CHAN MIU CHU ZOE v. CHOI CHIU YUK

HCA 698/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 698 OF 2012

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BETWEEN

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D E C I S I O N

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The application

1.  The plaintiff has applied for summary judgment under Order 14 RHC against the defendant.  The application is opposed.

2.  Mr. K. Lin, counsel acts for the plaintiff and Mr. A. Tang, counsel acts for the defendant.

The factual background

3.  The brief facts of the plaintiff’s case are that by two memoranda in writing signed by the defendant, the plaintiff had lent HK$1 million and HK$1.5 million to the defendant in August 2007 and March 2008 respectively.  They are called the 1^st loan and the 2^nd loan.  Under the memoranda, the defendant had to pay interest at $20,000 per month for the 1^st loan and $30,000 per month for the 2^nd loan.  The defendant had also issued two post-dated cheques for the same amounts of the respective loans to the plaintiff as security.  The plaintiff alleges that the loans are payable on demand.  Pursuant to the memoranda, the defendant had paid interests on the loans for the sums of $840,000 for the 1^st loan and $1,050,000 for the 2^nd loan.  However, the defendant had, on demand, failed to repay the loans and had also failed to pay the interest on the two loans since July 2011.  The plaintiff now claims against the defendant for the loans and the interests at the contractual rates from July 2011 up to the date of repayment of the respective loans.[1]  In essence, the defendant had paid to the plaintiff the interest on the loans totally $1,890,000.[2]

The defences

4.  The defendant says that there is no dispute that the lending of the loans did take place.  The defendant has raised two points in defence:

a. It is the defendant’s case that the plaintiff is a money-lender under the Money Lenders Ordinance.  Since the plaintiff does not possess a licence, the loans are per se unenforceable thereunder.

b. There is a dispute over the terms of the loan agreements – in particular, whether certain repayments made by the defendant were of principal or of interest.  It is the defendant’s case that certain later repayments were of principal and not of interest, which would reduce the defendant’s liability.[3]

The money-lender issue

5.  The defendant relies upon the following statutory provisions in his argument on the issue of the plaintiff being a money lender:

“ Money Lenders Ordinance (Cap. 163) contains the following relevant provisions:

(a) Section 2 defines a “money lender” as:

“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”

(b) Section 18 provides that:

“(1) No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent…shall be enforceable unless-

(a) within 7 days after the making of the agreement,a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower,and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed, and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.

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

(a) the name and address of the money lender;

(b) the name and address of the borrower;

…

(g) the terms of repayment of the loan;

…

(i) the rate of interest charged on the loan expressed as a rate per cent per annum, or the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2…

(3) 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.”

(c) Section 23 provides that:

“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 the 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.”[4]

6.  The plaintiff does not dispute that:

(a) The plaintiff does not possess a money lending licence[5]; and

(b) The memoranda evidencing the loans do not satisfy the details required bys.18(2)[6], nor had they been provided to the defendant as per s.18(1)[7].

7.  Therefore if the plaintiff were a money lender, the loans would be unenforceable by virtue of s.18 and s.23 of the Money Lenders Ordinance.

8.  It is trite legal principle that once the defendant has admitted the loans, the burden falls upon him to show that the plaintiff was carrying on the business as a money lender as defined in section 2 of the Money Lenders Ordinance, Cap. 163 (“the Ordinance”)[8].

The plaintiff’s argument

9.  Mr. Lin is well aware of the defendant’s defences.  He has, in his written submissions set out his argument that the plaintiff was, at the material times, not a money-lender as defined under the Ordinance. What follow are his arguments and the supporting authorities.

