FLEXI CREDITS LTD v. WONG CHI KIT CLEMENT

HCA 738/2022

[2022] HKCFI 2228

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 738 OF 2022

________________________

BETWEEN

________________________

________________________

D E C I S I O N

________________________

Introduction

1.  This is the plaintiff’s application to restore its summons filed on 23 June 2022 for mareva injunction and ancillary disclosure order.

2.  The summons first came before Deputy High Court Judge Douglas Lam, SC on 30 June 2022. Because of inadequate notice, the judge dealt with the application on an ex parte basis. At the end of the hearing, he refused to grant the injunction. However, at the plaintiff’s request, he adjourned the summons to give it an opportunity to remedy the problems which the judge had identified and restore the application if deemed fit: [2022] HKCFI 2052 at para 21. I shall adopt the terms used in that decision below.

3.  The restored summons came before me on the summons day last Friday. I adjourned it to today for the plaintiff to file further affidavit evidence. The defendant was absent last Friday and is also absent today.

4.  Having reviewed the latest evidence, I am satisfied that the threshold for mareva injunction is met.

Basis of the restored hearing

5.  I am satisfied the restored hearing can properly proceed on an inter partes basis.

6.  The summons was served on the defendant on 28 June 2022 by leaving at his three last known addresses, including the residential addresses stated in the Loan Agreements, his bank statements and his employer’s return, and his school address. The summons has not been returned to date. Further, on 12 July 2022, which was two clear days before the hearing last Friday, the 2^nd affirmation of Mr Ka and notice of that hearing was served on those three addresses.

7.  Having reviewed the latest affidavits of service, I am satisfied that notice of last Friday’s hearing was properly brought to the attention of the defendant. Today’s hearing is a continuation of last Friday’s hearing.

Good arguable case

8.  I have before me, first, the 2^nd affirmation made by Mr Ka, in which he tried to explain how the interest rate of 48.00006% had come about for the 1^st Loan Agreement and why the loan should not be regarded as extortionate. He also confirmed that the plaintiff has now abandoned the claim based on the contractual rates stipulated in the 1^st to 5^th Loan Agreements, ie 48.00006% (under the 1^st Loan Agreement) and 48% (under the 2^nd to 5^th Loan Agreements). Instead it now only claims interest on the outstanding loans at the judgment rate of 8%.

9.  The plaintiff’s evidence is unopposed. Mr Ka’s explanation is in any event plausible.

10.  I therefore accept the plaintiff’s explanation that the rate of 48.00006% came about from the arithmetic calculations in the Excel spreadsheet used by the plaintiff when it consolidated all of the outstanding sums under various previous loans advanced to the defendant. The plaintiff had all along had no intention to charge anything over 48%. In any event, the additional 0.00006% over the statutory threshold imposed a small additional amount of interest of only $0.24 per month.

11.  In the circumstances, I consider that the plaintiff has a good arguable case that the 1^st Loan Agreement was not extortionate. Furthermore, on the premise that its claim is now based on an interest rate of 8%, it has a good arguable case that the court may reopen the transaction to allow the plaintiff to seek repayment on that basis. On the whole, I am satisfied that it has demonstrated a good arguable case on its claim under the Loan Agreements.

Assets within Hong Kong

12.  I have also before me the 3^rd affirmation of Mr Ka, which was filed with the court just this morning. Copies of three documents are exhibited. First, a copy of the defendant’s letter to the school dated 18 February 2022 tendering his resignation effective on 1 June 2022. The copy was given by the defendant to the plaintiff’s staff on 31 May 2022 when the 5^th Loan Agreement was entered into. Second, a copy of a letter from the plaintiff’s solicitors to the Education Bureau dated 5 July 2022. Third, a reply letter from the Education Bureau dated 8 July 2022 stating the following:

“Please be informed that Mr. WONG had submitted the withdrawal application for his provident fund benefits in mid-June 2022 and the payment has been made to him.”

13.  On the basis of the contemporaneous documents, which are unchallenged, I am satisfied that the defendant has assets within Hong Kong.

Real risk of dissipation

14.  Lastly, I come to the requirement of real risk of dissipation.

15.  Previously and up to 31 May 2022, the plaintiff had been in regular contact with the defendant via telephone and Zoom meetings to discuss his debt situation and settlement plan. The last contact was on 31 May 2022 when the 5^th Loan Agreement was entered into. On that occasion, the defendant said that he had already had his last official day with the school and was awaiting the release of his pension.

