FU TAT CREDIT LTD v. LAU YUNG TAI by his guardian ad litem LAU VACO AND ANOTHER

HCA 1757/2012, HCA 1759/2012 & HCA 1905/2013
(Heard together)

[2025] HKCFI 1847

HCA 1757/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1757 OF 2012

_________________

BETWEEN

_________________

HCA 1759/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1759 OF 2012

_________________

_________________

HCA 1905/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1905 OF 2013

_________________

_________________

_________________

DECISION

_________________

A.  THE APPLICATION

1.  The 3 money lender actions herein had been tried together with 2 other actions by this Court. By a Judgment handed down on 18 February 2025 (“the Judgment”)[1], this Court made the following orders in the 1757 Action, the 1759 Action and the 1905 Action (collectively, “the 3 Actions”) against Father:

(1)  An order for possession of Lot 338A, Lot 257D and Lot 262A (the 1757 Action);

(2)  An order for payment of the sum of $7,200,000 together with interest (the 1757 Action);

(3)  An order for possession of Lot 539 and Lot 510A (the 1759 Action);

(4)  An order for payment of the sum of $6,840,000 together with interest (the 1759 Action);

(5)  An order for possession of Lot 671 (the 1905 Action);

(6)  An order for payment of the sum of $3,047,521.60 together with interest (the 1905 Action); and

(7)  Costs of the actions.

(Lot 338A, Lot 257D, Lot 262A, Lot 539, Lot 510A and Lot 671 are collectively referred in this Decision as “the Lots”)

2.  On 17 March 2025, Father took out a summons in each of the 3 Actions (“the Summonses”) and applied for stay of execution of the aforesaid orders pursuant to Order 45 rule 11 of the Rules of the High Court (“RHC”).

B.  THE LEGAL PRINCIPLES

3.  The only statutory basis relied on by Father in the present applications is Order 45 rule 11 of the RHC, which provides that:

“Without prejudice to Order 47, rule 1, a party against whom a judgment has been given or an order made may apply to the Court for a stay of execution of the judgment or order or other relief on the ground of matters which have occurred since the date of the judgment or order, and the Court may by order grant such relief, and on such terms, as it thinks just.”

4.  In Tam Ho Man v Wong Kwok Tai (HCA 4736/1985, unreported, 20 October 1986), it was held by Hunter J that the matters referred to under the said rule are those:

“which go to the validity of the judgment, and which if established before the court, might justify the court in saying that, this is not a judgment which on the material now placed before it, it will allow to be executed upon.”[2]

5.  As Father is not relying herein on any matter which has occurred since the date of the Judgment, it is apparent that Order 45 rule 11 of the RHC is not the apposite rule in the present situation, and Father should have relied on Order 59 rule 13 of the RHC instead.

6.  In this regard, the starting point is Order 59 rule 13(1)(a) of the RHC, which stipulates that a pending appeal does not operate as a stay. The grant of a stay of execution pending appeal is a matter of the court’s discretion.

7.  The relevant principles are trite. In Star Play Development Limited v Bess Fashion Management Co. Ltd. [2007] 5 HKC 84, it was held by Ma J (as his Lordship then was) that the existence of an arguable appeal (that is, one with reasonable prospect of success) is the minimum requirement before a court would even consider granting a stay. However exceptional the circumstances may be otherwise justifying a stay of execution, if there exist no arguable grounds of appeal, no stay will be granted.

8.  In the event the court is satisfied that there is a strong likelihood that the appeal would succeed, that in itself would enable a stay to be granted because this would constitute a good reason for a stay.

9.  If there is just an arguable appeal instead of a strong one, the appellant has to provide additional reasons as to why a stay is justified. The demonstration of an appeal being rendered nugatory in the absence of a stay is a common example.

C.  DISCUSSION

C1.  Order 45 rule 11

10.  As pointed out above, this rule simply has no application because the Father is not relying on any matter which has occurred since the date of the Judgment.

C2.  Order 59 rule 13

11.  The first matter which this Court should consider is whether the Father has a strong (or at least an arguable) appeal.

12.  He has raised 3 grounds of appeal, namely:

(1)  This Court has erred in law by failing to accommodate Father’s dementia diagnosis, made one day before the trial in 2024, rendering him unable to testify and participate, resulting in procedural unfairness after a 12-year trial delay;

(2)  This Court misapplied the law on presumed undue influence by not recognising a Class 2(B) presumption arising from the trust-based Father-Son relationship and the disadvantageous transactions, failing to shift the burden to the plaintiffs to prove Father’s free consent;

(3)  This Court erred in not finding the plaintiffs were on inquiry of undue influence and failed to take reasonable steps (e.g. getting independent legal advice), thus invalidating the transactions as against Father.

13.  With respect, these grounds of appeal are not arguable at all.

14.  Firstly, the ground of “procedural unfairness” is not understood in the light of what happened at the trial:

(1)  When the trial resumed after lunch hours on Day 1, Father’s counsel suddenly produced a letter to the Court and alleged that Father was suffering from dementia and was mentally incapacitated. Counsel emphasised that he had no intention to apply for the adjournment of the whole trial. He only invited the Court to adjourn the matter to the following day so that his instructing solicitors could prepare for papers so as to make an application to appoint a guardian ad litem for Father;

(2)  The Court acceded to the request accordingly;

(3)  Upon the resumption of the trial on Day 2, Father’s counsel made an application to appoint Mr Lau Vaco as the guardian ad litem of Father;

(4)  The order for appointment was duly made and the trial continued.

15.  Hence, it is incomprehensible as to the basis of Father’s complaint. It is simply not open to him to allege on appeal that the Court should have taken any other course at the trial.

16.  Secondly, the arguments on undue influence are in effect challenges made against this Court’s findings of facts that:

(1)  The various loan arrangements were for Father’s own benefit;

(2)  Father’s consent to enter into the loan agreements was freely given with his full knowledge of the consequences;

(3)  Father all along knew what he was doing;

(4)  Father was not mistaken (as he alleged) that the Son was only renewing his own personal loans.

17.  It is trite that overturning a finding of primary facts on appeal is difficult, and an appeal on facts would only be entertained on narrow and well-defined circumstances. As the Court of Final Appeal has held in Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336, in considering an appeal against a primary finding of fact, the question for the Court of Appeal is whether, even though it did not have the advantages enjoyed by the trial judge who received the evidence at first hand, it is nevertheless satisfied that his conclusion on the facts was “plainly wrong”. The Court of Appeal would intervene only if so satisfied. If not so satisfied, the Court of Appeal would defer to the trial judge’s conclusion even if in some doubt as to the correctness of the trial judge’s decision on the facts.

18.  The kinds of mistake which could engage an appellate court’s power of intervention have been explained by Lord Neuberger in In re B (A Child) [2013] 1 WLR 1911, at [53] (as approved by the Court of Appeal in China Gold Finance Limited v CIL Holdings Limited (CACV 11/2015, unreported, 27 November 2015) at [19]):

“[…] where a trial judge has reached a conclusion on the primary facts, it is only in a rare case, such as where that conclusion was one (i) which there was no evidence to support, (ii) which was based on a misunderstanding of the evidence, or (iii) which no reasonable judge could have reached, that an appellate tribunal will interfere with it.”

19.  In the Notices of Appeal filed in the 3 Actions, Father has simply failed to explain why it was said that this Court has erred to come to the conclusion that it did.

20.  That being the case, there is no justification for this Court even to consider whether the discretion to stay the execution of the Judgment should be exercised.

D.  ORDER

21.  For reasons of the aforesaid, the Summonses are dismissed.

E.  COSTS

22.  Costs should follow the event. Father shall bear the respective plaintiff’s costs of the Summonses, to be taxed on indemnity basis[3]if not agreed.

Mr Ernest Koo and Mr Jay Cheung, instructed by Y. L. Yeung & Co, for the plaintiffs in all actions

The 1^st defendant in all actions was unpresented and appeared in person

HCA 1756/2012

[2025] HKCFI 723

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1756 OF 2012

_________________

_________________

HCA 1757/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1757 OF 2012

_________________

_________________

HCA 1759/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1759 OF 2012

_________________

_________________

HCA 1773/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1773 OF 2012

_________________

_________________

HCA 1905/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1905 OF 2013

_________________

_________________

_________________

JUDGMENT

_________________

A.  INTRODUCTION

1.  This is the trial of 5 money lender actions which have been ordered by Master D. To on 11 October 2022 to be tried together, as they are all related. The 5 actions will be referred to as “the 1756 Action”, “the 1757 Action”, “the 1759 Action”, “the 1773 Action” and “the 1905 Action”.

2.  While there are 5 actions herein, only 2 plaintiffs (collectively, “the plaintiffs”) and 3 defendants (collectively, “the defendants”) are involved.

3.  The 2 plaintiffs are Fu Tat Credit Limited (“Fu Tat”) and Hui Mei Ching trading as Diamond Dragon Finance Company (“Diamond Dragon”).

4.  The 3 defendants are father and sons, namely, Mr Lau Yung Tai (“Father”), Mr Lau Wai Man (“the Son”) and Mr Lau Wai Kuen. While Mr Lau Wai Kuen has filed a joint Defence together with Father and the Son in the 1905 Action, he has never attended any court hearing including the trial.

B.  THE PLAINTIFFS’ CASE

5.  The plaintiffs’ case is straight-forward, as they are suing the defendants for repayment of various loans on the basis of a number of loan agreements (“the Loan Agreements”) and possession of various properties which have allegedly been charged to secure the Loan Agreements pursuant to various mortgages / legal charges (“the Legal Charges”). The Loan Agreements and the Legal Charges are set out below[1].

