Law Shu Keung Stephen t/a Good Fortune Finance Co v. Chan Yim Wai and Another

DCCJ 5436/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5436 OF 2007

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Coram : Deputy District Judge K. Lo in Chambers (open to public)

Date of Hearing : 5 May 2011

Date of handing down of Decision : 8 June 2011

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Decision

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1.By a Summons dated 31 December 2010 (“the Summons”), the 1^st Defendant and 2^nd Defendant seek to set aside, inter alia, the Default Judgment dated 12 November 2009 entered in default of Notice of Intention to Defend and the Charging Orders against their property.

2.The Summons, which was heard by the Registrar on 11 March 2011, was dismissed.

3.The Defendants now appeal against the decision.

The Present Appeal

4.The Defendants concede that the Judgment was regular. They seek to set aside the Judgment on the ground that the Defendants have shown a meritorious defence with a real prospect of success.

5.In an application to set aside a regular default Judgment, the burden lies on the Defendant to show a meritorious defence with a real prospect of success.  As Godfey JA said in Premier Fashion Wears Ltd. v. Lee Hing Chung [1994] 1 HKC 213:-

“…… for the purpose of O13 r9, it is generally not sufficient for a defendant merely to show an arguable defence although that alone justify leave to defend being given under O14. A defendant who seeks to set aside a regular judgment must at least show that his case has a real prospect of success. To do so, he must satisfy the court that his case and the evidence he has adduced in support of it carries some degree of conviction. It seems to me that unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success.”

Background

6.At all material times:-

(a)  the Plaintiff is a licensed money lender;

(b) the Defendants were and are the registered owner of the property known as Flat 4, 19^th Floor, Block F, Siu Hong Court, No. 2-22 Siu Hong Road, Tuen Mun, New Territories, Hong Kong (“the Property”).

7.According to a loan agreement dated 6 March 2007 between the parties (“the Loan Agreement”):-

(a) the Plaintiff had agreed to lend to the Defendants the sum of HK$250,000.00 (“the Loan”); and

(b)  the Defendants had agreed to repay the Plaintiff the said principal loan and the interest by 120 monthly instalments each in the sum of HK$6,962.63 commencing from 6 April 2007.

8.It is agreed that prior to the Loan Agreement, the Defendants had entered into a prior loan agreement (“Prior Loan Agreement”) with Fu Tat Finance Company (“Fu Tat”) involving a loan of HK$120,000, which remains outstanding at the time of the Loan Agreement.

9.The Defendants have since the advance of the Loan not made any repayment to the Plaintiff, despite demands by the Plaintiff.

10.Accordingly, on 8 December 2007, the Plaintiff issued the Writ herein claiming against the Defendants the Loan and the interest thereon.  The writ was served on the Defendants by registered post served on the Property, being the last known address of the Defendants.  They were not returned through the post.

11.No Notice of Intention to Defend had been given by the Defendants and therefore, Default Judgment against the Defendants was entered pursuant to Order 83A rule 4 of the RDC on 12 November 2009.

12.Subsequently, Charging Order Notice to Show Cause and Charging Order Absolute were granted against the Property on 9 December 2009 and 6 January 2010 respectively.

The Defendants’ Purported Defence

13.It is not disputed that though the repayment for the Loan has been long overdue, the Defendants have never made any repayment for any part of the Loan or the interest thereon.

The Loan Agreement was illegal, unenforceable and void by reason of Section 24 of the MO?

14.The Defendant contends that the Loan Agreement was illegal, unenforceable and void by virtue of section 24 of the Money Lenders Ordinance, Cap 163, Laws of Hong Kong, (“MO”).

15.The Defendants alleged that they were not, pursuant to the Loan Agreement, given the entire HK$250,000.

16.The Defendants said that the Plaintiff had used part of the HK$250,000 loan ie. HK$134,848 to repay their previous loan from Fu Tat, pay to the solicitors firm registration fee of HK$450, pay themselves HK$10,000 as service charge and the balance to  the Defendants in sum of around HK$90,000.

