EVER LONG FINANCE LTD v. YEUNG WAH LUNG by YEUNG KWAI FA BONNIE his guardian ad litem

bjbj R gP JiBh his guardian ad litem Defendant -------------------------- Before: Deputy District Judge Simon Ho in Chambers (Open to Public) Date of Hearing: 19 August 2016 Date of Decision: 9 December 2016 ---------------------- DECISION ---------------------- BACKGROUND This is the defendant s application taken out through his guardian ad litem for setting aside a judgment entered in default of defence with the Court s leave granted at the hearing before Master on 24 December 2015 ( the default judgment The procedural history of this case can be briefly stated thus. The plaintiff is a money lender and on 13 August 2015 issued a writ to recover unpaid loan of HK$700,000 lent to the defendant together with interest and costs. On 28 August 2015, acknowledgment of service was entered indicating that the defendant contested the present proceedings . However, the defendant did not file or serve any defence subsequently. This triggered the plaintiff to issue a summons on 30 November 2015 for leave to enter judgment against the defendant in default of defence pursuant to Order 83A Rule 4 of the Rules of District Court (Cap 336H, Sub. Leg.) ( ), and the learned Master did grant leave at the aforesaid hearing of 24 December 2015 in the defendant s absence. On 25 April 2016, Miss Yeung Kwai Fa, Bonnie ( Bonnie ), the defendant s elder sister, filed a written consent into the court agreeing to be the defendant s guardian ad litem. The defendant s solicitors also filed a certificate of solicitor pursuant to Order 80 Rule 3(8)(c) of RDC certifying his belief that the defendant is a mentally incapacitated person. On 3 May 2016, the defendant s solicitors as per the guardian ad litem s instruction took out the summons for the present application of setting aside ( the defendant s summons ). THE DEFENDANT S GROUNDS OF SETTING ASIDE At the hearing before me, Mr BK Ho representing the defendant contends that the default judgment, which was entered against a mentally incapacitated person without a guardian ad litem having been first appointed to act for him, is irregular ( the irregular judgment point ). In terms of merits of his client s case, Mr Ho contends that, firstly, the defendant could rescind the subject loan agreement entered into between himself and the plaintiff because the defendant was mentally incapable to understand the nature and effect of the loan agreement (including a charge of his property in favour of the plaintiff) and his relevant mental incapacity was apparent to the plaintiff at the time of signing of the loan agreement ( the mental incapacity point ). Second, a financial intermediary called Hong Kong Construction Enterprises Limited ( Hong Kong Construction ), who introduced the defendant to borrow the subject loan of HK$700,000 from the plaintiff, has colluded with the plaintiff in violation of section 27(3) of the Money Lenders Ordinance (Cap 163) ( ). Under section 27(4) of MLO, the total consultancy fee of HK$318,900 subsequently charged by Hong Kong Construction is therefore recoverable from the plaintiff (as the money lender) or can otherwise be set off against the subject loan ( the 1st MLO point ). Mr Ho further argues that when such consultancy fee (as equivalent to 45.42% of the loan amount) is combined with the interest rate of 24% per annum charged by the plaintiff, it would yield an effective annual interest rate of 69.42% per annum, and this would exceed maximum rate of 60% per annum as specified in section 24(1) of MLO. The subject loan agreement is therefore unenforceable against the defendant as borrower as per section 24(2) of MLO ( the 2nd MLO point ). THE PLAINTIFF S GROUNDS OF OPPOSITION Mr Raymond Lau representing the plaintiff nonetheless argues that the defendant must state his ground of objection in respect of the irregular judgment point in the defendant s summons. But the defendant had failed to do so (which is undisputed), so he is precluded from raising such irregularity for setting aside the judgment ( the procedural point ). Mr Lau also argues that the defendant should not be treated as a mentally incapacitated person under Order 80 of RDC in light of the materials before this court. In case the court finds the default judgment to be an irregular one, Mr Lau said the court still retains a discretion to refuse to set it aside. He resorted to the authority of Ng Hong Ki v Leung Fong Kiu [2012] 1 HKLRD 435 (CA) in support and urged this court to exercise the discretion in his client s favour in that event. On the other hand, Mr Lau contends that if the court found the default judgment to be regular, the defendant failed to demonstrate that he had any real prospect of success in establishing his defence in respect of the mental incapacity point and both MLO points. WHETHER THE DEFAULT JUDGMENT IS IRREGULAR Order 80 of RDC deals with persons under disability which includes both minors and mentally incapacitated persons . Rule 16(1) and (2) thereof provide for the specific regime governing service of court documents on such category of persons. In relation to service of writ upon a mentally incapacitated person, Order 80 rule 16(1) and (2)(b) provide that:- (1) Where in any proceedings a document is required to be served personally or in accordance with Order 10, rule 1(2) on any person and that person is a person under disability this rule shall apply. (2) Subject to the following provisions of this rule and to Order 24, rule 16(3) and Order 26, rule 6(3) the document must be served- (b) in the case of a mentally incapacitated person, on the person (if any) who is authorized under Part II of the Ordinance to conduct legal proceedings in the name of the mentally incapacitated person or on his behalf in connection with which the document is to be served or, if there is no person so authorized, on the person with whom he resides or in whose care he is, and must be served in the manner required by these Rules with respect to the document in question. Pausing here, there is no evidence before this court that the writ in question had been served upon any of the persons as mentioned in Order 80 rule 16(2)(b). Apart from the aforesaid rule, Order 80 rule 2(1) of RDC further provides, among other things, that a person under disability (including a mentally incapacitated person) may not acknowledge service of writ except by his guardian ad litem. According to the aforesaid rules, the acknowledgment of service of writ filed by the defendant personally would then appear to give rise to an irregularity if he was a mentally incapacitated person at the time. And such irregularity may adversely affect the subsequent proceedings. In particular, a default judgment subsequently entered may be liable to be set aside owing to such irregularity. Hong Kong Civil Procedure 2017, v1, para 13/3/9 states that:- (5) Judgment entered against a minor or patient - A judgment in default entered against a defendant without the plaintiff being aware that he is a minor or a patient, and without a guardian ad litem having first been appointed to act for such minor or patient, is irregular and may be set aside under O.2 or such irregularity may be waived In this light, the real controversy here is whether the defendant was indeed a mentally incapacitated person under Order 80 at the material time. To qualify as a mentally incapacitated person, the defendant needs to be either a mentally disordered person or mentally handicapped person within the meaning of Mental Health Ordinance (Cap 136) ( ), and, by reason of his mental incapacity, he is incapable of managing his property and affairs for the purpose of Order 80 of RDC. (Order 80, rule 1 of DRC; Ng Hong Ki (supra), per Kwan JA at para 31). The defendant s solicitors produced two medical reports of 15 September 2015 and 16 February 2016 prepared by Dr Chu Lap Sun and Dr Cheung Ching Ping respectively. Both government doctors certified that the defendant is a mentally disordered person within the meaning of MHO, and he is mentally not fit to give legal instructions. Their diagnosis of the defendant was mild grade mental retardation and psychosis. In addition, the defendant s solicitors also engaged Dr Leung Wai Ching, a specialist in psychiatry , to examine the mental capacity of the defendant for the purpose of this litigation. Dr Leung s relevant expertise and experience are not challenged by the plaintiff. According to his psychiatric report of 8 May 2016, Dr Leung categorically stated that the defendant was mentally unsound and mentally unfit to understand and sign any loan agreements and/or mortgage documents with any money lender in year 2015. The plaintiff could produce no medical evidence of any kind at the hearing to counter the aforesaid medical professionals views. As such, I do not think any meaningful challenge can be made by the plaintiff in saying that the defendant is not a mentally disordered person in light of these medical evidence. The true focus of the plaintiff s attack lies rather in querying the defendant s inability to manage his property and affairs for the purpose of Order 80. Kwan JA has lucidly expounded in Ng Hong Ki that the test of mental incapacity under Order 80 is issue-specific and the test has to be applied is whether the party to the legal proceedings is capable of understanding, with the assistance of such proper explanation from legal advisors the issues on which his consent or decision is likely to be necessary in the course of the proceedings . The focus of inquiry should be on the litigation under consideration rather than on the whole of that person s property and affairs. Complete incapacity is not required to be established. (See: Ng Hong Ki, para 34 of the judgment) Mr Lau tried to argue that the defendant had worked as a waiter, a factory worker and a taxi driver, and he should be able to take care of his own affairs. With respect, the court must be cautious not to over-generalise the defendant s mental capability from his ability to do these previous jobs, and more importantly, the focus of inquiry here is on the present litigation rather than on the