6.  In the 1905 Action:

(1)  The subject agreement is the Building Mortgage Loan Facility Letter dated 21 January 2009 (“the 1905 Building Loan Agreement”) with the following particulars:

(a)  Lender : Diamond Dragon

(b)  Borrower : Father

(c)  Facility : $1.35 million (“the 1905 Building Loan”)

(d)  Interest : 24% p.a.

(e)  Security : Lot 671 in DD 184 (“Lot 671”)

(2)  It is alleged that, despite the figure of $1.35 million appearing in the aforesaid agreement, a total of $1,615,000 had been lent pursuant to the 1905 Building Loan Agreement.

(3)  The relevant security is the Building Mortgage dated 24 March 2009 (“the 1905 Building Mortgage”) which has the following particulars: -

(a)  Mortgagee : Diamond Dragon

(b)  Mortgagor : Father

(c)  Mortgaged Property : Lot 671

(4)  The Son and Mr Lau Wai Kuen had also given Diamond Dragon a Guarantee dated 24 March 2009 in consideration of Diamond Dragon granting Father the 1905 Building Loan.

7.  Diamond Dragon therefore sues Father for possession of Lot 671 as the mortgaged property. It also sues Father, the Son and Mr Lau Wai Kuen for a total sum of $3,047,521.60, and interest on the outstanding total principal loans ($1,615,000) at the rate of 26% per annum from 6 October 2013.

8.  In the 1756 Action:

(1)  The subject agreement is the loan agreement dated 5 November 2011 (“the 1756 Agreement”) purportedly entered into between Fu Tat and the Son with the following particulars: -

(d)  Lender : Fu Tat

(e)  Borrower : The Son

(f)  Principal Loan : $1.1 million (“the 1756 Loan”)

(g)  Interest : 24% p.a.

(h)  Date for Repayment of Principal : 5 November 2012

(i)  Monthly Interest Payable : $22,000

(j)  Security : Lot 532 in DD 184 (“Lot 532”)

(2)  The relevant security is the Legal Charge dated 5 November 2011 (“the 1756 Legal Charge”) which has the following particulars:

(a)  Chargee : Fu Tat

(b)  Chargor : The Son

(c)  Property : Lot 532

9.  Fu Tat therefore claims against the Son for possession of the mortgaged property (i.e. Lot 532), and a sum of $1,320,000 with further interest on the principal loan of $1,100,000 at 24% per annum from 6 September 2012.

10.  In the 1757 Action:

(1)  The subject agreement is the loan agreement dated 5 November 2011 (“the 1757 Agreement”) with the following particulars:

(a)  Lender : Fu Tat

(b)  Borrowers : Father and the Son

(c)  Principal Loan : $6 million (“the 1757 Loan”)

(d)  Interest : 24% p.a.

(e)  Date for Repayment of Principal : 5 November 2012

(f)  Monthly Interest Payable : $120,000

(g)  Security : Section A in Lot 338 in DD 184 (“Lot 338A”), Section D in Lot 257 in DD 184 (“Lot 257D”) and Section A in Lot 262 in DD 184 (“Lot 262A”)

(2)  The relevant security is the Legal Charge dated 5 November 2011 (“the 1757 Legal Charge”) which has the following particulars:

(a)  Chargee : Fu Tat

(b)  Chargor : Father

(c)  Mortgaged Properties : Lot 338A, Lot 257D & Lot 262A

11.  Fu Tat therefore claims against Father for possession of the mortgaged properties (i.e. Lot 338A, Lot 257D and Lot 262A).

12.  Fu Tat also sues Father and the Son for repayment of a sum of $7,200,000 together with further interest on the principal loan of $6,000,000 at 24% per annum from 6 September 2012.

13.  In the 1759 Action:

(1)  The subject agreement is the loan agreement dated 5 November 2011 (“the 1759 Agreement”) with the following particulars:

(a)  Lender : Fu Tat

(b)  Borrowers : Father and the Son

(c)  Principal Loan : $5.7 million (“the 1759 Loan”)

(d)  Interest : 24% p.a.

(e)  Date for Repayment of Principal : 5 November 2012

(f)  Monthly Interest Payable : $114,000

(g)  Security : Lot 539 in DD 184 (“Lot 539”) and Section A in Lot 510 in DD 184 (“Lot 510A”)

(2)  The relevant security is the Legal Charge dated 5 November 2011 (“the 1759 Legal Charge”) which has the following particulars:

(a)  Chargee : Fu Tat

(b)  Chargor : Father

(c)  Mortgaged Properties : Lot 539 and Lot 510A

14.  Fu Tat therefore claims against Father for possession of the mortgaged properties (i.e. Lot 539 and Lot 510A).

15.  Fu Tat also claims against Father and the Son for a total sum of $6,840,000 with further interest on the principal loan of $5,700,000 at 24% per annum from 6 September 2012.

16.  In the 1773 Action:

(1)  The first subject agreement is the Building Mortgage Loan Facility Letter dated 1 November 2011 (“the 1773 Building Loan Agreement”) which has the following particulars:

(a)  Lender : Fu Tat

(b)  Borrowers : Father and the Son

(c)  Facility : $2 million (“the 1773 Building Loan”)

(d)  Interest : 24% p.a.

(e)  Security : Lot 252 in DD 184 (“Lot 252”)

(2)  The relevant security is the Building Mortgage dated 5 November 2011 (“the 1773 Building Mortgage”) which has the following particulars:

(a)  Mortgagee : Fu Tat

(b)  Mortgagor : the Son

(c)  Mortgaged Property : Lot 252

(3)  The 2^nd subject agreement is the loan agreement dated 14 December 2011 (“the 1773 2^nd Agreement”) with the following particulars:

(a)  Lender : Fu Tat

(b)  Borrowers : the Son

(c)  Principal Loan : $6,250,000 (“the 1773 2^nd Loan”)

(d)  Interest : 24% p.a.

(e)  Date for Repayment of Principal : 14 December 2012

(f)  Monthly Interest Payable : $125,000

(g)  Security : Nil

17.  Fu Tat therefore sues the Son for possession of the mortgaged property (i.e. Lot 252), and a total sum of $9,098,396.20 with further interest on the total outstanding principal loan ($7,722,100) at the rate of 24% per annum from 6 September 2012.

C.  THE DEFENDANTS’ CASE[2].

18.  Father’s defence may be summarised as follows.

19.  Since around 2008, the Son had entered into various loan agreements with Good Fortune Finance Company (“Good Fortune”) and/or Diamond Dragon.

20.  Between 2008 and 2011, the Son had from time to time brought Father to different offices and asked Father to sign various documents, which the Son represented to Father that those documents were in relation to the renewal of the Son’s personal loans.

21.  It is Father’s case that he had never borrowed any money. The documents relied on by Fu Tat were signed by him as a result of the Son’s misrepresentations[3]. Hence, the Loan Agreements and the Legal Charges are voidable and should be set aside and/or rescinded.

22.  Father’s alternative pleaded case is that the Loan Agreements and the Legal Charges are unenforceable on the basis of breaches of section 29(1)(b)[4] of the Money Lenders Ordinance (Cap.163, Laws of Hong Kong) (“MLO”) (i.e. Fu Tat having carried on business at a place other than its specified premises) and section 18(1) of the MLO (i.e. no copy of the Loan Agreements, note or memorandum had been given by Fu Tat and/or Diamond Dragon.)

23.  Father also alleged that he had received no consideration as the loans received were applied to pay off the Son’s earlier loans with the remainder paid to the Son.

24.  Father also took the stance that Fu Tat and/or Diamond Dragon had notice of the undue influence exerted by the Son on him and/or the relevant transactions were all unconscionable bargains.

25.  On the other hand, the Son alleged that:

(1)  Fu Tat, Good Fortune, Diamond Dragon and Madam Hui Mei Ching (i.e. the plaintiff in the 1905 Action) (“Madam Hui”) were all related to Mr Lo Shi Ki (羅樹基), and Madam Hui is his wife;

(2)  Since around 2007 and/or 2008, Father and the Son wanted to build Ding Houses on Lot 671 and Lot 252 and to repair the slope next to their family home on Lot 539 and Lot 510A;

(3)  Then, the Son saw an advertisement and went to the office of Good Fortune in Mong Kok, where he entered into an oral agreement with Mr Lo Shi Ki (representing Good Fortune, Diamond Dragon and Fu Tat) that repayments of the principal loans and interest would only be required after, inter alia, the completion of construction and sale of the houses, and no legal charges were required (“the Oral Agreement”);

(4)  A Ms So Lai Ying (“Ms So”), staff of Good Fortune, then asked the Son to bring Father for the purpose of executing some documents at a solicitors’ firm so as to speed up the procedure. As a result, the Son brought Father to Messrs. David Y.W. Man & Co (“David Man & Co”) where one Mr Tang Tat Wai (“Mr Tang”) asked both Father and the Son to execute some documents, stating that these were standard procedures. No copy of the documents had been provided to Father and the Son, even though various sums of money had indeed been advanced to the Son for the construction of the houses and the repair work of the slope;

(5)  At all material times, the Son had never made any misrepresentation to Father so as to induce him to sign the documents;

(6)  In August 2011, Good Fortune suddenly stopped advancing personal loans to the Son, and as a result, the construction work on Lot 252 had to be put on hold. Mr Lo Shi Ki and/or Ms So then told the Son that the bosses of Good Fortune were unhappy with the slow progress of the construction of the Ding House on Lot 252, and that the loans advanced had expired and needed to be renewed. Ms So said the bosses would arrange Fu Tat (a company related to Good Fortune and Diamond Dragon) to take over the debts and that these were standard internal procedures. Mr Lo Shi Ki further said that if Father and the Son refused to complete the renewal procedures, then Good Fortune would immediately stop offering loans for the construction work and the Son would be required to repay all previous loans together with all interest immediately. Under the pressure and influence of Mr Lo Shi Ki, the Son brought Father to the office of Good Fortune where Ms So asked them to sign some documents without explaining to them the contents thereof and without giving them any copy of those documents;

(7)  Subsequently, Mr Tang visited Father and the Son at their home and asked them to execute a big pile of documents without explaining to them the contents and without giving them any copy thereof;

(8)  In his pleaded case, the Son challenged the authenticity of the signatures allegedly signed by him as appeared in certain loan documents. However, during cross-examination, the Son admitted that all those signatures indeed belong to him. Be that as it may, he alleged that he did not read those documents and had no knowledge about the contents thereof, as he at the material time had been induced and influenced by Mr Tang to sign;

(9)  Further or alternatively, even if he did sign those documents, the Loan Agreements and the Legal Charges are unenforceable for there had been breaches of section 29(4) of the MLO (i.e. no copy of the loan agreements, note or memorandum had been given), section 18(1) and section 18(2) of the MLO (i.e. no copy of the loan agreements, note or memorandum in writing, or a summary in the form prescribed by the MLO had been given).

