CORNHILL DEVELOPMENT LTD. AND ANOTHER v. JOY LINE LTD. AND OTHERS

H.C.M.P. No. 3731 of 1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3731 OF 1997

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REASONS FOR JUDGMENT

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Introduction

1. This is an action brought by the lender (the 1st Plaintiff) and its assignee (the 2nd Plaintiff) against the mortgagors (the 1st and 2nd Defendants) and the borrower (the 3rd Defendant). The Plaintiffs' claim was based on a number of mortgages executed by the mortgagors in favour of the Plaintiffs and a loan and supplemental loan agreements executed by the borrower in favour of the Plaintiffs.

2. Having heard the submissions of counsel for the respective parties on 18 June, 1998, I found that no valid defence has been established by the Defendants. Judgment was therefore entered in favour of the Plaintiffs on 18 June, 1998. I indicated to the parties that reasons for my decision would be handed down later pursuant to R.H.C. Ord. 42 r. 5B(1) and (2). The following are the reasons for my decision.

Issues Between the Parties

3. It was common ground that:-

(a) the Defendants have executed the documents upon which the Plaintiffs' claim was based;

(b) money was (and is still) due from the Defendants to the Plaintiffs as claimed in this action, that is, the principal sum of some $75.8 million together with interest;

(c) subject to the one defence advanced by the Defendants, the Plaintiffs are entitled to enforce the respective mortgage and loan agreements (collectively "the Plaintiffs' documents") against the respective Defendants;

(d) compound interest and commitment fee were charged against the Defendants pursuant to the terms of the mortgage and loan agreements;

(e) the loans related to this action were and are "exempted loans" as defined in paragraphs 2 and/or 4 of Part 2 of Schedule 1 of the Money Lenders Ordinance, Cap. 163;

(f) the 1st Plaintiff is and was a licensed money lender carrying on the business of money lending.

4. The only defence advanced by the Defendants is that the Plaintiffs' documents contravened ss. 22 and/or 27 of Cap. 163; hence they were illegal and void and/or unenforceable. The Plaintiffs argued that these provisions do not apply to the Plaintiffs or the Plaintiffs' documents.

Relevant Provisions of the Money Lenders Ordinance

5. Section 22 of Cap. 163 renders any loan agreement made by a money lender illegal if, among other things, it provides for the payment of compound interest. The relevant part of this section is as follows:-

"(1) An agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for ... (a) the payment of compound interest ... ’(bold type and italics supplied).

6. Section 27 of Cap. 163 renders an agreement made by a money lender illegal if it provides for payment of any sum incidental to or relating to the negotiations for or the granting of the loan. The section reads as follows:-

"Any agreement entered into between a money lender and a borrower ... for the payment ... of any sum for or on account of costs, charges ... incidental to or relating to the negotiations for or the granting of the loan ... shall be illegal." (bold type and italics supplied).

7. Mr. Yu for the Plaintiffs argued that the term "a money lender" in ss. 22 and 27 of Cap. 163 does not apply to the Plaintiffs because of one of the exceptions provided for in the definition given to that term by s. 2 of Cap. 163. The statutory definition reads:-

"‘money lender' means every person whose business (whether or not he carries on any other business) is that of making loans ... , but does not include-

(a) a person specified in Part 1 of Schedule 1; or

(b) as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan" (bold type and italics supplied).

The Plain and Ordinary Meaning of "Money Lender"

8. Mr. Yu submitted that the statutory definition given to "money lender" by s. 2 of Cap. 163 should be given its plain and ordinary meaning. He submitted that the correct conclusion to be drawn from such meaning is that although a person may be a money lender, as respects an "exempted loan" made by that person, he is not considered to be a "money lender" and so ss. 22 and 27 of Cap. 163 can have no application to that loan.

9. Applying this reasoning to the present case, as respects the loans related to the Plaintiffs' documents, the 1st Plaintiff is not considered to be a "money lender". Consequently, ss. 22 and 27 of Cap. 163 can have no application to the Plaintiffs' documents.

