Celestial (International) Securities & Investment Ltd. v. William Henry Woo

HCA009659A/2000

HCA 9659/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9659 OF 2000

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Coram: Deputy High Court Judge Lam in Chambers

Date of Hearing: 21 November 2001

Date of Judgment: 4 December 2001

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J U D G M E N T

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The parties and the claim

1.Mr William Henry Woo, the Defendant in this action, is a solicitor practising in Hong Kong. He introduced himself as the principal of a law firm in Hong Kong specialising in property and commercial investments. He is also qualified in Canada and the United Kingdom. He said he specialised in advising on commercial and corporate acquisitions as well as financing and property transactions. He is also a businessman with experience as director of listed companies. He acted as legal counsel to a large commercial and merchant bank. In a business plan produced by the Defendant (at p.167 of the court bundle), the Defendant was described as "a renowned lawyer and active hands-on investor focused on private equity transaction."

2.One of his commercial interest was an investment in a technology called Digital Audio Broadcast ["DAB"]. That was developed by a Singaporean company called Plexus Multimedia Pte Limited ["Plexus"]. That company was, according to the Defendant, a pioneer in the field and it developed a new lower power chipset to facilitate the production of a portable handheld DAB receiver. He was the chairman and a director of Plexus. A major shareholder of Plexus was Pacific Gemini Consultants Ltd. ["PGCL"] which was a BVI company holding over 70% of the shareholding in Plexus. The Defendant did not dispute the assertion in a letter dated 8 September 2001 from Messrs Chan, Lau & Wai (the solicitors of the Plaintiff) to Mr Daniel Bong that the Defendant was an indirect controlling shareholder of PGCL. Further, the Defendant's own evidence in Paragraph 17 of his 4th Affidavit was that he was in a position to procure "the appropriate shareholding" in Plexus to be transferred to Yorkshire Developments Limited ["Yorkshire"] which was another BVI company established by the Defendant. It is clear to me that the Defendant had a substantial stake in Plexus.

3.On 24 January 2000, the Defendant signed a Loan Agreement ["the Agreement"] with the Plaintiff. The Plaintiff was a licensed money-lender. It was also a wholly-owned subsidiary of Celestial Asia Securities Holdings Limited ["CASH"], a company listed on the Stock Exchange of Hong Kong. According to the Agreement, the Plaintiff agreed to lend to the Defendant the sum of $60,000,000.00 which was to be repaid on 24 October 2000. As security, a Share Mortgage ["the Share Mortgage"] was also executed by the Defendant on the same date. By the Share Mortgage, the Defendant as beneficial owner mortgaged 100 shares in Yorkshire to the Plaintiff. Although the Share Mortgage did not explicitly identify the shares, it was defined in the Agreement. It is not disputed that the mortgage was in respect of 100 shares in Yorkshire. The Defendant warranted and represented in the Share Mortgage that Yorkshire held at least 60% of the shareholding of Plexus.

4.The Defendant did not make any repayment regarding the $60,000,000.00 and the present action was commenced by the Plaintiff on 25 October 2000. Summary judgment was granted by Master de Souza on 27 August 2001. The Defendant appeals against that decision. Further evidence were filed by both parties since the decision of the Master. The appeal was heard by me on 21 and 22 November 2001 and I have to consider the matter in the light of the evidence before me.

The Defence: real nature of the Transaction

5.In a nutshell, the defence case was that the Agreement and the Share Mortgage did not reflect the true nature of the transaction. Although the Defendant admitted that the sum of $60,000,000.00 had been paid by the Plaintiff to the Defendant, he said that in truth the sum represented an investment by Mr Bankee Kwan ["Kwan"] in a joint venture with the Defendant. Mr Bankee Kwan was the Chairman and Chief Executive Officer of the Plaintiff. He was also the Chairman and managing director of CASH. The Defendant said that on 24 January 2000, at the height of the technology boom, Kwan agreed to enter into a joint venture with the Defendant with an initial funding provided by Kwan. The term of the joint venture was that the Defendant would have complete discretion as to the making of investments in the multimedia field, including the timing, nature and choice of such investments. On the next day, the Agreement and Share Mortgage were signed and executed by the Defendant against the following representations by Kwan:

(a) the Agreement was a mere formality to evidence the transfer of funds;

(b) the repayment date of 24 October 2000 was a date selected at random which was overridden by the personal understanding of Kwan and the Defendant as to the nature of the funds transfer;

(c) Kwan would require certain payments to be made by the Defendant to keep the funding available;

(d) The arrangement fee of 3% would be waived;

(e) The Share Mortgage was a similar formality.