10.  In Newton v Pyke [1908] 25 TLR 127, Walton J held at page 128 that whether a man was carrying on a business as a money-lender must be a question of fact in each case.  The learned Judge further said that it seemed impossible to lay down any definitions or description which would be of much assistance.  But he felt that it was not enough merely to show that a man had on several occasions lent money at remunerative rates of interest; there must be a certain degree of system and continuity about the transactions.  In this case, the Judge had considered that the plaintiff had been engaged for a long time before the case lent very few, and had been mostly, if not entirely, with persons who could be described as friends or relations, and that the plaintiff had not advertised or announced or held himself out as a money-lender.  He finally concluded that it would not be right to say that the plaintiff was a money-lender at the relevant time.  It should be noted that the definition of a money-lender under section 6 of the Moneylenders Act 1900 is the same as section 2 of the Ordinance.  Judgment was given to the plaintiff for the sum of the dishonoured cheque issued by the defendant.

11.  In Edgelow v Macelwee [1918] 1 K.B. 205, McCardie J said at page 206 that he echoed with the rationale in Newton v Pyke and he further said that the line of demarcation cannot be defined with closeness or indicated by any specific formula.  Each case must depend on its own peculiar features.  It was a question of degree.  But if it appeared that the transactions were sufficiently numerous to require the inference that a system and business of money-lending was carried on, then the requirements of the definition in s.6 of the Act 1900 were fulfilled.

12.  The common feature of the above cases is that the courts held that the question whether the plaintiff was, at the material times, a money-lender was a question of fact, which was to be found by the Judges aftercross-examination ofthe witnesses at the trial.  In both cases, the plaintiffs were solicitors in practice. In the case of Edgelow v Macelwee, McCardie J. had considered the plaintiff’s evidence and was dissatisfied with his answers and demeanour.  See page 208.  He finally concluded that at all material times, the plaintiff was a money-lender and his action failed.  See page 209.

13.  Mr. Lin also refers me to Kirkwood v Gadd [1910] AC 422 at pp. 423 & 431, in which the House of Lords was discussing that a money-lender should carry on the money-lending business in his registered name and at his registered address and whether that meant that every stage and every incident of every piece of the money-lending business was to be transacted at the registered office.  At page 423, the Court discussed the meaning of carrying on business.  It imported a series or repetition of acts. Each separate piece of business might consist of many stages and incidents, and the business as a whole comprise many separate pieces.  The discussion was very much focused on the location of the business rather than the definition of carrying on the business of a money-lender.

14.  The fourth case referred to me by Mr. Lin is Chow Wun Sing Winston v Yiu Chun Luk CACV No.295 of 2006 (20 February 2008), in which the Court of Appeal was asked to set aside the Judge’s finding that the plaintiff was at the material times not a money-lender.  The Court of Appeal had considered that the Judge had taken into consideration the relevant evidence and there was no ground for the Court to interfere with the Judge’s finding.  It had, however, stated that the small number of loans made by the plaintiff did not mean that he could not have been carrying on a business of money lending.  But this should be one of the factors for the court’s consideration in its determination whether the plaintiff was a money-lender.  See paragraph 22.

15.  Finally, Mr. Lin refers me to Huang Mucai v Cheng Zhen Shu HCA No.1237 of 2011 (17 September 2012). This was an appeal against Master Kwang’s judgment in an application under Order 14, RHC.  The issue of the plaintiff being a money-lender for his advancement of the loan to the defendant was raised as one of the arguments raised by the defendant, which the Deputy Judge found to be “only desperate attempts to evade liability under the claim.”  The Deputy Judge further found that “the plaintiff has never conducted any business in making loans, and the defendant has not contended, let alone adduced any evidence, to substantiate his claim that the plaintiff was a money lender within the meaning of the MLO.”  He therefore concluded that the complaint was groundless.  See paragraph 46.

16.  From the above authorities, it is quite clear that the court would approach this issue of whether the plaintiff was, at the material times, a money-lender within the meaning of the Ordinance by way of fact finding through the process of cross-examination of the witnesses at the trial, except that as in the last case of Huang Mucai, the court found that the defendant had given no evidence to support his allegation, the court might determine the issue that the plaintiff was not a money-lender in an Order 14 application without a trial.