D.  THE ISSUES

26.  Parties have lodged with this Court an agreed list of issues at the beginning of the trial. Mr Shum and Ms Lau acting for Father and the Son respectively have unequivocally confirmed when they made their opening submissions that they would abandon all other lines of defences pleaded if those defences are not included in the said list.

27.  This Judgment will therefore focus on the issues as identified in the said list of issues only.

28.  I should also mention that, in Ms Lau’s closing submissions, she has made arguments on matters not only not included in the agreed list of issues, but also lines of defence which were not pleaded. Those arguments shall be disregarded.

29.  For the sake of clarity and completeness, I will now set out the list of issues (as modified by parties during opening submissions) below[5]:

The 1756 Action, 1757 Action, 1759 Action and 1773 Action

Concerning Father’s liability in the 1757 Action and the 1759 Action only

(1)  Whether Father executed the 1757 Agreement, the 1757 Legal Charge, the 1759 Agreement and the 1759 Legal Charge under the undue influence by the Son;

(2)  If the answer to (1) is “yes”, whether Fu Tat had been put on inquiry of the undue influence;

(3)  If the answer to (2) is “yes”, whether Fu Tat had taken reasonable steps to satisfy themselves that there was no undue influence;

(4)  Whether the 1757 Agreement, the 1757 Legal Charge, the 1759 Agreement and the 1759 Legal Charge were unconscionable bargains against Father;

(5)  Having considered the aforesaid, whether the 1757 Agreement, the 1757 Legal Charge, the 1759 Agreement and the 1759 Legal Charge ought to be set aside or rescinded on the ground of undue influence or unconscionable bargain;

Concerning the Son’s liability in all 4 actions only

(6)  Whether the alleged Oral Agreement had been reached between the Son and Mr Lo Shi Ki (representing Good Fortune) that no monthly interest would be payable, nor would the principal loans be repayable, until all matters concerning the building and the sale of the Ding Houses on Lot 252 or Lot 671, as well as the repair of the slope, were completed;

(7)  If the answer to (6) is “yes”, whether Fu Tat was in breach of the Oral Agreement, and whether the Son has suffered loss and damages therefrom, and whether Fu Tat is liable for the Son’s loss;

(8)  Whether, as alleged by the Son, his purported signatures on the Loan Agreements were forged, in that he did not sign any of them;

(9)  Whether the Son executed the Loan Agreements and the Legal Charges under the duress and/or undue influence of Fu Tat;

(10)  Whether the Loan Agreements and the Legal Charges (and/or the Building Mortgage) are unenforceable against the Son by reason of duress and/or undue influence;

Concerning both Father and the Son in all 4 actions

(11)  Whether the Loan Agreements were in breach of section 18(1) or section 29(1)(b) of the MLO;

(12)  If there is any breach of the MLO, whether it is in all circumstances inequitable for the Loan Agreements or the Legal Charges to be held unenforceable against Father and the Son;

(13)  Whether Father and the Son are liable to pay Fu Tat the respective outstanding sums under the Loan Agreements, and if “yes”, what are the respective outstanding sums;

(14)  Whether Fu Tat is entitled to enforce the Legal Charges and/or the Building Mortgage against Father and/or the Son, and hence to be granted an order for possession of the properties;

The 1905 Action

(15)  Whether, as alleged by Father, he did not have knowledge or agreement when he signed the 1905 Building Loan Agreement and the 1905 Building Mortgage;

(16)  Whether, as alleged by Father, he has never received any of the 1905 Building Loan;

(17)  Whether Father executed the 1905 Building Loan Agreement and the 1905 Building Mortgage under the undue influence by the Son and Diamond Dragon;

(18)  If the answer to (17) is “yes”, whether Diamond Dragon had been put on inquiry of the undue influence;

(19)  If the answer to (18) is “yes”, whether Diamond Dragon had taken reasonable steps to satisfy themselves that there was no undue influence;

(20)  Whether the 1905 Building Loan Agreement and the 1905 Building Mortgage were unconscionable bargain;

(21)  Having considered the aforesaid, whether the 1905 Building Loan Agreement and the 1905 Building Mortgage ought to be set aside, rescinded or declared to be unenforceable on the ground of undue influence or unconscionable bargain;

(22)  Whether the 1905 Building Loan Agreement was in breach of section 18(1) or section 29(1)(b) of the MLO;

(23)  If there is any breach of the MLO, whether it is in all circumstances inequitable for the 1905 Building Loan Agreement or the 1905 Building Mortgage to be held unenforceable against Father and the Son;

(24)  Whether Father, the Son and Mr Lau Wai Kuen are liable to pay Diamond Dragon the outstanding sum under the 1905 Building Loan Agreement, and if “yes”, what is the outstanding sum;

(25)  Whether Diamond Dragon is entitled to enforce the 1905 Building Mortgage against Father, and hence to be granted an order for possession of the properties.

E.  CREDIBILITY OF WITNESSES

30.  In Hu Lan v David Golden[2023] HKCFI 873, this Court held that:

“36. When I consider the credibility of various witnesses who had given evidence in court, I shall take the following matters into account:

(1) Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) Importance should be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) The court will also attach importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement;

(4) The court should consider a witness’ motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest;

(5) It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie;

(6) On the other hand, where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility;

(7) While the court is entitled to take demeanour into account when assessing testimony, it should be borne in mind that demeanour can be deceptive and is therefore to be approached with care.”

31.  I will bear the above in mind when I consider the credibility of the witnesses in the present case.

32.  Fu Tat and Diamond Dragon have called the following witnesses at the trial:

(1)  Ms Fung Wai Man (“Ms Fung”);

(2)  Mr Lo Shi Ki;

(3)  Ms So; and

(4)  Mr Tang.

33.  While Father did serve 6 witness statements on the plaintiffs, he did not give evidence at the trial because he had been diagnosed to be suffering from a moderate degree of dementia. In such circumstances, his witness statements had been adduced as hearsay evidence by consent of all parties.

34.  Therefore, the Son was the only witness who had given evidence in support of the defence.

E1. Ms Fung

35.  Ms Fung works as an account clerk for Fu Tat, Diamond Dragon and Good Fortune, and her primary responsibilities include managing client accounts and overseeing accounting matters.

36.  I find that, generally speaking, she is an honest witness. She only appeared to be less forthcoming when she was asked about her employment history before 2010, especially whether she was working for Good Fortune between 2007 and 2009. However, in my view, that should not affect the Court’s assessment on her credibility.

E2. Mr Lo Shi Ki

37.  Mr Lo Shi Ki is the husband of Madam Hui. He is a shareholder of Fu Tat and works as the general manager for Fu Tat, Diamond Dragon and Good Fortune. He is primarily responsible for processing mortgage loan approvals across these 3 companies.

38.  It must be borne in mind that the witness had been questioned on incidents which took place more than 12 years ago.

39.  Generally speaking, I find Mr Lo to be an honest witness.

40.  The only matter which caused me some concern on his credibility and reliability is his refusal to confirm that some of the signatures on the loan documents belong to Ms So. He even stated that he did not recognise Ms So’s signature. This is improbable, given the fact that Ms So had worked for him since 2007 and has subsequently become his personal assistant.

41.  Ms Lau for the Son has also attempted to point out that Mr Lo Shi Ki’s evidence contained a number of so-called inconsistencies or was otherwise unbelievable. Without disrespect to counsel, I do not intend to deal with those matters relied on one by one. It suffices for me to state that I do not consider that those matters are important enough to have any impact on my finding on his credibility and reliability.

42.  Be that as it may, whenever there is any contradiction between his evidence and the Son’s evidence, I would still prefer his evidence, because, as I will explain further below, the Son has demonstrated that he is a much more unreliable and dishonest witness.

E3.  Ms So

43.  Ms So holds the position of manager at Good Fortune, where she is mainly responsible for handling customers’ loan applications and approving personal loans of small amounts. She also serves as a personal assistant to Mr Lo Shi Ki.

44.  She is a straight-forward witness. I accept her evidence.

E4.  Mr Tang

45.  Mr Tang is a legal clerk to David Man & Co – the solicitors who acted for Fu Tat and Diamond Dragon in respect of the Loan Agreements and the Legal Charges. His main responsibilities include handling general daily documentation and clients matters.