6.Mr Ronny Wong SC invited me not to consider the defence case in isolation. He submitted that it is a contest between the Plaintiff's story and the Defendant's story and there were features in surrounding circumstances which showed that the Plaintiff's case was implausible. He said by comparison, there was much to be said of the Defendant's case that in view of the probable collapse of a transaction between CASH, the Defendant and a Jenson Cheng also known as Cheng Chao Ming ["Cheng"] of King Pacific International Holdings Limited ["KPI"]. I shall come back to deal with the correct approach. However, to understand this argument, it is necessary for me to set out the Plaintiff's case as to the events leading to the loan.

7.The loan was described by the Plaintiff as a bridging loan. In Paragraphs 8 to 18 of the 2nd Affirmation of Kwan, he set out the Plaintiff's case as to the how the loan to the Defendant came about. The loan was made against the background that CASH was invited by Cheng to invest $100 million into Plexus indirectly through KPI. KPI was another listed company. It was envisaged that CASH would through its subsidiary Inner City Profits Limited ["Inner City"] subscribed for 400 million new shares of KPI in consideration for $100 million. KPI would in turn acquired 12.865% of the shareholding of Plexus from Yorkshire at the price of $20 million and 405,800,000 new shares in KPI. The $20 million would be paid directly from CASH to Yorkshire. The balance in the sum of $80 million was to be used to finance the business of Plexus. I will call this transaction the KPI Deal. The KPI Deal was reduced into writing by:

(a) a subscription agreement dated 3 January 2000 between KPI, Cheng and several other shareholders of KPI ["Cheng and associates"] and Inner City regarding Inner City's subscription of the shares of KPI; and

(b) an acquisition agreement dated 3 January 2000 between Cheng and associates, Yorkshire, the Defendant and KPI regarding KPI's acquisition of the shares of Plexus.

The Plaintiff said that because Plexus was in need of funds to prove its financial strength to the London Jockey Club with whom negotiation for a huge contract was undergoing, the Defendant asked the Plaintiff on 24 January 2000 for an urgent bridging loan. He would in turn make a shareholder loan to Plexus. It was envisaged that the loan could be repaid from the $80 million made available to Plexus by CASH upon completion of the KPI Deal.

8.At the time when the KPI Deal was agreed, Cheng and associates held 57.7% of the shares in KPI and Cheng was the Managing Director of KPI. The Chairman of KPI was Cheung Yiu Wing ["Cheung"] and according to Mr Wong, he held 13.8% of the shares of KPI as at 30 December 1999. Cheung was not a party to the two agreements forming the KPI Deal and he was, according to the Defendant, apparently quite upset about it. The KPI Deal was publicly announced on 1 January 2000. Prior to the announcement, trading of KPI's shares had been suspended on 30 December 1999. Trading resumed on 10 January 2000. There were unusual movement in the price of KPI's shares and trading volume after resumption of trading. These were caused by the disposal by several financial institutions of certain KPI shares pledged by Cheng and associates upon their default of loan arrangements. As a result, the shareholdings of Cheng and associates were substantially reduced. According to a public announcement made by KPI made on 10 February 2000, the total percentage of shareholdings held by Cheng and associates was 35.6% as at 8 February 2000.

9.The fallout between Cheng and Cheung was highlighted by Cheng's replacement of Cheung as Chairman of KPI by a board resolution on 8 February 2000. Cheung disputed the validity of that resolution. There is a dispute between the Plaintiff and the Defendant as to Cheung's response to the KPI Deal. The Defendant said that Cheung demanded Kwan to acquire his KPI shares as a way out and Kwan agreed. This is denied by Kwan. However, Cheung did issue a writ in High Court Action No.609 of 2000 on 18 January 2000 in which he claimed for specific performance against CASH in respect of the alleged agreement by CASH to purchase his KPI shares. For the purpose of this Order 14 appeal, I cannot disregard the Defendant's assertion on this point and I would proceed on the basis that this is a dispute I cannot resolve at this stage.