The defendant’s argument

17.  Mr. Tang argues that the case of Litchfield v Dreyfus [1906] 1 K.B. 584 and Newton v Pyke, which followed the former case’s approach were distinguished by the Court of Appeal in Conroy v Kenny [1999] 1 WLR 1340, perKennedy LJ.  He submits that the modern focus is on the intent and purpose on the part of the lender when making the loan, referring to Conroy v Kenny.  He cites the relevant part of the judgment of the Court of Appeal:

“…I accept, that a licensed moneylender who sets up in business with an office probably falls within section 6 of the Act of 1900 when he makes his first loan, even if he never makes another, because at the time when that loan was made his business was that of moneylending.”[9]

18.  With respect to Mr. Tang’s observation, it seems to me that the Court of Appeal did not state the modern focus of the court in the judgment; but rather, it set out the proper approach for the assessment of the evidence that should be adopted by the trial judge.  At 1346D, the Court of Appeal pointed out that the judge’s approach was wrong, and it was necessarily the basis of his decisions.  It further said:

“As I have said, what the judge should have asked him was whether on 6 January 1971 the business of Lancashire Acceptances was that of moneylending. If that question was answered in the affirmative, it was unnecessary to look any further, but if it was not so answered then it was necessary to consider the statutory alternative, namely whether on that date Lancashire Acceptances advertised or announced itself or held itself out in any way as carrying on that business.”

19.  The Court of Appeal accepted that for the determination of this factual issue, each case must depend on its own facts. 1345G.  It agreed with Slade J. in Skelton Finance Co Ltd v Lawrence (1976) 120 S.J, 147 that two isolated loan transactions “did not import the necessary element  of system, repetition and continuity necessary to constitute a moneylending business.”  It then went on to say that “a licensed moneylender who sets up in business with an office probably falls within section 6 of the Act 1900 when he makes the first loan, even if he never makes another, because at the time when that loan was made his business was that of moneylending.”  The emphasis is, in my view, that there was evidence to conclude that the business was moneylending that the court was entitled to find the fact as such. 1345H.  Mr. Tang agrees with me on this analysis.

20.  Mr. Tang’s reference to the Court of Appeal case of Cheung Chow v Cheung Ng Sheong Steven CACV 119/1993 (24 November 1993), in particular, the part of the judgment cited at page 6 is, in my view, not helpful as it was one extreme example given by the Court of Appeal to illustrate the absurdity of mechanical application of section 18 of the Ordinance.  It throws no light on how to define the meaning of “carrying on the business” under section 2 of the Ordinance.

Summary of the legal principles

21.  The legal principles for determination of the issue on whether the lender is carrying on business as a money-lender under section 2 of the Ordinance, as according to the above authorities, can be summarized as follows:

a. The issue is a matter of fact to be determined by the court for each case.  It is not possible to set out any description or definition, still less fixed formula for the determination of this issue.  Each case must depend on its own facts.  Conroy v Kenny [1999] 1 WLR 1345G, in which Kennedy LJ. had considered Litchfield’scase and Newton’s case;

b. The number of transactions made by the lender is not the determining factor.  The court has to look at all the relevant facts of the case.  Even one transaction may be sufficient if there is evidence to show that the lender was a money-lender at the time of the transaction.  Conroy at 1345H;

c. The proper approach for the court to determine this issue is to look at the evidence to determine if the lender was, at the material time, a money-lender within the meaning of the Ordinance, and if so, it is not necessary to consider further.  If there is no such evidence, the court then should look for other evidence as, at the relevant time, whether the lender had advertised or held out as a money-lender.  Conroy at 1346D;

d. Our Court of Appeal in Chow Wun Sing Winston v Yiu Chun Luk CACV No.295 of 2006 (20 February 2008) at paragraph 15 adopted the case of Conroy v Kenny [1999] 1 WLR 1345G; and the Court of Appeal agreed with the Judge that even if the lender made the loan at remunerative interest rates and with proper security, this might not be an indicia of a money-lender. See paragraph 18.

e. In an Order 14 application where the court will not conduct a mini-trial on the affidavits, the court may make a summary judgment if the defendant is clearly unable to adduce any evidence to support the allegation that the plaintiff was, at the material times, a money-lender.  Huang Mucai v Cheng Zhen Shu HCA No.1237 of 2011 (17 September 2012)

The factual issues raised by the defendant

22.  The defendant has raised a number of factual issues for the Court’s consideration.

23.  It is the defendant’s evidence that since in and around August 2007, the plaintiff told the defendant that she had always run a lending business in order to finance her family and personal expenses, especially since her husband was not particularly well-off[10].