16.  However, after that date, the plaintiff has been unable to get in touch with the defendant despite repeated attempts, including text messages, telephone calls and sending of couriers to his last known addresses.

17.  Furthermore, in June 2022, the plaintiff presented a cheque for payment, which had been drawn by the defendant and previously given to the plaintiff as security for the loan. The cheque was dishonoured.

18.  The plaintiff submits that on the totality of the evidence, the defendant has gone into hiding with a view to avoiding his indebtedness owed to the plaintiff. His sudden disappearance coincided with his receipt of the pension. This shows, the plaintiff submits, dishonesty on the defendant’s part. In the circumstances, the plaintiff contends that the court can draw the inference that the defendant intends to retain and/or dissipate the pension sum to avoid repaying his debt.

19.  It must be borne in mind that a mareva injunction is a draconian relief. It is not to be granted lightly. When granted, it interferes with a defendant’s ability to deal with his own assets as he wishes. The purpose of the mareva jurisdiction is not to provide a plaintiff with security for his claim, even when it appears likely to succeed. It is to restrain a defendant from evading justice by disposing of or concealing asset otherwise than in the normal course of business in a way which will have the effect of making it judgment proof.

20.  It is not intended to restrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling his assets, it will not be sufficient to show that such continued conduct would prejudice the plaintiff’s ability to enforce a judgment. Otherwise, it would require the defendant to change his legitimate behaviour in order to provide preferential security for the claim which the plaintiff would not otherwise enjoy. What must be threatened is unjustified dissipation.

21.  The burden is on the plaintiff to make out a solid basis for concluding that there is such a risk.

22.  The above principles are quoted from the judgment of Haddon-Cave LJ in Lakatamia Shipping Company Ltd v Toshiko Morimoto [2019] EWCA Civ 2203 at para 34, which was cited and generally confirmed by the Court of Appeal as applicable in Hong Kong in Convoy Collateral Ltd v Cho Kwai Chee[2020] HKCA 537 at paras 35 to 39.

23.  The Court of Appeal added that the evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk. A solid basis to support an inference of risk of dissipation is to be contrasted with unsupported or bare statements of fear which would carry little weight. The court needs to act on objective facts: see paras 40 and 41.

24.  Generally speaking, the fact that a borrower defaults on a loan and has since become uncontactable would not, without more, justify the grant of a mareva injunction against the borrower in favour of a lender. The purpose of a mareva injunction is not to provide security to the lender to which he is not otherwise entitled, even if it appears to have a good claim.

25.  What stands out in this case is that the evidence (which is unchallenged) shows that the plaintiff, the lender, had been in very frequent contact with the defendant on his loan situation. It appears to be much more regular and frequent than what is usual or typical in a money lender context. And, importantly, all along, the explicit expectation between the parties was that the defendant would very shortly receive a substantial pension sum upon his imminent retirement as a school vice-principal. And the plaintiff was looking to that pension sum as the defendant’s source of repayment. That was the reason why the plaintiff was willing to refinance the indebtedness since the 1^st Loan Agreement was entered into in December 2021. The 2^nd to 5^th Loan Agreements were entered into as a result.

26.  But just after the last loan was extended on 31 May 2022 on which occasion the defendant confirmed that he had in fact retired, he suddenly lost all contact. He failed to attend a pre-scheduled Zoom meeting on 6 June 2022 in which he was expected to give an update of his situation. The objective evidence shows that in the meantime, he had received his pension. Yet, he failed to make any repayment due under the loans.

27.  The undisputed and indisputable evidence is sufficient to point to a conclusion that the defendant is trying to evade repaying the substantial debt owed to the plaintiff when he was apparently in a position to do so. There is a solid basis, in my view, to draw such an inference. If no injunction is granted, there is a real risk that any judgment which the plaintiff may obtain will go unsatisfied.

28.  The present loan is an unsecured one. The plaintiff was fully aware that the defendant’s monthly income was not sufficient to repay the monthly instalments. By agreeing to extend and, subsequently, restructure the loan, the plaintiff was consciously taking on the commercial risk of the defendant defaulting.

29.  I am conscious that the purpose of the mareva injunction is not to improve the position of the plaintiff as an unsecured creditor to one with the security that the defendant’s assets will be frozen pending trial.

30.  However, the evidence before me demonstrates that the defendant is trying to conceal his pension from the plaintiff when this is the very asset from which the loan was anticipated by both parties to be paid off.