10.Mr Wong submitted that by reason of these events after the resumption of trading of KPI shares, it was clear that the KPI Deal was in jeopardy because of difficulties in securing the approval of the Stock Exchange Hong Kong and the approval of the shareholders of KPI to the acquisition and the subscription. Mr Wong said it was against that background that Kwan acted desperately in order to have some form of investment in the technology field by entering into a joint venture with the Defendant on the terms as set out by me in Paragraph 5 above. Mr Wong further submitted that the Plaintiff's case of bridging loan cannot have any credibility in view of the near demise of the KPI Deal by the time of the Agreement and the Share Mortgage.

11.Mr Wong also referred to certain mistakes in the documentation and the omission to charge arrangement fee and interest in accordance with the provisions of the Agreement as matters supporting the defence case that there was simply no serious intent to give any legal effect to the Agreement and the Share Mortgage.

12.In legal terms, Mr Wong formulated his case as follows:

(a) there was no intention between the Plaintiff and the Defendant to enter into any legal relationship, the joint venture was between the Defendant and Kwan personally;

(b) the Agreement and Share Mortgage were subject to the collateral agreement made between Kwan and the Defendant that these documents were mere formality for evidencing transfer of funds and that the loan repayment date would not be enforced;

(c) misrepresentation.

Mr Wong also relied on certain points derived from the Money Lender Ordinance, Cap.163. Since they are quite separate from the other lines of defence, I shall deal with them in the later part of my judgment.

13.Mr Grossman SC who appeared on behalf of the Plaintiff submitted that there was simply no bona fide defence. He asked rhetorically what is the triable issue. He submitted that the Defendant could not produce any written memorandum evidencing the alleged agreement of joint venture. Instead, the Defendant signed and executed documentation showing that the transaction was a loan. He said this was simply not a case of collateral agreement, the two agreements being irreconcilably different. Since the Defendant was a lawyer, Mr Grossman submitted that there was no reason why he himself could not prepare an appropriate agreement. He emphasized that the Defendant was not a poor widow nor an uneducated person. He drew attention to the refusal of the Defendant to disclose about the use of the $60 million despite requests by solicitors for the Plaintiff.

My assessment: any credible defence regarding the real nature of transaction?

14.I would start my analysis by setting out the correct approach. I agree with Mr Wong that I should not look at the defence case in isolation. Mr Wong cited to me the case of Microsoft Corporation v. Electro-Wide Limited [1997] FSR 580 at p. 593 (per Laddie J):

"[After citing the dictum of Ackner LJ in Banque de Paris and Glidewell LJ in National Westminster Bank] So here the court has to ask whether there is a fair or reasonable probability of the defendants having a real or bona fide defence in relation to these issues. In answering that question it is not sufficient just to look at each factual issue one by one and to consider whether it is possible that the defendant's story in relation to that issue is credible. The court must look at the complete account of events put forward by both the plaintiff and defendant and, to use Ackner LJ's words, look at the whole situation. The mere fact that the defendant supports the defence by sworn evidence does not mean that the court is obliged to suspend its critical faculties and accept that evidence as if it was probably accurate. If, having regard to inconsistency with contemporaneous documents, inherent implausibility and other compelling evidence, the defence is not credible, the court must say so. It should not let the filing of evidence which surpasses belief deprive a plaintiff of his entitlement to relief. But the court must also be careful before it deprives defendant of the opportunity to have their evidence tested at the trial. It is a strong thing to say, simply on the documents before the court and in the absence of discovery and cross-examination, that a party's evidence is not to be believed. It is an even stronger thing for the court to come to that conclusion when it involves finding that a number of witness for the defence have given evidence which is not credible."

15.I respectfully agree with what is stated in that dicta. I do not understand Mr Grossman to argue otherwise. Apart from that, there is another reason why the case of the Plaintiff must be examined. In Extraktionstechnick Gesellschaft Fur Anlagenbau MbH v. Oskar [1984] 128 SJ 417, Watkins LJ said the following in the context of Order 14 application:

"We agree that it is proper to look first at the defence in isolation, in order to see whether there is a lack of good faith or the defence is a sham and so forth, in the course of considering whether the Defendant can discharge the burden of establishing that he should have leave to defend.

