TREASURE SPOT FINANCE CO LTD v. LI CHIK MING AND ANOTHER

HCA 5387/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5387 OF 2001

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J U D G M E N T

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1.  This judgment is to be read together with my earlier Judgment handed down on 7 September 2007 (“my earlier Judgment”).

2.  In my earlier Judgment, I held in paragraph 134 thereof that the 3 loans in question had been rendered illegal and unenforceable by reason of sections 18(1) and (2), 29 (4) (a) and 22 (1) (c) of the Money Lenders Ordinance Cap. 163 (“the Ordinance”).

3.  The question which remained was how I should exercise my discretion under sections 18 (3) and 22 (2) of the Ordinance.  As I had heard no argument at all by the parties on this question, I therefore directed them to come back and address me on the same.

4.  I have now heard argument by Counsel and been referred to the relevant authorities.  The Plaintiff is still represented by Mr Peter Ng SC leading Ms Grace Chow.  The 1^st Defendant was represented by Miss Eling Lee alone; she is now being led by Mr Jason Pow SC.  I am most grateful to Counsel on both sides for their legal research and detailed submissions.

5.  I should add that, at the beginning of the hearing on 26 October 2007, Mr Pow SC made an application for one of the witnesses for the Plaintiff, namely, a Mr Yu Chi Keung Danny, to be recalled for cross-examination.  Mr Ng SC opposed the application and submitted that no further evidence should be adduced by both sides.  In the end, I ruled against Mr Pow SC and dismissed his application.  Such ruling made on 26 October 2007 has also been reduced into writing.

The Law

6.  I now set out the two sub-sections in the Ordinance under which I have to exercise my discretion.

7.  Section 18 (3) of the Ordinance reads as follows : -

“

(3)

Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.”

8.  Section 18 (1) of the Ordinance sets out the requirements on a moneylender for the making of a note or memorandum in writing in accordance with the details set out in subsection (2) and for the supplying of a copy of the same to the borrower.

9.  Section 18 (1) of the Ordinance has been set out verbatim in paragraph 83 of my earlier Judgment.

10.  Section 22 (2) of the Ordinance reads as follows : -

“

(2)

Notwithstanding subsection (1), if the court before which the legality of any agreement comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement which does not comply with this section should be held to be unenforceable, the court may order that such agreement is enforceable to such extent, and subject to modifications or exceptions, as the court considers equitable.”

11.  Section 22 (1) of the Ordinance prohibits and makes illegal the charging by a money lender of compound interest or interest at a rate or an amount to be increased by reason of an default in the payment of sums due under a loan agreement.

12.  Section 22 (1) of the Ordinance has been set out verbatim in paragraph 93 of my earlier Judgment.

13.  On the face of the them, both sections 18 (3) and 22 (2) give the court a very wide discretion.

14.  It is also common ground between Mr Ng SC and Mr Pow SC that the burden is on the moneylender, i.e., the Plaintiff, to persuade the court that the discretion should be exercised in its favour.

15.  Mr Ng SC on the other hand submits that the burden being on the Plaintiff does not mean that the Plaintiff has to prove its “innocence”, “e.g., no deliberate or systematic breaches of the MLO; no deliberate use of the English language to mislead customers; omission of some of the terms in the Offer Letters from the memoranda was not deliberate”.  He further submits that the court is entitled to act on all the evidence before it and that the mere fact that the Plaintiff’s witnesses have not provided an explanation to some of the matters now relied upon by the 1^st Defendant does not mean that the court should make a finding that the failure to comply with sections 18 and 22 of the Ordinance must be deliberate.  If there is no evidence one way or another, the court should simply not make any findings.

16.  I have also been referred to a number of decided cases by the parties.  I shall deal with them below.

17.  Mr Ng SC relies mainly on two cases in the Court of Final Appeal.  The first case is Emperor Finance Ltd. V. La Belle Fashions Ltd. (2003) 6 HKCFAR 402.  In that case, P₁ was a broker trading in futures.  P₂ was a licensed money lender closely associated with P₁.  D₁ and D₂ opened futures accounts with P₁ with D₃, a director of D₁ and D₂, acting as their guarantor.  The futures accounts were linked to finance accounts for D₁ and D₂ held with P₂.  The purpose of linking the two sets of accounts was that margin calls could be automatically satisfied.  At the end of each trading week, P₁ would transfer any profit from D₁ or D₂’s futures account into the related finance account as a credit.  The finance accounts were operated pursuant to a number of documents including a memorandum executed by P₂ purportedly under the Ordinance.  The documents were signed by D₃, on behalf of D₁ and D₂, but she did not receive a separate copy for herself within 7 days.  The rate of interest chargeable on debit balances was 3% over the best lending rate quoted by a particular bank “or at such rate as from time to time is agreed”.  The loan limit was $1 million only.  The loans were repayable on demand.  Following a considerable fall in the stock market, P₁ and P₂ sued D₁ and D₂ for debit balances in the finance account considerably greater than $1 million.  The trial Judge found for the Plaintiffs.  The Defendants appealed to the Court of Appeal and succeeded.  The Plaintiffs appealed to the Court of Final Appeal which reversed the decision of the Court of Appeal.

