EDWARD WONG FINANCE CO LTD v. FUNG CHE KWONG t/a FUTEX ENTERPRISE AND OTHERS

HEADNOTE

            Moneylenders Ordinance s. 163 definition of "loan". Does the definition in s.2 alter the common law on this subject and if so to what extent.

            Is the discount of a cheque drawn by a 3rd party in favour of a customer of the moneylender a moneylender transaction so far as the relationship between the moneylender and the 3rd party is concerned? Held in these cases that the definition of loan does not alter previous case law on the subject. Also held that the transactions were not covered by the Moneylending Ordinance.

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JUDGMENT

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1. The Plaintiffs in both these cases obtained judgment under Order 14 before Master Hansen. The 2nd defendant in HCA 6448 of 1984 and the 3rd defendant in HCA 7115 of 1984 PANG Kam-yiu trading as Tai Kung Weaving Factory which 1 will refer to as the 2nd defendant is appealing against the Master's decision.

2. For the sake of simplicity 1 propose primarily referring to the papers in 6448 of 1984 as this was the case which was mainly referred to in the hearing before me. Put very simply the facts are as follows. The Plaintiffs are licenced moneylenders. The 1st defendants were their customers. The relationship between the 1st defendants and the plaintiffs is governed by a memorandum of agreement which sets out the terms under which facilities were made available to the 1st defendant. This memorandum was later superseded, by a further agreement but nothing in my view turns upon these documents. The general scheme arranged between the parties was that monies would be made available to the 1st defendant in certain circumstances at agreed rates of interest which were stated to be variable by reference to the prevailing prime rate of interest. One of the ways in which monies were made available to the 1st defendant was for them to present to the plaintiffs cheques which they had received from third parties and the plaintiffs would then enter into separate agreements in each case with the 1st defendant for the cheques to be discounted. The amount of the discount would, according to the evidence on affidavit of Mr. David Yuen, an officer of the plaintiff, be calculated by reference to the rate of interest applicable on the date of the discounting and the period of time required for the cheque to become due and payable. All of the cheques which were discounted were post-dated cheques.

3. The three cheques involved in this transaction were drawn by the 2nd defendant in favour of the 1st defendant. It is clear from the manner in which the Statement of Claim has been drafted that the claim against the 1st defendants is made pursuant to the agreement the plaintiffs have with them and the claim against the 2nd defendants is that they are holders in due course of the three cheques which were drawn by the 2nd defendants. There is a further slight complication in this matter as a result of legal proceedings the 2nd defendant commenced against the 1st defendant, the plaintiffs and another party in High Court Action 6092 of 1984 where amongst other matters they claimed the return from the plaintiffs of the three cheques.

4. The 1st defendant had made no attempt to defend these proceedings and a default judgment was entered against them on the 13th December 1984. Mr. Ma, who was representing the 2nd defendants put forward three main submissions in support of his proposition that the 2nd defendants were entitled to a trial. His first submission was that the transaction so far as it affected the 2nd defendants was a moneylending transaction and he claimed that the provisions contained in section 18 of the Moneylenders Ordinance, Cap. 163 had not been complied with nor had there been compliance with the requirements laid doom in Order 83 of the Rules of the Supreme Court. He suggested that very little reliance could be placed upon earlier case law on the subject of defining moneylending transactions as the Moneylenders Ordinance Cap. 163 had only come into effect on the 12th of December 1980. This Ordinance, unlike its predecessor, contained in its definition section a definition of the word "loan". In section 2 it is defined as follows:-

"'loan' includes advance, discount, money paid for on account of or on behalf of or at request of any person, or forbearance to require payment of money owing on any account whatsoever, and every agreement (whatever its term 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".

Some assistance in this matter can be derived from the New South Wales' case of Talcott Factors Ltd. v. G. Seifert Pty. Ltd. ⁽¹⁾In this case a similar submission was made and reliance was placed upon the definition of a "loan" appearing, in section 3(1) of the Moneylenders and Infants Loans Act 1941 which is couched in almost identical terms to the definition of "loan" in section 2 of our Ordinance. Nagle J. considered the definition and held that what was required was to consider the overall nature of the transaction rather than taking any of the words contained in the definition individually and out of their context. In other words what was required was to consider in overall terms what it was that the parties to the transaction were attempting to achieve and then decide whether the transaction was a "loan" according to the definition. This obviously makes good sense. Clearly every discounting transaction is not necessarily a loan within the definition. What the definition section is attempting to define is a wide range of activities which can under certain circumstances constitute loans. This being the case, it is a perfectly valid exercise to consider all of the previous case law on this subject and then determine whether the particular transaction in question is a "loan" for the purposes of the Moneylenders Ordinance. I note in this connection that Nagle J. referred to the relevant earlier cases in Talcott Factors Ltd. v. G Seifert Pty. Ltd..