But the decision as to the imposition of a condition, if one or more of those flaws in the defence is found to exist, cannot, in our view, properly be made before an examination is also undertaken of the Plaintiffs' case, having regard to any attack that has been made on affidavit upon it. If that examination arouses suspicions that the claim may be made in bad faith or there is something shadowy about it or, worse, that it may be tainted with illegality, no measuring, however approximate, of the respective degrees of possible bad faith should be made and no opinion expressed, however tentative, as to which case appears to be the stronger at that time.

That in our judgment is a classic instance in which in principle the court should give unconditional leave to defend.

We do (sic) regard this case. On any view of it, including Webster J's other observations to which we have not referred, on charge and counter-charge, we fail to see how it can rightly be said other than that there are features of both claim and defence, as they are so far explained, which are disturbing, because they bear the appearance of falsity and disreputable business dealings. It would not be seemly in this judgment to be more expansive than that about those features."

16.This approach has been adopted by the Court of Appeal in Hong Kong in the case of Billion Silver v. All Wide Investments [2000] 2 HKC 262. Mayo JA (as he then was) said at p.266 D to E:

"If he had suspicions concerning the Plaintiff's case, this was a matter which he could not leave unresolved. The correct course for him to adopt was to give unconditional leave to defend so that all of these matters could be ventilated at the trial."

Ribeiro JA (as he then was) said at p.268 C to D:

"The importance of there being doubts or suspicion as to the validity of the Plaintiff's case is that such doubts detract from the Plaintiff's right to summary judgement. It was not to the point to dismiss them on the basis that they did not improve the quality of the defence and "raise it" beyond the category of "shadowy". If possibly genuine weaknesses were exposed in the Plaintiff's case, this casts doubt on the Plaintiff's right to invoke the summary procedure in the first place."

17.In other words, if I have any doubt or suspicion as to the Plaintiff's case, it would not be right for me to grant summary judgment. However, it is important not to lose sight of the kind of suspicion or doubt in the plaintiff's case before the Court of Appeal. In this connection, I refer to the judgment of Mayo JA at p.265 B to H. It is clear that although the line of defence in that case bears some resemblance to the Defendant's case, the evidence were very different.

18.In respect of the dicta of Watkins LJ, again it should not be taken too far. In Mason v. Brown, 10.11.1997, Deputy Judge Lawrence Collins QC dealt with a submission on the basis of that case in the following terms:

"[Counsel for the defendant] relied on Extraktionstechnik GmbH v Oskar [1983] 128 SJ 417 (CA) in which it was held that unconditional leave to defend should be given on a claim on dishonoured cheques: the defence was illegality, that the purpose of the transaction was to deceive foreign governments into giving larger grants to the plaintiffs than they would otherwise have done. The Court of Appeal indicated that "there were features of both claim and defence ... which were disturbing because they have the appearance of falsity and disreputable business dealings". But this was said in the context of a claim by A against B, in which the defence was illegality. All that was being said, in my judgment, was that, in those circumstances, there was an arguable defence and that the plaintiff should not have the benefit of an order for conditional leave. Here the relevant parties are the Masons and the solicitors: it is not suggested (either as part of their pleaded case nor in their affidavits) by the solicitors that the Masons have been guilty of illegality (indeed, as indicated above, Mr Gildener expressly disclaimed any thought of Mr Mason being involved in a conspiracy to avoid tax); nor could it be suggested that illegality could vitiate the negligence claim. It would be very odd if the Court of Appeal had decided that a claim to which there was no defence should go to trial simply because the parties had entered into transactions which bore the appearance of falsity and disreputable business dealings, and in my judgment it did not do so. If (which is doubtful) the Supreme Court Practice (1997), 14/3-4/8 (p 159) suggests that there is such a principle, in my judgment it is wrong."

(see also the Court of Appeal's decision in Liu Wai Yung v. Wan Chung Chun Yip Co. [1998] 2311 HKCU 1)

19.Bearing these in mind, I turn to the facts of the present case. If I were to consider the defence case on its own, I would not have the slightest hesitation in holding that it is incredible. A lawyer with the expertise of the Defendant certainly knew better than to sign the Agreement and execute the Share Mortgage when in reality, the transaction was not a loan. No credible explanation has been offered by the Defendant as to why he would accept the words of Kwan regarding the effects of these documents. He did not even pursue with his alleged requests to Kwan to reduce those oral assurances into writing or write a letter or memorandum to that effect himself. Whilst Mr Wong emphasized the desperation of Kwan in joining the technology euphoria, I am unable to see on the evidence why the Defendant should be so obliging in complying with Kwan's request in terms of documentation. The Defendant insisted that Plexus was not in need of fund at the material time. It has to be remembered that on the defence case, it was Kwan who wanted very much to make the investment rather than the Defendant or Plexus who solicited the same. The Defendant was therefore in a good bargaining position and there was absolutely no reason why he would agree to place himself in so disadvantageous position in terms of documentation.