46.  Again, I take the view that he is an honest and straight-forward witness. I accept his evidence.

E5.  The Son

47.  I find that the Son is neither credible nor reliable. There are quite a number of reasons in support of this finding. For the present purpose, I only need to refer to the followings:

(1)  The most obvious factor which stands out is the fact that while the Son alleged in his pleadings that he had never signed various loan agreements, that he had never seen those documents, and that his purported signatures thereon are all forged (such serious allegations were also contained in his consolidated witness statement), he admitted in Court that he did sign those documents. When he was asked how come there was such a change in his evidence, he explained that he might have a wrong recollection on the matter. In my view, it is simply impossible for the Son to be mistaken to that extent. I find that it is more probable than not that, in the course of the legal proceedings, he decided to boost his case by denying that all signatures belong to him even though he knew well that that was not the truth. However, he realised subsequently that it simply did not work at the trial, so he decided to tell the truth on the matter. Such inconsistency in a very important part of his evidence shows that the Court should not accept his testimony at all;

(2)  While the Son had been an officer at the Correctional Services Department as well as a Police Officer (for a total of around 20 years), he claimed that he could not read even simple English, which is totally unbelievable;

(3)  The Son volunteered information in the witness box (when he was not asked at all) that he was not proficient even in Chinese language. Given his occupation background, this is, again, totally incredible;

(4)  The Son has also tried to give the Court an impression that he would simply sign whatever documents that he was presented without knowing what those documents were about. In this regard, it should be borne in mind that he had worked for 2 years in the Crime Investigation Department. I do not believe that he was as naïve as he claimed to be.

48.  Further examples and analysis will be given under Section F of this Judgment.

E6.  Father

49.  As aforesaid, it has been agreed among the parties that Father’s witness statements may be admitted as hearsay evidence at the trial. The question for this Court is the weight to be attached to such evidence.

50.  Section 49 of the Evidence Ordinance (Cap.8, Laws of Hong Kong) provides that:

“(1) In estimating the weight, if any, to be given to hearsay evidence in civil proceedings the court shall have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence.

(2) For the purposes of subsection (1), regard may be had, in particular, to the following—

(a) whether it would have been reasonable and practicable for the party by whom the evidence was adduced to have produced the maker of the original statement as a witness;

(b) whether the original statement was made contemporaneously with the occurrence or existence of the matters stated;

(c) whether the evidence involves multiple hearsay;

(d) whether any person involved had any motive to conceal or misrepresent matters;

(e) whether the original statement was an edited account, or was made in collaboration with another or for a particular purpose;

(f) whether the circumstances in which the evidence is adduced as hearsay are such as to suggest an attempt to prevent proper evaluation of its weight;

(g) whether or not the evidence adduced by the party is consistent with any evidence previously adduced by the party.”

51.  I will now go through the factors set out in section 49(2) of the Evidence Ordinance:

(1)  It is now impracticable for Father to give evidence at the trial because it has been certified by Dr Paul Shea, a specialist in geriatric medicine, that Father is mentally not fit to attend legal proceedings;

(2)  The witness statements for the 1757 Action and the 1759 Action were made in November 2019; the witness statements for the 1905 Action were made in October 2015, February 2016, November 2019 and December 2020 respectively. They can hardly be described as having been made contemporaneously with the occurrence or existence of the matters stated which dated back to 2009 to 2011;

(3)  Father’s witness statements do not involve multiple hearsay;

(4)  As the outcome of these actions would have great financial impact on Father, he had motive to conceal or misrepresent matters;

(5)  According to Father, he had only received education for 20 months. Therefore, the witness statements must have been drafted for him for the purpose of these court actions.

52.  Another important factor which this Court has to take into account is that Father’s evidence cannot be tested by cross-examination.

53.  Generally, what Father stated in his witness statements was that he had no idea that he had borrowed monies from the plaintiffs, nor did he know that his landed properties had been charged to secure the debts owed by himself and the Son, for he all along had been told by the Son that the latter had borrowed personal loans. However, it is evident that Father had signed various loan agreements, not once, or twice, but on no less than 8 occasions (including on 27 February 2009, 24 August 2009, 14 October 2009, 26 January 2010, 15 May 2010, 15 June 2010, 24 June 2010 and 5 November 2011). Father’s evidence is therefore totally incredible.

54.  With all the above matters in mind, I am of the view that the Court should not attach any weight to Father’s evidence.

F.  DISCUSSION OF THE ISSUES

55.  I will now deal with the issues as agreed among the parties (except the issue concerning whether the Son’s purported signatures on the Loan Agreements in the 1756 Action, 1757 Action, 1759 Action and 1773 Action respectively were forged, given his admission during cross-examination that he did sign all those agreements).

56.  Although the parties set out the issues in the 1905 Action after those in the other 4 actions, I am of the view that the Court should resolve the disputes under the 1905 Action first because the loan agreement in that action was entered into earlier (i.e. in 2009), while the subject loan agreements in the other 4 actions were all signed in 2011.

F1.  The 1905 Action

F1.1  Father’s knowledge or agreement

57.  Father’s pleaded case, in a gist, is that:

(1)  From 1995 to 2008, he had lent over $1 million to the Son. At least part of the money was supposed to be used by Father to build his Ding House on Lot 671, in respect of which he had received a Private Treaty Grant of Tenancy for 50 years back in 2002;

(2)  In 2008, he started to worry that if he further delayed the building of his Ding House, the Government might revoke the said Grant. He therefore pressed the Son for repayment of the debt owed to him;

(3)  In response, the Son told Father that he (the Son) would take out a loan himself for repayment to Father;

(4)  In around August 2008, the Son told Father that he (the Son) had managed to get someone to lend him the house-building fund;

(5)  Then the Son took Father to David Man & Co, at which Mr Tang asked Father to sign some documents without explaining to him what those documents were about. The Son told Father that those documents were related to the Son’s personal loan, without mentioning about any security at all;

(6)  In January 2009, Father was taken to the office of Good Fortune to sign some documents, which according to the Son were related to renewal of the personal loan taken out in August 2008 as mentioned above;

(7)  In March 2009, the Son took Father to David Man & Co to sign some documents. The Son told him again that they were related to the renewal of the loan taken out in August 2008;

(8)  On the above basis, Father alleged that he had no knowledge or agreement of the 1905 Building Loan Agreement nor the 1905 Building Mortgage.

58.  The difficulty of Father’s case is that he could only rely on his own evidence to establish his defence as to his knowledge on and agreement to the loan arrangement. However, for reasons which have been explained above, his witness statement would receive no weight at all.

59.  Further, as discussed, such a case is utterly unbelievable. If the Father had been told repeatedly that the Son was obtaining or renewing a personal loan, then why was Father required to attend the solicitors’ firm or the finance company, not to mention to sign any documents?

60.  In any event, it is now trite that parties of full age and understanding are bound by the documents they signed even if they did not study the contents thereof before signing them unless they can establish a recognised legal basis to disown such documents. In Ming Shiu Chung & Others v Ming Shiu Sum & Others [2006] 2 HKLRD 831, Ribeiro PJ held that:

“84. […] Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.

[…]

86. And in Bank of China (Hong Kong) Ltd v Fung Chin Kan (2002) 5 HKCFAR 515 at 533, Litton NPJ acknowledged:

‘......the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature : As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.’

87. The vitiating factors at common law include fraud, mistake, misrepresentation, non est factum, duress, undue influence and lack of mental capacity: see, for instance, Blay v Pollard & Another [1930] 1 KB 628; and Gillman v Gillman (1946) 174 LT 272. To disown a signed legal document, facts constituting the particular vitiating factor relied on must be pleaded and established by the evidence […]”

61.  It is thus no defence for the Father to say that he did not understand nor did he agree to the content of the documents which he signed.

62.  His case that there are other vitiating factors which disown the signed documents will be dealt with under separate sections below.

F1.2  Father’s receipt of the 1905 Building Loan

63.  It is Father’s case that he has never received the 1905 Building Loan.

64.  In this regard, Diamond Dragon’s case is that:

(1)  A cashier order of $4,000,000 dated 22 January 2009 had been issued to Father upon his request;

(2)  The balance of the sum of $1,215,000 had been paid to the contractor which was responsible to build the Ding House for Father in 8 instalments by cheques, on the following dates:

(a)  5 March 2009 ($135,000)

(b)  17 March 2009 ($135,000)

(c)  16 April 2009 ($135,000)

(d)  16 April 2009 ($135,000)

(e)  15 June 2009 ($202,500)

(f)  19 August 2009 ($135,000)

(g)  19 August 2009 ($135,000)

(h)  10 September 2009 ($202,500)

65.  Diamond Dragon’s case is supported by contemporaneous documents, as it can be seen that:

(1)  Father had signed and acknowledged receipt of the cashier order dated 22 January 2009;

(2)  The contractor had signed acknowledged receipt all the aforesaid cheques. In this regard, it should be noted that the person who acknowledged receipt of those cheques was a Mr Lau, which is consistent with Father’s own evidence that his contractor was with a surname “Lau”;

(3)  Father and the Son had also signed most of those cheques.

66.  I therefore reject Father’s argument in this regard.

F1.3   Undue influence by the Son and Diamond Dragon

67.  Issue No.17 set out under [29] above reads:

“Whether Father executed the 1905 Building Loan Agreement and the 1905 Building Mortgage under the undue influence by the Son and Diamond Dragon” (emphasis added)

68.  The highlighted part was actually added by Ms Lau without the consent of the other parties.

69.  This is supposedly a defence of Father in relation to the claim in the 1905 Action. Hence, it is unclear as to why Ms Lau should see fit to suggest a defence for Father, when Mr Shum (Father’s counsel) did not propose to add the highlighted words.

70.  More importantly, it is not Father’s pleaded case that the 1905 Building Loan Agreement and/or the 1905 Building Mortgage had been entered into because of undue influence of Diamond Dragon. The allegation of undue influence had all along been directed at the Son only.

71.  I will therefore consider this issue on the basis that there was only one allegation of undue influence and that was directed against the Son rather than Diamond Dragon.

