CHEUNG CHOW v. CHEUNG NG SHEONG STEVEN

H E A D N O T E

Money Lenders Ordinance, Cap. 163 - Words "in the course of his business as a money lender" in former legislation left out of present legislation - Not to be read back into the same - Nevertheless, can be exceptional cases where someone who is a money lender lends (e.g. to a needy relative or friend free of interest and without security) other than as money lender - Not clear beyond argument that loans in present case would be other than as money lender even if plaintiff was a money lender.

Arguable whether approach to provisos in ss 18(3) & 23 adopted in Lee Wong Investment Co. Ltd. v. Leung Boon Sing, High Court Action No. 14024 of 1983, January 14, 1985, (unreported) andBrother's Company v. Ah Puk Transportation [1986] HKLR 821 correct.

Money lender defences here arguable - appeal against summary judgment allowed - unconditional leave to defend given.

IN THE COURT OF APPEAL

1993, No. 119
(Civil)

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J U D G M E N T

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Bokhary, J.A.:

1. This is an appeal by the defendant drawer of two cheques against an order dated June 30 this year, whereby Deputy Judge Yeung gave summary judgment for $4.9 million with interest and costs in favour of the plaintiff drawee who sued on those two cheques: one dated June 9 last year for $3.9 million and the other dated 30th of that month for $1 million.

2. There is no dispute that the cheques were drawn and then countermanded.

3. In this Court, the only defence urged is one which may be termed a "money lender" defence.

4. The parties are brothers. And the background is extremely ugly.

5. As to how the cheques came about, the plaintiff's case runs thus. In 1984 and 1985, he made a number of loans totaling about $6 million to the defendant for the purposes of a car park business operated by the defendant. At a time when the amount outstanding was $3.9 million, the defendant sought a further loan of $1 million. And he lent the defendant that further amount, taking the two cheques sued upon as security in respect of the $3.9 million of the earlier loans which remained outstanding and the $1 million further loan.

6. Against that background, the money lender defence runs along these lines. The defendant is a money lender. The formal requirements laid down by section 18 of the Money Lenders Ordinance, Cap.163, have not been complied with in respect of any of the loans. By virtue of that section therefore, the security given in respect of such loans is unenforceable. Moreover, the plaintiff had no money lender's licence when he took such security. Accordingly, such security is also rendered unenforceable by section 23 of the same Ordinance.

7. The terms of those two sections should be noted.

8. Section 18 provides in subsection (1) that no agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable in the absence of the memorandum called for under that subsection.

9. Subsection (2) provides that the memorandum shall contain all the terms of the agreement, particularly those set out in items (a) to (j) of that subsection.

Subsection (3) should be read in full. It runs thus:-

"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."

10. Turning to section 23, one sees that it reads as follows:-

" No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by the production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed:

Provided that if the court is satisfied that in all circumstances it would be inequitable if a money lender who did not satisfy it that he was licensed at the relevant time was thereby not entitled to so recover such money or interest or to enforce such agreement or security, the court may order that the money lender is entitled to recover such money or interest or to enforce such agreement or security to such extent, and subject to such modifications or exceptions, as the court considers equitable."

11. So one notes those two provisos: a proviso in substance in section 18 subsection (3) and a proviso in substance and in form in section 23.

12. The lines along which the Deputy Judge thought in dismissing the money lender defence as unarguable appears by these three paragraphs in the reasons which he gave for the order which he made:-

For the purpose of the present proceedings, I am prepared to accept that there is an arguable case or a prima facie case that the plaintiff was a money lender within the meaning of the Ordinance. But I reject Mr. Lee's submission that any loan by a money lender made to anyone irrespective of the relationship with the borrower and the circumstance in which the loan was made would be caught by the provision of the Ordinance. One can think of various circumstances in which a money lender may advance loans to a relative, a friend or an associate on a casual basis which is entirely unrelated to his business as a money lender and not in the course of such business. I do not accept that it was the intention of the legislation to render such casual loans not made in the course of the business as a money lender unenforceable by the lender just because the provision in the Ordinance has not been complied with

On the evidence before me, I am not persuaded that the loans advanced to the defendant by the plaintiff was made in the course of the plaintiff's business as a money lender. I say this because of the relationship between the plaintiff and the defendant, the informal nature of the loan arrangement, the reasonable interest rate as well as the absence of any collateral security. Such matters in my view are inconsistent with the suggestion that the loans made to the defendant were made in the course of the plaintiff's business as a money lender even if he was one.

In any event I am firmly in the view that no reasonable tribunal properly appraised with the facts of the present case would fail to apply the proviso under S.18 and S.23 of the Money Lenders Ordinance. It was argued that it would not be inequitable not to enforce the loan agreement in question as the defendant was trying to get back part of what was lawfully due to the estate of the mother and/or the father and/or the defendant himself."