20.Further, what the Defendant did was more than the mere execution of the documents. He actually pledged the shares of Yorkshire with the Plaintiff. Moreover, he made two payments of interest of substantial amounts under the cover of letters which readily acknowledged that the transaction was a loan and the payments were in the nature of interest. The fact that those payments were not in line with the calculation set out in the Agreement paled into insignificance in the light of these letters. Mr Wong tried to explain those as payments pursuant to the term set out in Paragraph 5(c) above. I must say that the alleged term simply did not make any commercial sense. There was no criteria under the alleged oral representation to determine when and how much would the Defendant be required to pay "in order to keep funding available". Also, as Mr Grossman pointed out, since the $60 million had been paid to the Defendant, why would it be necessary to keep funding available? In my judgment, either it was a loan (in which case, there had to be payment of interest to service the loan) or it was an investment. If it was an investment, it is difficult to see how an investor could call back the money invested as capital and in that context, no question of keeping funding available could arise. With respect, Mr Wong's explanation simply cannot stand.

21.No matter how desperate Kwan was, it is to my mind incredible that he would agree to give away $60 million on the alleged term that the Defendant would have complete discretion as to the making of investments in the multimedia field, including the timing, nature and choice of such investments. No particular project was identified. Hence, the Defendant could invest in project other than DAB or Plexus. Kwan did not know the Defendant for a long time and he himself was a worldly businessman with considerable experience in the financial sector. Up to now, the Defendant did not disclose how he spent the $60 million and there was no suggestion that the Defendant has ever made any report to Kwan concerning the alleged investment. Mr Wong referred to an episode between the Defendant and two prominent barristers mentioned in a letter dated 2 November 2001 from the solicitor for the Defendant to the solicitor for the Plaintiff. At the time of the alleged meetings (February and April 2000), the KPI Deal was still pending. I do not consider that episode took the defence case further given the facts of the case.

22.Does it make any difference if I consider the matter in the light of the whole situation, including the case of the Plaintiff? In my judgment, the answer is "No". I do not find the Plaintiff's case takes the defence any further. I do not discern any suspicious features regarding the Plaintiff's case which disentitled the Plaintiff from claiming summary judgment. The principal attack by Mr Wong, as set out in Paragraphs 8 to 10 above, was that there had to be some doubts as to the Plaintiff's case of bridging loan. Whilst there might be setbacks in the KPI Deal, it was by no means dead. The Subscription Agreement and the Acquisition Agreement were extended until May 2000. It was only in May 2000 that the KPI Deal lapsed. In January 2000, the deal was still proceeding. Cheng was still in control of KPI as evidenced by his being able to displace Cheung as chairman on 8 February 2000. A valuation report was produced by American Appraisal on 18 January 2000 in respect of Plexus for the KPI Deal (see exhibit "WHW-11"). No matter how disgruntled Kwan might be as to the setbacks, the Plaintiff still had its money in its pocket and those setbacks simply could not induce him to give away $60 million recklessly. This is certainly not a case which falls into the same category as Billion Silver or Oskar.

23.Mr Wong submitted that there were doubts arising from certain mistakes in the documentation. I do not agree. The Defendant himself said (in Paragraph 23 of his 4th Affidavit) that the loan documents were put together in great haste. Mr Wong also pointed to the omission of the Defendant to pay the arrangement fee and costs for the preparation of the Agreement and the Share Mortgage. As to the latter, there was no evidence that costs were incurred. The documents were prepared by the Plaintiff's own staff. Those mistakes and omissions are, in my judgment, not significant enough to cast doubt as to the nature of the transaction as evidenced by the Agreement and the Share Mortgage, viz. a loan from the Plaintiff to the Defendant. I hold that the Plaintiff's case is not shadowy.