whole of the defendant s affairs. Following from the principles of Ng Hong Ki, the mere fact that a defendant is socially adaptive in certain aspects of his social life or in his working life should not in my view necessarily preclude him from being a mentally incapacitated person for the purpose of a particular litigation. The defendant in Ng Hong Ki served as an example. In that action, the defendant was found by the court to be a mentally incapacitated person despite his medical expert was only of the view that he had limited capacity in managing his property and affairs. Further, both Dr Chu and Dr Cheung knew that the defendant has begun to work since the age of 16. Dr Leung was also fully aware that the defendant had been working as a taxi driver. His medical view remained unchanged after such information was specifically drawn to his attention. In his supplemental report, Dr Leung said that, which I quote:- 1. Further information was received and we noticed that Mr. Yeung had been qualified for a taxi driver license in or about 1990 or 1991 and had worked as a taxi driver since then. During the application for taxi driver license, Mr. Yeung had received written test for about 4 times and driving test for about 5 times before he successfully passed both tests. Mr. Yeung failed the written test for a number of times for poor memorization ability. As to the driving test, Mr. Yeung was a very slow learner compared to normal person and he spent a great deal of time and effort to learn and master the required driving skills. When Mr. Yeung started to work as a taxi driver, he frequently made mistakes like taking the wrong routes or miscalculating the fares, etc Mr. Yeung improved to some extents after years of work but he still had been making the aforesaid mistakes from time to time. Mr. Yeung ceased working as a taxi driver about 2 years ago due to advancement of his low back pain. 2. My professional opinion is that in assessing the mental capacity of a patient, we should take notice of the complexity of the issue. We cannot generalize the ability of taxi driving to ability in different areas. I still keep the opinion stated in the Report in view of the Said Information. The documents enclosed hereto as items 8, 9, 10 and 11 are too complicated to Mr. Yeung (emphasis supplied) Bonnie also said in her affirmation that shortly after the defendant s birth, he suffered from jaundice and high fever which resulted in mental retardation and psychosis since then. He was educated up to Form 3 at special school and he has been unable to understand matters of complicated nature. Although he worked as a taxi driver, his monthly income was relatively low, at about around $5,000 to $6,000 only. He has also been receiving disability allowance (as corroborated by a letter from Social Welfare Department). All these are unchallenged evidence before this court. The plaintiff also contends that defendant showed sufficient understanding of the legal proceedings and understood how legal service could help him. Mr Lau gave the examples that the defendant managed to report to the police of being defrauded. The defendant also sought assistance from the Legal Aid Department, and was able to file the acknowledgement of service without any legal assistance. Taking a fair view over these conducts of the defendant, I observe that they tend to demonstrate the defendant understood that he was facing a litigation, and someone has deceived him. He called for help from others. But that does not necessarily imply that he could manage to handle the litigation by himself or more specifically, to understand the nature and complexity of the issues involved in this litigation even with the proper assistance of lawyer. As Kwan JA pointed out in Ng Hong Ki, complete mental incapacity is not required to be established. (See: paragraph 22 above) And as a matter of fact, Dr Cheung observed during his examination of the defendant that he had difficulty in telling his problems in a clear manner. He showed limited understanding about the legal proceedings. He could not tell how legal service could help with his matters. These observation of Dr Cheung also tend to explain why after the defendant had applied for legal aid, he took a trip to China as a way of escape and skipped the legal process. Bonnie needed to assist him to apply legal aid again after he had returned to Hong Kong. The mental stress and fear he faced with as caused by the subject loan was also documented in the two government doctors medical reports. Mr Lau also pointed out that the defendant had previously borrowed several loans from other financial institutions. However, whether the defendant understood he was borrowing money is one thing, and whether he would also understand those complicated terms as contained in the loan agreement like different interest charging provisions , the nature and implication of the mortgage as referred to in the loan agreement as well as the nature and effect of the legal charge and notice of severance would be quite another thing. The court must bear in mind that it is not dealing with a defendant as an ordinary person, but a mentally disordered person here. In this connection, Dr Leung in his medical report also categorically stated (which is again unchallenged) that:- Cognitive assessment was done and it was found that he did not understand the details about the loans and the mortgage. He had difficulty in using and weighing information. He could not make a sound decision with money lender in year 2015. According to British Medical Association, a person is regarded as being unable to make a decision if, at the time the decision needs to be made, he or she is unable: a) to understand the information relevant to the decision, b) to retain the information relevant to the decision, c) to use or weigh the information or d) to communicate the decision (by any means). With reference to the guidelines of the British Medical Association, Mr Yeung definitely had difficulties in understanding the materials of the contracts. Such understanding was essential in his decision making with the money lenders (emphasis supplied) Having considered the totality of evidence (medical or otherwise) before me, I am satisfied that the defendant would not be capable of understanding the nature and complexity of the issues involved in the subject litigation in respect of which he needed advice even with such proper explanation from his legal advisors. He would be incapable of instructing a solicitor properly in light of the medical evidence, and particularly the certification by Dr Chu and Dr Cheung. Neither could the defendant in my view be able to make proper decision based on the advice as would be given by his legal advisors. I am satisfied that he would also be incapable of exercising any reasonable judgment on a possible settlement either. (Ng Hong Kit (supra), paras 34 and 35; Kirby v Leather [1965] 2 QB 367, per Lord Denning MR at p 384C-F). In these circumstances, I find for the purpose of determining the present application, by reason of his mental illness, he has been incapable of managing and administering his property and affairs for the purpose of Order 80 in this litigation, and hence a mentally incapacitated person thereunder. For avoidance of doubts, it is also my finding on the materials before me that the defendant was a mentally incapacitated person at the times when the writ was served upon him and when he filed the acknowledgment of service of the writ. In light of the aforesaid, I am of the view that the default judgment entered against the defendant is an irregular one. THE PROCEDURAL POINT I now turn to deal with the procedural point. I agree with Mr Lau that Order 2 rule 2(2) is engaged here in light of the observation made by Kwan JA in Ng Hong Ki. At para 39 of the judgment, Her Ladyship said:- The failure to comply with Order 80 rule 2(1) would be treated as an irregularity under Order 2 r 1(1) of the RDC Order 2 rule 1(1) and (2) provide that:- (1) Where, in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of any thing done or left undone, been a failure to comply with the requirements of these Rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein. (2) Subject to paragraph (3), the Court may, on the ground that there has been such failure as is mentioned in paragraph (1), and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings or any document, judgment or order therein or exercise its powers under these Rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit. (emphasis added) Order 2 rule 2(1) and (2) provide:- (1) An application to set aside for irregularity any proceedings, any step taken in any proceedings or any document, judgment or order therein shall not be allowed unless it is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity. (2) An application under this rule may be made by summons and the grounds of application must be stated in the summons. However, the failure to state the ground of subject irregularity in the defendant s summons as per Order 2 rule 2(2) should not in my view preclude this court from considering the subject irregularity in all circumstances. I think that the court do have liberty to consider the same to resolve the real controversy between the parties if the justice so demands. First of all, the wordings of sub-rule (1) of rule 2 would appear to be mandatory in a sense of requiring the application for setting aside a judgment irregularly obtained to be taken out within reasonable time and that the applicant has not taken any fresh step after becoming aware of the irregularity. Failing which, that sub-rule expressly provides that the application shall not be allowed. In contrast, sub-rule (2) of rule 2 does not provide for the consequence of its non-compliance. There are four relevant cases cited in Hong Kong Civil Procedure 2017, vo1 1, para 2/2/4, being the commentary to Order 2 rule 2(2). First, in Baillie v Goodwin & Co [1886] 33 Ch D 604, at 608, despite the non-compliance of a similar rule of the then Rules of Supreme Court 1883 in failing to state the grounds of irregularity, North J set aside the default judgment in