31.  My evaluation of the evidence is that there is a real risk that having concealed his asset, the defendant will dissipate it contrary to the parties’ prior common expectation. In my view, these are the special facts which make his likely concealment and dissipation illegitimate and unjustified. The plaintiff should be protected from such risk pending trial.

Balance of convenience

32.  The balance lies in favour of granting the order.

33.  To grant the injunction in the present case is not to put the plaintiff in a preferential position. Rather, it is to prevent the injustice that will follow if the defendant is allowed to conceal or dissipate the pension sum in the special circumstances of this case.

34.  To not grant the injunction, there is a high risk that there is nothing left for the plaintiff to enforce even if it obtains judgment, notwithstanding that the defendant has in fact received the substantial pension sum as anticipated.

Conclusion

35.  I make an order in terms of the draft lodged with the court earlier today with the changes which I have discussed with counsel to be incorporated.

Mr Derek Hu, instructed by KB Chau & Co, for the plaintiff

The defendant was not represented and did not appear

HCA 738/2022

[2022] HKCFI 2052

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 738 OF 2022

________________________

________________________

__________________________________

REASONS FOR DECISION

__________________________________

1.  By a specially indorsed writ dated 20 June 2022, the plaintiff (“Flexi Credits”), a money lender licenced under the Money Lender’s Ordinance (Cap 163) (the “MLO”), claims against the Defendant (“Mr Wong”) for, inter alia:

(1)  The sum of HK$5,309,194, being the sum of a dishonoured cheque;

(2)  Interest on the sum of the dishonoured cheque at the contractual interest rate of 48.00006%, or alternatively, interest pursuant to section 57(a)(ii) of the Bills of Exchange Ordinance (Cap 19) from 10 June 2022 to the date of judgment;  

(3)  Further or alternative to (1) and (2) above, the sum of HK$5,546,310.16 being the total sum of the outstanding principal and interest due and owing by Mr Wong under a loan agreement dated 31 December 2021 between Flexi Credits (as lender) and Mr Wong (as borrower) up to 17 June 2022; and interest at the contractual rate of 48.00006% on the principal sum from 18 June 2022; and

(4)  The sum of HK$547,412.58, being the total sum of the outstanding principal and interest due and owing by Mr Wong under 4 further loan agreements dated 24 February 2022, 31 March 2022, 29 April 2022 and 31 May 2022 respectively between Flexi Credits (as lender) and Mr Wong (as borrower) up to 17 June 2022; and interest at the contractual rate of 48% on the principal amounts from 18 June 2022.

2.  By an inter partes Summons dated 23 June 2022 (the “June 23 Summons”), Flexi Credits applied for orders that, inter alia:

(1)  The Defendant be called upon to furnish security in the total sum of HK$6,093,722.74 and an order for interim attachment against Mr Wong’s bank accounts with HSBC and ICBC and his pension from the Education Bureau, pursuant to RHC Order 44A rules 7 and 8;

(2)  A Mareva injunction up to the sum of HK$6,093,722.74 against Mr Wong’s assets in Hong Kong, together with the usual ancillary disclosure orders.

3.  The June 23 Summons was originally fixed to be heard on 12 July 2022, but at the request of Flexi Credits by letter to the Listing Judge dated 24 June 2022 on the grounds of urgency, the June 23 Summons was re-fixed to be heard before me on 30 June 2022.

4.  Flexi Credits’ solicitors, Messrs K.B. Chau & Co (“KBC”) only served Mr Wong with the June 23 Summons, together with a Summons dated 28 June 2022 for an abridgment of time for service (in the light of the expedited hearing date) (the “Abridgement Summons”) by “leaving them” on 28 June 2022 at Mr Wong’s residential and work address. In the event, Mr Wong was absent at the hearing.

5.  At the outset of the hearing, I raised with Mr Derek Hu, who appeared for Flexi Credits, the utility of pre-judgment attachment orders under RHC Order 44A rules 7 and 8 given that they have largely been superceded by the Court’s jurisdiction to grant Mareva injunctions (see e.g. Hong Kong Civil Procedure 2022 at §44A/12/1). Mr Hu then indicated that he would no longer pursue the application for attachment orders and would rely upon his application for a Mareva injunction.

6.  After hearing the application, I refused to make the orders sought in the June 23 Summons. I gave brief oral reasons at the hearing and indicated that, given the Court’s concerns regarding the application, I would reduce them into writing which I now do.