18.  The Court of Final Appeal first found that there had been breaches of the Ordinance by the moneylender and then considered the exercise of the discretion.  These matters were dealt with in the leading Judgment of Ribeiro P J at pages 442 – 443 as follows : -

“	(vii)	The court’s discretion under s.18(3)
		116.	By way of summary, it is my view that Finance committed two breaches of the Money Lenders Ordinance, namely :
			(a)	breach of s.18(1) in failing to prepare, provide or obtain the borrowers’ signature on a memorandum in respect of the loans made over-topping the $1 million credit facility in each case; and
			(b)	breach of s.18(2)(i) in that adoption of an interest rate of 3% above the HSBC best lending rate involved a failure to set out the rate of interest charged on the loan expressed as a rate per cent per annum.
		…………………………………………………………………..
		119.	In exercising its discretion, the court should examine the breach or breaches in question, their consequences for the parties to the transactions and any other circumstances which may make it inequitable to hold the agreements unenforceable.  In my judgment, it is clear that upholding unenforceability in this case would be inequitable and accordingly that the Court’s discretion should be exercised in Finance’s favour so that its claims against La Belle, Hubbard and Madam Ng are enforceable in full.
		120.	In relation to the first breach, involving s.18(1) and the over-topping credits :
			(a)	On the basis of the Judge’s findings which have never been disturbed, the excess credit was granted and the funds consumed in meeting the Exchange’s margin requirements as a result of Madam Ng’s insistence on maintaining La Belle’s 21 open positions.  Madam Ng could, at any time, have closed those positions and thereby prevented or stopped the build-up of debt on her finance account.  But she chose not to do so, trusting her own judgment of the market.
			(b)	While she did not receive statutory memoranda setting out the terms upon which such additional credit was given, such credit was extended on the same terms as applied to the documented $1 million loans and there has been no suggestion that Madam Ng was in any way misled about or uncertain as to what those terms were.
			(c)	Madam Ng received daily statements showing the precise status of her finance and trading accounts and therefore was in fact kept informed as to her financial position vis-à-vis Finance after each trading day.
			(d)	The statutory policy is now to permit corporations licensed to carry on a business in securities margin financing under Pt. V of the Securities and Futures Ordinance to be exempt from the requirements of the Money Lenders Ordinance, which may be interpreted as recognition that there is room for easing some of the constraints posed by the legislation on the provision of finance for properly regulated margin trading activities.
		121.	Similar considerations apply in respect of the second breach.  In particular, while the Memorandum, by using a floating rate, failed to satisfy the requirements of s.18(2)(i), the amount of interest charged was in fact calculated and stated in dollars and cents in the statements Madam Ng received on a daily basis.
	(f)	Conclusion
		122.	I would accordingly allow this appeal and set aside the judgment of the Court of Appeal in respect of Finance, restoring the orders made by Deputy Judge Poon in favour of Finance.”
	(emphasis added)

19.  The second case in the Court of Final Appeal relied on by Mr Ng SC is the case of Strong Offer Investment Ltd. (In Liquidation) V. Nyeu Ting Chuang [2007] 3 HKC 234.  In that case the respondent, Strong Offer Investment Ltd. (“Strong Offer”) and one Okachi Investment (HK) Co. Ltd. (“Okachi”) were both subsidiaries of a Japanese company called Okachi & Co. Ltd..  Strong Offer was a licensed moneylender and Okachi a stockbroker.  The appellant (“Nyeu”) was a highly educated person and an experienced investor.  From 1995, Okachi and Strong Offer respectively provided Nyeu with facilities and loans to enable him to trade in securities on margin.  The margin accounts were governed by a loan agreement.  Although the trading was operated through Nyeu’s agent, reports were faxed to Nyeu almost on a daily basis and shortly after each transaction.  All bought and sold notes and account statements were sent to him at the end of each month.  In 1997, as a result of the stock market crash, margin calls were made on Nyeu.  When he failed to satisfy such calls, his shares were liquidated and the resultant indebtedness was claimed against him.  It was not disputed that certain terms and conditions of the loan agreement were in breach of the documentary requirements under the Ordinance.  The trial Judge held that the breaches were technical and exercised his discretion under section 18(3) of the Ordinance in ordering enforcement of the loan agreement.  Nyeu appealed and lost in the Court of Appeal.  He further appealed to the Court of Final Appeal and his appeal was again dismissed.  It should be noted that in that case there appears to be no high rate of interest in point.  In any event, in situations such as those in that case, one would not expect the broker or the associated finance company to charge a high rate of interest because the emphasis would be on the brokerage fee rather than the interest on the loans.