question on the ground that the writ was improperly served on the defendant. North J nonetheless refused to award costs to the defendant for such setting aside chiefly because of their aforesaid failure to comply with the relevant rule. The second case is Re Sanders [1919] 147 LT Jo 212, where Younger J found that the irregularity in the notice of motion in failing to state the ground is merely a formal one and cured by the affidavit which deposed about the nature of objection. The third one is Petty v Daniel [1886] 34 Ch D 172, which dealt with the same rule as in the earlier two cases. Kay J at p 180 said, Then rule 3 says that Where an application is made to set aside proceedings for irregularity, the several objections intended to be insisted upon shall be stated in the summons or notice of motion. So that in this case, if the notice of motion does not state the several objections to be insisted upon, the applicant cannot rely on them, and the Court cannot be asked to set aside the order of committal for irregularity. (emphasis supplied) In Alexander Korda Film Productions Ltd v Columbia Picture Corporation [1946] 175 LT 430, 433 (2nd col), Romer J just followed the principles set out in the footnote to the relevant rule which was recorded in his judgment to read as follows:- Where this rule was not complied with, no costs were allowed to the applicants though successful; and applicant is confined to the objection stated. My overall impression of these four English cases is that the Court is at liberty to refuse entertaining any application not complying with the relevant rule. But it does not mean that the Court can do nothing about it if it is minded to. Such omission to state the ground of irregularity in the summons is also itself an irregularity. In general, after an irregular proceeding has been taken as in this case, the Court was empowered under Order 2 rule 1(2), as Kay J in Petty v Daniel put it , to either set it aside for the irregularity, or amend it, or otherwise deal with it as the Court shall think fit. Mr Lau drew my attention to Wayfoong Credit Ltd v Li Chi Kin & Anor (HCA 1865 of 1985, 8 August 1985) where Power J (as His Lordship then was) also had the chance of considering Order 2, rule 2(2) when dealing with an appeal against a master s decision in setting aside a default judgment. In that case, the master set aside the default judgment on the ground that the writ was never served upon the 1st defendant. However, Power J viewed the rule as mandatory and its non-compliance would have the effect of depriving the 1st defendant of the opportunity to rely on it. His Lordship nonetheless dismissed the appeal since he was satisfied that there is an arguable defence to the claim. I think my view over the underlying theme of the four English authorities (as stated in paragraph 41 above) can also be consistent with Power J s observation made on Order 2 rule 2(2) in that case. In any event, insofar as may be necessary, I would grant leave to the defendant (as represented by the guardian ad litem) to amend the defendant s summons to include the subject ground of irregularity (as referred to in paragraph 4 above) for this court to properly consider it given the wide general powers conferred upon the court under Order 2 rule 1(2) to make amendment. (see Hong Kong Civil Procedure 2017, vol 1, paras 2/1/2, 2/1/5) Mr Lau submits that the plaintiff would be prejudiced if this court permits the defendant to argue on the irregular judgment point notwithstanding the non-compliance of the rule since the plaintiff lacked the medical evidence to counter the aforesaid three medical reports produced by the guardian ad litem. However, the matter of the defendant suffering from mental incapacity is a live issue clearly set out in Bonnie s two affirmations in support, and all three medical reports were exhibited in her affirmations. As such, the plaintiff could certainly have taken such step as it saw fit in response to these medical evidence for the purpose of opposing the present application, including to seek leave prior to the hearing to conduct medical examination of the defendant and produce any psychiatric report on its side (if conducive to its case) to counter the medical reports in question. Yet, the plaintiff had not done so, and was contented with arguing on the procedural point, and that the defendant is not a mentally incapacitated person on the available materials before the court. By so conducting their case at the hearing, the plaintiff had to bear the risk that the court may not necessarily agree with their arguments. In such a case, the court may exercise its discretion in such manner to allow the procedural point be argued when the circumstances warrant. Mr Lau further submits that the ground of irregularity had not been properly articulated until the defendant s counsel filed his skeleton submission. But the fact remains that, if the plaintiff really considered the counter medical evidence was so essential for it to oppose the defendant s summons, it could have sought adjournment with this court for the plaintiff to further investigate into those issues concerning the defendant s mental incapacity as set out in the three medical reports or if necessary to prepare its own psychiatric report as aforesaid. But no adjournment application was made before me at the hearing. On the other hand, the irregular judgment point was fully argued on the materials before me, and I am satisfied that the defendant was a mentally incapacitated person at the relevant times for reasons explained above. Looking the matter in the round, the overall justice requires this court to consider the irregular judgment point despite Mr Lau s able argument. As said, insofar as may be necessary, I would also grant leave to the guardian ad litem to amend the defendant s summons to include therein the subject grounds of irregularity so framed by Mr Ho at para 5 of his skeleton submission. WHETHER THE IRREGULAR JUDGMENT SHOULD BE SET ASIDE Mr Ho submits that if this court finds the default judgment to be an irregular one, then the defendant is entitled to have the judgment set aside as of right. With respect, I do not accept such submission. The Court of Appeal s decision in Ng Hong Ki is the direct authority on this matter which this court should follow. The Court of Appeal in that case held that the failure to comply with Order 80 rule 2(1) would be treated as an irregularity under Order 2 rule 1(1) of the RDC, and the District Court has power under Order 2 rule 1(2) to make such order dealing with the proceedings generally as it thinks fit. The court would thus have discretion in such a situation to regularize the proceedings retrospectively provided everyone has acted in good faith and there has been no manifest disadvantage to the person subsequently found to be under disability. In Ng Hong Ki, Kwan JA at para 40 of the judgment said:- Firstly, where steps in proceedings were taken before lack of capacity due to disability under Order 80 was raised, I do not think the court is powerless to act and must direct the parties to start all over again. Provided everyone has acted in good faith and there has been no manifest disadvantage to the person subsequently found to be under disability, the court has power to regularise the position retrospectively (Kirby v. Leather, supra. at 371 to 372 and 384 (the relevant provision in the UK at the time being Order 80 of the Rules of the Supreme Court is similar to the provision in Hong Kong); and Masterman-Lister v. Brutton & Co., supra., para. [31] (decided under the Civil Procedure Rules)). The failure to comply with Order 80 rule 2(1) would be treated as an irregularity under Order 2 rule 1(1) of the RDC and proceedings shall not be nullified by reason of the non-compliance. The District Court has power under rule 1(2) to make such order dealing with the proceedings generally as it thinks fit. (emphasis supplied) And generally speaking, in the recent Court of Appeal s decision in Russell Peter Brown & Ors v Edward Eugene Lehman (CACV 119 of 2012, 29 July 2016), Barma JA at para 28 of the judgment also observed that:- Where a default judgment is irregular, it is usually said that it will be set aside ex debito justitiae. Mr Barlow submits that this means that it must be set aside. However, it was established in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157 that the court retains a residual discretion to decline to set aside an irregular default judgment, or to impose terms when setting it aside, where the circumstances of the case call for such a course to be taken. In relation to the non-compliance of Order 80 rule 16(2)(a) and 16(2)(b) of RDC, rule 16(3) also expressly confers a discretion upon the court to order that a document be deemed to be duly served on a minor or mentally incapacitated person under appropriate circumstances, although it has been served on a person other than the persons described in rule 16(2)(a) or (b). See Hong Kong Civil Procedure 2017, vol 1, para 80/16/7. The question of good faith Since there are credible materials before this court to raise a triable issue that the defendant s mental incapacity was apparent to the plaintiff at the time of his signing of the loan documents for reasons as shall be further explained below , the good faith of the plaintiff in commencing this litigation by serving the writ on the defendant rather than on any of those persons identified in Order 80 rule 16(2)(b) is called into question. However, it is neither necessary nor appropriate for this court to form any conclusive view on this matter. The proper resolution of the substantive merits of the mental incapacity point should be left for the trial judge if the judgment is to be set aside. This good faith factor would therefore not affect the exercise of this court s discretion when considering whether to set aside the irregular judgment. Whether there is manifest disadvantage to the defendant if judgment is not set aside It is plain that the defendant would prima facie suffer a manifest disadvantage if the irregular judgment is not set aside when his defence has sufficient merits which warrant