, credit management and investment management; and

(3)  by 2019, had worked for the head office of the Bank of China for around 9 years, mainly responsible for credit management.

19.Thereafter, P, the Borrower, Mr Li and D entered into a Supplemental Deed to Facility Agreement dated 22 March 2018 (“Supplemental Deed to Facility Agreement”).

20.As can be seen from the Recital (I) thereto, the Supplemental Deed to Facility Agreement had the effect of varying the Facility Agreement and incorporating covenants to repay and guarantees provided by D.

21.The material terms of the Supplemental Deed to Facility Agreement include the following:

Clause 4.1:  The Borrower, Mr Li and D (subject to Clause 9) undertook to pay, upon demand in writing by P, inter alia (1) all sums in respect of the Facility Agreement as varied due to the Borrower, together with such handling charges, accrued interest, default interest and/or other monies payable, (3) all other liabilities of the Borrower to P, and (4) all other costs and expenses (on a full indemnity basis) arising out of or in connection with the recovery or attempted recovery by P of moneys due under the Facility Agreement as varied.

Clause 5.1:  Mr Li and D (subject to Clause 9) (1) guaranteed to P the performance of the Borrower’s obligations under the Facility Agreement as varied, (2) undertook that whenever the Borrower does not pay any amount due under the Facility Agreement as varied, he would on demand pay that amount as if he was the principal obligor, and (3) agreed that if any obligation guaranteed by them is or becomes unenforceable, invalid or illegal, they will indemnify P immediately on demand against any cost, loss or liability it incurs as a result of the Borrower not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under the Facility Agreement as varied.

Clause 6.1:  As security for all monies owed by the Borrower to P under the Facility Agreement as varied, Mr Li and D (subject to Clause 9) agreed to execute an all-monies second legal charge in favour of P. In D’s case, the Second Legal Charge was to be executed over the Property.

Second Legal Charge

22.Pursuant to Clause 6.1 of the Supplemental Agreement, Mr Li, D, the Borrower and P entered into the Second Legal Charge dated 29 March 2018 (“Second Legal Charge”).

23.The material terms of the Second Legal Charge include:

Clause 2.01:  The Borrower, Mr Li and D jointly covenant to pay, on demand by notice in writing, all monies owing by the Borrower to P.

Clause 3.01(c):  With the objection and intention of affording P a security for all monies owing by the Borrower to P, D as beneficial owner charges the Property to P.

Clause 5.01(a):  An event of default occurs if Mr Li, D and/or the Borrower make default in the payment of all monies owed by the Borrower to P (or any part thereof) following demand duly made.

Clause 6.01:  If any event of default occurs it shall be lawful for P at any time thereafter without any consent on the part of D, but subject to the first mortgage over the Property, to enter into and take possession of the Property.

Clause 21.01:  Mr Li, D and P shall with the object and intention of affording to P a full indemnity for all amounts actually disbursed or incurred by P pursuant to the terms thereof pay or reimburse to P on demand (a) all costs, charges and expenses and all payments made by P in the lawful exercise of the powers hereby conferred upon it, and (b) all reasonable expenses (including legal expenses on solicitor and own client basis) incurred by P in suing for or recovering any sum due from Mr Li, D and/or the Borrower to P hereunder or in connection with the protection or enforcement of this security.

Loan Agreement

24.P, the Borrower, Mr Li and D then entered into a Loan Agreement dated 12 November 2018 (“Loan Agreement”).

25.As can be seen from Recitals (B) and (C) thereto, the Loan Agreement involved the making of a new loan in the principal amount of US$13 million (“Second Loan”) for the purpose of paying off the Borrower’s existing indebtedness to P, i.e. the First Loan.

26.The material terms of the Loan Agreement include the following:

Clause 3.1:  P agreed to make available to the Borrower a loan in the principal amount of US$13 million, i.e. the Second Loan.

Clause 3.2:  The Borrower shall only use the Second Loan for the sole purpose of making partial/full repayment of its existing indebtedness in the sum of US$13 million.

Clause 3.4:  The handling charge of the Second Loan is 6% on the drawn upon, with 3% payable upon drawdown and 3% payable after 6 months from the date of drawdown.