20.  Mr Ng SC submits that the abovementioned two cases in the Court of Final Appeal support his proposition to the effect that : -

(i)	the modern-day philosophy is to treat the moneylender and the borrower on more or less an equal footing and that all decisions in the Courts prior to those two cases should be read subject to them;
(ii)	the borrower must show that he has been prejudiced by the breach of the Ordinance on the part of moneylender before the Court should declare the loan agreement to be unenforceable.

21.  For the proposition set out in paragraph 20 above, Mr Ng SC relies on, inter alia, the following dicta in the judgment of Chan PJ in the Strong Offer case : -

“	19.	On the other hand, the statute is not intended to stifle genuine money-lending transactions or to let the money lender lose all the money he has lent out and all the security he has because of a failure to comply with all such requirements, however trivial or unintentional the breach may be.  Hence, where it is not inequitable to do so, the court would enforce the loan agreement with suitable variations, modifications and exceptions.  This is the discretion given to the court by s 18(3).
	20.	In resolving any dispute between the money lender and the borrower, therefore, there should be no pre-conceptions either in favour of or against the money lender or the borrower.  The statute has sought to strike a fair balance between the two parties.  In applying the provisions of s 18, the court has to bear in mind, among other things, the parties’ respective rights and obligations under the statute as well as the agreement made by them.  See Ribeiro PJ in Celestial Finance Ltd v Yu Man Hon & Ors (2004) 7 HKCFAR 450 at para 21.
	…………………………………………………………………….
	33.	All these are valid criticisms.  But the matter does not end there.  Such breaches do not automatically disentitle Strong Offer from recovering its loans.  The court has still to conduct a balancing exercise having regard to the equities in the case and decide whether it would be inequitable not to enforce the loan agreement.  The breaches, which were in one sense deliberate and repeated and not merely technical, necessitate an appeal for an exercise of the court’s discretion.  In this context, there are two matters which must be taken into consideration.  First, Mr Nyeu did not seem to have been prejudiced or affected in any way by these breaches.  (I shall deal with the question of prejudice more fully below.)  Secondly, there was the 2002 amendment to the Ordinance giving exemption for money lenders which are licensed to conduct business in securities margin financing under Part V of the Securities and Futures Ordinance.  While this amendments does not avail Strong Offer in the present case, the fact that the legislature saw fit to grant such an exemption to this type of money lending transactions is clearly also a relevant circumstance which cannot be ignored by the court.”
	(emphasis added)

22.  On the need for the borrower to show prejudice suffered as a result of breach of the Ordinance by the moneylender, Mr Ng SC also relies on paragraphs 120 and 121 in the judgment of Ribeiro PJ in the Emperor case as set out in paragraph 18 above.

23.  On behalf of the 1^st Defendant, Mr Pow SC relies on a number of cases decided prior to the Emperor case.  The first is Lee Wang Investment Co. Ltd. V. Leung Boon Sing (HCA 14024 of 1983) (the unreported judgment of Deputy Judge Nazareth (as he then was) handed down on 14^th January 1985).  In that case the defendant borrower who was acting in person made various allegations against the plaintiff moneylender such as that she signed a blank promissory note and cheque which the plaintiff completed wrongly and without her authority.  The learned Judge found against her on her allegations but then went on to deal with the question of illegality under the Ordinance as raised by the defendant.  The following paragraphs in the judgment are relevant : -

“	32.	So on the pleadings, I would have no difficulty in finding for the Plaintiff.  But in her final address, the Defendant submitted that the promissory note was not made out in accordance with the law, in that there were no words printed on the form as to the rights of the borrower provided by law.  She did not elaborate.  Mr Fung for the Plaintiff submitted that, it was not open to the Defendant on her pleadings to make such a submission.
	…………………………………………………………………….
	36.	The question therefore is whether section 18(1)(a) was complied with, and if not whether that failure could be raised by the Defendant or acted upon by the Court despite the pleadings.  There is no evidence whatsoever on record that the summary, which is prescribed in the Third Schedule to the Money Lenders Regulations, was included in or attached to the promissory note or cheque.  On the contrary its absence from all the documents exhibited which on their face seem complete suggests that it was not.  The probability must therefore be that it was not included or attached, and I so find.
	…………………………………………………………………….
	38.	Under its provisions, failure to comply with section 18(1) of the Money Lenders Ordinance is not illegal, but merely results in relevant agreements and securities being unenforceable.  Nonetheless such failure would seem to fall squarely within each of paragraphs (a), (b) and (c).  Is the Court therefore precluded from having regard to that failure?