his case to be tried before a judge. The next question to ask is: what test should be adopted by this court to scrutinize the merits of the defendant s intended defence under the context here? For such a purpose, I think the guardian ad litem would be required to demonstrate to the court that the defendant does have an arguable defence or there exists a triable issue in the defendant s case in light of the materials contained in their supporting affirmations. Putting it in another way, unless it is obvious that the intended defence is without merits, the door of justice should not be shut away from the defendant by depriving him of the chance of properly running his defence at trial. This should follow from the logic behind Kwan JA s reasoning in Ng Hong Ki in refusing to set aside a summary judgment entered into against the defendant (a mentally incapacitated person) notwithstanding Her Ladyship was of the view that the guardian ad litem was properly appointed. Kwan JA at para 41 of the judgment said, Secondly, where there is an application to appoint a next friend or guardian ad litem, it does not mean the court is bound to make the appointment if it is satisfied that the person is under disability. The court would still need to consider if the appointment is beneficial to that person. If the claim to be brought is obviously vexatious, no purpose would be served by appointing a next friend and the court would strike out the claim instead (Ho Po Chu v. Tung Chee Wah & Ors. [2006] 3 HKLRD 553 para. 63). Likewise, if the defence to be advanced is obviously without merit, the court may not appoint a guardian for the purpose of defending the proceedings. Mr Shum contends that the situation of a defendant should be treated differently from that of a plaintiff in this situation. I do not agree. (emphasis supplied) Although the Court of Final Appeal in Moral Luck Finance Ltd v Law Kin Leung [2015] 18 HKCFAR 343 subsequently clarified the correct approach for determining whether a person should be allowed to act as a protective guardian ad litem (as in this case) needs no judicial inquiry , the reasoning of Kwan JA and the test adopted by Her Ladyship in refusing to set aside a summary judgment subject to an irregularity that there had been no guardian ad litem acting for the mentally incapacitated person when the acknowledgment of service was served, in my respectful view, still hold good . Whether there is any arguable defence or a triable issue of the defence The defendant s case and evidence The uncontroverted background facts are as follows:- The defendant was aged 48 at the time of signing the subject loan documents on 20 March 2015. The deceased parents left a residential flat in Cheong Lok Mansion, Baker Street ( the Flat to the defendant in the joint names of the defendant and his elder brother in light of his low mentality. Dr Cheung s medical report also stated that the defendant started to live alone in recent years after his parents have passed away. He received support from his elder sister. As pointed out above, the defendant suffered from mental retardation and psychosis shortly after birth. That aside, he also suffered from diabetes and low back pain and required treatment from time to time. His modest income of about $5,000 to $6,000 each month was not sufficient to cover his living expenses. He had to settle his medical expenses by way of overdraft from UA Finance Ltd and BOC Credit Card (International) Ltd. Eventually this brought him to borrow a HK$200,000 loan from a finance company called OK Finance Ltd on about 14 January 2015 to repay part of his overdraft facilities. By that time, he was indebted to the tune of about HK$260,000. Bonnie set out the defendant s version of events in her supporting affirmation. Such account needs not be repeated here. It suffices to point out that the defendant got to know about Hong Kong Construction through a cold call by the latter s staff professing to offer a low-interest loan scheme. Later, it was one Mr Jason Wong ( Jason Wong ) of Hong Kong Construction who introduced the defendant to borrow the subject loan from the plaintiff to repay his earlier debts. Jason Wong professed that Hong Kong Construction is a subsidiary of the China Construction Bank ( ). Eventually, Jason Wong arranged the defendant to attend a solicitors firm to sign the loan documents on 20 March 2015. On that day, Jason Wong himself did not accompany the defendant, but his colleague, another Mr Wong ( Mr Wong ), attended the law firm together with the defendant. Inside the law firm s conference room, one female staff of the law firm ( the law firm staff ) explained the loan documents to the defendant in the presence of Mr Wong and the plaintiff s representative, one Mr Ricky Chan ( Ricky Chan ) who held himself out to be the plaintiff s manager . In the course of the law firm staff s explanation, the defendant indicated that he did not understand why the Flat was involved. He also pointed out in front of them that he did not understand the meaning of such document concerning something like severance of title. The defendant asked Mr Wong why this was so. Mr Wong nonetheless persuaded him to sign by telling him that Hong Kong Construction had already arranged everything related to the subject loan for him, and all he needed to do was to sign the documents provided. Mr Wong further assured him that he would receive the loan advancement upon signing the documents. It was against such background circumstances that the defendant signed the loan documents including the loan agreement dated 20 March 2015 (as contained in the hearing bundle ), and presumably also the Legal Charge and Notice of Severance as revealed from the land search record . The defendant was given a cheque (of OCBC Wing Hang BanK) of HK$457,000 by the law firm staff. On the same day after the meeting, Mr Wong asked him to open a bank account at OCBC Wing Hang Bank and deposit it into such account. He escorted him to a branch of OCBC Wing Hang Bank and the defendant just opened account there accordingly. Mr Wong then immediately withdrew cash of HK$284,500 from such account which Hong Kong Construction had allegedly charged him as their consultancy fee. The supporting bank statement was exhibited in Bonnie s affirmation. Bonnie also gave corroborating evidence in her second affirmation that based on her many years of looking after the defendant, it would not take long for a person talking to the defendant to form suspicion that the defendant is mentally retarded if the conversation involved complicated issues like borrowing and loan re-structuring. The plaintiff s case and evidence It was the plaintiff s current manager, Mr Louis Tang ( Louis Tang ) who prepared the affirmation on the plaintiff s behalf to oppose the defendant s summons. As per Louis Tang s affirmation, the defendant on 17 March 2015 applied in writing to the plaintiff for an instalment loan, and the subject loan was granted to him on 20 March 2015. It was Ricky Chan who interviewed the defendant for his loan application on 17 March 2015. Louis Tang said Ricky Chan was no longer under the employ of the plaintiff when he deposed his affirmation. But according to their internal records, there was no indication at any time during the interview on 17 March 2015 that the defendant suffered from mental retardation. Without stating his source of information, Louis Tang also deposed in his affirmation that Ricky Chan remarked that the defendant did not appear outwardly that he was mentally retarded . When the defendant saw Ricky Chan on 17 March 2015, the defendant said he wanted to borrow HK$700,000 from the plaintiff to repay a loan that he had taken from OK Finance Ltd. The defendant also produced to Ricky Chan copies of his statement of account with OK Finance Limited, as well as his Citibank s bank statements. The Court s approach towards the parties evidence This is a typical case of one party s words against another s. However, in order for this court to consider at this stage whether there exists any arguable defence(s) or triable issue(s) or in respect of the defendant s case for the purpose of determining whether the defendant would suffer a manifest disadvantage if the irregular judgment is not set aside, this court is not here to choose which party s version to believe. Akin to determining an Order 14 application, I think the court only needs to ask itself whether the defendant s evidence is capable of belief for the aforesaid purpose. The mental incapacity point As a matter of law, the defendant can rescind the subject loan transaction if he lacked the mental capacity to understand the nature and effect of the loan documents at the time of entering into the same, and such lack of requisite mental incapacity was apparent to the plaintiff. (see Chitty on Contracts (32nd ed), vo1 1, paras 9-075, 9-076, 9-078, 9-081, 9-083.) The level of understanding that is required is relative to the nature and complexity of the transaction viewed in its context. (see Law of Rescission (2nd ed), OUP, para 7.46) In Manches v Trimborn (1946) 115 LJKB 305, Hallett J at p 307 said that:- the degree of mental incapacity which must be possessed varies with every case, as it seems to me, according to the nature of the transaction in question [T]he degree of mental incapacity which the defence would have to establish to [the jury s] satisfaction was such a degree of incapacity as would interfere with the capacity of the defendant to understand substantially the nature and effect of the transaction into which she was entering. (emphasis supplied) As discussed above, the plaintiff has produced no medical evidence to counter Dr Leung s medical view that (1) his cognitive assessment of the defendant revealed that he had difficulty in using and weighing information and it was impossible for him to understand the details of the loan agreement and mortgage documents; and (2) the defendant was mentally unsound and mentally unfit to understand and sign such documents. Again, it is also the uncontroverted medical evidence of the two government doctors that the defendant has suffered from mild grade mental