24.Although Mr Wong formulated his case apart from the Money Lender defence on the various bases as set out in Paragraph 12 above, in my judgment in substance the defence is neither lack of legal intention nor collateral agreement. What the Defendant alleged is that he had an agreement with Kwan for investment instead of a loan agreement with the Plaintiff. I think Mr Grossman was right in saying that the alleged investment agreement was not collateral to the loan agreement. The defence case was that there was simply no loan agreement. In essence, the Defendant said that the Agreement and the Share Mortgage were sham, although he preferred to call them mere formalities. If one questioned further that they were formalities for what, the answer was that those documentation were formalities for the transfer of fund under the investment agreement, viz. the contents of the documents were mere sham. For reasons given above, I hold that such defence could not be a bona fide one and is wholly incredible.

25.As I said, Mr Wong also relied on the defence of misrepresentation. He referred to the case of Hale v. Hall, 8.3.1993 decided by the English Court of Appeal. That case concerned a defendant who alleged her signature to a written memorandum was induced by misrepresentation and undue influence. On the facts of that case, the Court of Appeal granted the defendant unconditional leave to defend. I do not think that case assists the Defendant at all. He did not plead reliance on his part in his Defence. Given his background, it is unbelievable that he would rely on the alleged oral assurances from Kwan as to the effect of the Loan Agreement and the Share Mortgage. Further, for the reasons given above, there is simply no credible evidence as to the alleged oral representations from Kwan.

26.I am clearly of the view that there is no credible defence on the basis that there was no loan agreement between the Plaintiff and the Defendant.

The money-lender defence

27.There is no dispute that the Plaintiff was licensed money-lender and carried on business as such. The money-lender points were however not raised before the Master. They were not pleaded in the Defence. However, if there is sufficient evidence before me and if no prejudice is caused to the Plaintiff, I should not bar the Defendant from taking the points. They were first put forward by way of a very general allegation in Paragraph 21 of the 4th Affidavit of the Defendant filed on 9 November 2001. After some complaints as to the lack of particularization, some further grounds were set out in a letter dated 16 November 2001. Mr Grossman objected to the points being relied upon. After hearing submissions from the parties, I allowed the Defendant to rely on two money-lender points but not a third one in respect of which Mr Wong agreed that further evidence had be filed. Specific direction has been given by Suffiad J as to the filing of evidence for the appeal in order to ensure that there would not be delay in the disposal of the matter. I considered that I should not allow further evidence to be filed without any good reason. None has been advanced before me. Further, even if Mr Wong could file the evidence within a short time, I would have to give Mr Grossman a reasonable time to file evidence in reply. That would delay the proceedings. The two points I allowed are as follows:

(a) the Agreement and Share Mortgage could not be a note or memorandum satisfying the requirement of Section 18 of the Money Lenders Ordinance, Cap.163;

(b) by virtue of Clause 13.2 of the Agreement, compound interest was charged in contravention of Section 22 of the Ordinance.

28.Regarding the Section 18 point, Mr Wong attempted to expand on it by reference to Section 18(1)(b) in relation to the summary of the Ordinance. It is quite obvious that the summary is a separate document from the note or memorandum. It is hence a separate point from the first point as identified by me in Paragraph 27(a) above. There is no evidence that no summary has been supplied. Hence, if that point is taken, further evidence is required. It is not clear from the letter of 16 November 2001 that the Defendant relied on that ground. It would be unfair if I allow the Defendant to ambush the Plaintiff by taking this point at this late stage. I therefore rule that this point about the summary is not open to the Defendant.

29.Coming back to the point in Paragraph 27(a) above, Mr Wong argued that the section envisaged that the note or memorandum would be a separate document from the loan agreement since the former would be supplied after the making of the latter. He did not cite any authority for this proposition. As a matter of construction of Section 18, I do not see any reason why the loan agreement itself cannot constitute the note or memorandum if it contained all the required particulars. There is no dispute that the Agreement did contain such particulars. I hold that as a matter of law, the loan agreement could also be the memorandum. There was therefore no infringement of Section 18. I am reinforced in this conclusion by the authorities helpfully referred to me by Mr Grossman, namely Congresbury v. Anglo-Belge Finance [1963] 3 All ER 545 at 551, Reversionary Property & Advance Society v. Huggett [1964] CLY 2403 and Holiday Credit v. Erol [1997] 1 WLR 704 at 709.