72.  I now turn to the legal principles of undue influence. In Bank of China (Hong Kong) Ltd v Wong King Sing [2002] 1 HKLRD 358, Recorder Ma SC (as he then was) had given a very clear explanation as to the principles at [37] – [70]. What is also instructive is what his Lordship stated at [34]:

“[…] as with all aspects of the law, one has to apply a large degree of common sense to the matter. The proliferation of cases in this area, particularly in recent times, creates a tendency to have principles mechanically set out as almost formulas to be applied. While this is convenient and provides a logical basis for the application of at times not uncomplicated principles, it is to be borne in mind that the defence of undue influence is ultimately a simple concept. It has all to do with informed consent. Once a court forms the view that consent was freely given with full knowledge of the consequences of entering into the relevant transaction, that is the end of the matter, however improvident the transaction may objectively appear. The rationale for the defence of undue influence is to prevent the victimisation of the complainant. It is there to protect people from being forced, tricked or misled in any way by others into entering into a disadvantageous transaction […]”

73.  Coming back to the present case, given my decision that no weight should be given to Father’s witness statements, he cannot satisfy the burden of proof that he has been unduly influenced.

74.  In any event, given:

(1)  Father’s own evidence that he was worried that the Private Treaty Grant of Tenancy would be revoked by the Government if there was further delay in the construction of the Ding House;

(2)  Father was the borrower under the 1905 Building Loan Agreement;

(3)  He has acknowledged receipt of $400,000 lent under the said agreement;

(4)  Balance of the said loan had been paid to the contractor who was engaged to build a Ding House for him on his land (Lot 671);

(5)  The Son had acted as Father’s guarantor for the said loan,

there is no doubt that the loan arrangement was for Father’s own benefit. I therefore have no difficulty to come to the conclusion that Father’s consent was freely given with full knowledge of the consequences of entering into the 1905 Building Loan Agreement and the 1905 Building Mortgage.

75.  That would be the end of his claim of undue influence.

F1.4  Unconscionable bargain

76.  In his closing submissions, Mr Shum has not relied on the defence of unconscionable bargain in respect of the 1905 Action. I therefore take it that this is no longer a live issue.

F1.5  Section 18(1) of the MLO

77.  Section 18(1) of the MLO provides that:

“No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless—

(a) within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.”

78.  It is Father’s case that Diamond Dragon had never given him any copy of the 1905 Building Loan Agreement.

79.  On the other hand, Mr Lo Shi Ki disagreed. He claimed that he had given Father a copy of the said document after execution.

80.  I accept Mr Lo’s evidence.

81.  In fact, Father’s counsel had never put to Mr Lo during his cross-examination that Father was not given a copy of the 1905 Building Loan Agreement.

82.  I therefore find that there is no breach of section 18(1) of the MLO.

F1.6  Section 29(1)(b) of the MLO

83.  This is no longer a live issue as Mr Shum had made it clear in his closing submissions that Father would not rely on this defence further.

F1.7   Outstanding sums of the loans and possession of mortgaged properties

84.  Neither Father nor the Son had made submissions on the calculation of the sum claimed in the 1905 Action.

85.  Neither did they dispute the enforceability of the 1905 Building Mortgage, apart from relying the defences which have been discussed above.

F2.  The 1756 Action, 1757 Action, 1759 Action and 1773 Action

F2.1  Concerning Father’s liability in the 1757 Action and the 1759 Action only

F2.1.1   Undue influence by the Son

86.  As far as the 1757 Loan is concerned, it is Fu Tat’s case (which I accept) that $5,987,000 out of the total loan amount of $6 million was used to pay off 10 loans borrowed by the Son from Good Fortune.

87.  It is Father’s case that:

(1)  As he had nothing to do with those loans, it made no economic sense for Father to enter into the 1757 Agreement;

(2)  He had a relationship of trust and confidence with the Son;

(3)  Father simply trusted and acted on the Son’s advice when he executed the 1757 Agreement;

(4)  The transaction cannot be readily explicable by the relationship between Father and the Son and cried for an explanation;

(5)  As presumption of undue influence arises, the onus shifts to Fu Tat to show that “the transaction was entered into with an independent mind and free of any undue influence”;

(6)  Fu Tat has the burden to show that reasonable steps had been taken to satisfy itself that the agreement has been properly obtained.

88.  I reject Father’s case for the following reasons:

(1)  It is factually incorrect for him to allege that he had nothing to do with the 10 previous loans taken out by the Son with Good Fortune because pursuant to a Legal Charge dated 24 June 2010, Father had covenanted to repay all sums of money which may be outstanding and payable by the Son to Good Fortune. In other words, Father was already a debtor of Good Fortune before the 1757 Agreement was entered into;

(2)  Father’s evidence was contradicted by the Son whose case is that Father and the Son had jointly decided to build Ding Houses on their respective land and to repair the slope next to their family home at Lot 539 and Lot 510A, which led to various loans taken out by the Son with Good Fortune;

(3)  With the above in mind, it is this Court’s finding that Father all along knew what he was doing. It worth repeating this Court’s rejection of Father’s evidence that he thought all along that the Son was only renewing his own personal loans when Father executed the 1757 Agreement, because if that was indeed the case, Father must have been curious as to why he was required to go to David Man & Co, and even more so when he was asked to sign documents;

(4)  That was the reason why Father agreed to execute the 1757 Agreement – it was clearly to his advantage because that served to discharge his previous liability owed to Good Fortune, without which his properties (Lot 539, Lot 510A and Lot 262A) were liable to be possessed by Good Fortune.

89.  In respect of the 1759 Agreement, Fu Tat’s case is that the 1759 Loan in the sum of $5.7 million was borrowed for the purpose of settling 6 loans which were owed by Father and the Son to Diamond Dragon. Such liability was also covered by a Legal Charge dated 27 February 2009 which was executed by Father, pursuant to which his properties known as Lot 539 and Lot 510A were charged.

90.  Hence, the grant of the 1759 Loan was clearly for the benefit of Father as well.

91.  Father’s claim of undue influence must therefore fail.

F2.1.2  Unconscionable bargain

92.  As explained by Waung J in Lo Wo v Cheung Chan Ka [2000] 2 HKLRD 370 at 381B-382F, there are 3 essential elements of unconscionable bargain:

“1. Serious Disadvantage of the Exploitee

  The traditional requirement of poverty and ignorance of the person exploited (‘Exploitee’) stated in the old cases such as Fry v Lane, Re Fry, Whittet v Bush (1888) 40 Ch D 312 had been broadened in recent years to include all species of serious disadvantage so that age, poverty, ignorance, lack of assistance or independent advice or inability to judge what is in his best interest are merely various aspects of serious disadvantage suffered by the Exploitee giving rise to the opportunity for the other party who gains from the transaction (‘Exploiter’) to take unconscionable advantage.

2. Terms of Bargain being Oppressive

  The cases have shown that mere inadequacy of consideration is not sufficient for the court to act. The undervalue has to be such as to lead to the view that the Exploitee had given away valuable assets or rights for much less than what they are worth to such extent as to either reinforce the view that the Exploitee was at a serious disadvantage by a morally culpable Exploiter or that the conduct of the Exploiter was morally culpable.

3. Morally Culpable Conduct of the Exploiter

  Exploitation is the foundation for a finding of unconscionable bargain and exploitation usually takes the form of the strong party, the Exploiter taking unfair advantage of the seriously disadvantaged party, the Exploitee. What seems to be present in all cases where the courts have set aside for unconscionable bargains are circumstances of the transactions which suggest that the Exploiter was aware of an opportunity for exploitation and has taken advantage of such opportunity. Examples of this would be the ignorant brothers in Fry v Lane, the drunk old man in Blomley v Ryan (1957–58) 99 CLR 362, the elderly immigrant parents in Commercial Bank of Australia Ltd v Amadio (1982–83) 151 CLR 447, the ‘slow’ lessor in Boustany v Piggott (1995) 69 P & CR 298. In Hart v O’Connor [1985] AC 1000 relief was denied because although the vendor was of unsound mind, this fact was not apparent to the purchaser. In Credit Lyonnais Bank Nederland NV v Burch [1997] 1 A.E.R. 144, Millett, L.J. expressed the view at page 153 that impropriety could be inferred from the terms of the transaction itself in the absence of an innocent explanation and it seems to me that implicit in that statement is the assumption that the terms of the transaction are so unfavourable to the Exploitee that the Exploiter did know that the transaction was exploiting and unconscionable and hence there was impropriety in his conduct. It has been suggested that some of the cases were decided on basis of an objective standard instead of a subjective standard. (see Bamforth on Unconscionability as a Vitiating Factor (1995) Lloyd’s Maritime and Commercial Law Quarterly 538 at pages 548-551). This is an area of some difficulty, where the special facts of the cases (such as Amadio which has large elements of constructive notice) might lead to specific conclusions which may not be wholly consistent with the subjective standard approach. For the limited purpose of this judgment and in the absence of focused arguments, I will assume that the traditional subjective standard applies and that for the court to reach a conclusion of unconscionable bargain it is necessary to have a finding of moral culpability against the Exploiter, either by way of over-reaching or oppressive conduct or in the form of actual or constructive fraud. What seems to be necessary in my view is that the conduct of the Exploiter in the circumstances has shocked the conscience of the court.”

93.  Father relied on the following matters in support of his defence of unconscionable bargain:

(1)  Father suffered from serious disadvantages due to his old age, ignorance and lack of independent advice;

(2)  Mr Tang did not explain the content of the documents to Father;

(3)  The Son exploited Father’s disadvantages and told him that the papers he had to execute were related to a renewal of the Son’s personal loans;

(4)  The terms of the 1757 Agreement, the 1759 Agreement and the related Legal Charges are oppressive and overreaching, as Father had to give away his landed properties to secure the Son’s previous and future loans, and Father received nothing in return;

(5)  Fu Tat knew very well that Father and the Son would not be able to repay the 11 million new loans, and its target was to get the charged properties;

(6)  Hence, the acts of the Son and Fu Tat were morally culpable.

