YIP FUNG INDUSTRIAL BUILDING

IN THE HIGH COURT OF JUSTICE

HONG KONG

CIVIL JURISDICTION

MISCELLANEOUS PROCEEDINGS

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JUDGMENT

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1. This is an appeal by the Official Trustee in Bankruptcy of Queensland Australia (Official Trustee) against an order made by Master Boa on the 17th June 1987 when he ordered that the sum of $231,312.44, being the surplus proceeds of the sale of a mortgaged property paid by the Bank of Canton Limited (the bank) into court on the 28th January 1987 be paid out to S.H. Lock (Hong Kong) Limited (the respondent) together with interest.

2. The facts reveal that a mortgage was entered into between the bank and Antonios Stamatellos (the bankrupt) on the 27th November 1980 in respect of Workshop "A3"' on the 11th floor of Yip Fung Industrial Building, Kwai Chung which was registered in the Land Office on the 11th February 1981.

3. A legal charge was executed on the 30th January 1985 by the bankrupt with the respondent on the security of the industrial building whereby the respondent granted general credit facilities to an unlimited extent in Hong Kong currency. The charge was entered into without the written consent of the bank which was required under clause 7(j) of the mortgage. The charge was registered with the Land Office on the 17th December 1985. A guarantee was also entered into by the bankrupt in favour of the respondent and other companies in the S.H. Lock group on the 15th February 1985.

4. The bankrupt defaulted in payment of his instalments under the mortgage with the result that. on the 14th August 1986, the bank exercised its power of sale and sold the premises for the sum of $550,000. The total amount payable by the bankrupt under the mortgage to the bank was $317,666.42. Accordingly, the bank held the surplus of the proceeds under clause 8(c) of the mortgage on trust for the bankrupt as the mortgagor or any other person entitled.

5. The bankrupt was adjudicated bankrupt in Queensland, Australia on the 24th March 1986 upon his own petition. The Official Trustee in Bankruptcy was appointed to be the trustee of the estate.

6. Upon an application by the bank, the surplus proceeds of sale were paid into court by an order made by Master Jones on the 28th January 1987 under the provisions of section 62 of the Trustee Ordinance and Order 92, rule 1 of the Rules of the Supreme Court.

7. In 1985, four bills of exchange totalling A$74,365.61 were drawn by S.H. Lock (Australia) Limited on the bankrupt's Company Stamatellos Export/Import Pty. Limited (the company) which were accepted by that firm and were endorsed by the bankrupt in favour of the respondent. All the bills were dishonoured on presentation. A demand for payment by S.H. Lock (Australia) Limited as drawer under the bills from the company was unsuccessful. Judgment was entered in favour of S.H. Lock (Australia) Limited against the bankrupt and his wife in Australia for the sum of A$221,701.01 and costs of A$391.70 on the 31st January 1986. Payment of the bills was made by the respondent to S.H. Lock (Australia) Limited after a written demand had been made.

8. It is contended by the respondent that the bankrupt is liable under each of the bills as guarantor under a guarantee that was given by the bankrupt to the respondent and other companies in the S.H. Lock group on the 15th February 1985. The respondent claims to be entitled to payment as a holder in due course of the bills. It is not in dispute that the respondent has not provided any general credit facilities to the bankrupt and that its only business relationship with him has been in respect of the bills of exchange. The respondent states that its business is that of a trade confirming house and uses its credit resources to provide letters of credit for clients who are purchasing or selling goods. Credit is usually provided for customers on instructions from S.H. Lock (Australia) Limited but in relation to the bankrupt, there were no dealings of this nature as the charge and guarantee had been entered into in anticipation of facilities being provided. However, as I have said no such facilities were ever provided.

9. The legal charge sets out details or the bankrupt's covenants to pay the respondent for the facilities granted. In particular, Mrs. Spruce who appeared on behalf of the respondent relied on clause 1(e) which provides:

"1.   In consideration of the provision of general credit facilities to an unlimited extent in Hong Kong Currency provided or to be provided by the Lender to the Borrower ("the Facility") the Borrower covenants to pay on demand made by written notice to the Lender -

 

10. Mr. Allman-Brown, counsel for the Official Trustee submitted that the legal charge granted by the respondent was illegal under the Money Lenders Ordinance, Cap. 163 on the grounds that the. respondent is not licensed under Section 7 with the result that by virtue of Section 23 any loan made is irrecoverable. It is not in dispute that the respondent is not a licensed money lender, but Mrs. Spruce submitted that the respondent does not come within the definition of a money lender under Section 2(1) of the Ordinance for the respondent does not carry on the business of money lending. Section 2(1) provides :-

"'Money Lender' means every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but does not include a person specified in Part 1 of the First Schedule;"

 

Loan is defined in the same section as follows :-

 

"'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 in 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."

The respondent is not an exempted person from the provisions of the Ordinance under the First Schedule.

11. The charge clearly envisages money lending transactions being carried out by the respondent for which it has no licence nor exemption from the requirements of the Ordinance under the First Schedule. As a result, I am satisfied that the legal charge that was entered into is illegal so that the respondent's application to be entitled to the surplus proceeds must fail. However, it is abundantly clear that even if the respondent was a licensed money lender, the charge cannot be enforced for there was no consideration. Again, the currency prescribed in the charge is restricted to Hong Kong currency whereas the bills were drawn in Australian currency. Other arguments were canvassed before me but it is unnecessary for me to express my views having regard to the decision that I have made.

12. Accordingly, the appeal will be allowed and the order of Master Boa is set aside.