MORALES ELISA GALLETO v. CORRIENTE NENETE MANEJERO

HCSA 38/2015

SMALL CLAIMS TRIBUNAL APPEAL NO. 38 OF 2015

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM

NO. 7747 OF 2014)

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J U D G M E N T
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1.  This is an appeal from a decision of Mr Naniel WS Chan, adjudicator of the Small Claims Tribunal pursuant to leave granted by me on 20 August 2015.

2.  The claimant claimed repayment of two loans of HK$26,400 and HK$2,750 from the defendant.

3.  The defendant did not dispute the 2nd loan of HK$2,750 which was interest free.  But she denied of having borrowed HK$26,400 from the claimant.  Her case of how her indebtedness to the claimant had come about, which was supported by exhibits D12 and D13, was accepted by the adjudicator as a matter of fact.

4.  She said the claimant first lent HK$5,000 to her in October 2010.  She did not make repayment until November 2011.  No interest was charged until then.  From November 2011 onwards, interest at the monthly rate of 15% was charged on the HK$5,000.  By June 2012, the monthly interest of HK$750 which a total sum of HK$5,250.  In August 2011, the claimant lent the defendant a further sum of HK$1,880.  The total sum owed by the defendant to the claimant in June 2012 had become (HK$5,000 + HK$5,250 + HK$1,880 =) HK$12,130.

5.  The claimant then charged the defendant monthly interest of HK$1,200 or about 10% on the sum of HK$12,130 from June 2012 to June 2013.  The total amount of interest as at June 2013 was HK$14,400.  The total sum of principal and interest owed by the defendant as at June 2013 was (HK$12,130 + HK$14,400 =) HK$26,530.  This is the sum stated in exhibit D13 which is in the claimant’s handwriting.

6.  There is a difference of HK$130 between this sum and the sum of HK$26,400 claimed by the claimant.

7.  There is no dispute that the defendant repaid HK$5,000 to the claimant in August 2013.  Hence, the balance should be (HK$26,530 + HK$2,750 (interest free loan) – HK$5,000 (repayment) =) HK$24,280.

8.  The claimant’s claim is however at (HK$26,400 + HK$2,750 (interest free loan) – HK$5,000 (repayment + HK$50 =) HK$24,200.  The extra HK$50 is the sum paid by the claimant to another friend when she advanced the HK$2,700 to the defendant.

9.  But the adjudicator accepted the defendant’s case and rejected the claimant’s case as a matter of fact.

10.  It is thus clear that the claimant had charged the defendant a monthly interest of about 10% on the sum of HK$12,130 from June 2012 to June 2013.  The sum of HK$12,130 included the original loans of HK$5,000 and HK$1,880.  The monthly rate of 10% far exceeded the maximum rate of 60% per annum fixed in section 24(1) of the Money Lenders Ordinance, Cap 163.

11.  Sections 24(1) and (2) of the Ordinance provide:

“24. (1) Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.

(2) No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).”

12.  Since the 10% pm rate far exceeded 60% fixed in section 24(1) of the Ordinance, the loan in the sum of HK$12,130 (which included the original loans of HK$5,000 and HK$1,880 and on which the excessive rate of interest accrued) and the interest thereon at HK$14,400 are irrecoverable.

13.  I also refer to the Court of Appeal decision of Wong Ming Wai v Tsui Kam Ming trading as Tung Tai Construction Co, CACV 179/1999 (14 October 1999) where Rogers JA said at p4:

“It follows that the loan is irrecoverable if it is in excess of 60%. The Court is not able to re-open the agreement between the parties under section 25 of the Ordinance because section 25 starts with the words in sub-section (1) ‘Subject to section 24(2)’ which clearly indicate that, if the particular loan falls foul of the provisions of section 24, the matter cannot be re-opened by the Court.”

The learned judge further said at p5:

“In conclusion, I would say that I have some sympathy for the Plaintiff who clearly made a loan of a million dollars and now finds it irrecoverable. But, in my view, the provisions of the Ordinance are clear and this appeal should be dismissed.”

14.  The only sum recoverable is the HK$2,750 loan which remained interest free.  However, this loan was fully repaid by the HK$5,000 repaid by the defendant to the claimant in August 2013.  The claimant could not have appropriated the whole of the HK$5,000 repayment to the irrecoverable loan of HK$12,130 or this loan plus interest totalling HK$26,400 as a creditor cannot appropriate a repayment to an illegal or irrecoverable demand.  I refer to §21-064 of Chitty on Contracts, 32^nd edition:

“Creditor may not appropriate to an illegal or irrecoverable demand. The doctrine of appropriation does not entitle a creditor who receives money on account from his debtor to apply it towards the satisfaction of a debt due under an illegal contract, or to a claim which does not constitute any legal or equitable demand against the debtor. Thus where the creditor makes two demands on his debtor, one arising out of a lawful contract, and the other out of an illegal contract, any payment by the debtor which is not specifically appropriated by the debtor must be applied to the lawful demand.”

15.  In the premises, the claimant cannot seek any repayment from the defendant.

16.  The adjudicator awarded HK$13,120 to the claimant with costs at HK$391.60 because he thought that he could recalculate the amount of interest at 60%.  This is an error of law.  I therefore set aside the adjudicator’s award and dismiss the claimant’s claim.

17.  I also order that all sums paid by the defendant into the Small Claims Tribunal with the view, to be released to the claimant, are to be released back to the defendant forthwith with interest thereon if any.

18.  I also make a costs order nisi that the costs of the appeal and below to the defendant to be taxed.

19.  I also order that the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.