13. Reading the words "in the course of his business as a money lender" into sections 18 and 23, which is what the Deputy Judge did, is inappropriate. Those words were in the former legislation. But they were left out of the present legislation. And they should not be read back into the same. That does not mean that someone who is a money lender would be obliged to comply with the requirements of section 18 if, for example, a relative or a friend needing money for an operation came to him for a loan to tide him or her over until a deposit matured, and he made the loan free of interest and without security. And, as far as section 23 is concerned, someone who was not a money lender would hardly become one - and therefore require a licence as one - simply by reason of his making a loan of that sort. Loans of that sort are, by their very nature, simply not the act of a money lender as opposed to someone who just happens to lend money.

14. In this appeal, it is not disputed that there is a triable issue as to whether the plaintiff was a money lender. And in all the circumstances, there is likewise, in my view, a triable issue as to whether he was, in the present case, acting as a money lender as opposed to merely a helpful brother.

15. It is undesirable to say very much. But this much should be said. There is evidence, although the plaintiff disputes the same, that his loans to a partnership between this brother of his and someone else was the result of approaches by him, the plaintiff. And there is evidence from the plaintiff himself that at one stage the defendant offered him increased interest in order to induce him not to call in outstanding principal. So there is one instance at least when blood was apparently not thicker than water.

16. Interest was charged of course; and while by no means extortionate, it was at a commercial rate, generally over prime. There was security even though not collateral security. Undated and post-dated cheques were taken by way of security.

17. In such circumstances, to say that it is plain beyond the need for a trial that these transactions fell outside the ambit of the Money Lenders Ordinance is unwarranted.

18. What remains - and this is the only point on which we asked Mr Lee for the defendant to reply - is the question of the discretion under the provisos.

19. 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.

20. 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.

21. 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. That picture is not before us. Overall, no court can say with reasonable confidence at this stage that it has a clear view of all the circumstances which fall to be considered in the exercise of the discretion here in question.

22. In those circumstances, it seems to me that the defendant is entitled to leave to defend, and that this appeal must be allowed as a result. It was arranged in the course of the argument that the question of any conditions would be canvassed after we gave judgment, since none would arise unless our decision was that there should be leave to defend.

Mortimer, J.A.:

23. I agree that this appeal must be allowed. I have some sympathy with the learned judge because this is a case where two wealthy brothers have become regrettably at loggerheads and without in any way anticipating the eventual result of the action it must be highly likely that these loan agreements will in due course be enforced either under the proviso of the Money Lenders Ordinance or, if the Money Lenders Ordinance does not apply, in the ordinary course of the proceedings.

24. It must be accepted however that the learned judge was plainly wrong in holding - as he did - that there is no triable issue as to whether the transactions are caught by the Money Lenders Ordinance once one accepts that there is a triable issue as to whether the plaintiff was a money lender and that that issue may go against him.

25. Similarly, if one considers the learned judge's decision that the proviso under sections 18 or 23 of the Ordinance will definitely go in favour of the plaintiff, then that also must be wrong. There must be a triable issue on this point. For all the circumstances which the judge will have to take into account can only be known after a trial and the usual consequences of discovery and evidence.

26. I would leave the matter by simply saying this - that for my part I am not to be taken as accepting the approach to the exercise of discretion under the proviso that has been demonstrated so far by judges at first instance.

Liu, J.:

27. I also agree that this appeal should be allowed. The appeal can be decided, in my view, on the discretion exercisable under section 18(3) and the proviso to section 23.

28. Mr Tang, counsel for the respondent, listed out (including the matters canvassed by Mr Lee before the Deputy Judge) some eight features that were placed on affirmations in the 0.14 application. The judge could not have been able to, in this case, consider all the circumstances at the 0.14 stage as he had stated. After all, Mr Lee distinctly raised the object of the legislation, the scale of the lending business of the plaintiff, the rate of interest and, as counsel further complained to the Deputy Judge, that there was yet to be discovery. As I said, in this case the judge could not have therefore taken into consideration all the circumstances for the purpose of exercising his discretion under section 18(3) and the proviso to section 23. [November 25, 1993: Submissions on conditions and costs]

Bokhary, J.A.:

29. We impose no condition in giving leave to defend. Leave to defend is therefore unconditional. Any existing rights which the defendant may have are not affected by the fact that we impose no condition.

30. The costs of appeal will be to the defendant. There will be payment out to the defendant's solicitors of the money paid into court by the defendant on August 6, 1993, as a condition of a stay of execution pending appeal together with any interest thereon. The costs of the Order 14 proceedings before the Deputy Judge will be costs in the cause. We thank counsel on both sides for their assistance.