[It should be noted that under section 29(4) of the Ordinance currently in force, failure by the moneylender to supply the summary under section 18(1)(b) thereof constitutes an offence.]

	43.	In cases of illegality, it is clear that regardless of any omission in the pleadings to raise that question, the Courts are entitled to have regard to and to act upon it.  Indeed the Courts will not lend themselves to enforcement of fraudulent and illegal contracts.  Shell v. United Finance Ltd. (1963) 3 All E. R. 50.  “I think that illegality, once brought to the attention of the Courts, overrides all questions of pleadings” for Donaldson J. (as he then was) in Belvoir Finance Co. v. Harold G. Cole & Co. (1969) 2 All E. R. 904.
	44.	But what of cases like the present, which do not involve illegality, but where agreements are merely unenforceable?  Understandably, the Courts might be reluctant to take as firm a line, and certainly, authority is relatively sparse.
	…………………………………………………………………….
	48.	In my finding not only has the Plaintiff failed to establish compliance with section 18(1)(b), but the evidence before me establishes a probability that no copy of the prescribed summary was included or attached to any of the Plaintiff’s documents concerned, including the promissory note.  It follows therefore that the promissory note is not enforceable.
	…………………………………………………………………….
	50.	It remains to be considered whether I should exercise my power under section 18(3) to declare the promissory note or cheque enforceable to any extent.  In considering whether it would be inequitable that the note and cheque should be held not to be enforceable in terms of section 18(3), I am to have regard to all the circumstances.  I consider that these include the object of the Money Lenders Ordinance, and that of the requirement for attachment or inclusion of the prescribed summary.  The latter incidentally alerts borrowers to their right under the Money Lenders Ordinance at any time to repay their loans together with interest up to the date of repayment.  Mr Hung in this respect maintained that loans could not be repaid before the date the promissory notes fall due; indeed he said that the amount of interest for the entire period of the loan was deducted before the loan was paid to the borrower.
	51.	Furthermore the rate of interest was 54% p.a., which is in excess of the rate of 48% specified in section 25(3) and therefore presumed to be extortionate under section 25.  The transaction could on that ground have been reopened under section 25.
	52.	But the ordinary consequence of such reopening would be to reduce the rate of interest to an equitable level where that was necessary.  But as to the Courts’ discretion under section 18(3) to enforce agreements and security rendered unenforceable by section 18(1), I have been neither referred to nor been able to discover any authority on the principles in accordance with which it is to be exercised.  As I have said, I must have regard to all the circumstances and some of these I have already mentioned.
	53.	To proceed to others, although on the probabilities I have accepted the Plaintiff’s version of material events, there are disquieting features of those events that must be material to the exercise of the power under section 18(3).  The transactions involving Mr Cheung could have been even better organized and documented by the Defendant to show clearly the respective positions and liabilities of the Defendant and Mr Cheung.  If that had been done the Defendant might not have got herself so deeply involved.  Furthermore, it seems to me that the Plaintiff indulged in a degree of looseness and imprecision so as to be able to claim against both Mr Cheung and the Defendant.  When Mr Cheung’s second cheque was dishonoured, it was Mr Cheung that “Mr Hung first sought, and only turned to the Defendant when he could not be located.
	54.	I have no reason to doubt that Mr Hung asked the Defendant to put business his way; Mr Hung did not deny this.  It is probable, as suggested by the Defendant, that this led to her transactions with the Plaintiff involving, Mr Hung.
	55.	The Defendant’s husband, who was known to Mr Hung, is a dentist and it is not improbable that the Plaintiff considered that if the Defendant ultimately defaulted in the repayment of loans, he could be persuaded to pay.
	56.	Mr Hung could not have been unaware of the pressure under which the Defendant was when she came to sign the promissory note and cheque.  I also consider it relevant that the Defendant does not appear to be a particularly wealthy woman.  Moreover although intelligent, she did not strike me as a prudent or mature woman.nbsp;The Plaintiff seems to me to have been too ready to advance large sums for speculation.
	57.	Finally I consider that in rendering agreements and securities that contravene section 18(1) unenforceable, the Legislature must have intended that to be the ordinary consequence.  That object would be undermined by overgenerous exercise of the power under section 18(1).
	58.	In all the circumstances, while I consider that it would be inequitable that the entire loan should be held to be unenforceable, I think it would be equally inequitable that it should be enforceable in its entirety.  Bearing in mind all the foregoing matters I consider that the promissory note should be enforced only as to one half of the principal sum and not at all as to interest prior to judgment.  There will accordingly be judgment for the Plaintiff in the sum of $104,061.20, with interest at prevailing rates from judgment till payment.  In all the circumstances of this case, in particular the Plaintiff’s failure to establish that the promissory note and cheque upon which it sued were enforceable under section 18(1) of the Money Lender Ordinance, I make an order nisi that the Plaintiff is to have one half of its costs.”
	(emphasis added)

