Ascari Equity Partners Limited v Berryman
[2015] NZHC 512
•18 March 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2014-404-002129 [2015] NZHC 512
BETWEEN ASCARI EQUITY PARTNERS LIMITED
Plaintiff/Respondent
AND
CHRIS BERRYMAN and YANYAN ZHANG
Defendants/Applicants
Hearing: 23 February 2015 (Adjourned for consideration of further
submissions)
Appearances:
M L Dillon for the Plaintiff/Respondent
S L Cogan and L C Schroeter for the Defendants/ApplicantsJudgment:
18 March 2015
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
18.03.15 at 4:00pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
ASCARI EQUITY PARTNERS LIMITED v C BERRYMAN and Y ZHANG [2015] NZHC 512 [18 March
2015]
Background
[1] The plaintiff’s claim is to recover the unpaid balance of a loan of US$200,000 advanced on 11 January 2012. The loan is recorded in an agreement made on that date.
[2] The agreement required repayment of that sum together with a finance charge of US$40,000 on 11 July 2012. The agreement also provided for late penalty charges at 5 per cent per month (compounding) if the loan was not repaid on time.
[3] It is recorded that the agreement “shall be governed by the laws of Hong Kong SAR and any disputes shall [be] resolved through mediation in Hong Kong SAR courts”.
[4] The loan agreement was written in English. At the time defendants resided near Hong Kong. The defendant Mr Berryman and the plaintiff’s Mr Fordyce are distant cousins. Mr Fordyce says Mr Berryman approached him for advice regarding the borrowing of money in circumstances where it was wanted for a specific purpose.
The plaintiff ’s claim
[5] The plaintiff’s claim for recovery has been filed in the Auckland High Court. It records that in or about July 2012 the defendants paid the majority of the US$40,000 finance charge, a sum of US$39,949 paid between 11 and 19 July 2012.
[6] The claim states:
(a) That the defendants have failed to pay the US$200,000 principal and that demand has been made for payment but no payment has been received.
(b)That the plaintiff attempted to realise assets pledged as securities “but found that neither of the assets pledged in fact to secure the loan”.
(c) That on or about 2 April 2014 the defendants paid a further
US$50,000 in partial reduction of their indebtedness.
[7] The claim pleads that as at 11 July 2014 the total amounts owing by the defendants were:
US$
(a) Principal advance 200,000.00 (b) Accrued interest (compounding) 387,138.74
Total $587,138.74
[8] The claim requests an order for interest to be paid until the full debt has been repaid.
The defendant’s protest to jurisdiction
[9] In response the defendants filed an appearance under protest to jurisdiction. Their objection to the proceeding being heard in New Zealand notes:
(a) New Zealand is not the appropriate forum to hear and determine the proceeding.
(b) Hong Kong is the appropriate forum because, inter alia;
(i)By their loan agreement the parties agreed it was governed by Hong Kong law and that any issues would be resolved through mediation in the Hong Kong courts.
(ii)That there are serious questions to be tried under Hong Kong law including whether:
(aa) The loan agreement was enforceable under s 18 of the
Hong Kong Money Lenders Ordinance (Ordinance);
(bb)The loan agreement is an illegal agreement under s 22 of the Ordinance;
(cc) The plaintiff is prohibited from collecting any amount owing under the agreement by s 23 of the Ordinance;
(dd) The loan agreement is unenforceable under s 24 of the
Ordinance;
(ee) Whether the 5 per cent per month compounding penalty charge is enforceable.
(iii) The plaintiff has no connection with New Zealand.
(iv) At the time of the loan the defendants resided in Macau.
The plaintiff ’s opposition to protest
[10] In opposition to the defendants’ application the plaintiff pleads New Zealand is an appropriate forum because the defendants reside in New Zealand, the proceeding was served in New Zealand, the defendants held New Zealand passports at all material times, that the funds advanced were deposited into New Zealand bank accounts and that New Zealand property was offered as security.
[11] The plaintiff pleads that the New Zealand High Court can apply Hong Kong laws.