24.  In particular, the plaintiff told the defendant  that she had lent money:

a. to other colleagues at Midland Realty, including but not limited to two persons known as Ricky Choi and Raymond Man[11]; and

b. to her relatives in the PRC for their mining business[12].

25.  Mr. Lin submits that Ricky Choi has made an affidavit saying that he had only borrowed from the plaintiff $30,000 and the plaintiff had not charged any interest on that occasion.  Raymond Man has also made an affidavit that he had never borrowed any loan from the plaintiff.  Both of them said in their affidavits that they had never heard of any loan made by the plaintiff to any other persons.[13]

26.  Mr. Lin goes further to say that there is no evidence to show that the plaintiff had, at the material times, advertised or held herself out as a money-lender and that the memoranda were home-made.

27.  It is only necessary for me to take into consideration the relevant facts as raised by Mr. Tang in his written submissions:

a. The loans are of substantial amount: HK$2.5 million;

b. The interest rates are at least at commercial rates, namely 24% per annum;

c. The 1^st loan was initiated by the plaintiff to the defendant;

d. The 2^ndloan was also offered by the plaintiff to the defendant when the defendant was still unable to pay off the 1^st loan;

e. The two memoranda were drafted by the plaintiff for the loans;

f. The terms of the memorandum for the first loan and those for the second loan are different in that there is no provision of repayment of the capital for the second loan; and

g. There were variations of the payment of the capital for the first loan;

h. The plaintiff had taken the post-dated cheques as security for the loans.

28.  It appears that except for 27c, the other facts are not disputed by the plaintiff.  The witnesses will be subject to cross-examination at the trial.  I consider that the above facts should be taken into consideration for the determination of the issue of whether the plaintiff was, at the material times, a money-lender.  As highlighted by the authorities proposed by the plaintiff, there is no fixed formula for the determination of this issue.  Each case must be decided upon its own facts.  See Newton v Pyke and Edgelow v Macelwee as confirmed by Conroy v Kenny.

29.  The Court has to bear in mind that it should not embark on a mini-trial on affidavit evidence. Ng Shou Chun v Hung Chun San C.A. [1994] 1 HKC 155.

30.  At this juncture, it is apparent that the defendant has discharged the burden to show that there are triable issues for the trial.  He should be given unconditional leave to defend on this issue alone.

The issue on the terms of the loans

31.  On the issue on the terms of the loans, it seems that it is not necessary for me to make a finding on this issue.  This issue should be determined by the trial judge.

32.  I will give unconditional leave to the defendant to defend.

Costs

33.  As to the costs of this application, including the costs for today’s hearing, the parties agree that the costs (with certificate for counsel), including the costs reserved, should be in the cause.

Case Management Conference

34.  As to the outstanding issue of Case Management Conference matters, the parties agree the following directions:

a. Leave to the plaintiff to set down within 42 days for a 5-day trial before a judge alone in the fixture list.  There be a pre-trial review before the trial judge for 30 minutes on a date 12 weeks before trial.  Parties shall prepare the agreed/certified translation for the Chinese documents, raise the issue of recusal of the trial judge, if any, and shall confirm the length of the trial by counsel in charge at the pre-trial review.  At the setting down, parties shall produce a letter to the Listing Clerk confirming that there is no outstanding interlocutory application.  Upon setting down, all interlocutory applications shall be listed to be heard by the Trial Judge or a Judge;

b. The parties shall take out all interlocutory applications as may be advised within 14 days from the date hereof; and if such applications are contested, they shall be fixed before the Registrar for argument;

c. Costs of this Case Management Conference be in the cause.