Clause 3.5:  The rate of interest on the Second Loan is 12% per annum, and the accrued interest shall be paid in arrears every 3 months from the date of drawdown.

Clause 3.6:  Unless otherwise agreed, the Borrower shall repay the loan (together with all accrued interest thereon up to the date of repayment) in full after 12 months from the date of the Loan Agreement.

Clause 3.8:  If the Borrower fails to pay any amount payable by it under the Loan Agreement on the dates when the same becomes due or payable, interest on the said amount shall accrue at the default rate of 40% per annum on the overdue amount from the dates when the same becomes due up to the date of actual payment.

Clause 4.1:  The Borrower, Mr Li and D (subject to Clause 8) undertook to pay, upon demand in writing made by P, inter alia (a) all sums due to P in respect of the Loan Agreement together with such handling charges, accrued interest, default interest and/or other monies payable, (c) all other liabilities of the Borrower to P, and (d) all other costs and expenses (on a full indemnity basis) arising out of or in connection with the recovery or attempted recovery by P under the Loan Agreement or otherwise.

Clause 5.1:  The Borrower, Mr Li and D (subject to Clause 8) (a) guaranteed to P the performance of the Borrower’s obligations under the Loan Agreement, (2) undertook that whenever the Borrower does not pay any amount due under the Loan Agreement, he would on demand pay that amount as if he was the principal obligor, and (3) agreed that if any obligation guaranteed by them is or becomes unenforceable, invalid or illegal, they will indemnify P immediately on demand against any cost, loss or liability it incurs as a result of the Borrower not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under the Loan Agreement.[1]

Clause 6.1:  Mr Li and D (subject to Clause 8) declared, confirmed and acknowledged that the Second Legal Charge shall be provided as security for the due repayment of all monies owing by the Borrower to P from time to time.

Clause 8:  Subject to and upon the due performance of and observance with the provisions contained in the Loan Agreement by D, the total liabilities of D (whether as guarantor under the guarantee and/or indemnity as provided for in the Loan Agreement or as mortgagor under the Second Legal Charge) shall not exceed the prevailing amount or value representing those of all the rights and interests (whether legal or equitable) of D (as sole owner) of and in the Property for the then time being at the time when P shall call in all the moneys due and payable under the Loan Agreement or shall take steps to enforce the Loan Agreement or Second Legal Charge.

Clause 10.1:  The Borrower covenanted that throughout the continuance of the Agreement and for as long as all monies owing by the Borrower to P from time to time remains outstanding, the Borrower shall (unless P otherwise agrees in writing) use the proceeds of the loan for the sole purpose of making partial/full repayment of its existing indebtedness to P.

Clause 12.1(a):  An event of default occurs where any of the obligors fails to pay any monies payable under the Loan Agreement and/or the Second Legal Charge when due.

Clause 12.2:  If any event of default occurs, P is entitled to immediately enforce the Loan Agreement and/or the Second Legal Charge against all appropriate parties without further notice, and all amounts owing or payable by any of the obligors under the Loan Agreement shall become immediately due and payable to P without demand or notice.

Supplemental Deed to Loan Agreement0

27.P, the Borrower, Mr Li and D subsequently entered into a Supplemental Deed to Loan Agreement dated 12 November 2019 (“Supplemental Deed to Loan Agreement”).

28.As can be seen from the Recital thereto, the Supplemental Deed to Loan Agreement had the effect of varying the Loan Agreement.

29.The material terms of the Supplemental Deed to Loan Agreement may be summarised as follows:

Clauses 2.1 and 2.3:  The date for repayment of the principal under the Loan Agreement (and all accrued interest thereon) be extended from 12 November 2019 to 12 February 2020.

Clause 2.2:  The rate of interest is 12% per annum for the period starting from the date of drawdown, payable in arrears every 6 months from the date of drawdown. The rate of interest is 18.5% per annum for the period starting from 12 November 2019, payable on 12 February 2020.

Clause 2.4:  If the Borrower fails to pay any amount payable by it under the Loan Agreement on the dates when the same becomes due or payable, interest on the said amount shall accrue at the default rate of 20% per annum on the overdue amount from the dates when the same becomes due up to the date of actual payment.