[12] The plaintiff pleads that the parties did not agree to submit to the exclusive jurisdiction of the Hong Kong courts, but only that the loan agreement is governed by Hong Kong laws. Further, that there is no genuine dispute over liability as none had been offered before demand for repayment was made. Nor, have the defendants invited the plaintiff to mediate any dispute in Hong Kong.
[13] The plaintiff says it is not a ‘money lender’ as defined by the Ordinance and
therefore no claims in that connection can be proved.
Submissions supporting the protest
[14] When this matter was scheduled for a hearing directions were made requiring the filing of counsels’ submissions. Those on behalf of the defendants were filed on
10 February 2015. In those, Mr Cogan counsel for the defendants reviews the ability to challenge the jurisdiction of the Court on the grounds of forum non conveniens under r 15.1 of the High Court Rules.
[15] Mr Cogan also discusses the availability of an inherent jurisdiction to decline jurisdiction.
[16] In brief it is his submission that the Court will exercise its discretion to decline jurisdiction if there is another and more appropriate forum. Of course each case shall depend on its particular facts but the Court will not require a trial to determine those – rather any assessment should be made by reference to the affidavit evidence.
[17] Mr Cogan submitted that the threshold issue at a trial will be whether and to what extent the loan agreement is enforceable. In that regard he noted there are a number of serious questions in this case that would require a trial under Hong Kong law in particular with reference to the operation of the Money Lenders Ordinance concerning whether or not the plaintiff was a “money lender” and if it was whether there was compliance with the Ordinance, and if it was not a money lender whether the interest charged was excessive.
[18] A significant part of the balance of Mr Cogan’s submissions reviewed the
Ordinance provisions.
[19] Counsel submits that:
(a) At a trial evidence of the operation of Hong Kong law would be a matter for expert evidence from, in all likelihood, Hong Kong based experts. Significant costs considerations would apply if the case was to be heard in New Zealand.
(b)There are no special circumstances requiring a trial in New Zealand and the issue is not about whether New Zealand is an appropriate forum but whether it is the more appropriate forum.
(c) Factors including that the defendants reside in New Zealand, that they hold New Zealand passports, that the loan was paid into a New Zealand bank account, and that any judgment obtained would be enforced in New Zealand, are neutral factors and not persuasive.
[20] Mr Cogan submits that there is no material “Cambridgeshire factor” in this case. As he notes the “Cambridgeshire factor” was the umbrella term used in Spiliada1 to refer to considerations of efficiency, expediency and economy, as well as assistance provided to the Court to reach a just solution (and, in the particular circumstances of that case, to promote the possibility of settlement) arising from a claim in question remaining in the jurisdiction in which it was commenced.
[21] Mr Cogan submits that the proceeding is at an early stage and that there is unlikely to be any material delay or loss of efficiency or expedition from a proceeding being commenced in Hong Kong.
[22] In the alternative to their dismissal application the defendants seek a stay of the proceedings on the grounds that the parties agreed in the loan agreement that:
This agreement shall be governed by the laws of Hong Kong SAR and any dispute shall be resolved through mediation in Hong Kong SAR courts.
[23] Mr Cogan submits there is no credible suggestion that the agreement to mediate is inappropriate; that the agreement is sufficiently certain.
[24] Mr Cogan reiterates that the Ordinance is central to the legal issues between the parties and therefore to their best and worst alternatives to a negotiated outcome, a Hong Kong mediator would be appropriate.
1 Spiliada Maritime Corp v Cansulex Limited [1987] AC 460 (HL).
Submissions opposing the protest
[25] The submissions of Mr Dillon, counsel for the plaintiff were filed on 17
February 2015. At that time there was also filed on behalf of the plaintiff a notice of partial discontinuance as to costs and interest claimed in the statement of claim.
[26] It is Mr Dillon’s submission that notwithstanding the plaintiff originally pleaded that no law of Hong Kong shall remove or supersede any right of obligation described in the loan agreement, that that pleading cannot now sensibly be maintained given the penalty interest provision of the loan agreement and the application of s 25 of the Ordinance.
[27] Mr Dillon submits that that penalty interest provision concession removes any credible dispute and it follows therefore that judgment in this proceeding, albeit amended, remains a reasonable apprehension.
[28] He submits there are no longer serious questions to be tried under Hong Kong law and any suggestion the defendants might possibly raise a dispute in the future ought not to be given weight.