24.  The next case referred to by Mr Pow SC is Brother’s Company (a firm) V. Ah Puk Transportation (a firm) (HCA 3418A of 1985) (the unreported judgment of Mayo J. delivered on 7^th March 1986).  In that case, the interest payable by the borrower to the moneylender was at a rate of 46.8% per annum.  The moneylender accepted that it was not his practice to prepare a memorandum pursuant to section 18 of the Ordinance.  The learned Judge found “there has been virtually no attempt by the plaintiffs to comply with the requirements of the Money Lenders Ordinance”.  He then referred to and derived assistance from the a dictum by Woodhouse J. in the New Zealand case of Adams V. Paul’s Property Ltd. (1965) 7 N. Z. L. R. 161 which reads as follows : -

“

I think that in order to estimate ‘the nature, extent and effect’ of the original default the Court would need to take into account the way in which the transaction had developed.  Attempts by a moneylender during the course of the contract to make use of some objectionable feature of it could well have significance, in my opinion, just as the size of the principal sum still outstanding and its proportion to the original loan could influence a decision as to the equities, not only as between the parties but also in relation to the regulatory purposes of the Act as a whole.  I think that the circumstances to be taken into account should include such matters as the relative status of the parties, the nature and extent of the default, the way in which it arose, the implications for the borrower, and the attitude of the lender and the general appearance of the contract throughout.”

(emphasis added)

The learned Judge then goes on to deal with the exercise of his discretion in the following paragraphs in the judgment : -

“	12.	In considering the exercise of this discretion two matters stand out as being particularly significant.  The first is the rate of interest which was charged.  It is an extremely high rate of interest and does not fall very far short of coming within the category of extortionate loans.  The second feature I would refer to is what can best be described as the blatant disregard of the provisions of the Money Lenders Ordinance.8  It would appear from Mr Leung’s evidence that no attempt was made either with the defendant or any of their other customers to comply with the requirements of Section 18.  In none of the New Zealand cases which I have referred to were either of these features present.  In all of the cases the rates of interest were within reasonable bounds and some attempts had been made to comply with the requirements of the law.
	13.	I will next consider the passage in Woodhouse, J.’s judgment where he refers to attempts by the money lender during the course of the contract to make use of some objectionable features offered.  Mr Leung agreed when giving evidence that the consequence of proceeding in the manner the plaintiffs did and exchanging cheques was to enable the plaintiff to have complete control over the situation.  By holding undated or postdated cheques, they could at any time effectively call up the principal without necessarily communicating with the borrower.  If it suited them they could continue to receive a very high rate of interest while the borrower was able to continue to afford the payments.  It would seem to me that the plaintiffs placed themselves in a highly advantageous position and they achieved this by totally disregarding the relevant legislation.
	14.	I think that it is also necessary for me to consider the wider implications of this case.  What are the implications if I exercise this discretion in favour of the plaintiffs.  As I have already indicated they have chosen to disregard the provisions contained in Section 18 of the Ordinance.  If in a flagrant and obvious case such as the present one I exercise the discretion in favour of the plaintiffs there would surely be very few cases where it would be proper to withhold the exercise of the discretion.  This would mean that money lenders could disregard the operation of the law with virtual impunity.  I do not think that this is what was intended by Section 18(3).  Undoubtedly there are excellent reasons why the legislature chose to lay down the requirements contained in Section 18.  One of the reasons surely would be to help prospective borrowers from acting against their own best interests.  It is also clearly the intention that borrowers should be made fully conversant with their rights.  I can think that there would be few occasions when a court would be prepared to exercise this discretion in favour of a money lender who had made little or no attempt to comply with the requirements of the law.  It is perhaps worth observing in passing that the legislature appears to take a serious view of contraventions of the requirements of the Money Lending Ordinance.  Serious criminal sanctions are included in the Ordinance for non-compliance.
	15.	Having considered all of the matters which seem to me to be relevant, I have come to the conclusion that this is not a case where I can invoke the provisions of Section 18(3) in favour of the plaintiff.  The consequence of this is that the plaintiffs claim for the recovery of principal and interest is unenforceable.  It also follows from the wording of Section 18(1) that the plaintiff’s claim on the cheques also cannot succeed.  It is provided that no security given for monies lent can be enforceable if there has been non-compliance.  The result of all of this is that the plaintiff’s claim must be dismissed.  The defendant will be entitled to his costs.”
	(emphasis added)

25.  The next case relied on by Mr Pow SC is Sun Lai La and Another V. Simhan International Ltd. and Others (HCA 4537 of 1994) (the unreported judgment of Mr Recorder Kotewall SC delivered on 30^th July 1999).  The breach by the moneylender in that case was as summarised in paragraph 48 of the judgment :

“

48.

