GOOD TIME FINANCE LIMITED v. HKSAR

FAMC No. 30 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 30 OF 2013 (CRIMINAL)

(ON APPLICATION FOR LEAVE TO APPEAL

FROM HCMA NO. 835 OF 2009)

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REASONS  FOR DETERMINATION

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Mr Justice Fok PJ:

1. We dismissed this application for leave to appeal, with reasons to be provided later.  These are our reasons.

2. The applicant was convicted in the Magistracy[1] of one count of lending money at an effective rate of interest which exceeds 60% per annum contrary to section 24(1) and (4) of the Money Lenders Ordinance, Cap.163 (the MLO).

3. The conviction was upheld on appeal in the Court of First Instance.[2] The Judge[3] refused to certify that the appeal involved points of law of great and general importance.  The applicant renewed that application to this Court by way of amended notice of motion dated 7 August 2013.

4. The applicant had entered into a loan agreement (Exhibit P1) with PW1 to lend $160,000 to be repaid with interest by 60 equal monthly instalments of $7,086.  P1 purported to show that the interest rate was 2.76% per month and 33.15% per annum.  However, if the rate of interest for the loan was calculated in accordance with Schedule 2 of the MLO, it was in fact 65.2% per annum and therefore excessive.

5. In support of the application for leave to appeal, Mr Gerard McCoy SC focused his submissions on section 18(2)(i) of the MLO, which prescribes certain information which must be specified in a note or memorandum of a loan agreement in the absence of which the loan is not enforceable.  He submitted that section 18(2)(i) could be complied with by stating an actual rate of interest instead of a deemed rate calculated in accordance with Schedule 2 and that, if so, Schedule 2 was not applicable.

6. We were satisfied that argument could not avail the applicant in the present case on a charge under section 24, which has a different purpose to that of section 18.  Section 24 focuses on the “effective rate of interest” on a loan.  Section 2 of the MLO defines “effective rate” in relation to interest as being “the true annual percentage rate of interest calculated in accordance with Schedule 2”.  In the present case, that rate of interest was in excess of 60% and the section 24 offence was thereby established.

7. Further, and in any event, in the present case, it is not possible to comply with the first limb of section 18(2)(i) to state “the rate of interest charged on the loan expressed as a rate per cent per annum”, since an actual rate within section 18(2)(i) must be a single, constant rate charged on the entire loan and cannot apply to agreements where repayments comprise elements of both principal and interest: see Kwok Ying Lung v Ko Chi Hung & Anor [2001] 3 HKC 480.[4]

8. Mr McCoy’s argument, in order to avoid the consequences of Kwok Ying Lung, that “loan” in section 18(2)(i) should be read as meaning “principal” and that, in this case, the loan agreement did state an interest rate of 33.15% on the principal was not, in our view, reasonably arguable as a matter of construction.  Further, as Mr McCoy accepted, 33.15%, even as a rate of interest on the principal amount of the loan, was only a true statement of the actual interest rate for the first instalment of the loan.  Here, since the equal monthly repayments were to include both principal and interest, the amount of interest on the gradually diminishing outstanding principal would continually rise over the period of the loan.

9. Where, as here, repayments were to consist of principal and interest over time, the correct method of calculating the effective rate of interest is that set out in Schedule 2 to the MLO.  That methodology is applicable even if an interest rate is stipulated in the loan agreement, unless that interest rate is a true actual rate of interest under the first limb of section 18(2)(i).  In the present case, the 33.15% interest rate was not such a rate.

10. The applicant was rightly convicted of the offence under section 24 of the MLO.

11. For these reasons, the application for leave to appeal was dismissed.