[29] Mr Dillon submits the plaintiff denies it is a money lender and any evidence from the defendants suggesting otherwise is merely supposition, because suggestions to the contrary have not been properly particularised and are not supported by any evidence.
[30] Mr Dillon concedes that it is quite plain that the default interest provision breaches s 24 of the Ordinance. It is, as he says, quite clear that had the defendants repaid the loan as they promised then this proceeding would have been avoided; there would have been no costs nor any penalty interest payable.
[31] As Mr Dillon notes the plaintiff has now discontinued any claim to interest and costs in order to continue this proceeding in New Zealand. It follows he says that the proceeding in New Zealand would continue on a fairly narrow point and that is whether the Court should reopen the loan transaction in accordance with s 25 of
the Ordinance and, if so, what it should order. Mr Dillon says the Hong Kong case authority suggests the transaction should be reopened and that the plaintiff would be awarded at least the principal advanced less payments made. Therefore the question before the Court becomes whether the plaintiff should receive the balance of the principal advanced. Mr Dillon submits the answer does seem rather obvious. He said the plaintiff intends to apply for leave to file a summary judgment application for the balance of the principal if the proceeding continues in New Zealand.
[32] Regarding the forum conveniens arguments, Mr Dillon submits the overall objective now is to determine whether there is another forum that is more appropriate than New Zealand. He submits that a comparison is required and one could not make a comparison if one did not know what is being compared. Mr Dillon refers to those factors mentioned in paragraph 10 of this judgment. Also it is submitted there is a reasonable expectation that any determination against the defendants would be enforced in New Zealand.
[33] Regarding the defendants claim for the dispute to be resolved through mediation in Hong Kong Mr Dillon submits there may be issues in requiring the parties to resolve their disputes by agreeing to resolve their disputes. Also it may enable the defendants to avoid having to repay the loan as long as they raise a dispute and refuse to settle it.
[34] Mr Dillon submits the only avenue available to the defendants concerns the fact that the loan agreement was subject to the penalty interest terms recorded by it and whether or not that provision was extortionate. Noting that, Mr Dillon submits that the matter would likely be dealt with summarily in line with a similar Hong
Kong case2 on the point i.e. that the principal debt would remain to be paid and no
payment of penalty would be imposed.
[35] Mr Dillon submits it is unlikely the costs of continuing in New Zealand would exceed the costs of beginning afresh in Hong Kong.
2 Wong Kwai Fun v Li Fung [1994] HKCF1 363.
Hearing adjournment
[36] As noted by this Court’s minute of 23 February 2015, during the course of the hearing before me Mr Dillon requested time to present further written submissions in particular with reference to Hong Kong case authority addressing ss 24 and 25 of the Ordinance.
[37] It was clear from Mr Cogan’s submissions that he had sourced a number of higher court authorities appearing to indicate that according to Hong Kong law the loan agreement is unenforceable.
[38] In the circumstances the Court agreed with Mr Dillon’s request because it seemed that a better understanding of the Hong Kong Court of Appeal decisions might influence this Court’s consideration about where it was more appropriate that this proceeding should be heard.
[39] Those further submissions, on behalf of the plaintiff, and for the defendant in response have now been received.
The ordinance provisions
[40] The relevant sections are set out below:
Money Lenders Ordinance Hong Kong
Part: I PRELIMINARY Section: 2 Interpretation
“Loan” includes advance, discount, money paid for on account of or on behalf of or at the request of any person, or the forbearance to require payment of money owing on any account whatsoever, and every agreement (whatever its terms or form may be) which is in substance or effect a loan of money, and also an agreement to secure the repayment of any such loan, and “lend” and “lender” shall be construed accordingly.
“Money Lender” means every person whose business (whether or not he carried on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business…
Part: III MONEY LENDERS’ TRANSACTIONS
Section: 22 Illegal agreements
(1) Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for –
(a) the payment of compound interest;
(b) prohibiting the repayment of the loan by instalments; or
(c) the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement:
Provided that provision may be made by any such agreement that if default is made in the payment upon the due date of any sum payable to the money lender under the agreement, whether in respect of principal or interest, the money lender shall be entitled, subject to Part IV, to charge simple interest on that sum from the date of the default until the sum is paid at an effective rate not exceeding the effective rate payable in respect of the principal apart from any default, and any interest so charged shall not be reckoned for the purposes of this Ordinance as part of the interest charged in respect of the loan.
