XCHRX LEE SIN FONG v. NG SHU KWAN

1994, No.A1821

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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D E C I S I O N

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1. This is an appeal from the Master refusing to strike out the plaintiff's claim. The plaintiff is the step-mother of the defendant. She alleged that in or about April 1992 she lent $150,000 to the defendant to be repaid at the end of two months with interest thereon in the sum of $20,000. It is not disputed that the effective interest rate would therefore be 80% per annum.

2. The defendant sought to strike out the plaintiff's claim on the ground that such claim is not enforcement, and it is not open to the court to declare, having regard to all the circumstances relating to the agreement, that such rate is not unreasonable or unfair, i.e. to re-open this transaction.

3. Section 24(4) of the Money Lenders Ordinance, Cap.163, provided that :-

"(1) Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.

(2) No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).

(3) ......

(4) Any person who commits an offence under this section shall be liable to a find of $100,000 and to imprisonment for 2 years.

(5) ......"

4. Section 25 provided in subsections (1), (2) and (3) as follows :-

"(1) Subject to section 24(2), where-

(a) proceedings are taken in any court by any person (whether a money lender or not) for the recovery of any money lent or the enforcement of any agreement or security in respect of any loan; and

(b) subject to subsection (3), there is evidence which satisfies the court that the transaction is extortionate, the court may reopen the transaction so as to do justice between the parties having regard to all the circumstances, and, for that purpose, make such orders and give such directions in respect of the terms of the transaction or the rights of the parties thereunder as the court may think fit.

(2) For the purposes of this section, a transaction is extortionate if -

(a) it requires the debtor or a relative of his to make payments (whether unconditionally or on certain contingencies) which are grossly exorbitant; or

(b) it otherwise grossly contravenes ordinary principles of fair-dealing.

(3) Any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate; but except where such rate exceeds the rate specified in section 24(1), the court may declare that any such agreement is not extortionate for the purposes of this section if, having regard to all the circumstances relating to the agreement, the court is satisfied that such rate is not unreasonable or unfair."

5. Mr Chong for the defendant submitted that the court only has jurisdiction to re-open a loan with an interest rate between 48% and 60%. Section 24(2) provided that any loan exceeding 60% per annum shall not be enforcement. Section 25(1) is subject to s.24(2), in other words it only concerns with a loan less than 60%.

6. Should that phrase be ambiguous, subsection (3) said specifically that any loan exceeding 48% should be presumed to be extortionate "but except where such rate exceeds the rate specified in section 24(1)", i.e. exceeding 60%, "the court may declare that any such agreement if not extortionate for the purposes of this section if having regard to all the circumstances relating to the agreement, the court is satisfied that such rate is not unreasonable or unfair." In other words, this is only applicable for a loan exceeding 48% per annum but not exceeding of 60% per annum as specified in s.24(1). In short Mr Chong submitted that the court has no jurisdiction to declare a loan with interest rate exceeding 60% not extortionate having regard to all the circumstances of the case.

7. Mr Chong further relied on the Hansard when the Bill was proposed in 1980. At page 933, Mr F.W. Li when moving the Bill said, inter alia:

"The Bill accordingly proposes a maximum effective rate of interest of 60% for such loans. Any rate exceeding 60% will not be enforceable and the persons making or offering a loan with such an excessive rate will be subject to criminal sanctions whether or not that person is a money lender. Where proceedings are taken in any court in respect of a loan, any effective rate of interest exceeding 48% but not 60% per annum will be presumed to be extortionate unless having regard to all the circumstances relating to the loan agreement the court is satisfied that such a rate is not unreasonable or unfair." (emphasis mine).

This point was considered by Woo J. in the case of Wong Kwai Fun v. Li Fung H.C.A. No. A5810 of 1986. At page 26 Woo J. said this:

"The effect of s.25 is that a transaction of loan with an effective rate of interest that exceeds the rate specified in s.24(1) is presumed to be one which is extortionate. It is therefore clear that the court is empowered by s.25(1) to re-open transactions where the effective interest rate is over 60% although as s.25(1) is expressed to be subject to s.24(2), the court has no power to enforce the loan or security even with modifications and exceptions as it would have under s.83 or the proviso to s.23 (if the proviso applies)".

Mr Chong submitted that this passage is decided per incuriam. Section 25(3) has the effect that any rate exceeding 48% is presumed to be one which is extortionate and not more than the rate specified in s.24(1), i.e. 60%. The court may declare any such agreement is not extortionate but except where such rate exceeds 60%, i.e. the rate specified in s.24(1). In other words, when the rate is over 60% the court has no jurisdiction under s.25(3) to declare any such agreement is not extortionate. If the court has such a power to declare any such agreement is not extortionate, then it cannot be reconciled with s.24(2) where it was provided that any agreement for any loan exceeding 60% shall not be enforcement.

8. Mr Li submitted that it is immature at this stage to declare that such a loan is extortionate, it requires a proper consideration of all the circumstances of the case. In my view, the court will only proceed to trial if there is an issue to be tried. I do, on one hand, sympathize the position of the plaintiff according to the case she presented by just taking what she said: it might well be the case that it was the defendant who had suggested such an interest rate. However, the law provided that any interest rate exceeding 60% shall be unenforceable. I do accept the submission of Mr Chong and with my greatest respect, I do not think I can follow the decision of Woo J. in the case of Wong Kwai Fun. In my view, s.25(3) can only come into operation when the interest rate exceeds 48% but not 60%. It is specifically provided that subsection (3) is excepted where such a rate exceeds the rate specified in s.24(1) i.e. 60%. S.25 is also specfically provided to be "subject to s.24(2)". To my mind, this piece of legislation is clear in that any interest rate exceeding 60% shall be unenforcement. Section 25 can only come into operation in re-opening certain transactions when the transaction exceeds an interest rate of more than 48% but not more than 60%. In other words, it is quite clear that the loan as contended by the plaintiff is not enforceable and the court has no jurisdiction to re-open this transaction no matter what were the circumstances of the case.

9. In the end, I would allow the appeal and therefore dismiss the plaintiff's action herein with costs.