30.Turning to Section 22, the Plaintiff did not dispute that Clause 13.2 provided for compound interest. However, in the calculation of the liquidated claim in the present action, the Plaintiff did not include compound interest. Mr Grossman showed Mr Wong the calculation. Mr Wong however argued that once the provision in the contract infringed Section 22, the consequence was that the Agreement could not be enforced. Mr Grossman relied on the power of the court to grant relief under Section 22(2) and he submitted that in the circumstances of the present case, even in the context of an Order 14 application, the court should conclude that no court would refuse relief to the Plaintiff provided that the provision as to compound interest is not relied upon. Mr Grossman also argued that the offending part of Clause 13.2 was severable from the other part of that provision. In this connection, he invited me to adopt the same approach as Waung J in Orix Asia v. Grant Forward Industrial Ltd, HCCL 79 of 1999, 15.6.2000. In that case, Waung J granted summary judgment in favour of the plaintiff in respect of the principal against the borrower notwithstanding some technical breaches of the Money Lenders Ordinance. One of the alleged breach in that case seems to be in respect of default interest, similar to the one we are dealing with.

31.Mr Wong referred to two authorities and submitted that this court should not exercise the discretion under Section 22(2) at this stage. He said that there was no evidence before the court as to the general practice of the Plaintiff and whether it was a reputable financial institute. He distinguished the decision of Waung J on the latter ground and he also observed that the two authorities cited by him was not referred to by Waung J. The first case cited by Mr Wong on this point was the decision of Mayo J (as he then was) in Brother's Company v. Ah Puk Transportation [1986] HKLR 821. That was a case in which the lender charged extremely high rate of interest (46.8%) and there was no loan documentation. All that the lender held were post-dated cheques which served as security for the loan. The person in charge did not pay any attention to the legal requirements for money lender business and it was not the practice of the plaintiff to comply with Section 18. Not much was said in respect of the defendant. Mayo J adopted the approach of Woodhouse J in Adams v. Paul's Properties [1965] NZLR 161 at p.171:

"I think that in order to estimate 'the nature, extent and effect' of the original default the Court would need to take into account the way in which the transaction had developed. Attempts by a money lender during the course of the contract to make use of some objectionable feature of it could well have significance, in my opinion, just as the size of the principal sum still outstanding and its proportion to the original loan could influence a decision as to the equities, not only as between the parties but also in relation to the regulatory purposes of the Act as a whole. I think that the circumstances to be taken into account should include such matters as the relative status of the parties, the nature and extent of the default, the way in which it arose, the implications for the borrower, and the attitude of the lender and the general appearance of the contract throughout."

32.I note that in Adams v. Paul's Properties, Woodhouse J actually granted relief in respect of a transaction which charged compound interest. In Brother Co. v. Ah Puk, Mayo J placed significance to the high interest rate and the blatant disregard of the provisions of the Money Lenders Ordinance by the plaintiff (see p.825 H to I). His Lordship also referred to the objectionable manner in which the plaintiff held cheques as security (p.825J to 826B) and the general implications of the case if relief were granted (p.826C). Mayo J concluded that he should refuse to grant relief under Section 18(3).

33.Obviously the present case is very different. It is clear that in terms of the relative status of the parties, the Defendant cannot be said to be in any way suffered from any disadvantage. The default here is the charging of compound interest whilst the terms and conditions of the loan was properly documented in the Agreement and the Share Mortgage. As I have held, there was no breach of Section 18. I have already referred to the Plaintiff's case as to how the loan came into existence and I discern nothing there which was against the underlying policy of the Money Lenders Ordinance. It was just another commercial transaction between two experienced businessmen and I see no reason why the Defendant should get any windfall out of it. The Defendant himself did not even raise the money lenders points before the Master. In fact, he has been keeping them in his sleeves until a very late stage. As far as implications on the borrower is concerned, the Defendant would not suffer any prejudice if the provision as to compound interest was severed. There was no complaint of high interest rate. The interest charged ranges from 11.50% to 12.50%. Bearing in mind the security offered by the Defendant for this loan, the terms were by all account reasonable. There was no suggestion of post dated cheques being kept by the Plaintiff. I do not think the grant of relief in the present case would have the undesirable consequence set out at p.826C in the decision of Mayo J. That case does not assist the Defendant.