retardation and pscyhosis, and they certified him to be a mentally disordered person as defined under MHO. In my view, there are credible materials before this court for a triable issue be raised that the defendant did lack the requisite mental capacity to understand the nature and effect of the different interest charging provisions and the mortgage provision contained in the loan agreement as well as the legal implications of the Legal Charge and the Notice of Severance, particularly in light of my observation made in paragraph 30 above and the indisputable evidence here that the defendant is a mentally disordered person as defined under the MHO. As to whether such lack of requisite mental incapacity was apparent to the plaintiff s staff or agent, Mr Lau contends that it was not by referring to Louis Tang s evidence as highlighted above. Louis Tang said he had never seen the defendant before. And upon a closer look at his affirmation, he was vague about from where he obtained the information that the defendant did not appear outwardly that he was mentally retarded . Did he obtain such information from Ricky Chan after seeing Bonnie s affirmation? Or, did he just obtain such information by perusing the plaintiff s internal records. If it is the former case, this means the plaintiff could manage to contact and obtain evidence from Ricky Chan despite he had allegedly left the plaintiff company. It then seems quite strange why Ricky Chan was not asked to make an affirmation direct on the plaintiff s behalf. No explanation was offered in this respect in Louis Tang s affirmation. On the other hand, if it is the latter case, it would look even more suspicious that such information of the defendant not appearing mentally retarded to Ricky Chan was mentioned in the plaintiff s internal records well before this litigation commenced. And, no such internal records were produced before this court either. On the defendant s side, Bonnie s evidence that it would not take long for a person to suspect the defendant is mentally retarded if the conversation involved complicated issues was corroborated by Dr Leung s unchallenged medical view (as highlighted in paragraph 73 above). As pointed out above, the defendant did raise with Mr Wong in front of Mr Chan (the plaintiff s staff), and the law firm staff (who is supposed to be the plaintiff s agent) that he did not understand what the Notice of Severance meant and why the Flat was involved. All these matters are also in my view believable to raise a triable issue that the defendant s mental incapacity was being apparent to the plaintiff at the relevant time. As for the personal particulars of the defendant revealed in the plaintiff s internal records, and copies of his bank statements kept by the plaintiff, Bonnie also explained in her 2nd affirmation that the defendant recalled providing a number of documents related to his personal particulars and his credit standing to Jason Wong upon his request. Given the defendant s account about Hong Kong Construction s role in this case, it is also believable that Hong Kong Construction may pass on the defendant s personal information and documents to the plaintiff before Jason Wong arranged the defendant to attend the law firm to sign the loan documents. For completeness sake, I also wish to point out that according to Mr Ho s submission, it was out of the concern that the defendant was certified as mentally not fit to give legal instruction that the defendant was not arranged to depose an affirmation by himself for this application. Bonnie was arranged to make the affirmation on his behalf instead. But it was clearly stated in Bonnie s affirmation that all the matters deposed in her affirmation are based on what the defendant has told her or otherwise within her personal knowledge or belief. According to this court s observation over the medical evidence on the defendant s mental incapacity, as said, he is not a person of complete mental incapacity. And there is nothing before this court to suggest that the memory function of his brain or his communication ability was so impaired as to prevent him from relating what had happened to him to his elder sister. Though, after taking a balance view of the evidence before me, I do accept Mr Ho s submission that great patience was probably required from Bonnie in listening to the account of events given by the defendant owing to his mental incapacity in the preparation of her two affirmations. In such light, I do not think that the fact of Bonnie being able to give a detailed account of what actually happened to the defendant in her affirmations would by itself render the account unbelievable. This court therefore does not accept Mr Lau s argument that the defendant is blowing hot and cold in raising the mental incapacity point and the MLO points at the same time. The 1st MLO point Section 27(3) and (4) of the MLO provide that:- (3) Subject to section 33A(5) , it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof. (4) If any money or money's worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount or value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the money lender or a partner, employer, employee, principal or agent of the money lender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly) or may be recovered by the borrower from such person or from the money lender. (emphasis supplied) In HKSAR v Wong Kwok Wai [2013] 16 HKCFAR 191, Tang PJ commented on the meaning of collusion under section 29(10) of MLO , which essentially provides that a money lender or other relevant persons as identified in s.27(3) who violated s.27(3) would also commit an offence. At para11 of the judgment, His Lordship said, I agree. On such a charge, the question to ask and answer is whether the persons who are said to have acted in collusion were playing the same game. It should not be made more complicated. (emphasis supplied) A footnote is made to the phrase playing the game in Tang PJ s judgment by referring to Famous Zone Electronics Ltd v Hongkong and Shanghai Banking Corp Ltd [1998] 3 HKC 723. Famous Zone is an interpleader case where Sakhrani J had to determine on the meaning of collude under Order 17 rule 3(4)(b) of the Rules of High Court (Cap 4A, Sub. Leg.) to resolve the dispute before that court. At p 737 F-G of the judgment, Sakhrani J had the following to say:- It is plain that collusion as used in Order 17 does not necessarily connote anything sinister on the part of the applicant. In Murietta and others v. the South American Etc. Co. (Ltd.) [1893] 62 LJ QB 396 it was held that collusion in the sense in which it is used in the order does not necessarily involve anything morally wrong. As Wills J. said at p.397:- Colluding may be said to be an equivalent for playing the same game. The word collusion under s 27(3) and (4) of MLO would no doubt need to be construed in its own statutory context against the whole of the ordinance with its objective and intent in mind. One key purpose of MLO is clearly to protect the borrower from having to borrow money from others at excessive or extortionate interest rates. If one lends or offers to lend at an effective rate of interest exceeding 60% per annum (as specified in section 24) would commit an offence, and the loan agreement together with any collateral security would become illegal and unenforceable irrespective of whether the lender is a money lender or not. Section 25 is also enacted to protect a borrower from being subject to an extortionate loan transaction. Under s.25(2)(a), a transaction is extortionate if it requires the debtor or his relative to make payment which are grossly exorbitant. Under s 25(3), a loan transaction with effective rate of interest exceeding 48% per annum is also presumed to be extortionate. Under s,25(1)(b), the court if satisfied there is evidence of the transaction being extortionate, may reopen the transaction to do justice between the parties having regard to all the circumstances. The long tile of the ordinance also expressly provides that:- To provide for the control and regulation of money lenders and money-lending transactions, the appointment of a Registrar of Money Lenders and the licensing of persons carrying on business as money lenders; to provide protection and relief against excessive interest rates and extortionate stipulations in respect of loans; to provide for offences and for matters connected with or incidental to the foregoing; and to repeal the Money-lenders Ordinance 1911. (emphasis supplied) Given the above proper perspective, it is clear to me that the purpose and design of section 27(3) and (4) is chiefly to prevent the aforesaid statutory protection afforded to a borrower from being stripped away or otherwise compromised by not only the money lender but also by any other related persons as mentioned therein in receiving costs, charges, expenses (other than stamp duties or similar charges), remuneration or reward from the borrower in addition to the interest charged by the money lender. Just like interest, these various sums (irrespective of whatever label given) are essentially the borrower s costs of borrowing from the money lender. In this light, the person in collusion with the moneylender as mentioned under s 27(3) and (4) should be construed in such manner so far as its literal meaning and statutory context permit to enable the aforesaid statutory protection being effectively implemented. Coming back to the guiding test of playing the same game as expressed by Tang PJ in Wong Kwok Wai to decide whether the person concerned has acted in collusion with the money lender against the aforesaid statutory backdrop, such person would appear to be one who identifies its interests with the money lender s rather than the borrower s. In my view, to qualify as the collusion under s 27(3) and (4), it would be sufficient for such person and the money lender to co-operate with each other to do or abstain from doing some act(s) with a view to facilitate the conclusion of the loan transaction against the borrower s interest or otherwise to his prejudice. I take this to be the essence of the term collusion as appeared in