17.Defendants said under section 27 of the MO,costs, charges or expenses incidental to or relating to the negotiations for or the granting of the loan may be set off against the amount actually lent, which amount shall be deemed to be reduced accordingly. Therefore, Defendants say that the HK$10,000 service charge received by the Plaintiff as well as the HK$450 registration charge should be deducted from the loan of HK$250,000.

18.The actual amount lent by Plaintiff to Defendants under the Loan Agreement was only HK$239,550 (HK$250,000-HK$10,000-HK$450) and with a fixed monthly instalment of HK$6,962.63, the effective interest rate of interest calculated in accordance with Schedule 2 of the MO is 49.35% p.a.

19.It is further submitted that under section 25(3) of the MO, a transaction is presumed to be extortionate where the effective rate of interest exceeds 48% per annum and is liable to be re-opened, but the Court may declare that any such agreement is not extortionate if, having regard to all the circumstances relating to the agreement, the Court is satisfied that such rate is not unreasonable or unfair.

20.Defendants asked this Court to consider the circumstances relating to the Loan Agreement in this case,  in particular:

(i) the effective rate of interest is HK$49.49%.

(ii) 1^st Defendant was 57 and 2^nd Defendant was 52 years old when they entered into the Loan Agreement.

(iii) 1^st Defendant is now retired.  At the time of entering into the Loan Agreement, 1^st Defendant was under financial pressure and needed the money urgently.  He had incurred other loans due to loan sharks, was unemployed with a bad health.

(iv) 2^nd Defendant is a housewife and she used to work as a causal worker earning only HK$40 per hour.

(v) Plaintiff had taken the Property as security for Loan by way of signing of mortgage documents and Plaintiff’s did keep the title deeds, which amounted to an equitable mortgage.

21.Defendants said the Court is likely to reopen the transaction.

22.Apart from the Defendants’ assertion that the Plaintiff did take HK$10,000 as service fee, there is no other evidence in support.

23.In the 1^st affirmation of 1^st Defendant, he said that the Defendants were only given a HK$100,000 cash cheque by the Plaintiff which facilitated the withdrawal of cash by the Defendants for payment of the said HK$10,000 service charge to a staff of the Plaintiff.  This was subsequently been proved  to be incorrect when the Plaintiff exhibited copies of cheques tendered to the Defendants and countersigned by them.  There were three crossed cheques all dated 6 March 2007 which represented the loan amount of HK$250,000. The same included a cheque payable to Fu Tat in sum of HK$134,848, a cheque in favour of David Y.W. Man & Co. in sum of HK$450 and a cheque in favour of the Defendants in sum of HK$114,702. No cash cheque was in fact tendered to the Defendants.  It was actually a cheque payable to the Defendants in sum of HK$114,702.

24.Further, 1^st Defendant in his 1^st affirmation dated 4 January 2011 said when the Defendants went to the solicitors’ firm to sign the documents.  They were not given and explained the documents they signed at the solicitors firm.  He was referring to the signing of, inter alia, the Loan Agreement.  He also said Mr. Tang (“Tang”) of David Y.W. Man & Co. (who witnessed the signatures) misled him that the documents they signed were legal and registrable in the Land Registry.  As a result of the misrepresentation by Mr. Tang, 1^st Defendant said the Defendants were induced to sign the Loan Agreement.

25.However, in his affirmation dated 12 February 2011, i.e. after Tang in his 3^rd affirmation denied the allegation against him, 1^st Defendant changed his evidence and said they did not say Tang did not explain the document to them.  Instead, he said Tang explained to the Defendants the content of the documents very briefly.

26.Although Tang in his affirmation confirmed that he did in fact give copy of documents signed by the Defendants to the Defendants, contrary to what the Defendants said earlier in their affirmation, the Defendants failed to rebut in the affirmation filed later.

27.I do not find the allegation of payment of HK$10,000 service fee in the circumstances potentially credible.

28.Further, even if the Court should find there was payment of HK$10,000 service fee, it is highly unlikely that the Court will reopen a case where the effective rate of interest is 49.49% and in the circumstances of this case, in particular, the conduct of the Defendants after the Loan.

The Plaintiff has knowledge of illegality of the Prior Loan Agreement making the Loan Agreement illegal, unenforceable and void?

