CHOW WUN SING WINSTON v. YIU CHUN LUK

CACV 295/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 295 OF 2006

(ON APPEAL FROM HCMP NO. 2923 OF 2002)

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REASONS FOR JUDGMENT

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Hon Tang VP (giving the reasons for judgment of the Court):

Introduction

1.  The sole issue in this appeal is whether the plaintiff was a money lender within the meaning of the Money Lenders Ordinance, Cap. 163 (“the Ordinance”).  If so, being unlicensed, the plaintiff’s claim, inter alia, for the repayment of the loan of $2.5 million would have to be dismissed unless the court is prepared to exercise its discretion under section 23 of the Ordinance in his favour.

2.  Chu J, after the trial, decided that the plaintiff had not carried on a business of money lending.  That being the case, she did not go on to consider how she might have exercised her discretion under section 23.

The loan

3.  By a Chinese agreement dated 26 April 1995 (“the 1^st Agreement”), the plaintiff agreed to lend $2.5 million to the defendant to be secured by a mortgage on the property known as Flat D on 1^st Floor and Car Parking Space No. 14 on Ground Floor, Hillsea Court, No. 10 Cornwall Street, Kowloon (“the Property”).

4.  The loan was to be drawn down by 20 May 1995 and to be repaid within 24 months.  The interest on the loan was fixed at 15% p.a. which appeared to be 6% above the best lending rate, to be paid on a monthly basis.  The 1^st Agreement also provided for the payment by the defendant of a handling fee of $25,000 and a $1,000 valuation fee.

5.  On 8 May 1995, a mortgage of the Property was executed in favour of the plaintiff by the defendant at Messrs KC Tsang & Co (“KCT”).  As at the material time the Property was mortgaged to the Hang Seng Bank, $837,221.47 was paid to the Hang Seng Bank to redeem the mortgage.  After deducting the redemption money and the fees and charges of KCT, a sum of $1,640,113.53 was paid to the defendant.

6.  The defendant had duly paid the interests, and the handling and valuation fees to the plaintiff.  However, at the end of 24 months, the defendant did not repay the principal.  By a Chinese agreement dated 8 May 1997 (“the 2^nd Agreement”), the loan was extended for another 12 months on the same terms.  Similar extensions were made in subsequent years by four Chinese agreements dated 8 May 1998, 8 May 1999, 8 May 2000 and 8 May 2001 respectively (“the 3^rd to 6^th Agreements” respectively).  The last extension was up to 7 May 2002.  The new agreements were on same terms as before except that under the 5^th and the 6^th Agreements, the annual interest rate was reduced to 5% above the best lending rate.

7.  Since about October 2001, the defendant has defaulted in the payment of interests which eventually led to the claim by the plaintiff against the defendant.

8.  The defendant is a university graduate and has some 30 to 40 years of experience in business.  It appeared that he was in the business of the import and export of toys as well as owning a factory in the Mainland.  It is the defendant’s case that in about April 1995, he was in need of capital for his factory in the Mainland.  He wanted a second charge on the Property with the Hang Seng Bank, but it was suggested to him that he should approach Chow Sang Sang Finance Limited (“CSS Finance”).  In that connection, he met a Mr Lee Yik Moon, Alex (“Alex Lee”).  Alex Lee was and is the assistant leasing manager of Chow Sang Sang Nominees Limited (“CSS Nominees”).

9.  The plaintiff is a director of Chow Sang Sang (“CSS”) Holdings International Limited (“CSS Holdings”), which is a listed company and has a number of subsidiaries.  He is also a director of CSS Finance and CSS Nominees, which are companies within the CSS group of companies.   The plaintiff’s father and uncle are also the directors of these companies. 

10.  Between 1988 and 2001, CSS Finance held a money lender licence.  According to the plaintiff, the borrowers were mainly purchasers of properties developed by the CSS group.  Also according to the plaintiff, since about 1993, it had scaled down its lending business and very few new loans were made.

11.  CSS Nominees was engaged in the sale and purchase, management and leasing of properties for the CSS group.  It also provided services to the directors of the group, including the plaintiff and his father and uncle and their companies.

12.  The plaintiff’s uncle is also a shareholder and director of a company called Happy Family Limited (“Happy Family”), which was not a company within the CSS group.  Between 1994 and 2003, Happy Family held a money lender licence.  It did not actively solicit customers, but only took on referral customers, for example, borrowers referred by solicitors firms.

13.  This is what the learned judge said in her judgment:

“30.   The evidence of the plaintiff and Alex Lee is that the defendant was referred to him by the clerk in KCT.  Happy Family was not prepared to grant a loan to the defendant.  On the suggestion of the plaintiff’s father, Alex Lee approached the plaintiff to ask whether he was agreeable to make a personal loan to the defendant secured by the Property.  The plaintiff was apprehensive in the beginning, but eventually agreed to it after Alex Lee assured him of his assistance in managing the loan and having regard to Alex Lee’s valuation of the Property.  Alex Lee then reverted to the defendant that while the finance company was not prepared to lend, a friend of his would be able to make a personal loan to him secured by a mortgage on the Property. 

31.    Eventually, KCT was instructed to prepare a mortgage.  The plaintiff paid $2.5 million to KCT by way of a cashier order.  The 1^st Agreement and the Mortgage were subsequently executed.  At the time the defendant signed the 1^st Agreement, Alex Lee had gone through the terms with him.  A receipt signed by the plaintiff was given to the defendant for the handling fee paid. Out of the $25,000 handling fee received, $12,500 was later paid to a Tang Che Lam of KCT on Wan Po Ka’s instruction as introduction fee.  The copy of the cheque and the receipt were in evidence.  As for the $1,000 valuation fee, it was paid to CSS Nominees as Alex Lee was its employee.