(2) Notwithstanding subsection (1), if the court before which the legality of any agreement comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement which does not comply with this section should be held to be unenforceable, the court may order that such agreement is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.
Section: 23 Loan etc. not recoverable unless money lender licensed
No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed:
…
Part: IV EXCESSIVE INTEREST RATES
Section: 24 Prohibition of excessive interest rates
(1) Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.
(2) No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).
(3) The Legislative Council may by resolution alter the rate specified in subsection (1):
Provided that in relation to any agreement for the repayment of any loan or for the payment of interest on any loan which is in force at the date when such rate is so altered, the rate is specified as at the coming into force of such agreement shall continue to apply.
(4) Any person who commits an offence under this section shall be liable –
(a) on summary conviction to a fine of $500000 and to imprisonment for 2 years;
(b) on conviction on indictment to a fine of $5000000 and to imprisonment for 10 years.
…
Section: 25 Reopening of certain transactions
(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.
(2) For the purposes of this section, a transaction is extortionate if–
(a) it requires the debtor or a relative of his to make payments (whether unconditionally or on certain contingencies) which are grossly exorbitant; or
(b) it otherwise grossly contravenes ordinary principles of fair- dealing.
(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 rates 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.
…
Considerations
[41] In his original submissions on behalf of the plaintiff Mr Dillon conceded that the default interest provision in the loan agreement breached s 24 of the Ordinance referring to the decision of Wong Kai Fun v Li Fung.3 Mr Dillon notes the Court (a Court of First Instance, being a superior court of Hong Kong with unlimited jurisdiction) held that the loan breached s 24 by providing for interest exceeding 60 per cent per year; that the debtor failed to pay in accordance with the loan terms; that
notwithstanding claims of threats by the creditor of assault, rape and death the Court reopened the loan transaction under s 25 and directed that the principal advance was to be repaid. The Court declined to award any interest.
[42] In his initial submissions on behalf of the applicants Mr Cogan focussed on the decision of the Hong Kong Court of Appeal in Wong Ming Wai v Tsui Kam Ming4 (Wong Ming).
[43] Mr Cogan submits it is clear from the Wong Ming decision that s 24 of the Ordinance applies regardless of whether or not the lender is a “money lender” as defined under the Ordinance. Also (and unlike provisions elsewhere) s 24 does not confer a discretion on the Court to reopen a loan agreement or enforce a loan agreement to the extent it considers equitable. Rather, if the threshold effective interest rate is exceeded the loan is simply unenforceable5.
[44] Mr Cogan calculates that the 5 per cent per month compounding interest rate is equivalent to 79.59 per cent per annum.
[45] In his supplementary submissions Mr Dillon refers to s 24 relating to the enforceability of loan “agreements” whilst s 25 relates to the reopening of “transactions”. He submits that on a plain reading of s 25 the Courts are afforded jurisdiction to reopen transactions (the giving and receiving of advances) even though the contractual terms of those advances (the agreements) are unenforceable.
That is why he says s 25 is made subject to s 24 – that the Courts can do justice
3 Supra at 2.
4 CACV 179/99 (HK CA).
5 Wong Ming at para 14.
between the parties where agreements fail for breaching the 60 per cent interest rule provided at s 24. Mr Dillon comments that the Courts can also do justice between the parties where the agreements are unenforceable, but where the interest charged is “exorbitant” (more than 48 per cent per annum).
[46] Mr Dillon submits that in some common law jurisdictions, and in the absence of terms governing an advance, parties could reasonably expect to be returned to the positions they were in before the advance was made. He submits that that means a creditor could reasonably expect an order for principal advanced in the absence of terms.
[47] Referring to the Court of Appeal’s decision in Wong Ming Mr Dillon comments that it should be noted that nowhere in sections 24 and 25 is there any mention of loans being “irrecoverable”. Mr Dillon submits therefore that Wong Ming is open to challenge restriction or avoidance because the decision runs contrary to a plain reading of the Ordinance. He submits it is also open to challenge, restriction or avoidance because:
(a) It would operate to impose a second and arbitrary penalty on creditors.