94.  First of all, I do not understand why Fu Tat should be held responsible for the Son’s conduct, for it is not Father’s pleaded case that the Son had been acting on behalf of Fu Tat.

95.  Secondly, it is my finding that Mr Tang did explain to Father the legal effect of the documents which he was asked to sign.

96.  Thirdly, I do not accept that the Son had told Father that the papers which he had to execute were related to a renewal of the Son’s personal loans.

97.  Fourthly, I do not agree that Father, by entering into the 1757 Agreement and the 1759 Agreement, had got nothing in return. The benefit which he obtained was that, in effect, the due date for his previous liability would be extended for a year.

98.  Fifthly, it must be borne in mind that:

(1)  Lot 338A and Lot 257D had already been charged in favour of Good Fortune pursuant to the Legal Charge dated 17 April 2008;

(2)  Lot 539 and Lot 510A had already been charged in favour of Diamond Dragon pursuant to the Legal Charge dated 27 February 2009;

(3)  Lot 262A had already been charged in favour of Good Fortune pursuant to the Legal Charge dated 24 June 2010.

99.  While Diamond Dragon and Good Fortune were lenders having separate legal entities, one must look at the reality that in fact Diamond Dragon and Good Fortune were closely related to Fu Tat. Hence, Fu Tat simply did not have to “trick” Father for getting such landed properties. Hence, Father’s case on unconscionable bargain in respect of the 1757 Action and the 1759 Action must also be rejected.

F2.2  Concerning the Son’s liability in all 4 actions only

F2.2.1  Oral Agreement

100.  The Son alleged that the Oral Agreement had been reached between him and Fu Tat, and as a result, he was not yet liable to repay at the commencement of these actions.

101.  I have already explained why I consider the Son as an incredible witness. Therefore I would not accept his evidence that there was the Oral Agreement as such.

102.  There are other reasons why I should reject his case in this regard:

(1)  While he pleaded that the Oral Agreement was made in mid-2008, it was his evidence that such an agreement had already been reached in August 2007. Such a discrepancy arouses great doubt on the part of this Court as to the credibility of the Son’s allegation;

(2)  More importantly, the Son admitted during cross-examination that he was obliged to make repayment in respect of a loan of $300,000 granted by Good Fortune on 13 June 2008, and such repayment would be in the form of monthly instalments starting from 13 July 2008. Such a repayment arrangement is plainly contradictory to the alleged Oral Agreement. Yet, the Son did not complain against such a schedule at the material time. He even accepted in Court his payment obligation. Ms Lau seems to suggest in her closing submissions that the Son might have misunderstood the questions by reason of his inability to comprehend what he was asked. With respect, I disagree. In my view, the questions were clear and he should have no difficulty in understanding them. Further, one should not forget that he had been a police officer for a long time. It can be inferred that he had received training for giving evidence in Court;

(3)  Further, it is evident that the Son had signed a lot of calculation tables the contents of which were plainly contradictory to the existence of the alleged Oral Agreement. His evidence that he simply signed upon the request of Mr Tang without knowing what the documents were about is rejected. Indeed, he did not need anything more than a fleeting glance of those calculation tables to appreciate that all those loans would be repayable immediately;

(4)  Furthermore, the 1756 Agreement, the 1757 Agreement, the 1759 Agreement and the 1773 2^nd Agreement all contain an identical Clause 17 as follows:

“This Agreement supersedes all previous agreements whether in writing verbal or implied between the parties hereto.”

Hence, in relation to the loans granted thereunder, the Son’s allegation of Oral Agreement, even if accepted, would not have assisted him.

103.  The Son’s defence on the basis of the alleged Oral Agreement therefore fails.

F2.2.2  Duress by Fu Tat

104.  In Re Li Xiaoming[2019] HKCFI 2782, DHCJ William Wong SC summarized the legal principles on economic duress at [28] as follows, which have been endorsed by the Court of Appeal [2021] HKCA 779 at [34]:

“[…] The legal principles in relation to economic duress are succinctly summarised by Mr Justice G Lam in Zebra Industries (Orogenesis Nova) Ltd v Wah Tong Paper Products Group Ltd [2016] 1 HKC 213 at 234 – 237 as follows:

(1) Economic pressure may be sufficient to amount to duress, provided at least that the economic pressure may be characterised as illegitimate and has constituted a significant cause inducing the plaintiff to enter into the relevant contract;

(2) Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed;

(3) In determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract.”

105.  While considering the issue of economic duress, the Court has to be mindful in distinguishing aggressive (yet legitimate) commercial activities from “illegitimate pressure” involving unconscionable or unlawful conduct. It is the illegitimacy of the suggested pressure that would amount to economic duress: Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at [154]; DBS Bank (Hong Kong) Ltd v Young & Fortune Limited (HCMP 1838/2014, unreported, 15 January 2016) at [19].

106.  In the present case, Ms Lau put her arguments on economic duress in the following way:

“In the event that the court finds there to be the Oral Agreement, then the economic pressure which [the Son] had suffered from can well amount to economic duress, provided it may be characterized as illegitimate and has constituted a ‘but for’ cause inducing [the Son] to enter into the relevant contracts:-

(1) Here, [the Son]’s case was that Mr Lo threatened to break the Oral Agreement which would render [the Son] breaking his contract with the construction company. This threat may be regarded as illegitimate, particularly where the parties must know that it would be in breach of a contract if the threats were implemented.

(2) Furthermore, it is relevant to consider whether [the Son] had a ‘real choice’ or ‘realistic alternative’ opened to him or not. If there is no reasonable alternative, that may be very strong evidence in support of a conclusion that the victim of the duress was in fact influenced by the threats (See Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2011] 1 ALL ER (Comm) 46 at §92). As acknowledged by Mr Lo, banks would not normally grant mortgage loans for small houses and indigenous villagers could only resort to money lenders and would require the approval of the Lands Department. Therefore, this (together with the urgency of the matter) rendered [the Son] having no real alternatives but to yield to Mr Lo’s pressure and sign the loan agreements and legal charges specified in [Fu Tat]’s Actions.”[6] (emphasis added)

107.  It can therefore be seen that the Son’s case on economic duress is founded upon the existence of the Oral Agreement. Now that this Court has found that there was no Oral Agreement as such, the Son’s case on economic duress also collapses.

108.  In any event, given the existence of various previous loans, even if Fu Tat had pressurised the Son to repay, such pressure could not be illegitimate. There was no unconscionable nor unlawful conduct as such on the part of Fu Tat anyway.

F2.2.3  Undue influence by Fu Tat

109.  The Son alleged that there was actual undue influence because of Mr Lo Shi Ki’s threat to break the Oral Agreement. This argument also falls away upon this Court’s finding that there was no such agreement.

110.  The Son also alleged that he had placed trust and confidence in Mr Lo Shi Ki and Mr Tang and that there was presumed undue influence.

111.  With greatest respect, this is quite a desperate argument which I do not hesitate to reject, as I do not believe that the Son had posed trust and confidence in Mr Lo Shi Ki (not to mention Mr Tang) as such.

112.  Furthermore, a relationship of trust and confidence per se is not enough to give rise to a presumption of influence. In Duress, Undue Influence and Unconscionable Dealing (3^rd Ed), the learned author at §10-038 said:

“Trust and confidence must be of a sufficient degree to warrant the conclusion that influence naturally grew from it and that the relationship between the parties was one in which the alleged wrongdoer had influence over the complainant. In Goldsworthy v Brickell, Nourse LJ stated that what must be shown is ‘that the degree of trust and confidence is such that the party in whom it is reposed … is in a position to influence’ the party reposing it… Thus, trust and confidence in the sense of the ordinary loving relationship between a mother and her son still living at home on affectionate terms is not enough… A party can prove that they reposed trust and confidence in the alleged wrongdoer and still fail to establish a relationship of influence if the court considers that the level of trust and confidence reposed was insufficient to give the alleged wrongdoer influence over the complainant…”

113.  Given Mr Lo Shi Ki and Mr Tang were just representing various finance companies, there is no way that the Son would have the degree of trust and confidence required which is sufficient to give rise to a presumption of influence. As emphasised time and again, the Son is not a fool but an experienced police officer.

114.  Moreover, any such trust and confidence must have gone by the time the Son was asked to enter into further loan agreements in 2011 because, if the Oral Agreement existed, it must have been obvious to the Son that Fu Tat / Mr Lo Shi Ki was not trustworthy, given they felt fit to chase for repayment of money before the completion of construction of the Ding House.

115.  The Son’s defence of undue influence must therefore fail.

F2.3  Concerning both Father and the Son in all 4 actions

F2.3.1  Section 18(1) of the MLO

116.  It is Father’s and the Son’s case that they have not been provided with copies of the Loan Agreements.

117.  According to Mr Tang’s evidence, copies of the Loan Agreements (containing the requisite memorandum) had been provided to the defendants, immediately or shortly after the execution thereof, as the case may be.

118.  I accept Mr Tang’s evidence. Indeed, in relation to those loan agreements which were prepared by and executed at David Man & Co, it is more likely than not that the solicitors’ firm would have provided Father with a copy of the executed documents because it would be accused of professional negligence should it fail to do so.

119.  Ms Lau submitted that if the signed copies of documents had been given to Father and the Son, then there should be acknowledgement of receipt of such documents. However, there is no evidence that it was the practice of Mr Tang or David Man & Co that clients would be asked to sign such acknowledgement upon receipt of documents. Therefore, this argument does not assist.

120.  On the other hand, as explained above, I would not give weight to Father’s witness statements. I also do not accept the Son’s evidence, as I have found him to be an incredible witness.

121.  I therefore find that there is no breach of section 18(1) of the MLO.

F2.3.2  Section 29(1)(b) of the MLO

122.  As aforesaid, Mr Shum has expressly stated that Father would no longer rely on the alleged breach of section 29(1)(b) of the MLO.