section 27(3) and (4) to meet with the statutory intent and purpose, and in accordance with the test of playing the same game as expressed by Tang PJ in Wong Kwok Wai. Mr Lau contends that collusion here means conspiracy , and the defendant must demonstrate there had been a prior agreement between the moneylender and the financial intermediary (ie Hong Kong Construction in this case) to extract the consultancy fee from him. Mr Lau further submits that no evidence of such agreement can be discerned from Bonnie s affirmations. With respect, I do not accept such submission because collusion in the statutory context of MLO is in my view a wider concept than conspiracy . Proving Conspiracy is one of the ways to prove collusion , but that should not be the only way. Trickery may take different forms and the collusion under s 27(3) and (4) should not be so narrowly construed as Mr Lau contends, otherwise it would unnecessarily hamper the effectiveness of s 27(3) and (4) in protecting the borrower under the statutory framework of MLO. The conventional usage of collusion does not appear to be so confined as Mr. Lau contends either. It seems to me that the natural and ordinary meaning of the term collusion under s.27(3) and (4) is broad enough to cover co-operation between parties to deceive or otherwise to do harms to others . With respect, this is also how I understand Bokhary PJ s observation made over the Magistrate s finding of collusion in that case. It appears that His Lordship was not trying to lay down any definitive legal meaning for the term of collusion under s 29(10) of MLO. Whereas, as observed above, Tang PJ has expressed the essence of collusion in that statutory context to be: playing the same game . In Wong Kwok Wai at paras 7 and 8 of the judgment, Bokhary PJ said:- 7. It was open to the Magistrate to conclude, as he in effect did, that the demand was part of a dishonest and surreptitious enterprise which was meant to - and did - extract money from the borrower. 8. The points of law said on the applicant s behalf to arise go to the meaning of collusion. No such point really arises. It is plain in the circumstances that the applicant and the money lender were acting in concert and surreptitiously in a dishonest enterprise to extract money from a victim. Whatever else may or may not be within the meaning of collusion under s 29(10), the applicant and the money lender s conduct certainly is fairly and squarely within that meaning. (emphasis supplied) In terms of evidence here, according to the defendant s case as deposed in Bonnie s affirmation, to start with, it looks rather suspicious that Ricky Chan being the plaintiff s representative did not communicate with the defendant in the conference room at all. Rather, he left everything with the law firm staff and Mr Wong for the purpose of explaining the loan documents to the defendant. In a way, he effectively let Mr Wong take over the driver seat for the purpose of explaining the loan documents after the defendant indicated that he did not understand why the Flat was involved or the meaning of the Notice of Severance. Yet, what Mr Wong effectively did was just to dissuade the defendant from concerning what the loan documents are really about. On the other hand, Ricky Chan as the plaintiff s manger in the course of business should well know that the loan agreement contained a clause requiring the defendant to mortgage the Flat in the plaintiff s favour as security for the loan and what the defendant was going to sign at that time also included the Legal Charge. To say the least, if Bonnie s evidence can come up to proof at trial, it is arguable that Ricky Chan at the material time was playing an accommodating role and in a way providing assistance to Mr Wong to facilitate him persuading the defendant to sign the documents which was apparently against his interests in not really knowing about their true nature and effect. (Pausing here, according to Bonnie s evidence, neither Jason Wong nor any staff of Hong Kong Construction had ever advised the defendant that the loan he borrowed from the plaintiff would require mortgaging the Flat to the plaintiff.) By so conducting himself, Ricky Chan could be said to be co-operating with Mr Wong to facilitate the conclusion of the deal but knowing full well at the same time that this would be against the defendant s interest or otherwise to his prejudice. Speaking about Bonnie s evidence in respect of what happened to the defendant in the law firm s conference room on 20 March 2015, it is also capable of belief against the materials before me. First, the execution of the legal documents like the Legal Charge and the Notice of Severance would normally be done in a solicitors firm, and the land search record supports that these two documents were executed by the defendant on 20 March 2015. Second, the business card of Jason Wong, the receipts of consultancy fee issued by Hong Kong Construction, and the agency agreement between Hong Kong Construction and the defendant are all exhibited in Bonnie s affirmation to corroborate the defendant s case that he was being introduced by Hong Kong Construction to the plaintiff to borrow money rather than the defendant approaching the plaintiff directly to borrow the loan. Third, Louis Tang is totally silent in his affirmation about how the loan documents were signed by the defendant, where they were signed, who was responsible for explaining the loan documents to the defendant before he signed the same and what was the defendant s reaction after hearing the explanation, whether Ricky Chan was present at the time of signing of these loan documents. In short, Louis Tang in his affirmation did not give any direct account about what actually happened in relation to the granting of loan on 20 March 2015 to rebuke Bonnie s evidence about the alleged incident that happened to the defendant in the law firm s conference room. On Hong Kong Construction s part, as deposed in Bonnie s affirmation, it was the gist of the defendant s case and evidence that he was deceived by Jason Wong into believing that Hong Kong Construction was a subsidiary of CCB. The defendant had attended the office premises of Hong Kong Construction on two occasions (with a lapse of a week in between) where Jason Wong has advised him of a loan re-structuring scheme which he did not really understand. However, believing Jason Wong s words that Hong Kong Construction is CCB s subsidiary, he just acted as Jason Wong had advised. In passing, Jason Wong originally told him CCB would be the lender, but it was subsequently changed to the plaintiff. Jason Wong nonetheless told him that the ultimate lender would somehow remain to be CCB for reason which again he could not really understand. As pointed out above, there are corroborating receipts issued by Hong Kong Construction showing that they had charged the defendant a total of HK$318,900 as consultancy fee in relation to the subject loan transaction. Hong Kong Construction further charged the defendant a separate consultancy fee of HK$188,000 for a subsequent loan of HK$200,000 which Jason Wong introduced the defendant to borrow from another finance company called Today Is Finance Limited. He was told by Jason Wong that the balance of $12,000 would serve as repayment of the first two months of interest repayment to Today Is Finance. According to Bonnie s affirmation, the defendant borrowed this HK$200,000 loan because Jason Wong approached him again in about late May 2015 and told the defendant that the original loan scheme needed some adjustment. Jason Wong told him that the ultimate lender of the low interest loan would now change from CCB to Public Bank (Hong Kong) Ltd. One would soon smell a rat upon looking at the aforesaid dealings between Hong Kong Construction and the defendant and the prima facie extortionate consultancy fee charged by Hong Kong Construction. Prima facie, the unsoundness of his decision in following Jason Wong advice to borrow the said two loans also to a certain extent lend support to the mental incapacity point and the MLO point. In short, the defendant borrowed a total of HK$900,000 to repay a debt of about HK$224,000 only which he had owed to OK Finance Ltd. He had HK$142,000 left for himself only which would not even be sufficient for him to repay the annual interest payable to the plaintiff under the loan agreement (let alone the interest in respect of Today Is Finance Ltd s loan). The rest of the money he borrowed all virtually goes to Hong Kong Construction under the label of consultancy fee of about HK$506,900 . Leaving aside the loan lent by Today Is Finance, after one year of payment of interest (even assuming the interest payment requirement can be fully complied at all), the loan of HK$700,000 lent by plaintiff would become immediately due and repayable on 20 March 2016 which the defendant would have nothing out of the original loan he borrowed to repay the principal of HK$700,000, not yet mentioning about the $200,000 loan. Apart from the aforesaid, according to Bonnie s affirmation, after the defendant had paid a further consultancy fee of HK$188,000 to Hong Kong Construction on the same day out of the HK$200,000 loan borrowed from Today Is Finance , the defendant in fact signed on a purported written agreement in Chinese (undated) at per Jason Wong s request. Before he signed, Jason Wong had represented to the defendant that after signing of such written agreement, the loan of HK$700,000 borrowed from the plaintiff and another loan of HK$200,000 borrowed from Today Is Finance Ltd would be transferred to Public Bank (Hong Kong) Ltd under low-interest arrangement. However, upon a closer look at the terms, such written agreement would require the defendant to provide income proof of HK$50,000 per month for 3 consecutive months. How can that be achievable to the defendant when the undisputed evidence is that he was only working as a taxi-driver earning about five to six thousands a month in average? All these aforesaid matters also tend to support the defendant s case that he lacked the requisite mental capacity to understand this so-called loan re-structuring scheme