(b)It does, perhaps unknowingly, create inconsistency with previous decisions (albeit decisions of lower courts).
(c) A subsequent decision Pearldelta Group Limited v Huge Winners International Limited6 appears to have found a distinction in order to avoid being caught by the Wong Ming precedent.
[48] Mr Dillon submits a plain reading of the Ordinance would be consistent with authorities prior to Wong Ming.
[49] Regarding the three authorities provided to this Court at the hearing by Mr
Cogan, Mr Dillon notes it would appear Wong Ming has gained some traction. Of
6 HCA 595/2008.
those Mr Dillon comments that the Pearldelta decision appeared to distinguish loan sharking from genuine commercial transactions and that that distinction was upheld on appeal.
[50] It follows submits Mr Dillon that Hong Kong authority on the narrow point at issue in this proceeding cannot be regarded as settled and that the Pearl Delta decision may afford another angle for the plaintiff to progress this proceeding because there was no suggestion that the plaintiff is a loan shark.
[51] Mr Dillon submits that the matter in issue is a matter of law so that the same submissions and authorities on that matter of law would be made wherever the jurisdiction and the only difference with the Hong Kong forum is that in New Zealand the submissions and authorities would need to be produced as evidence in accordance with s 144 of the Evidence Act 2006, that is by an expert.
Conclusions
[52] The plaintiff contends that Wong Ming was wrongly decided. It submits s 25 allows the Court to reopen a transaction notwithstanding that the transaction is part of an agreement that is unenforceable because of s 24; and notwithstanding the Hong Kong Court of Appeal has determined what the correct interpretation and interrelation of ss 24 and 25 is.
[53] That view of matters appears inconsistent in other case authority from the Hong Kong Court of Appeal. Counsel cannot agree upon what is the ‘plain’ meaning of s 25 of the Ordinance. Counsel even disagree regarding whether the Pearldelta decision assists with an interpretation of s 25. In that case the Court considered the transaction was not “in the nature of loan sharking”.7 Then the Court considered whether the parties’ agreement was caught by the provisions of the Ordinance. The Court concluded the transaction was a “plainly genuine commercial transaction
made between substantial commercial concerns” each of which was independently
7 Supra para 213.
advised. The Court held that the relevant aspects of the agreement did not constitute a loan.8
[54] It is not necessary for this Court at this time to analyse the respective views of the parties or to offer a view upon who may be right and who may not be. The Court does not accept that the only matter of difference between having the matter heard in Hong Kong and in New Zealand is that in New Zealand the appropriate evidence would have to be provided by expert witnesses.
[55] In this Court’s view there is an element perhaps even a strong element that the Hong Kong law on the point can be regarded as settled and that the availability of a transaction reopening pursuant to s 25 is far from clear.
[56] Against that background it seems inappropriate to expect that the High Court in New Zealand may overturn multiple decisions of the Court of Appeal in Hong Kong on a matter of Hong Kong law.
[57] In the balance of matters it is clearly relevant that the parties agreement was signed in Hong Kong and that they chose the law of Hong Kong to reply. Although there are issues regarding delays that would occur if the proceeding now had to be brought in Hong Kong that seems a relatively minor consideration in the balance. The prospect of inviting the New Zealand High Court to overrule the Hong Kong Court of Appeal is an outcome which ought to be avoided.
[58] The plaintiff claims for the various reasons earlier noted that both sides would better be served if the proceeding was held in New Zealand. Since then this Court has learned a lot more about the apparent position of the Hong Kong Courts and the robust nature of the Hong Kong legislation in its treatment of loans considered extortionate and the legislations treatment of unenforceable loans.
[59] Other considerations aside there appears nothing compelling this Court to conclude that the New Zealand High Court is the more appropriate forum.
8 Supra paras 214 – 242.
[60] It is a matter this Court thinks ought to best be left to Hong Kong.
Judgment
[61] The defendants protest to jurisdiction is upheld. The proceedings shall be stayed pending determination by the Hong Kong Courts.
Associate Judge Christiansen
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