7.  The background and basis of the application were set out in the Affirmation of Mr Ka Perry, a director of Flexi Credits (“Mr Ka’s Affirmation”) and Mr Hu’s submissions. In short, Flexi Credits contended that:

(1)  Mr Wong is or was until recently the vice-principal at Cheung Sha Wan Catholic Secondary School with a monthly salary of approximately HK$89,000. He was in need of personal loans due to being heavily burdened with outstanding tax liabilities and severe debts owed to other money lenders.

(2)  He was nearing the retirement age of 60 years and upon retirement, he would have access to his pension from the Education Bureau in the sum of approximately HK$4,700,000 (the “Pension”). He told Flexi Credits that he was planning to be employed as a teacher after his retirement with about the same monthly salary of HK$89,000.

(3)  On the above basis, Flexi Credits advanced to Mr Wong a number of loans, which were later refinanced and consolidated into a loan dated 31 December 2021 for the principal sum of HK$5,309,194 at an effective interest rate of 48.00006% per annum (the “1^st Loan Agreement”). On the same date, Mr Wong provided a cheque for the amount of the principal as security for the loan.

(4)  Flexi Credits subsequently made 4 further loans to Mr Wong on various dates between 24 February and 31 May 2022 for principal amounts totalling HK$535,000 at an effective interest rate of 48.00% per annum (the “2^nd to 5^th Loan Agreements”).

(5)  Each of the 1^st Loan Agreement and the 2^nd to 5^th Loan Agreements provided that the principal and interest shall be repayable in monthly instalments on the dates and in the amounts set out in the repayment schedule attached to each agreement.

(6)  On or about 26 May 2022, Mr Wong made the last payment of HK$25,000 in respect of the 1^st Loan Agreement, and thereafter defaulted in paying any further monthly instalments under the loan agreements.

(7)  On 10 June 2022, KBC issued a letter on behalf of Flexi Credits to Mr Wong demanding payment of all outstanding principal amounts together with interest under the agreements within 7 days. Notwithstanding the demand, Mr Wong made no further payments.

(8)  Further, the cheque which Mr Wong had provided to Flexi Credits to secure the principal loan amount of the 1^st Loan Agreement was dishonoured upon presentation on 10 June 2022 (the “Dishonoured Cheque”).

(9)  The necessity and urgency of the present application was due to Flexi Credits’ “…sudden and inexplicable inability to get in contact with [Mr Wong] despite the close contact maintained previously and the dishonour of the cheque.”

(10)  Hence, there was a “genuine concern” that Mr Wong would have received the Pension, which was “capable of being used as repayment” and “at risk of being dissipated”.

8.  The principles for the granting of Mareva injunctions are well established and need not be repeated in detail here. In short, a plaintiff needs to show that (1) it has a good arguable claim on the merits; and (2) there is solid evidence of a risk of dissipation or circumstances upon which such a risk may be inferred (see e.g. Pacific Rainbow International Inc. v Shenzhen Wolverine Tech Ltd. (unreported) HCA 3023/2016, 2 May 2017 at §§38 to 42).

9.  More importantly for present purposes, although the June 23 Summons was issued on an inter partes basis, it was only served on Mr Wong on 28 June 2022, less than two days before the expedited hearing date requested by Flexi Credits. In the circumstances, Mr Wong, even assuming he received actual notice of the June 23 Summons (which was by no means clear on the evidence before the Court), would not have had a proper opportunity to consider and contest the application. It is now well established that applications made in such circumstances are to be treated as ex parte, and the applicant is under the requisite duty of full and frank disclosure (see e.g. Muginoho Co Ltd v Vimiu HK Co Ltd (unreported) (HCMP 107/2012, 24 February 2012), Re Pacific Bulk Shipping Ltd (unreported) (HCMP 1244/2015, 22 May 2015), MBM Metal Works Hong Kong Ltd v Nichols (unreported) [2019] HKCFI 52 and Chen Lingxia v中國金谷國際信託有限責任公司 (unreported) [2019] HKCFI 379).

10.  Indeed, Mr Ka stated in his affirmation that he was aware of his strict duty of full and frank disclosure and that he believed he had complied with the same.

11.  Even if the application had been made on a true inter partes basis, given the fact that Mr Wong was not legally represented (or indeed, present), Flexi Credits’ legal representatives were under at least a heightened duty to assist the Court by presenting a fair and balanced picture of the merits. This is especially so given that the application was for a Mareva injunction, which is a strong order with potentially draconian effects. Moreover, it was clear that Mr Hu sought an immediate or at least an interim order at the hearing rather than merely directions for the filing of evidence.