There is no dispute that in respect of both loans of $800,000 and $2m, the Plaintiffs were not provided with any note or memorandum in writing referred to in s. 18(2) of the Money Lenders Ordinance nor was any such document signed by the 1st Plaintiff.  Similarly, no statement in writing signed by or on behalf of the 2nd Defendant showing the total sum payable under the loan agreement or the various amounts comprised in that total sum with the dates when each sum became due was provided by the 2nd Defendant or any person to the 1st Plaintiff.”

On the principles relating to the exercise of the Court’s discretion under section 18(3) of the Ordinance, the learned Recorder referred to the cases of Lee Wang (supra), Brother’s Company (supra) and Adams (supra).  He further referred to a dictum of Bokhary J. A. (as he then was) in an Order 14 appeal in the case of Cheung Chow V. Cheung Ng Sheong Steven (Civil Appeal 119 of 1993) (the unreported judgment of the Court of Appeal delivered on 24^th November 1993) in which the learned Justice of Appeal said the following : -

“	Now, this branch of the law is to some extent a developing one.  There are not very many Hong Kong cases.  Our attention has been drawn to two.  The first is the decision of Deputy Judge Nazareth QC in Lee Wang Investment Co. Ltd. v. Leung Boon Sing High Court Action No. 14024 of 1983, January 14, 1985, (unreported).  The other is the decision of Mr Justice Mayo in Brother’s Company v. Ah Puk Transportation [1986] HKLR 821.
	It is at least reasonably arguable that, as those learned judges held at first instance, the courts should be slow to relieve money lenders who fail to comply with the Ordinance regulating their activities, since any other approach would be to frustrate rather than to promote the objects of such legislation.  One can understand that point of view, as money lenders are sometimes companies, and the financial penalty is not particularly high when it comes to the criminal sanctions for breaches of the provisions of the relevant legislation.  In a final appeal with all the facts having been investigated, as opposed to an interlocutory one with many relevant facts in issue, this Court would be in a position to give further guidance as to how the discretion is to be approached.
	If it be correct for the courts to approach their discretion in the way in which it was approached in the two first instance decisions which I have mentioned – and I do not think that we can rule that out at this stage – then it would be important to have a full picture of the activities in general of the money lender in question.”
	(emphasis added)

The learned Recorder found that the 1^st Plaintiff was not “a babe in the woods in the world of finance” but eventually refused to exercise his discretion in favour of the defendant moneylender because he came to the conclusion that the 3^rd defendant had been lying.  He said at paragraph 71 of the judgment : -

“

71.

I can hardly be well disposed to any form of concealment and dishonesty.  I have no doubt that s. 18(3) of the Money Lenders Ordinance was not meant to cure defects of formality based on and coupled with the device of under-valuing security supplied and compounded with untruthful evidence.  It would be grossly unjust and inequitable to give effect to the Sale and Purchase Agreement.  I cannot see my way to exercising the statutory discretion to declare the Sale and Purchase Agreement and the security of the residential property enforceable.”

26.  It is to be noted that none of the cases referred to me and relied on by Mr Pow SC as aforesaid has been referred to by the Court of Final Appeal in their judgments in Emperor and Strong Offer, although the Adams, Brother’s Company and Cheung Chow cases were cited to that court in the Emperor case.  It is also to be noted that Bokhary PJ who was a member of the Court of Appeal which decided the Cheung Chow case in fact presided in the Court of Final Appeal in both the Emperor and Strong Offer cases.

27.  Having considered all the cases, I have come to the conclusion that there has really been no change of philosophy or new school of thought in the Courts in relation to moneylenders cases as suggested by Mr Ng SC.  I believe that the Court of Final Appeal in the Emperor and Strong Offer cases has really set out guidelines for the exercise of the discretion in a more comprehensive and detailed manner than in the previous cases decided in the lower Courts.

28.  From these cases, I believe that the following guidelines (not necessarily exhaustive) for the exercise of the discretion can be extracted : -

(i)	The discretion given by sections 18(3) and 22(2) to the court is extremely wide and empowers it to look at all the circumstances in a particular case in arriving at an equitable result between the moneylender and the borrower.  (See the Judgment of Ribeiro PJ in the Emperor case at para. 119 and the Judgment of Chan PJ in the Strong Offer case at para. 20.)
(ii)	There is no single circumstance or set of circumstances which is decisive as to how the court should exercise its discretion in a particular case.  Each case must be decided on its own facts.
(iii)	The court will have to go through a balancing exercise in arriving at a decision.  (See the Judgment of Chan PJ in the Strong Offer case at para. 33.)
(iv)	The fact that an act or omission by a moneylender constitutes an offence (as provided under section 29(4)) or is specified to be illegal (as provided under section 22(1)) is not a factor which is decisive against the moneylender in the exercise of the court’s discretion, otherwise sections 18(3) and 22(2) would be meaningless and even self-contradictory.