Demand letters and partial repayment

30.By letter to the Borrower, Mr Li and D dated 19 February 2020 (“First Demand Letter”), P issued a demand in writing requiring each of the three recipients to repay the outstanding sums under the Loan Agreement and Supplemental Deed to Loan Agreement within 14 days.

31.On 25 February 2020, Ms Loretta Yip of P emailed a copy of the said demand letter to Mr Li and D.

32.On 5 and 6 March 2020, the Borrower and Mr Li made partial repayments of the outstanding sums under the Loan Agreement and Supplemental Deed to Loan Agreement, in the sums of around HK$17.8 million and HK$33 million respectively.

33.As a result of these repayments, the outstanding interest up to that point was repaid, and the outstanding principal was reduced to US$8,518,754.96.

34.By letter to the Borrower, Mr Li and D dated 8 June 2020 (“Second Demand Letter”), P issued another demand in writing requiring each of the three recipients to repay the balance of the outstanding sums under the Loan Agreement and the Supplemental Deed to Loan Agreement.

35.The Second Demand Letter made clear that each of the three recipients were in breach of their contractual obligations and were required to make repayment as soon as possible.

36.No further repayment was however made by any of the recipients to date.

37.It is not in dispute that the Borrower was in default of repayment under the Loan Agreement and the Supplemental Deed to Loan Agreement. According to the terms of the contractual documents, the outstanding principal amount is US$8,518,764.96 with a daily interest of US$4,667.81 accruing at the rate of 20% per annum (“the Outstanding Sums”).

D’s defence

38.In D’s affirmation, he raised three issues to resist P’s claim. First, he argues that the loans to the Borrower (and hence the Second Legal Charge) are illegal and unenforceable pursuant to sections 7 and 23 of the MLO because The loans were advanced in the course of P’s unlicensed money lending business.

39.Second, D argues that the loans to the Borrower are illegal and unenforceable pursuant to section 22(1)(c) of the MLO because they provide for an increase in the rate of interest by reason of any default in the payment of sum due.

40.Third, the loans to the Borrower are illegal and unenforceable pursuant to section 24 of the MLO because they involve an effective rate of interest exceeding 48%.

P’s contentions

41.In gist, the primary contention of P is that it did not carry on any money lending business before the First Loan was made. Even if it was an unlicensed money lender within the meaning of the MLO, the loans fall with Schedule 1 Part 2 of the MLO and so they are all exempt from all provisions of the MLO. Next, P contends that neither the First Loan nor the Second Loan involves effective rates of interest exceeding 48%. In any event, P contends that this court should exercise the discretion under section 23 of the MLO to allow P to recover the Outstanding Sums.

Issues to be determined

42.Ms Chong has identified the following three issues to be determined for the disposal of the OS:

(1)  Whether or not P was a money lender within the meaning of section 2 of the MLO;

(2)  Whether or not the First and the Second Loans was an exempt loan in that the Borrower had a paid-up capital of not less than HK $1,000,000;

(3)  Whether or not P was in breach of the provisions of the MLO; and

(4)  Whether the court should exercise discretion in favour of P.

43.I shall make my determination on these issues in turn.

P – a money lender?

44.Section 2 of the MLO provides the following definition of a money lender:

“money lender means every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but does not include – (a) a person specified in Part 1 of Schedule 1; or (b) as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan.”

45.Ms Chong aptly points out that the burden is on the borrower, i.e. D, to show that P carried on a money lending business which required a money lending license at the material time: Re Florescent Holdings Limited [2022] 2 HKLRD 203 at §§39-40.

46.Ms Chong further refers to Link Excellent Ltd v Ruijun Technology Ltd (unreported, HCA 1993/2016, 6.11.2017) in which Lisa Wong J observed that:

(1)  The carrying on of a “business” requires a degree of repetition, system and continuity. Accordingly, a single loan, or even several isolated loans, is generally insufficient to cause a lender to be treated as a “money lender” within s 2(1) of the MLO.

(2)  The business required is one of money lending as such, and not some other business to which the lending of money is merely incidental.