123.  While Ms Lau has not expressly said so, she has made no submission on section 29(1)(b) of the MLO in her closing submissions. I therefore take it that the Son would not rely on this section as his defence.

F2.3.3   Outstanding sums of the loans and possession of mortgaged properties

124.  Neither Father nor the Son had made submissions on the calculation of the outstanding amount claimed in the 4 actions.

125.  Neither did they dispute the enforceability of the Legal Charges and/or the Building Mortgage, apart from relying the defences which have been discussed above.

G.  CONCLUSION

G1.  HCA 1756/2012

126.  I make the following orders against the Son:

(1)  An order for possession of Lot 532;

(2)  The sum of $1,320,000;

(3)  Further interest on the principal loan of $1,100,000 at 24% per annum from 6 September 2012 until full payment;

(4)  The Counterclaim be dismissed.

G2.  HCA 1757/2012

127.  I make the following order against Father:

(1)  An order for possession of Lot 338A, Lot 257D and Lot 262A.

128.  I make the following order against Father and the Son:

(1)  The sum of $7,200,000;

(2)  Further interest on the principal loan of $6,000,000 at 24% per annum from 6 September 2012 until full payment;

(3)  The Counterclaims be dismissed.

G3.  HCA 1759/2012

129.  I make the following order against Father:

(1)  An order for possession of Lot 539 and Lot 510A.

130.  I make the following order against Father and the Son:

(1)  The sum of $6,840,000;

(2)  Further interest on the principal loan of $5,700,000 at 24% per annum from 6 September 2012 until full payment;

(3)  The Counterclaims be dismissed.

G4.  HCA 1773/2012

131.  I make the following order against the Son:

(1)  An order for possession of Lot 252;

(2)  The sum of $9,098,396.20;

(3)  Further interest on the principal loans in the total sum of $7,722,100 at 24% per annum from 6 September 2012 until full payment;

(4)  The Counterclaim be dismissed.

G5.  HCA 1905/2013

132.  I make the following order against Father:

(1)  An order for possession of Lot 671.

133.  I make the following order against Father, the Son and Mr Lau Wai Kuen:

(1)  The sum of $3,047,521.60;

(2)  Further interest on the principal loans in the total sum of $1,615,000 at 26% per annum from 6 October 2013 until full payment;

(3)  The Counterclaims be dismissed.

H.  COSTS

134.  I make a costs order nisi that the defendant(s) in the respective actions shall bear the respective plaintiff’s costs of the action, to be taxed on indemnity basis[7]if not agreed.

135.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper) within 14 days hereof.

136.  The Son’s own costs be taxed in accordance with the Legal Aid Regulations.

Mr Ernest Koo and Mr Jay Cheung, instructed by Y. L. Yeung & Co, for the plaintiffs in all actions

Mr Kenneth K. H. Shum, instructed by C. Y. Tsang & Co, for the 1^st defendant in HCA 1757/2012, HCA 1759/2012 and HCA 1905/2013

Ms Kitty Y. C. Lau, instructed by Ho, Tse, Wai & Partners, for the defendant in HCA 1756/2012 and HCA 1773/2012, the 2^nd defendant in HCA 1757/2012, HCA 1759/2012 and HCA 1905/2013

The 3^rd defendant in HCA 1905/2013 was not represented and did not appear

HCA 1756/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1756 OF 2012

____________

____________

AND

HCA 1757/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1757 OF 2012

____________

____________

AND

HCA 1759/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1759 OF 2012

____________

____________

AND

HCA 1773/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1773 OF 2012

____________

____________

(Heard together)

______________

D E C I S I O N

______________

INTRODUCTION

1.  The Plaintiff (“Fu Tat”) is a registered Money Lender under the Money Lenders Ordinance, Cap 163 (“MLO”). 

2.  The subject matters of the present four actions are loans lent by the Plaintiff to Lau Wai Man (“the Son”) alone or to Lau Yung Tai (“the Father”) and the Son together.  

3.  The Plaintiff commenced the present actions respectively on 22 and 25 September 2012.  No Acknowledgment of Service or Notice of Intention to Defend has been filed by the Father or the Son.

4.  Accordingly, the Plaintiff took out summonses under Order 83A, rule 4 and Order 88 rule 6 of the Rules of the High Court for leave to enter default judgments against the Father and Son in the actions.  The Plaintiff’s applications were heard before a Master[1] in the same hearing and judgments were entered by the learned Master in in respect of all the actions.

5.  This is the appeal of the Father and Son against the orders of the learned Master.

6.  The Father and Son were both initially acting in person.  At the first hearing, this court adjourned for the Plaintiff to file further affirmations and for the Father to seek legal advice on, in particular, the possible defence of illegality and undue influence.  At the adjourned hearing, the Father was legally represented but the Son remained unrepresented.

7.  It is trite that an appeal from the master to the judge in chambers should be dealt with by way of an actual rehearing.

THE CLAIMS

HCA 1756/2012 (“1756”)

8.  Fu Tat claims against the Son only in 1756 for, inter alia :

(i) Possession of the mortgaged property known as Lot No 532 in DD No 184;

(ii) A sum of HK$1.32 million consisting of the principal loan of HK$1.1 million and interest; and

(iii) Further interest on the principal loan of HK$1.1 million at the rate of 24% per annum from 6-9-2012.

HCA 1757/2012 (“1757”)

9.  Fu Tat claims against the Father and Son in 1757 for, inter alia :

(i) Possession of the mortgaged property known as Section A of Lot No 338, Section D of Lot No 257 and Section A of Lot No 262 in DD No 184;

(ii) A sum of HK$7.2 million consisting of  the principal loan of HK$6 million and interest; and

(iii) Further interest on the principal loan of HK$6 million at the rate of 24% per annum from 6-9-2012.

HCA 1759/2012 (“1759”)

10.  Fu Tat claims against the Father and Son in 1759 for, inter alia :

(i) Possession of the mortgaged property known as Lot No 539 and Section A of Lot No 510 in DD No 184;

(ii) A sum of HK$6.84 million consisting of the principal loan of HK$5.7 million and interest; and

(iii) Further interest on the principal loan of HK$5.7 million at the rate of 24% per annum from 6-9-2012.

HCA 1773/2012 (“1773”)

11.  Fu Tat claims against the Son only in 1773 for, inter alia :

(i) Possession of the mortgaged property known as Lot No 252 in DD No 184;

(ii) A sum of HK$9,098,396.20 consisting of  a total principal of HK$7,722,100 for five Building Loans and the respective interest; and

(iii) Further interest on the principal loans of HK$7,722,100 million at the rate of 24% per annum from 6-9-2012.

12.  The case of Fu Tat is on the face of it very simple.  There were loan agreements and legal charges signed between Fu Tat and the Father and Son or the Son alone.  Upon default of payment of installments, Fu Tat took out the actions against them. 

13.  On the other hand, it is the case of the Father and Son that the loans by Fu Tat to them were in fact sham arrangements with a view to covering up the original loans lent by the related companies of Fu Tat to them which were illegal for, inter alia, charging excessive interest.

14.  Besides, it is the Father’s case that he signed the relevant loan agreements and legal charges under the undue influence of the Son and he has no idea of his land being charged.  The Father received limited education and at the time of signing the agreements he was 76 years old.  He can obtain no benefits from the transactions between Fu Tat and the Son.  It is submitted by Mr Shum, counsel for the Father, that a Class 2B[2] undue influence can be easily made out.

15.  It is not in dispute that all or nearly all the amount of the loans from Fu Tat to the Father and Son were in fact paid out to two companies namely, Good Fortune Finance Company (“Good Fortune”) and Diamond Dragon Finance Company (“Diamond Dragon”) instead of the Father and Son. 

16.  A director of Fu Tat, Hui Mei Ching (“Hui”), is also the owner of Diamond Dragon and the sister-in-law of the owner[3] of Good Fortune.  Although Hui said in her affirmation that she has never participated in the daily management of Good Fortune, she was authorized to sign cheques for Good Fortune and some of the cheques for payment from Good Fortune to the Son was actually signed by Hui.

17.  In 1756, among the principal sum of HK$1.1 million, HK$1,067,239 was paid to Good Fortune and only HK$32,761 was paid to the Son.  According to the evidence of Hui, the amount paid to Good Fortune was to pay off the loans owed by the Son to Good Fortune in respect of 7 loan agreements[4] signed during the period between August 2009 and May 2011.

18.  In 1757, among the principal sum of HK$6 million, HK$5,987,000 was paid to Good Fortune.  According to the evidence of Hui, the amount was to pay off the loans owed by the Son to Good Fortune in respect of 10 different loan agreements[5] signed during the period between May 2010 and March 2011. 

19.  The Father was not a party to any of these loan agreements between Good Fortune and the Son.  However, the Father’s land was mortgaged to Good Fortune to secure the Son’s loan.  No Legal Charge or any other document was disclosed to suggest that the Father has charged his land to Good Fortune.

20.  In 1759, among the principal sum of HK$5.7 million, HK$5,679,340 has been paid to Diamond Dragon and only HK$20,660 was paid to the Son. 

21.  According to the evidence of Hui, the amount paid to Diamond Dragon was to pay off the loans owed by the Father and Son together to Diamond Dragon in respect of 6 different loan agreements[6] signed during the period between January and April 2010.  Hui was the person who signed for Diamond Dragon on these loan agreements.

22.  In 1773, the Plaintiff claimed against the Son on two building loan agreements.  Under the first agreement, the Plaintiff lent a total sum of HK$1,472,100 to the Son. Out of this sum the amount of HK$932,100 was paid to Good Fortune to settle a debt owed by the Son to Good Fortune and the remaining HK$540,000 was paid to a construction company[7] in three equal installments on the instructions of the Son.  Under the second agreement, the Plaintiff lent a total sum of HK$6,250,000 to the Son.  Out of this sum the amount of HK$6,243,000 was paid to Good Fortune to settle a debt owed by the Son to Good Fortune and the remaining HK$7,000 was paid to the Son.