5. It is evident that in all of the earlier cases which were cited to me that the court has considered the nature of the transactions in question and then determined whether they were or were not moneylending transactions. A good illustration of this can be seen from the leading case on this subject which is a Privy Council case Chow Yoong Hon, v. Choong Fah Rubber Manufactory. ⁽²⁾ Mr. Justice Zimmern followed this approach in Edward Wong Finance Co. Ltd. v. Connie lien and Hon Chun Ming⁽³⁾the facts of which are very similar to the facts of these cases. I have no doubt that the plaintiffs claim against the 2nd defendant is not a transaction which comps within the scope of the Moneylenders Ordinance. I am further of the opinion that the definition of a loan contained in section 2 does not materially alter the law on this subject and is of little assistance to the 2nd defendants in this case.

6. The next question I must decide is whether this is a point of law which is arguable and whether I should order that there should be a trial. I am persuaded that I should adopt a robust approach to this problem. I find support for this approach from a passage commencing on page 515 of European Asian Bank AG v. Punjab and Sind Bank ⁽⁴⁾ .

"We wish, however, to conclude with this comment. If the Judge has already decided, on the evidence, that there is a triable issue on the question of fact, it must in the very nature of things be unlikely, that this court would interfere with his decision and decide that no trial should take place; because, where such a conclusion has already been reached by a judge, this court would be very reluctant to hold there is no issue or question which ought to be tried. Where the appeal raises a question of law, this court may be more ready to interfere. Moreover at least since Cow v. Casey ⁽⁵⁾ this court has made it plain that it will not hesitate in an appropriate case, to decide a question of law under Order 14, even if the question of law is at first blush of some complexity and therefore takes a little longer to understand. It may offend against the whole purpose of order 14 not to decide the case which raises a clear-cut issue, when full argument has been addressed to the court, and the only result of not deciding it will e that the case will go for trial and the argument will be rehearsed all over again before a judge with the possibility of yet another appeal."

7. The second submission made by Mr. Ma was that there were a number of aspects of this case where justice dictated that the 2nd defendants should have an opportunity of requiring the plaintiffs to formally prove their case. In particular the affidavits of Mr. David Yuen were not satisfactory. He should not be permitted to simply make a bald assertion to the effect that the plaintiffs were holders in due course of the cheques and that they had complied with the requirements of section 29 of the Bills of Exchange Ordinance Cap. 19. He should not be allowed to simply assert that the bill had been taken in good faith in the value and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it. There were a number of suspicious circumstances. In particular the amount of the discounts for the cheques were calculated on fluctuating and excessive rates of interest. No sufficient or satisfactory explanations had been forthcoming from Mr. Yuen to justify the rates which had been adopted. I would observe that in Mr. Yuen 's latest affidavit some attempt is made to justify the amounts of the discounts. Reference was made to prevailing prime rates and also to inter-bank rates of interest which some of the time were as high as 28% per annum. It was claimed that the relevance of this was to show the cost of obtaining funds at short notice to meet the requirements of the 1st defendant. The highest sate of interest adopted to calculate a discount rate was 42% p.a. While I accept that this is a very high rate of interest I am not prepared to draw any inference as I was invited to de that this indicates that there were suspicious circumstances relating to this transaction. I am satisfied that the correct approach to adopt is the test referred to by Cairns L.J. at pale 546 of Bank fur Gemeinwirtschaft v. City of London Garages Ltd. and others ⁽⁶⁾: -

"The real question in the instant case seems to me to be whether the account given by Mr. Wellings in his affidavit, standing as it does uncontradicted and supported by contemporaneous documents, can be said to establish good faith and the giving of value with such a degree of probability that if the case went to trial the defendants' defence of fraud would have no real chance of success."

The contemporaneous documents all support the plaintiffs' case. I do not consider that the mere possibility that there may have been irregularities on the part of the plaintiff is sufficient to justify me in ordering that there should be a trial.

8. The final submission made by Mr. Ma related to the other litigation I referred to at the commencement of this judgment. Mr. Ma contended that if his clients were not given the opportunity of proceeding to trial there was a real risk of their clients obtaining inconsistent verdicts in the respective cases leading to a highly unsatisfactory situation. The answer to this problem is, in my view, simple. Although the cases may deal with similar subject matter the relief which it sought ht is entirely different. In HCA 6092 of 1984 the plaintiff is seeking the return of the cheques from the plaintiffs. This claim is quite different to the claim which is made in these actions on the cheques by the plaintiffs as holders in due course. This is not a valid reason for me to order a trial in these actions.

9. I have rather reluctantly come to a conclusion that none of Mr. Ma's submissions can succeed. I am satisfied that Master Hansen was indeed correct in ordering that judgment be entered in both of these cases and accordingly these appeals are dismissed. And I will hear the parties on costs.

(1)    [1964] NSWR 1205.

(2)    [1962] A C209

(3)    H C A3436 of 1977

(4)    [1983] 2 A E R 508.

(5)    [1949] 1A E R 197.

(6)    [1971] 1 A E R 541