47.Ms Chong further refers to Outstanding Management Consultation Ltd v Gold Topmont Ltd and Anor [2023] HKCFI 155 in which Ng J considered the following factors in his determination of the status of the lender (at §52):

(1)  whether the lender and the borrower had any pre‑existing relationship;

(2)  whether the amount advanced under the facility agreement was substantial;

(3)  whether the rate of interest was significant; and

(4)  whether the documentation was sophisticated and professionally drawn under legal advice.

48.On the other hand, Mr Chan highlights that generally speaking, one carries on a money-lending business if he is “ready and willing to lend to all and sundry, provided that they are from his point of view eligible”. This can be distinguished from persons who lend money as an incident of another business or to a few individuals by reason of friendship:

49.Both Ms Chong and Mr Chan submit that the determination of whether a person is a money lender is a question of fact to be decided by reference to the facts and circumstances of each case: Chow Wun Sing Winston v Yiu Chun Luk (unreported, HCMP 2923/2002, 25.7.2006) per Chu J (as she then was).

50.To substantiate his allegation that P was a money lender between 14 July 2017 and 12 February 2020, D relies on the following matters:

(1)  On 14 July 2017, P made a public disclosure (“the 14/7/17 Disclosure”) that it had granted the Facility to the Borrower pursuant to Rules 13.13 and 13.15 of the Listing Rules as the loan exceeded 8% of the asset ratio defined under Rule 14.07(1) of the Listing Rules.

(2)  On 15 December 2017, P issued a Voluntary Announcement (“the Voluntary Announcement”) informing its shareholders and potential investors that P intended to commence a new business segment by entering into money lending and related businesses which included lender or borrower referral business, fund matching, fund arrangement and/or fund participation (“the New Business Activities”). P intended to develop the New Business Activities by leveraging and making good use of the resource and network of its two executive directors Mr Jiang and Ms Zhang Xian in banking and finance industries. The board of directors considered money lending and related businesses would become one of the principal businesses of P and was of the view that the commencement of the New Business Activities would be in the interest of P and the shareholders as a whole.

(3)  On 16 January 2018, P made a public disclosure that it had made a loan in the amount of RMB 50,000,000 at an interest rate of 12% per annum to Shinning Treasure Limited (“STL”) pursuant to the Listing Rules.

(4)  On 28 March 2018, P made an Announcement (“the 2018 Announcement”) which disclosed that money lending was its second major source of income deriving an income of HK$59,159,000 and accounted for approximately 33.75% of the total income of P in the financial year of 2017. With the introduction of the money lending business, the total income of P rose by 74%.

(5)  Similarly, in P’s 2018 Annual Report published on 26 April 2019, money lending was featured as one of the principal businesses of P and it accounted for approximately 16.6% of the total income of P in the financial year of 2018.

(6)  There was no pre-existing relationship between P on the one hand and the Borrower, Mr Li and D on the other.

(7)  The relevant loan agreements including the Facility Agreement, the Loan Agreement and the Supplemental Deed to Loan Agreement were all sophisticated legal documents and appeared to be professionally drawn under legal advice.

(8)  The amounts of the Loans were substantial with high interest rates and handling charge.

51.All these matters considered individually and cumulatively, I am not convinced that they could sufficiently show that P was a money lender at the material time, despite Ms Chong’s tenacious submissions.

52.First, there is nothing untoward about the 14/7/17 Disclosure. It was properly made pursuant to the Listing Rules and it does not start to show that the First and Second Loans were made in the course of any money lending business of P.

53.Further, I accept the submission of Mr Chan that there is contradicted evidence that P granted the First Loan to the borrower because of the personal relationship between Mr Jiang and Mr Li. P did not offer extensions of loans to all and sundry with a view to interest income.

54.There is also evidence that P had ever granted loans to anyone before the First Loan.

55.As rightly pointed out by Mr Chan, the Voluntary Announcement shows unequivocally the intention of P to commence the New Business Activities and it must follow that prior to the making of the Voluntary Announcement, no such money lending business was ever undertaken by P.

56.There is no evidence that the Voluntary Announcement contains false representation and serves any deceptive purposes.

57.The loan extended to STL was made after the Voluntary Announcement. I accept the submission of Mr Chan that this loan in any event cannot have any bearing on the status of P at the time of the First Loan.