23.  According to the evidence of Hui, the amount of HK$932,100 paid to Good Fortune was to pay off the loans owed by the Son to Good Fortune in respect of four loan agreements[8].  However, contrary to what has been stated by Hui in her affirmation[9], no copies of the relevant loan agreements had been exhibited.

24.  The amount of HK$6,243,000 paid to Good Fortune was to pay off the loans owed by the Son to Good Fortune in respect of another four loan agreements[10] signed during the period between April 2010 and March 2011. 

THE DEFENCE

25.  As submitted by Mr Shum, the following irregularities can be found on the loan agreements in 1759 between Diamond Dragon and the Father and Son:

(i) here was nothing mentioned in the documents about Diamond Dragon being a licensed money lender;

(ii) Under two of the loan agreements[11], there are provisions charging 1% per day for default interest leading to an effective interest rate of 280% per annum;

(iii) A sum[12] was deducted from the principal loan amount in an agreement[13] to meet the charge of legal fee contrary to s 27 of MLO; and

(iv) The Father’s signature was not found on many[14] of the loan agreements.

26.  The Father also complained that no copy of the loan agreements had ever been provided to him by Diamond Dragon.

27.  In some of the loan agreements between Good Fortune and the Son in 1756[15] and 1773[16], similar provisions charging excessive default interest of 1% per day can also be found.

28.  The Son alleged that the Plaintiff, Good Fortune and Diamond Dragon perpetrated duress and misrepresentation to cause him to sign on the loan agreements and legal charges.  However, not many particulars of the alleged duress or misrepresentation have been given by the Son.

29.  The Son also said that his loan agreements with Good Fortune and Diamond Dragon were illegal and it would be unfair to enforce the loans from the Plaintiff to pay off the previous illegal loans.

UNDUE INFLUENCE

30.  The Father and Son shared the same address and the Son was a policeman.  As mentioned above the Father is an elderly man who received limited education.  It would not be surprising that trust and confidence would be placed on the Son when the Father was involved in these loan transactions.

31.  As stated by the learned Recorder Ma SC (now Ma CJ ) in Bank of China (Hong Kong) v Wong King Sing[17], for the presumption of undue influence to arise under Class 2B, apart from showing trust and confidence placed with the influencer, the complainant has to satisfy that the transaction cannot be readily explicable by the relationship of the parties.

32.  As submitted by Mr Shum, the HK$6 million loan in 1757 was to repay the loans to the Son by Good Fortune which the Father himself was not a borrower.  As for the underlying loans in 1759, none of the documents disclosed shows that any money has been paid to the Father.  In fact, most of the money was to settle the Son’s debts owed to other parties including Good Fortune. 

33.  Besides, the risk of the Father losing the charged properties, which includes his ancestral home, was high.  The Son was earning around HK$21,000 per month as a policeman and there is nothing to indicate that he has got other incomes.  The total amount of the two loans exceeded HK$11 million and it would be very difficult, if not impossible, for the Son to be able to pay for the installments, not to say to discharge the debts.

34.  As submitted by Mr Shum, which I agree, the Father was indeed risking his arms and legs for nothing in return.

35.  Given the long history of dealings between the Son and Good Fortune and Diamond Dragon, it would be difficult for the Plaintiff or Hui to say that she was unaware of the relationship between the Father and Son and the vulnerable situation the Father was in.

36.  Whether a case of undue influence can be made out are facts sensitive.  At this stage, I am unable to say that the case of the Father is not arguable.  On the contrary, on the evidence before me at this stage, I incline to view that the Father has a reasonable chance of success in his defence of undue influence.

TAINTED BY THE ILLEGALITY OF PREVIOUS LOANS

37.  In Wa Lee Finance Co Ltd v Staryork Investment Ltd & others[18], in deciding whether a loan agreement is valid in a similar situation as the present case, Deputy High Court Judge To (now To J) had this to say:

“By itself, there was nothing illegal about the Wa Lee Loan Agreement. It is not a loan agreement at an excessive rate of interest. However, quite apart from the issue of duress, the Wa Lee Loan Agreement was entered into for the purpose of repaying the illegal Snyder Loan and illegal interest. In my view, the Snyder Agreement, the Snyder Action and the Cancellation Agreement were all part of a sham, a charade to give effect to the earlier illegal Snyder Loan agreement so that the illegal loan and illegal interest would become secured under the Wa Lee Loan Agreement which is clothed with legality. The Money Lenders Ordinance protects borrowers from unscrupulous money lenders. Section 24 protects borrowers against loan sharks charging an unconscionable rate of interest. If the purpose of an agreement is to give effect to such unscrupulous and unconscionable agreement prevented by law, it must be illegal as being contrary to public policy. The Wa Lee Loan Agreement must be tainted with illegality. The agreement was illegal at its inception. If the Court were to turn a blind eye to the true nature of the Wa Lee Loan Agreement, it is allowing it to be used as the teeth of the loan shark, injuring the public instead of protecting it. It would be singular if the law were otherwise.”

38.  In her evidence, Hui tried to portray a picture to this court that the Plaintiff, Good Fortune and Diamond Dragon are in fact distinct companies having no substantial link of business among them.  However, having considered Hui’s roles in each of the companies and the history of dealings of the three companies with the Son, in particular the repeated arrangements of new loans from one company to pay off the loans owed by the Son to another, it is in my view unrealistic to suggest that the three companies do not have a close link in conducting their business in money lending.

39.  The Plaintiff has not been forthcoming in disclosing the documents relating to the Father and Son’s loans with Good Fortune and Diamond Dragon which is not a difficult job to do given the relationship between the three companies.  Some irregularities[19] which might render the loan agreements unenforceable were spotted upon the disclosure of the relevant documents. 

40.  The Son has been borrowing money from Good Fortune and Diamond Dragon at least as early as 2008.  In the vast number of loan agreements signed by the Son, and some also by the Father, the mode of repayment was always that only a disproportionately small sum of money needed to be paid in the first few installments whereas a very substantial part of the loan was to be repaid in the last installment. And inevitably, the last installment was repaid by another loan from either of the two companies.

41.  Under all the four actions herein, monies were lent by the Plaintiff to the Father and Son in November 2011, on terms substantially different from the usual terms for the loans by Good Fortune and Diamond Dragon.  In 1756, 1757 and 1759, the subject loan agreements were coincidentally all signed on 5 November 2011.  Legal proceedings were later on instituted against the Father and Son upon their failure to repay any installment.

42.  In my view, at the time when the Father and Son signed the loan agreements with the Plaintiff, it would be too obvious to the Plaintiff or Hui that the Father and Son would be unable to repay the loans.  It is highly suspicious that the arrangement for the Plaintiff to take over the debts from Good Fortune and Diamond Dragon was a move in preparation for instituting legal proceedings against the Father and Son.

43.  The next question would be: why would the arrangement be necessary?  Was there anything the companies wanted to hide? 

44.  Mr Koo, counsel for the Plaintiff, submitted that the Father and Son had put forward different defences at different stages and ought not to be believed.  Some of the allegations they made were even self-contradictory. 

45.  Mr Koo submitted that although the Plaintiff produced no evidence to prove that Diamond Dragon was a licensed money lender, there is also no evidence to prove that it was unlicensed.  Mr Koo admitted that the charging of default interest of 1% per day has exceeded the legal limit under the MLO but submitted that this provision should be severed from the other provisions of the relevant loan agreements.  He also submitted that the absence of the Father’s signature on the loan agreements does not affect the total sums the companies had actually lent to the Father and Son.

46.  In his submission, Mr Koo asked this court to find that even if illegalities were found from the previous loan agreements, it is not proved that the Plaintiff had knowledge of the illegality and therefore, the Plaintiff should not be held responsible for it[20]. 

47.  To a certain extent, I share Mr Koo’s sentiment regarding the Son’s swaying stance as to his defence. However, the Father and Son were initially unrepresented and the present case is not as simple as what has been pleaded by the Plaintiff.  At this stage, I do not have to be satisfied that the Father and Son have a very strong case but merely that they have put forward an arguable defence.

48.  As to whether Diamond Dragon and Good Fortune were licensed money lenders, my view is that the burden is on the Plaintiff to prove in view of the close relationship between the Plaintiff and the two companies.  By the same token, it would also be incumbent upon the Plaintiff to show that the previous loan agreements were not unenforceable due to illegalities.

49.  As I have mentioned above, the motive behind the arrangement for the Plaintiff to takeover all the debts from Good Fortune and Diamond Dragon is suspicious.  In the circumstances, it would be unrealistic to suggest that the Plaintiff, or Hui, would have no knowledge of the illegalities existed in the previous loan agreements if they are to be proved to have existed.

50.  The previous transactions between Good Fortune and Diamond Dragon and the Father and Son are complicated and covered a long period of time.  It requires a forensic exercise to trace after each available document to ascertain the actual amounts lent to the Father and Son and the interest charged in respect of each loan.

51.  In my view, it would only be fair to allow the present actions to go for trial, where further discoveries will have to be made by the parties and witnesses are to be tested in the witness box.

52.  For the above reasons, I am satisfied that leave should be given to the Father and Son to defend the Plaintiff’s claims.  The Father and Son’s appeals are allowed and the respective orders of the learned Master shall be set aside.

53.  I direct that the Father and Son are to file and serve their Defences to the actions within 28 days.

54.  I make costs order nisi as follows: (1) costs of the appeals be to the Father and Son to be taxed if not agreed.  (2) costs of the Plaintiff’s summonses be in the cause.  The order nisi will become absolute upon the expiry of 14 days from the date of this decision.