32.    Thereafter, Alex Lee was responsible for the management and dealing with the documentation of the loan.  He prepared the notices on changes of interest rates, the letters demanding payment of interest in arrears and payment of premiums for renewing insurance policies and the like.  He would give them to the plaintiff’s secretary for engrossment and then to the plaintiff for signature.  Alex Lee was also responsible for liaising with the defendant in connection with the loan and for dealing with the extensions of the loan when the term expired.

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35.    Shortly before the commencement of the trial, the plaintiff voluntarily disclosed that he had on 18 December 1995 lent $1.8 million to a Mr Yeung Chak Lung (楊澤龍) on terms similar to those of the 1^st Agreement.  This was also arranged through Alex Lee and the sum had been repaid.   Both the plaintiff and Alex Lee were unable to recall the detailed circumstances surrounding this loan owing to lapse of time.  The plaintiff said these two loans were the only loans he had made to people he did not know.  He denied carrying on the business of money lending.”

14.  The learned judge was satisfied that the plaintiff and Alex Lee were reliable witnesses and that their evidence were to be preferred to that of the defendant.  In particular, she said:

“41.   … The voluntary discovery of the loan to Mr Yeung by the plaintiff, though belated, is demonstrative of the open and candid approach he takes with regard to this piece of litigation.”

15.  In considering the defence under the Ordinance, the learned judge correctly pointed out that the test for determining whether a person was carrying on the business of a money lender was whether at the time of the loan, the business of the person was that of making loans, which is a question of fact to be decided by reference to the facts and circumstances of each case.  Conroy v Kenny [1999] 1WLR 1340.

16.  Then she correctly pointed out that the fact that there was a certain degree of system and continuity was a relevant factor but not determinative.

17.  The learned judge went on to say:

“71.   It appears the main thrust in the defendant’s case that the plaintiff was carrying on the business of money lending is that the terms of the 1^st Agreement and the documentation of the loan were clear and properly prepared, and that the plaintiff had kept a good record of the interest payments and had computer-generated repayment schedules.  It is said that the plaintiff had used elaborated loan documents and kept in place a sophisticated system of management.

72.    There is no doubt that the 1^st Agreement was properly drafted and prepared and the loan was by and large well documented and managed.  However, in considering whether these are good and clear indicators of the plaintiff being in the business of money lender, it is important not to lose sight of the fact that the plaintiff had entrusted the tasks of setting up and arrangement of the loan and the subsequent management with Alex Lee.  It is not disputed that Alex Lee was experienced with mortgage and money lending matters as he had been helping with the businesses of Happy Family and CSS Finance.  Alex Lee gave evidence that he prepared and drafted the documents for the loan and in the process, had consulted precedents used by Happy Family and CSS Finance.  It is also his evidence that he had adopted the practices of these companies in managing the loan for the plaintiff. 

73.    In the circumstances, there is no surprise that terms such as “貴户”, which is a reference to the defendant as a customer, and “本公司”, which is inapt as the plaintiff is an individual and not a company, had been employed in the notices and letters sent to the defendant.  Likewise, given Alex Lee’s experience and the resources available to him, it is only natural and logical that the loan is generally well documented, so much so that notices of fluctuations in interest rates and warnings of imposition of default interest on late payments and the like were sent to the defendant.  For the same reason, there is nothing untoward about the computer-generated repayment schedules.  Alex Lee had testified that they were produced from a computer software kept in CSS Nominees for the use of the CSS group, including CSS Finance and companies of the plaintiff’s father. 

74.    The fact that the loan agreements and the related documents were properly prepared and that the loan was well documented and managed, when viewed in the context of the case, do not amount to indicia of the existence of an elaborated and sophisticated system of money lending, or of the plaintiff being in the business of money lending.”

18.  She then concluded that the facts were consistent with an individual making an investment by lending at remunerative interest rates and with proper security.  She concluded that the defendant has failed to prove by direct or indirect evidence that the business of the plaintiff at the material time was making loans.

19.  Mr Roy Lau, for the defendant, acknowledged that unless the learned judge’s conclusion could be shown to be clearly wrong, we are not entitled to interfere.

20.  Mr Lau submitted that the learned judge was wrong in her assessment of the evidence.  In particular that she had paid no or insufficient regard to the fact that handling fees and the valuation fees had been paid.  Nor that the interest rate was 6% above the best lending rate, and there was an insurance policy taken out with nominated insurers to cover the security.  Mr Lau also emphasised the business-like administration of the loan both initially and ongoing.

21.  We accept that the plaintiff was business-like in his approach towards the loan.  That is a relevant factor in deciding whether or not he was carrying on a business money lending.  But being business-like is not in itself conclusive evidence that he was carrying on a business.  Nor can we agree that the learned judge had given no or insufficient consideration to the handling and valuation fees.  It is clear from the repeated references to the payments of such fees in the judgment that the learned judge could not have overlooked them.  Nor do we agree the fact that she had not expressly referred to them when dealing with the money lending defence meant that she had failed to have regard to them.

22.  Although the fact that the plaintiff only made two loans (to the defendant and Mr Yeung) does not mean that he could not have been carrying on a business of money lending, the small number of loans is consistent with his evidence, which was accepted by the learned judge, that he was not carrying on a business of money lending.  Indeed, given the plaintiff’s background, if he was running a business of money lending on the side, it is surprising that he should have made so few loans.

23.  In all the circumstances, we were clearly satisfied that there was no basis upon which we could interfere with the decision of the learned judge.  For that reason, we dismissed the appeal with costs.