as advised by Hong Kong Construction, and demonstrate that the defendant s account (as deposed in Bonnie s affirmation) of what he had been told by Jason Wong and Mr. Wong on different occasions as aforesaid is also capable of belief. In light of these circumstances, by viewing the conducts of Hong Kong Construction s staff as a whole according to the defendant s evidence, it is again arguable that Mr Wong in the law firm s conference room just desired to facilitate the plaintiff to conclude the deal the soonest possible. He had identified Hong Kong Construction s interests with the plaintiff s rather than the defendant s with the apparent aim of enabling Hong Kong Construction to extract the extortionate consultancy fee from the defendant out of his loan transaction with the plaintiff. In the premises, it is thus arguable that Hong Kong Construction was in collusion with the plaintiff, and that it charged the defendant for the consultancy fee of HK$318,900 in respect of the HK700,000 loan in violation of section 27(3) and (4) of the MLO. I am therefore satisfied that there are triable issues and arguable defence in respect of both the mental incapacity point and the 1st MLO point. The 2nd MLO point However, in respect of the 2nd MLO point, Mr. Ho did not provide any authority in support of his contention. Neither can he demonstrate by way of his submission, how exactly MLO can deem the payment of consultancy fee to Hong Kong Construction to be part of the interest element under the loan agreement between the plaintiff and the defendant by the mere fact of collusion between the money lender and the financial intermediary under s.27(3) (if established at trial) under the statutory framework. In particular, it is observed that s.27(4) already provided for the legal sanction by allowing the defendant to set off such consultancy fee from the amount actually lent if the s.27(3) collusion point can be established at trial. In these circumstances, this court is not satisfied that Mr. Ho can successfully advance on his client s behalf an arguable defence in respect of the 2nd MLO point. THE PRESENT APPLICATION MADE WITHIN REASONABLE TIME? Order 2, rule 2(1) of RDC provides:- (1) An application to set aside for irregularity any proceedings, any step taken in any proceedings or any document, judgment or order therein shall not be allowed unless it is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity. (emphasis supplied) Mr Lau contends that the defendant did not bother to make any application to set aside the default judgment entered on 24 December 2015 until about half a year later . Keith J (as His Lordship then was) in Wing Lung Bank Ltd v Ho Man Lam [1999] 3 HKC 368 held that under Order 2, rule 2(1), in order for the court to consider whether the defendant in that case has delay in taking out the relevant application, the relevant period should be counted from the time after the defendant became aware of the irregularity, rather than from the time he knew of the facts which gave rise to the irregularity . In other words, the two respective phrases of within reasonable time and after becoming aware of the irregularity should be read together under the rule. What is reasonable time is a question of fact and varies according the individual circumstances of each case. Since I found that the defendant has been a mentally incapacitated person and there is unchallenged medical evidence that he is mentally not fit to give legal instructions. In light of my above analysis, this court would not regard the defendant himself as the proper person to take out the present application. But Bonnie as his guardian ad litem is. In reviewing the court record, I observe that after the judgment was entered on 24 December 2015, an application for legal aid was remade by the defendant within a relatively short time on 14 January 2016. A further application was made by Bonnie for the defendant on 24 February 2016. The Legal Aid Certificate was eventually granted to Bonnie for the defedant on 26 February 2016. On 1 March 2016, Notice of Act was filed by the defendant s solicitors. I think reasonable allowance should be made for the defendant s solicitors to absorb the materials and take instruction from Bonnie. In this special case, Bonnie would in turn (as Mr Ho submitted and this court accepted against the background circumstances of this case) need to take great pains to obtain the information from the defendant (who is a mentally retarded person) in the preparation of her supporting affirmation. Although Mr Lau attempted to persuade the court that the defendant was the author was of his own misfortunate by skipping the legal process and failed to attend the summons before Master Tang, such conduct of the defendant should not be viewed too harshly against him in light of the unchallenged medical evidence about his mental incapacity before this court and that he was also suffering from psychosis at the material times. More importantly, such incident had occurred before the default judgment was entered. The focus of inquiry under Order 2 rule 2(1) should rather be on those events that happened after the default judgment had been irregularly obtained. Viewing the litigation history thus, this court finds that Bonnie made her subject application for setting aside within a reasonable time as per Order 2 rule 2(1). And no point was taken by the plaintiff that the guardian ad litem or the defendant had taken any fresh step as referred to in Order 2 rule 2(1). In light of the aforesaid, this court is of the view that the defendant would indeed suffer a manifest disadvantage if the irregular judgment is not set aside, and the present application was also taken out within reasonable time as per Order 2 rule 2(1). Hence, the irregular judgment should be set aside accordingly. WHAT IF THE DEFAULT JUDGMENT IS A REGULAR ONE? Nevertheless, if I am wrong in respect of the above analysis and the default judgment should somehow be treated as a regular one for whatsoever reason, I would now turn to consider whether the default judgment should nonetheless be set aside as a regular judgment. Both parties counsel agreed that, in the event that the default judgment is a regular one, and to have such a regular judgment set aside, the defendant is required to demonstrate that he has a real prospect of success in defending the plaintiff s claim. In considering the merits, the court has to form a provisional view as to the probable outcome of the action. However, where a provisional view could not sensibly be formed without an assessment of the witnesses, the appropriate test to determine whether the defendant has a real prospect of success was to ask whether the defence could well be established at trial. (see Guangdong International Trust & Investment Corporation Hong Kong (Holdings) Ltd v Yuet Wah (Hong Kong) Wah Fat Ltd [1997] HKLRD 489, at 494I-495C) In this case, the final outcome of this action would very much depend on which party s account is to be believed by the trial judge. My observation on the state and quality of the respective parties evidence under the earlier discussion of irregular judgment also holds good here although I would on the other hand firmly bear in mind that in the context here, more than a triable issue or arguable defence is required to be demonstrated by the defendant, the decisive test is whether real prospect of success of the defence can be established. Although Louis Tang said in his affirmation that Ricky Chan remarked that the defendant did not appear outwardly that he was mentally retarded, as mentioned above, the plaintiff is totally silent about the important incident that took place in the law firm s conference room on 20 March 2015. If the plaintiff managed to obtain the aforesaid information from Ricky Chan, one would expect the plaintiff would naturally ask him what had actually happened in the law firm s conference room on 20 March 2015. Or, more fundamentally speaking, whether the alleged incident actually took place at all. Oddly, there is a complete lacuna of the defendant s evidence on this important episode. If seeing the plaintiff might reasonably be expected to call a key witness to give evidence in this respect, and yet it has failed to do so without offering any reasonable explanation, the trial judge would be entitled to draw adverse inference against the plaintiff. (see Li Sau Keung v Maxcredit Eng Ltd & Anor [2004] 1 HKC 434, per Le Pichon JA at p.443E-444C; Hongkong and Shanghai Banking Corporation v Chan Yiu Wah [1988] 1 HKLR 457 (CA), at p.467B-F) Louis Tang claimed that Ricky Chan already left the plaintiff company. Firstly, my observation over Louis Tang s evidence made in paragraph 76 above remains. Secondly, the plaintiff should nonetheless have no difficulty to ask the law firm staff who witnessed the execution of the Legal Charge and the Notice of Severance to give evidence on their behalf (if she had a different account to offer). Yet no such evidence was forthcoming, and there is no explanation why this had not been done or could not be done. If the plaintiff would arrange neither Ricky Chan nor the law firm staff to give evidence at trial, they would then produce no direct evidence to counter the defendant s evidence as would be given at trial. They would then be left with cross examining the defendant s witnesses only. In light of the aforesaid, there a real prospect that the defendant s evidence could well be believed at trial. The way Louis Tang put forward the plaintiff s case in his affirmation also created an appearance that they may want to distance themselves from Hong Kong Construction. Louis Tang said Ricky Chan interviewed the defendant on 17 March 2016, and it was the defendant who told Ricky Chan direct that he wanted to borrow a loan of HK$700,000. Louis Tang further emphasized that the plaintiff did not know Jason Wong or Hong Kong Construction. Such evidence however looks suspicious or otherwise odd in the circumstances. For, if the defendant could manage to approach the plaintiff direct to apply for the subject loan, why would he bother to pay such a huge sum of HK$318,900 to Hong Kong Construction