The Exercise of Discretion in relation to the 1^st Defendant

29.  I now proceed to consider all the factors which I believe are relevant to the exercise of my discretion.  I deal first with the position between the Plaintiff and the 1^st Defendant.

30.  First, the relative status of the parties.

31.  The Plaintiff is in the business of lending money mostly to indigenous villagers in the New Territories.  It usually lends money and charges interest at high rates.  In the present case, the rate of interest was at least 40% per annum.

32.  The Defendant is now aged about 68 years.  According to Dr. Cheung’s Report (see paragraph 51 of my earlier Judgment), he was aged about 62 years at the time of the granting of the 3 loans in 2001.  He was brought up in a rural background in the New Territories.  He was of normal intelligence and had schooling up to Primary 5.  He had a fairly long record of mental illness and was admitted to the Castle Peak Hospital on 8 occasions between 1975 and 1989.  After his discharge from hospital, he had to be kept in stable condition by regular medication.

33.  According to the two witnesses for the Plaintiff, Mr Yu and Mr Woo, when the Defendants went to see them regarding the 3 loans, the 1^st Defendant appeared to be like any other indigenous villager and it was the 2^nd Defendant who was active and did all the talking.  Thus, the 1^st Defendant certainly cannot be likened to the borrowers in the Emperor and Strong Offer cases in which the borrowers were educated, intelligent and seasoned traders in securities or futures who were borrowing money for the purpose of investment or speculation in the market and who were kept fully informed about their debit positions at all times.

34.  I have already dealt with the question of the 5 demand notes in paragraphs 103 – 123 inclusive of my earlier Judgment.  In paragraphs 120 – 123 of my earlier Judgment, I pointed out the circumstances under which the 5 demand notes came to be put in issue and the reasons why I was not in a position to make any adverse finding against the Plaintiff regarding the same.  To a certain extent, it was unfortunate that the issue had not been properly raised at the appropriate time when the Plaintiff’s witnesses could have been questioned on the same.  If that had happened, I would probably have been in a position to make findings of fact which might have had some further bearing on how I should exercise my discretion under sections 18(3) and 22(2) of the Ordinance.

35.  I have further dealt with the breaches of the Ordinance by the Plaintiff in paragraphs 124 – 134 inclusive of my earlier Judgment.

36.  In some of the cases cited above, the Courts have adverted to the object of the Ordinance.  See, for example, the dictum of Bokhary J. A. in the Cheung Chow case set out in paragraph 25 above.  In the long title of the Ordinance itself, one of its purposes is stated as being “to provide protection and relief against excessive interest rates and extortionate stipulations in respect of loans”.  In the Strong Offer case, Chan PJ said the following in paragraphs 17 and 18 of his Judgment : -

“	17.	One of the principal objects of the Ordinance is to control and regulate money-lending transactions and to provide protection and relief against excessive interest rates and extortionate stipulations in respect of loans.
	18.	Section 18 offers one of the key protections to uneducated, ignorant and unsophisticated borrowers who may not be aware of all the terms and conditions under which the loans are made to them.  It seeks to impose certain requirements the compliance with which is a pre-requisite to the enforcement of the loan agreement against the borrower.  Section 18(1) provides that no agreement and no security shall be enforceable unless the following conditions are satisfied : (1) there must be a note or memorandum of the agreement in writing; (2) the note or memorandum must contain all the terms as required under s 18(2); (3) the note or memorandum must have been signed personally by the borrower; (4) the borrower must have been given a copy of the note or memorandum including a summary of the prescribed provisions of the Ordinance at the time of signing; and (5) the note or memorandum must have been signed before money was lent or the security was given.  (See also Emperor Finance Ltd v La Belle Fashions Ltd & Ors (2003) 6 HKCFAR 402 (the Emperor Finance case), per Ribeiro PJ at para 70.)  These conditions are imposed to ensure that a borrower is fully aware of and freely agrees to all the terms and conditions of the loan, and in particular knows exactly how much money he has borrowed and what interest he has to pay.”
	(emphasis added)

In the Emperor case, Ribeiro PJ said the following in paragraph 104 of his Judgment : -

“

It must, however, be recognized that the Ordinance’s policy of protection necessarily involves placing constraints on the way moneylenders do business.  They are not licensed banks and are not subject to the same prudential and regulatory requirements and so cannot expect to enjoy all the commercial advantages of banks.”