29.1^st Defendant said although the loan amount in the Prior Loan Agreement was stated to be HK$120,000, 1^st Defendant was not paid the principal of HK$120,000 by Fu Tat.  Instead, HK$15,000 was taken from the said sum of HK$120,000 by staff of Fu Tat as service fee after the 1^st Defendant cashed the loan cheque of HK$120,000.  The actual loan amount, they say, was HK$105,000 and although the stipulated interest rate of the Prior Loan Agreement was 30% per annum, as the loan was repaid after 2.5 months and the interest charged was HK$29,848 (HK$134,848-HK$105,000), by operation of section 24 of the MO, the effective rate of interest works out to be 49.35%.  1^st Defendant therefore says the Prior Loan Agreement was illegal, unenforceable and void. (Lee Sin Fong v Ng Shu Kwan, 24 June 1994, unreported HCA1821 of 1994).

30.Ms Fong, counsel for the Defendants submitted that, even if, which is denied, that Fu Tat did lend HK$120,000 to 1^st Defendant without deducting any handling charge, the interest on the sum of HK$120,000 at 30% p.a. for 2.5 months should only be HK$7,500 only (HK$120,000 x 30% x 2.5/12) and not HK$14,848 (HK$134,848 – HK$120,000).

31.She submitted that the actual or effective interest rate under the Prior Loan Agreement was not 30% p.a.  The true annual percentage rate of interest is 49.49% p.a.  She said the Plaintiff offered no evidence why there need be interest payment of HK$14,848 to Fu Tat when they said they repaid Fu Tat on the Defendants’ behalf. 

32.Ms Fong submitted that under section 25(3) of the MO, a transaction is presumed to be extortionate where the effective rate of interest exceeds 48% per annum and the Prior Loan Agreement is liable to be re-opened.

33.It was also alleged by the Defendants that the staff of Fu Tat said that the Plaintiff was owned by the same person as Fu Tat.

34.Ms Fong also submitted that Fu Tat and Plaintiff colluded became they had business relationship as Fu Tat introduced Plaintiff to the Defendants. 

35.She said that the form of the Prior Loan Agreement and that of  the Loan Agreement was virtually identical except for the dates, loan amount, interest rate and parties.  Both used the same firm of solicitors and that the cases were handled by the same law clerk and that there was a smooth transfer of the Loan from Fu Tat to the Plaintiff.

36.Plaintiff did not dispute these allegations as Mr. Koo, counsel for the Plaintiff, submitted that the Plaintiff was not related to Fu Tat nor did they collude with Fu Tat.

37.Mr. Koo disputed and said that “evidence” in support of the allegation of collusion is flimsy.  He said even if there was business relations between the 2 moneylenders, to say they colluded and that as a result, the Plaintiff should have knowledge as to how the sum of HK$134,848 charged by Fu Tat was arrived at was far fetched.

38.Firstly, the allegation by 1^st Defendant of HK$15,000 being taken as service fee for the Prior Loan Agreement is unsupported by any other evidence.  Secondly, assuming that was in fact the case and excessive interest was charged, I agree with Mr. Koo that there is, in this case, no evidence before the Court on collusion between Fu Tat and the Plaintiff nor evidence of knowledge of the Plaintiff as to how the repayment figure of HK$134,848 was arrived at.

39.I also agree with Mr. Koo that there is nothing unusual or strange about solicitors firm using the same standard form for loan agreements or using the fresh loan monies to repay a prior loan.

40.In my view, it is not the duty of the Plaintiff to check how much the Defendants actually owe Fu Tat. 

41.Furthermore, the Plaintiff had exhibited an authorization document in Chinese signed by the Defendants authorizing the Plaintiff to split the Loan of HK$250,000 in the prescribed manner. 

42.The Chinese document read:-

借款人: 陳燄偉[香港身份証號碼X XXXXXX(X)]，林麗香[香港身份証號碼X XXXXXX(X)]借款人(以下“簡稱本人”)，現授權及確認貴公司(好運來財務公司)

(一) 在本人的貸款額HK250,000元正中扣除港幣HK$134,848.00元正，

支付富達財務公司之服務費用:

(二) 在本人的貸款額HK250,000元正中扣除港幣HK$450.00元正，

支付文有為律師行之律師費:

1. 富達財務公司 HK$134,848.00(支票)中國銀行NO: 065852

2. 文有為律師行  HK$450.00(支票)中國銀行NO: 065853

貸款餘額:

1.陳燄偉、林麗香  HK$114,702.00(支票) 中國銀行NO: 006868

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日期: 2007年3月6日 借款人:陳燄偉、林麗香

43.The Defendants did not deny having signed this document.