10. In response, Mr. Lau for the Defendants submitted that the word "person" in sub-para. (b) of the definition section does not include a person who is already a money lender. To put it in another way, sub-para. (b) should be read as if it says: "as respects a loan specified in Part 2 of Schedule 1, any person (other than a money lender) who makes such loan" (bold type and italics supplied). A Court cannot add words to a statutory provision when it is trying to ascertain its plain and ordinary meaning.

11. I reject Mr. Lau's construction of the word "person" in s. 2 because:-

(a) applying his reasoning, the exception in sub-para. (b) only applies to persons who are not money lenders. This cannot stand because such persons already fall outside the general definition of s. 2 without the need to resort to the exception in sub-para. (b). The exception in sub-para. (b) would be superfluous;

(b) Mr. Lau accepts that the word "person" in sub-para. (a) of s. 2 applies to all persons whether they are money lenders or not. It is unlikely that the legislature had intended the same word appearing in two sub-paragraphs of the same section should have two different meanings without expressly stating so.

12. For these reasons, I agree with Mr. Yu's submissions on this point.

Does "Money Lender" Have a Different Meaning Adopting a "Purposive" Approach?

13. Mr. Lau put forward a "fall back" alternative argument if I am against him on his primary argument. He argued that the Plaintiffs' construction of "person" would create an "anomaly" and defeat the "purpose" of Cap. 163 as regards the "exempted loan". Money lenders can easily circumvent the full rigour of the statutory protection by employing sham documents to hide the true nature of the illegal transactions. He argued that the "purpose" of Cap. 163 is to be found in its long title which states inter alia that: " ... protection and relief against excessive interest rates and extortionate stipulations in respect of loans.".

14. In support, Mr. Lau cited Liu Sing Lee v. Luk Fong Chun Richard [1995] 1 HKC 499 when the late Mr. Justice Jerome Chan referred to a passage of Lord Simon in Stock v. Frank Jones (Tipton) Limited [1978] 1 WLR 231, at 237:-

"a court may only depart from the plain words of a statute if (i) there is clear and gross balance of anomaly; (ii) parliament could not have envisaged it and could not have been prepared to accept it in the interest of a supervening legislative objective; (iii) the anomaly can be obviated without detriment to that legislative objective; (iv) the language of the statute is susceptible to the modification required to obviate the anomaly.".

15. It is often argued that an "anomaly" has been created by either a statutory or a contractual provision when a plain reading of the provision is against the party advancing such argument. As a general rule, whether something is an "anomaly" or the "purpose", as a general rule, is to be ascertained from the terms of the statute or the contract (as the case may be). Courts do not and cannot look at a statute and conclude whimsically or out of subjective personal liking or disliking that an express statutory provision is "incorrect" and therefore in need of "correction" in disregard of the terms of that provision. I consider this was what Mr. Lau wanted me to do here. Further, I do not consider it appropriate to label something an "anomaly" if that "anomaly" was the very creation of the express provision under consideration.

16. As regards Mr. Lau's point that Cap. 163 may be defeated by sham documents, I do not see how that can be achieved. Courts will have no hesitation in setting aside such sham documents and, as has been demonstrated by numerous earlier cases, have done so in relation to other sham transactions.

17. For these reasons, the Defendants' alternative argument is also not accepted.

Legislative History and "Hong Kong Hansard"

18. Mr. Yu also submitted that if there should be any ambiguity in the plain and ordinary meaning of the statutory definition, this is removed by considering:-

(a) the legislative history of Cap. 163 (the statutory definition of "money lender" in the 1980 edition of Cap. 163 and the amendment made thereto by the Money Lenders (Amendment) Bill 1988);

(b) the legislative intent as found in the speech of the Financial Secretary when moving the second reading of the 1988 Bill (p. 1660 of the "Hong Kong Hansard 1988").

19. I do not find it necessary to find in favour of the Plaintiffs by considering these further materials. I agree with Mr. Yu that if it were necessary to do so, these further materials would put the matter beyond argument in the Plaintiffs' favour.

(Andrew Chung)

Deputy Judge of the Court of First Instance