37.  Taking into account the respective background of the Plaintiff and the 1^st Defendant as enumerated above and the clear object of the legislation, it was incumbent on the Plaintiff to follow the procedure and comply with all the formalities laid down by the Ordinance strictly so that there could have been no opportunity or possibility for the 1^st Defendant to have been over-charged in any respect.  The fact that, as a result of an act or omission on the part of a moneylender, room is left or an opportunity can arise where the borrower can possibly be misled into paying more money than he should can in itself amount to prejudice against the borrower.  This is even more so when the Plaintiff was charging interest at a rate of 40% per annum or above.  In giving evidence, the 1^st Defendant certainly did not show that he was aware of the amount of the loans.  He kept on saying that he had only borrowed 3 sums of $150,000- each from the Plaintiff.  It is further to be noted that even at the trial the Plaintiff was still claiming default interest at the rate of 45% per annum.

38.  In my judgment and in the exercise of my discretion, a result which is equitable to both the Plaintiff and the 1^st Defendant would be produced by my ordering that the 1^st Defendant should make repayment to the Plaintiff in the sum of $1,113,044- (without interest) being the total of the sums of $410,084- and of $702,960- paid by the Plaintiff on behalf the 1^st Defendant to Currency Fortune for the purpose of redeeming the prior mortgages executed by the 1^st Defendant in favour of Currency Fortune.  (See paragraphs 15 and 26 of my earlier Judgment.)  I order that the 1^st Defendant does not need to make repayment of the remainder of the 3 loans because it is clear on the evidence that he did not have the benefit of it but the 2^nd Defendant did.

The Exercise of the Discretion in relation to the 2^nd Defendant

39.  The 2^nd Defendant has not appeared to defend the action against her.  On the evidence, she obtained the use of the money which formed the subject-matter of the 3 loans, except for the repayments to Currency Fortune referred to above.  As for the original loans obtained from Currency Fortune, it would seem that the probability is that she also had use of the money.  In any event, without her being in Court to put her case, I find it very difficult to exercise my discretion in her favour.

40.  In the circumstances, I order that judgment be entered against her and in favour of the Plaintiff for each of the 3 loans with interest thereon initially at the rate of 40% per annum for a period of one year and thereafter at the judgment rates until the date of this Judgment, i.e., 3^rd December 2007.  I have decided to adopt such a formula in the exercise of my discretion on the basis that the 3 loans (and the high rate of interest thereon) were for a duration of one year under each of the loan agreements and that the Plaintiff appeared to have delayed in prosecuting its claim against the Defendants.

41.  Of course, in the process of execution against the 2^nd Defendant, the Plaintiff cannot have double recovery and will have to give credit for whatever amount it will have recovered from the 1^st Defendant.

Order in relation to the 1^st Defendant

42.  I propose to make an order along the following lines : -

(i)	The 1st Defendant should make payment of the sum of $1,113,044- to the Plaintiff within 30 days from the date of the sealing of the order.
(ii)	Upon the 1st Defendant making the payment under (i) above, the 1st Defendant shall do all things necessary for the release and re-assignment of all security held by it for the 3 loans back to the 1st Defendant or to his direction.
(iii)	Should the 1st Defendant fail to make the payment under (i) above, the Plaintiff shall be at liberty to realize the security held by it for the 3 loans for the purpose of obtaining satisfaction of the said sum of $1,113,044-.
(iv)	The parties shall have liberty to apply for further directions in the working out and implementation of the order.

43.  I direct that Counsel for the Plaintiff and for the 1^st Defendant should consult together to produce agreed minutes of the order for my approval within 14 days from the date of the handing down of this Judgment.  I further direct that Counsel are at liberty to make proposals for adding provisions in the order which I have not specified above, if the need should arise, for my approval.

Order in relation to the 2^nd Defendant

44.  I invite Counsel for the Plaintiff to submit minutes of the order in relation to the 2^nd Defendant for my approval within 14 days.

Costs

45.  The effect of my ruling regarding the Plaintiff and the 1^st Defendant is that neither side has won or lost completely.  The Plaintiff who has obtained a judgment against the 1^st Defendant for a much smaller sum than that claimed has had to seek the Court’s relief on equitable grounds.  I take the view that a fair order is that each side should bear its own costs of the action.  I therefore make such an order nisi.

46.  The 2^nd Defendant has not taken part in the trial and therefore should bear no part of the costs thereof.  I make an order nisi that the 2^nd Defendant should pay to the Plaintiff the costs of the action but only up to the earliest moment when the Plaintiff could under the Rules of the High Court have obtained judgment against the 2^nd Defendant for failure to give notice of intention to defend.