12.  Regrettably, Flexi Credits and its legal representatives have fallen short on their duties to the Court.

13.  It is plain from the statement of claim indorsed on the writ and Mr Ka’s Affirmation that the effective rate of interest under the 1^st Loan Agreement, being 48.00006% per annum, exceeded the 48% stipulated in section 25(3) of the MLO. Section 25 provides inter alia that:

(1)  Subject to section 24(2), where—

(a)  proceedings are taken in any court by any person (whether a money lender or not) for the recovery of any money lent or the enforcement of any agreement or security in respect of any loan; and

(b)  subject to subsection (3), there is evidence which satisfies the court that the transaction is extortionate,

the court may reopen the transaction so as to do justice between the parties having regard to all the circumstances, and, for that purpose, make such orders and give such directions in respect of the terms of the transaction or the rights of the parties thereunder as the court may think fit.

. . .

(3)  Any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate; but except where such rate exceeds the rate specified in section 24(1), the court may declare that any such agreement is not extortionate for the purposes of this section if, having regard to all the circumstances relating to the agreement, the court is satisfied that such rate is not unreasonable or unfair. (emphasis added)

14.  Surprisingly, no mention at all was made in either Mr Ka’s Affirmation or Mr Hu’s submissions that section 25(3) of the MLO had been engaged, and that the 1^st Loan Agreement (which forms the bulk of Flexi Credits’ claims) was thus presumed to be extortionate. In his Skeleton Argument, Mr Hu boldly asserted that, “[Flexi Credits] is not aware of any facts which [Mr Wong] may raise in defence to [Flexi Credits’] claims”. It was the Court that sighted and first raised the point with Mr Hu at the hearing.

15.  This was in my view extraordinary and wholly unsatisfactory.  As a licenced money lender, Flexi Credits (and its director, Mr Ka) must be familiar with the provisions of the MLO, and it would have been obvious that the 1^st Loan Agreement, being a loan with an interest rate exceeding 48%, triggered the statutory presumption in section 25(3) and was liable to be reopened by the Court. For Mr Ka to have remained silent on this matter in his affirmation could only have been a conscious decision rather than an inadvertent omission.

16.  Although Mr Hu valiantly pointed to several paragraphs in Mr Ka’s Affirmation concerning Mr Wong’s background and the circumstances in which the loan agreements were entered into, those were plainly insufficient to discharge Flexi Credits’ duty to the Court. It was incumbent upon it to address openly and directly the fact that the 1^st Loan Agreement was presumed to be extortionate and to explain to the Court why it nonetheless has a good arguable case on the merits to enforce the loan on its terms.  

17.  In my judgment, such an omission amounted to very serious material non-disclosure. As I have mentioned above, it is difficult to conceive that Flexi Credits (or indeed its legal representatives) would have been unaware of section 25(3) of the MLO. Mr Ka’s statement in his affirmation that that he had complied with his duty of full and frank disclosure was plainly unjustifiable.

18.  Further, in the absence of evidence expressly rebutting the statutory presumption that the loan is extortionate, Flexi Credits has not, in my judgment, presented a good arguable case on the merits for its claim under the 1^st Loan Agreement. The alternative claim under the Dishonoured Cheque does not advance Flexi Credits’ case any further, based as it was upon a presumed extortionate loan.

19.  For either of these reasons, it was inappropriate to grant the relief sought. In the circumstances, it is unnecessary for me to comment upon whether any or any sufficient risk of dissipation has been shown to justify a Mareva injunction against Mr Wong.

20.  As to Flexi Credits’ claims under the 2^nd to 5^th Loan Agreements, while the rate of interest for those loans was “merely” 48% (and thus not exceeding 48%), the amounts owed are relatively modest in comparison and would not by themselves have justified a Mareva injunction against Mr Wong. In any event, it might be argued by Mr Wong (the Court not expressing any view at this stage) that those loans, having regard to all the circumstances, including the 1^st Loan Agreement, should also be regarded as extortionate under section 25.

21.  For the reasons above, I refused to grant the injunction sought. I also made no order on the Abridgement Summons. At Mr Hu’s request, I agreed (albeit with some reluctance) to adjourn the June 23 Summons rather than dismissing the application outright to give Flexi Credits an opportunity to remedy and restore the application if it thought fit to do so. At the very least, the Court would expect a detailed and satisfactory explanation on oath from both Mr Ka and KBC explaining the non-disclosure. I also made it clear to Mr Hu that if the application were to be restored, Flexi Credits was to bring these Reasons for Decision to the attention of the Court hearing the application for its consideration.