44.In fact, 1^st Defendant in his affirmation dated 12 February 2011 said he knew the loan was to be partly used for repayment of previous loan from Fu Tat.

45.There is no evidence that the Defendants did complain about the amount repaid to Fu Tat at anytime prior to the application on the 31 December 2010.  There is also no evidence adduced by the Defendants explaining to Court why they should not be bound by what they authorized.

46.Surely the Defendants are in a better position than the Plaintiff to know if the sum charged by Fu Tat was excessive and if they did not protest and had in fact authorized the Plaintiff to make such payment to Fu Tat, why should the Plaintiff be the one blamed now? 

47.This Court opined that it is not open to the Defendants now to protest the Plaintiff the amount repaid to Fu Tat was excessive in the circumstances.

48.The Defendants also tried to establish that the Plaintiff knew the repayment of HK$134,848 to Fu Tat was excessive. In reliance of this, they said that a female staff of Fu Tat mentioned that the boss of Fu Tat and the Plaintiff was the same person.  There was no further evidence advanced in support.  In fact, the Plaintiff in the present case is a Mr Law Shu Keung Stephen and that of Fu Tat is a Mr. Law Chun Wai as appeared in the Prior Loan Agreement.

49.The case of Spector v Ageda [1971] 3 All E.R. 417 where it says  that where a person made a loan to another for the purpose of discharging an obligation which had arisen under a transaction which, to the knowledge of the person making the loan, was illegal, the loan itself was tainted with illegality and was therefore unenforceable was cited by Ms Fong.  As this Court finds no evidence suggesting that the Plaintiff had knowledge of illegality about the Prior Loan Agreement, the case has no application here.

50.I do not find, in the circumstances, there is a real chance of the Court accepting this proposition.

Compound interest rate

51.Ms Fong submitted that if this Honourable Court finds that the Plaintiff and Fu Tat colluded with each other, then the Plaintiff was in fact charging compound interest on the interest 1^st Defendant paid under Prior Loan Agreement.  By reason of matters aforesaid, I do not further need to consider this issue.

Judgment entered for too much

52.Likewise, as this Court does not find the allegation of HK$10,000 service fee for the Loan Agreement as potentially credible, this Court again need not address this issue.

Other Considerations

53.In the present case, the Plaintiff is seeking repayment of principal and interest based on the Loan Agreement. The Defendants admitted they have not made any repayment. 

54.On their own admission, they moved house shortly after they received the loan, leaving no forwarding address to the Plaintiff.  They explained they did so to avoid harassment by debt collectors and loan lenders as they also owed a lot other debts.

55.At all times they were aware of their obligation under the Loan Agreement.  Instead they said they did not go back to the Property at all nor did they send agents back to collect mail or arrange redirection of mail. If they actually did not receive any service documents relating to this action in the 3 years or so prior to this setting aside application when they expected legal proceedings against them, they can only have themselves to blame.

56.The Plaintiff on the other hand had properly complied with the rules and served the legal process and the other documents on the Defendants at their last known address ie. the Property throughout.

57.The Court noted that in this case that Notice to Act was filed on 5/11/2010 by Defendants’ solicitors but they have waited for nearly 2 months ie. until 31/12/2010, without explanation given, before taking out the application to set aside.

Conclusion

58.Considering the circumstances of this case, I do not find there is a real prospect of success in the defence sought to be raised by the Defendants.

59.The appeal is dismissed with costs to the Plaintiff, the same to be paid by the Defendants and is summarily assessed at HK$62,300.

	( K. Lo )
	Deputy District Judge

Mr. E. Koo, instructed by Messrs. David Y. W. Man & Co., for the Plaintiff

Ms Y. Fong, instructed by Messrs. Wilson Yeung & Co., for the 1^st and 2^nd Defendants