CHOW TAI FOOK JEWELLERY CO LTD v. WONG SHUN AND ANOTHER

CACV 74/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 74 OF 2005

(ON APPEAL FROM HCA No. 22168 OF 1998)

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J U D G M E N T

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Hon Tang JA (giving the judgment of the Court):

1.  The defendants are the guarantors of a loan exempted under  para. 2 of Schedule 1 Part 2 of the Money Lenders Ordinance, Cap. 163 (“the Ordinance”) because it was a loan secured by a mortgage registered under the companies Ordinance.  The loan was made by the plaintiff to Shun Kai Bullion Company Limited (“the Company”). 

2.  One of the defences relied on by the defendants was that the plaintiff was in breach of sections 18 and 20 of the Ordinance.  Section 18 requires a money lender to produce and supply a memorandum containing all the terms of the agreement, some of which are listed in section 18(2), to the borrower.  It also requires the memorandum to be signed by the borrower.  Section 20(1) requires a money lender to supply, inter alia, a copy of the section18 memorandum to the surety.

3.  At the trial of the action, it was agreed and Waung J directed that this defence should be tried first.  The judge decided that the guarantee was not subject to sections 18 and 20 of the Ordinance and that it was enforceable against the defendants.

4.  On appeal, Mr Swaine, who appear on behalf of the defendant principally relied on the definition section, section 2(1), which provides that:

“In this ordinance, unless the context otherwise requires loan includes advance, discount, money paid for or on account of or on behalf of or at the request of any person, or the forbearance to require payment of money owing on any account whatsoever, and every agreement (whatever its terms or form may be) which is in substance or effect a loan of money, and also an agreement to secure the repayment of any such loan, and lend and lender shall be construed accordingly.”

He relied in particular on the fact that as defined loan includes an agreement to secure the repayment of any such loan.

5.  Thus, he argued that there were two loans, one to the Company and one to the defendants (for simplicity sake the defendants are treated as one). 

6.  There is no definition of borrower in section 2.  According to Mr Swaine’s argument, it has 2 meanings.  In its ordinary meaning it refers to the person who actually borrowed the money.  In this case, the Company.  But he submitted that it has an extended meaning and that includes the person who agreed to secure the repayment of the loan to the borrower, in this case, the surety or guarantors. 

7.  He submitted that there is nothing in section 18 which excludes the extended meaning given to “loan”.  He accepted that if he was right then unless both loans were exempted loans, 2 memoranda would have to be produced under section 18.  He also accepted that having regard to section 20, the second memorandum to be issued to the surety might serve little purpose.  He said that that did not matter.  In any event if the money lender had overlooked the second memorandum, the court could grant relief.

8.  Mr Swaine went on to argue since the loan to the Company was an exempted loan,  no section 18 memorandum was required for the Company.  However, since the “loan” to the defendants was not exempted a section 18 memorandum was required for them.

9.  In our opinion, section 18 does not require 2 memoranda.  That would serve no useful purpose and was not intended by section 18.  We are of the view that the borrower referred to in section 18(1)(a) referred to the borrower in the ordinary sense of the word, in this case the Company.  This view is supported by section 18(2)(b) and (c).  Section 18(2)(b) and (c) provide as follows:

"The note or memorandum shall contain all the terms of the agreement and in particular shall set out -

(b) the name and address of the borrower; and

(c) the name and address of the surety, if any;"

10.  Moreover, section 18 has to be read together with sections 19 and 20.  Section 19 deals with the duty of a money lender to give information to the borrower and section 20 his duty to give information to the surety.

11.  Section 19 provides that the money lender shall “on demand in writing” being made by the borrower at any time during the continuance of the agreement supply to the borrower, a statement (consisting of the original and a copy) signed by the money lender or his agent showing:

"	(a)	the date on which the loan was made, the amount of the principal of the loan and the rate per cent per annum of interest charged;
	(b)	the amount of any payment already received by the money lender in respect of the loan and the date on which it was made;
	(c)	the amount of every sum due to the money lender but unpaid, and the date on which it became due, and the amount of interest accrued due and unpaid in respect of every such sum;
	(d)	the amount of every sum not yet due which remains outstanding, and the date on which it will become due; and
	(e)	the following words, in both English and Chinese, prominently and legibly on its face -
		"	THE BORROWER OR OTHER PERSON TO WHOM THE STATEMENT IS SUPPLIED IS REQUIRED UNDER SECTION 19 (1A) OF THE MONEY LENDERS ORDNANCE TO ENDORSE ON THE COPY OF THE STATEMENT THAT HE HAS RECEIVED THE ORIGINAL OF THE STATEMENT AND TO RETURN THE COPY AS SO ENDORSED TO THE MONEY LENDER""

12.  Section 20(2) provides that a surety may at any time during the continuance of an agreement (whether made before after the commencement of this Ordinance) in relation to which the securities provided to require the money lender by notice in writing to furnish him with a statement in writing signed by or on behalf of the money lender showing:

"	(a)	the total sum paid under the agreement by the borrower;
	(b)	the total sum which has become payable under the agreement by the borrower but remains unpaid, and the various amounts comprised in that total sum, with the date when each became due; and
	(c)	the total sum which is to become payable under the agreement by the borrower, and the various amounts comprised in that total sum, with the date, or the mode of determining the date, when each becomes due."

13.  In our opinion, it is quite clear that when read in such context “borrower” in section 18 refers to borrower in its ordinary meaning.  In other words it does not refer to the surety.  If borrower in section 18 was meant to cover the surety as well we do not believe the legislature would have enacted section 20 in its present form or at all. 

14.  It follows that we agree with the judge that sections 18 and 20 have no application.

15.  Section 20(1) has no application because “any agreement for the loan of money” referred to therein, must refer to an agreement for the loan of money to the “borrower” under section 18(1)(a).  Since section 18 does not apply to an exempted borrower it follows that section 20 has no application.

16.  Mr Swaine made the further point that if sections18 and 20 do not apply to a guarantee which is “an agreement to secure the repayment of a loan” then the extended definition of loan in section 2 can have no application.  Even if so, we are of the view that the context of sections 18 requires that the word “borrower” be given its ordinary meaning. 

17.  For the above reasons, the appeal is dismissed.  We make an order nisi that the plaintiff is to have the costs of the appeal to be taxed if not agreed.