58.I agree with Mr Chan that the 2018 Announcement does not really assist D. First, the inclusion of the revenue generated from loans in the financial results for the financial year of 2017 per se does not show that the First Loan was granted in the course of its money lending business.

59.Second, as explained by Madam Yip who is the Chief Financial Officer of P in her 2^nd Affirmation, out of the reported income of HK$59,159,000, a lion share of the same in the amount of HK$47,410,000 was referral fee. It related to a loan made by a lender incorporated in the People’s Republic of China to a borrower incorporated in the British Virgin Islands (“the BVI”). It was not a loan extended by P. Her explanation is not rebutted by any contrary evidence.

60.Thus, the figures in the 2018 Announcement do not show that the second major source of income of P was derived from granting loans to others. They actually show the income derived from both money lending and related businesses such as referral business. It cannot be concluded that P was in the business of money lending on those figures.

61.Mr Chan submits that it would be a criminal offence if P carried on an unlicensed money lending business under section 29 of the MLO. He stresses that serious allegations of criminal acts/conducts must be proved by correspondingly cogent evidence. He submits that the evidence of D fails to discharge his burden of proof.

62.I agree with his submission. Applying the established principles and taking the well-known factors into account such as the size of the First Loan (and the Second Loan) and the complexity of the legal documents involved, I am not satisfied that on balance of probabilities, I should conclude that P was a money lender at the material time.   

Exempted loans?

63.In the light of my conclusion that P was not a money lender, the MLO is not engaged at all. I agree with Mr Chan that it is already a complete answer to D’s defence under the MLO.

64.In any event, I believe that another complete answer is also available to P in that the loans to the Borrower under the Facility Agreement and the Loan Agreement should be exempted loans under Schedule 1 Part 2 of the MLO.

65.Schedule 1 – Part 2 sets out all the different kinds of loans exempt from all provisions of the MLO. The relevant provision is section 12 which reads,

(a)  A loan made to a company that has a paid up share capital of not less than $1,000,000 or an equivalent amount in any other approved currency.

(b)  For the purposes of this paragraph “approved currency” means a currency (i) freely convertible into Hong Kong dollars; or (ii) approved in writing by the Registrar for the purposes of this paragraph.

66.Mr Chan submits that the Borrower is a company that has a paid up share capital of US$1,200,100 and given US dollars are freely convertible into Hong Kong dollars, the loans extended to the Borrower by P must be exempted loans.

67.This submission is supported by the following documentary evidence drawn to my attention by Mr Chan.

68.First, as shown in the Register of Members of the Borrower, the Borrower has an allotted share capital exceeding US$1.2 million.

69.Second, the balance sheet of the Borrower as at 30 November 2018 shows that the Borrower had paid up share capital (實收資本或股本) in the sum of HK$9,375,120.

70.Third, the two pieces of Customer Advice issued by the Bank of China respectively dated 16 August 2017 and 7 November 2017 (“the Two Records”) show that Mr Li transferred to the Borrower a total amount of HK$10,500,000 after the allotment of 12,000 shares to him by the Borrower.

71.Fourth, the following provisions in the Loan Agreement are of particular importance.

72.Recital (A) records that the Borrower is a company duly incorporated in the British Virgin Islands and is authorized to issue a maximum of 50,000 shares of a single class each with a par value of USD100.00 of which, as at the date hereof, 12,001 shares have been issued and fully paid up, resulting in the paid-up share capital of the Borrower amounting to USD1,200,100.00.

73.The parties then by Clause 2 agreed that to their best knowledge and information, Recital (A), among other things, are true, accurate and in no way misleading.    

74.Lastly, by Clause 9.1(i), the Borrower represented and warranted to P that all information supplied to P and all related matters thereunder is true and accurate in all respects and does not contain any misstatement of fact.

75.Ms Chong makes an all-out effort to challenge this documentary evidence. First, she submits that the Register of Members of the Borrower merely states that as of 25 July 2017, there were 12,000 shares allotted at the consideration of USD1,200,000 and it does not indicate whether such allotted shares were paid up.

76.Then she goes on to doubt the genuineness of the balance sheet of the Borrower. She points out that it does not bear any company chop or signatures of authorized officers of the Borrower.