34.Mr Wong submitted that by reason of Mayo J's reference to the general business practice of the plaintiff in that case, it behoved the court to take this into account in every case before granting any relief. He further said that because there was no evidence as to the general business practice of the Plaintiff at the moment, it would not be appropriate for the court to grant relief. He drew my attention to the decision of the Court of Appeal in Cheung Chau v. Cheung Ng Sheung, Civil Appeal No.119 of 1993, 24.11.1993. The plaintiff in that case sought summary judgment on two cheques. Those cheques were taken as security for two loans. The defendant was the brother of the plaintiff but there was no loan documentation. Money lender defence was raised in respect of contraventions of Section 18 and Section 23. Bokhary JA described the background of the case as extremely ugly and there were evidence of improprieties on the part of the plaintiff, which was disputed (see p.5L to T) and undated and post-dated cheques were taken. At first instance, summary judgment was granted on the basis that no reasonable tribunal properly appraised with the facts would fail to apply the proviso under those sections. The Court of Appeal disagreed and unconditional leave to defend was given to the defendant. Holding that the approach of Mayo J in Ah Puk was at least arguable (see p.6R to 7A and p.8F), the Court of Appeal made the following observations:

"...it would be important to have a full picture of the activities in general of the money lender in question. That picture is not before us. Overall, no court can say with reasonable confidence at this stage that it has a clear view of all the circumstances which fall to be considered in the exercise of the discretion here in question." (per Bokhary JA at p.7B to D, my emphasis)

"There must be a triable issue on [the proviso to Sections 18 and 23]. For all the circumstances which the judge will have to take into account can only be known after a trial and the usual consequences of discovery and evidence." (per Mortimer JA at p.8C to E)

35.I read those dicta as directing to the facts of the particular case before the Court of Appeal rather than setting out a general principle applicable to every case where a plaintiff has to counter a money lender defence by evoking the proviso. As pointed out in the above paragraph, the defendant in that case had adduced evidence to show a very ugly factual matrix behind the issue of the two cheques. In contrast, the Defendant only alluded to the money lender defence very generally in one paragraph of his latest affidavit. No explanation has been given to me as to why the Defendant chose to present his money lender defence in this manner. The defence was developed by Mr Wong with his usual skill and tenacity in the course of his oral submission. But there was no evidence to suggest that the Defendant was not aware of the terms of the loan or that exorbitant interest were charged. No evidence has been put forward by the Defendant to attack the general practice of the Plaintiff as a money lender.

36.Whilst I accept that in both Ah Puk and Cheung Chau, references were made to the general activities of the plaintiffs, I do not consider these authorities as deciding as a matter of law that summary judgment could not be granted without full investigation as to the general business practice of a plaintiff relying on the proviso to Section 22(2). On the facts of those two cases, where there was a complete absence of documentation of the loans in question with other unsatisfactory features, one can understand why the court would be concerned to examine the general practice of the money lenders. In Adams, Woodhouse J did not refer to the general business practice of a money lender as one of the relevant factor in his dicta. Section 22(2) provided that if the court is satisfied that in all the circumstances it would be inequitable that the agreement should be held unenforceable, the court may order such agreement is enforceable to such extent and subject to such modifications or exceptions as the court considers equitable. The focus should be on the equity of the particular transaction before the court although in appropriate cases, the general practice of the money lender could be relevant.

37.On the facts of the present case, given the evidence before me and the manner in which the Defendant put forward this defence, I am satisfied that I can properly decide on the question of relief under Section 22(2) even in the context of an Order 14 application. In my judgment, given the undisputed facts as to the qualification and experience of the Defendant, the clear record of the terms of the loan in the Agreement and the Share Mortgage, the interest rates charged by the Plaintiff, the amount outstanding and the other matters set out by me in Paragraph 33 above, I would respectfully follow the approach of Waung J in Orix Asia and hold that the contravention of Section 22 does not prevent the court from granting summary judgment in this case as equity cries out for relief under the proviso. It follows that the money lender defence also failed.

Conclusion

38.I therefore hold that the Master was correct in granting summary judgment to the Plaintiff. I dismiss the appeal and make an order nisi that the Defendant to bear the Plaintiff's costs, such costs to be taxed with certificate for two counsel.

Representation:

Mr Grossman SC and Mr L Remedios MS, instructed by Messrs Chan, Lau, Wai, for the Plaintiff/Respondent

Mr Ronny Wong SC, instructed by Robertsons, for Defendant/Appellant