as consultancy fee in the first place? On the other hand, according to Bonnie s evidence, the defendant only saw Ricky Chan for the first time in the law firm s conference room on 20 March 2015 where he executed the loan documents and received the cheque of HK$427,000. Mr Ho drew my attention to the fact that the cheque of HK$427,000 handed over by the law firm to the defendant was drawn in such a way that would facilitate Hong Kong Construction to extract the sum of HK$285,000 from the defendant as consultancy fee on the same day. He submitted that if Hong Kong Construction was not in collusion with the plaintiff, why a crossed cheque was not issued instead. On the other hand, as said, Louis Tang has mentioned nothing about the incident of 20 March 2015 in his affirmation, they did not dispute that a cheque of HK$427,000 was handed over by the law firm staff to the defendant on that day either. Although Mr Lau submitted from the bar table that the cheque was a crossed cheque, this court could not simply take his submission as evidence for the purpose of determining this application. That aside, it is also observed that the bank statement produced by Bonnie did show that cash of HK$285,000 was withdrawn on the same day of 20 March 2015 immediately following the credit entry of HK$427,000. The relevant receipt issued by Hong Kong Construction was also dated 20 March 2015 . Having carefully considered the totality of evidence before me, it is also the provisional view of this court that the defendant s case and evidence in respect of both the mental incapacity point and the 1st MLO point could well be established and believed at trial. In my view, the guardian ad litem can overcome the threshold of real prospect of success for setting aside the default judgment even if it were a regular one for whatever reason. WHETHER ANY TERM SHOULD BE IMPOSED ON SETTING ASIDE Mr Lau urged this court to impose terms on setting aside if it is minded to do so irrespective whether the judgment is irregular or regular. Although the court has power to do so in either scenario , I do not see it appropriate for this court to exercise its discretion to impose terms on setting aside for the following reasons. If the mental incapacity point can come up to proof at trial, the loan agreement of 20 March 2015 (which the plaintiff s present claim is based upon) can prima facie be rescinded by the defendant on that ground alone subject to the defendant making restitution of the amount he actually received from the plaintiff. (see Chitty on Contracts (32nd ed), vol 1, para 9-093) If the 1st MLO point can be established at trial, the consultancy fee totaling HK$318,900 could be set off against the amount actually lent by the plaintiff to the defendant as per section 27(4) of MLO. To argue for imposing terms, Mr Lau urged this court to take into the defendant s conduct and alleged delay in question. He submitted that the defendant should be ordered to pay into the court the full loan amount claimed by the plaintiff. First, I have explained above why the alleged delay point is misconceived. Second, I have also carefully surveyed the defendant s conduct but, as said, it should not be viewed too harshly against him in light of the fact that he has been a mentally incapacitated person at all material times as I have so found and he was also suffering from psychosis as certified by the two government doctors. Third, the defendant is on legal aid, and it seems unlikely that he has any viable financial means or significant assets available for his disposal in light of his financial history as mentioned in Bonnie s affirmation. As such, there is a real chance that the defence may be stifled if the defendant is ordered to make payment of substantial sum into court. Having balanced the various factors, this court is not prepared to exercise its discretion to impose any term on the setting aside of the judgment, be it a irregular one or regular one. COSTS The question of costs is always a matter of the court s unfettered discretion to be exercised judicially having regard to the particular circumstances of each case. Given the nature of the subject irregularity, it does not give rise to a right for the defendant to set aside the judgment for reasons explained above. Further, but for this court exercising its discretion to allow the subject irregularity be argued before this court notwithstanding the defendant s solicitors omission to state the ground of irregularity in the defendant s summons (and insofar as may be necessary, to grant leave to the defendant to amend the defendant s summons to include such ground for this court s consideration), the guardian ad litem would not be able to argue the same. As such, this court would not award costs to the defendant in accordance with the normal rule for setting aside an irregular judgment mentioned in Hong Kong Civil Procedure 2017, vol 1, para 13/9/11 as Mr Ho submitted. In light of the exceptional circumstances of this case and having considered the parties submission on costs, I think it would be just and fair for this court to order the costs of the defendant s present application be the defendant s costs in the cause, and the plaintiff s costs of entering the default judgment be the costs in the cause. In particular, I have taken into account the factor that the trial judge would have the full liberty (and would not be in way fettered by the present findings of this court) to determine the nature and extent of the defendant s mental incapacity in dealing with the substantive merits of his defence after hearing all the witnesses giving their evidence in court who would also be subject to cross-examination. DISPOSITION By reason of the foregoing, I hereby order that the judgment be set aside. Leave be granted to the guardian ad litem representing the defendant to file and serve the Defence within the next 28 days. My costs order is that the costs of the defendant s summons be the defendant s costs in the cause with certificate for counsel, and the plaintiff s costs of entering the default judgment be the costs in the cause. I also order that the defendant s own costs to be taxed in accordance with the Legal Aid Regulations (Cap.91A, Sub. Leg.). Lastly, it remains for me to thank counsel for their helpful assistance. ( Simon Ho ) Deputy District Judge Mr Raymond Lau, instructed by Bough & Co, for the plaintiff Mr BK Ho, instructed by Lau & Chan, assigned by the Director of Legal Aid, for the defendant Since this is a money lender s action, leave of the Court to enter judgment in default of defence is required under Order 83A, r.4 of the Rules of District Court. Hearing Bundle ( )/25 Mr Ho rounded off the figure of HK$318,900 to HK$318,000. And, HK$318,000 / HK$700,000 x 100% = 45.42% HB/121, 124 According to the curriculum vitae stated in his medical report, among other things, Dr Leung is on the list of approved doctors for the purpose of section 2(2) of the Mental Health Ordinance (Cap136) as having special experience in the diagnosis or treatment of mental disorder. (HB/231/8) Ng Hong Ki, para. 35 of the judgment HB/237-238. Items 8 and 9 (as referred to by Dr Leung) are the relevant loan agreement of 20 March 2015 between the plaintiff and the defendant, and legal charge of 20 March 2015 executed by the defendant in favour of the plaintiff respectively. (HB/230) Dr Cheung s medical report, 5th paragraph (HB/123-124) Dr Chu s medical report, 5th paragraph (HB/120); Dr Cheung s medical report, 4th paragraph (HB/123) HB/63-64, 65, 66 HB/118 see: paragraph 4 above Moss v Mailings [1886] 33 Ch D 603 is not particularly relevant for the purpose of the discussion here. Order 70, rule 3 see: page 180 of the report [NB : The English counterpart of Order 2, rule 1(1) and 1(2) of the RDC (at the time of Kay J in Petty v Daniel) is Order 73 rule 1 of the then Rules of Supreme Court. see discussion at paragraphs 73-77 below see paragraph 12 above See also: para 43 of the judgment Moral Luck Finance, paras 12, 18 and 20 See also: Moral Luck Finance, para 41 HB/116-117 HB/123 A copy of Ricky Chan s business card was exhibited in Bonnie s affirmation HB/63-66 HB/117 According to Bonnie, the other cheques in respect of the balance was retained by the law firm for repaying OK Finance Ltd on his behalf and as first interest repayment installment payable to the plaintiff (HB/89-90/23). HB/130 see paragraphs 27-31 above Section 33A(5) is irrelevant to the present case Section 29(10) of MLO reads - (10) Any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender who charges, recovers or receives any sum as for or on account of any costs, charges or expenses (other than stamp duties or similar charges) referred to in section 27(3) or demands or receives any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof commits an offence. HB/149, 151 HB/92 ie HK$(427,000 285,000) (HB/90/24) $14,000 x 12 = $168,000 HB/194 /1 HK$(318,900 + 188,000) HB/194/2 The defendant borrowed such loan from Today Is Finance Ltd on 4 June 2015. The consultancy fee of HK$188,000 was also corroborated by a receipt issued by Hong Kong Construction on the same day. (HB/95-98/32-35; HB/157) HB/159 HB/159/1 To be correct or precise, the defendant s summons was taken out on 3 May 2016, ie about 4 months 10 days after the default judgment was entered into on 24 December 2015. (see: Plaintiff s skeleton submission, para 31) see Wing Lung Bank, p 376 C-F There is a minor discrepancy of HK$100 here which is immaterial for the present application and no point was taken by either party - The relevant receipt issued by Hong Kong Construction is in the sum of HK$284,900 only. As to the separate sum of HK$34,000 charged by Hong Kong Construction, it is also part of the consultancy fee charged in relation to the subject loan according to the defendant s case. Bonnie explained that after relevant law firm had refunded to the defendant a sum of HK$34,123.23 (being the balance of the HK$250,000 used to repay OK Finance Ltd) on 31 March 2015, the defendant also paid HK$34,000 to Jason Wong as per the latter s request on the same day. 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