77.Next, Ms Chong observes that the Two Records do not state the purpose of the two payments and they could be made by Mr Li to the Borrower for some other purposes.

78.Lastly, Ms Chong points out that the Loan Agreement itself is an illegal document and hence P cannot rely on its provisions to justify its illegal acts, i.e. lending without licence.

79.I do not find the criticisms of Ms Chong on these documents to be meritorious. When the Register of Members of the Borrower, the Certificate of Incumbency of the Borrower dated 14 November 2018 are read together and the evidence of Madam Yip is considered, Mr Li has become the holder of 12,001 shares of the Borrower by his two payments evidenced by the Two Records.

80.I should make it clear that I do not have any reason not to accept the evidence of Madam Yip relating to how P obtained these documents. P received the Two Records and the balance sheet from Mr Li. There can be no valid challenge to the authenticity of the balance sheet in the absence of any evidence of Mr Li and the Borrower.

81.As regards the Two Records, Mr Li gave them to P clearly for the purpose of showing how he had paid for the allotted shares and become the shareholder of the Borrower.

82.I am aware that D in his affirmation now alleges that Mr Li had informed him that his two payments made to the Borrower are all irrelevant to payment of the share capital of the Borrower. His evidence is nothing more than a bare and self-serving assertion and can hardly be convincing. D should have asked Mr Li to make an affirmation for him. At the very least, he should explain why Mr Li produced the Two Records if they did not relate to his payments for the allotted shares and the real purpose of such payments. D’s evidence simply lacks credence.

83.I do not accept that the Loan Agreement is an illegal document. Any finding that P was an unlicensed money lender at the material time does not necessarily render the Loan Agreement an illegal document. Enforcement of the Loan Agreement is still possible if the proviso under section 23 of the MLO is invoked.     

84.In the circumstances, I agree with Mr Chan that P is entitled to a contractual estoppel and an estoppel by representation arising from the foregoing provisions in the Loan Agreement: Nokia Corp v TCT Mobile Ltd [2017] 3 HKC 102 (per Barma JA at §§20-24) and Mo Ying v Brillex Development Ltd [2014] 3 HKLRD 224 (per DHCJ Eugene Fung SC at §144). D is estopped from denying that the Borrower does not have paid up share capital in the sum of US$1,200,100.

85.Now I turn to the expert evidence adduced by D by way of a legal opinion contained in a letter dated 23 December 2024 issued by Harney Westwood & Riegels (“the Legal Opinion”) which is a law firm in the BVI.

86.The Legal Opinion is not helpful at all. As pointed out by Mr Chan, it only explains that in the law of the BVI, the Borrower’s shares could be issued without being fully paid up at the time of issuance. This is seemingly the case here. However, it does and cannot say anything on the factual issue as to whether Mr Li paid up such allotted shares.  

87.On this factual issue, I am fully convinced that Mr Li did so and the paid up share capital of the Borrower is US$1,200,100.

88.In the premises, I am satisfied that the loans to the Borrower under the Facility Agreement and/or the Loan Agreement should be exempted loans under Schedule 1 Part 2 of the MLO in any event.

Conclusion and orders

89.In the light of my foregoing analysis and reasons given, I believe that P has two complete answers to the purported defence of D. I am satisfied that P was not a money lender at the material time and the MLO has no application and even if it were, the loans to the Borrower are exempted loans.

90.Therefore, I do not find it necessary to continue to assess the merits of the remaining grounds of opposition made under the MLO.

91.I believe P is entitled to judgment against D in this action. P should be granted the relief claimed in the OS. For the claim for delivery of vacant possession of the Property, I would order D to complete the delivery on or before 22 April 2026.

92.There is no reason why costs should not follow the event. I agree that P should be awarded indemnity costs pursuant to Clause 21 of the Second Legal Charge and I make an order nisi that costs of and occasioned by the OS including all costs reserved to be paid by D to P, to be taxed if not agreed on an indemnity basis.

93.Last but not least, I thank Mr Chan and Ms Chong for their able and helpful submissions.

Mr Joshua Chan, instructed by Messrs Li & Partners, for the Plaintiff

Ms Sezen Chong, instructed by Liu & Co., for the Defendant