Read the full judgment text of CACV 28/2019 on BabelCite. This Court of Appeal judgment was delivered on 4 September 2020 before Kwan VP, Chu JA and Barma JA.
Money lending – Money Lenders Ordinance (Cap 163) – sections 2, 21, 22, 24, 25, 27 and 29 – construction – whether sections 27(3) and 29(10) are engaged in respect of monies defrauded from a borrower by an intermediary acting in collusion with the money lender – whether defrauded monies constitute 'interest' under section 2(1) – whether 'the amount actually lent' (principal) is the contractual sum or a reduced figure after deducting certain payments – whether section 22(1) is breached by a contractual provision for default interest – discretion to reopen transaction under section 25(1) – the defendant, a low-income kitchen worker with limited education, was deceived by Mr Cheung and Mr Chan into taking out loans from CCS and the plaintiff as part of a fraudulent 'Sheung Wui' (上會) scheme – she was tricked into paying $640,500 to Mr Chan and signing various documents including an Instruction Letter to register the loan against her property – the plaintiff is a registered money lender who lent $1 million to the defendant at 30% per annum, deducting a $37,000 upfront fee and $750,000 to repay CCS, with the balance paid by a $100,000 cash cheque and a $113,000 crossed cheque – whether sections 27(3) and 29(10) MLO are engaged in respect of defrauded monies paid to an intermediary in collusion with the money lender – held: yes, the true nature of the payments should be considered rather than the false pretences; section 27(3) extends to 'any person acting in collusion' with the money lender, and section 27(4) allows recovery from such person or the money lender – whether defrauded monies are 'interest' under section 2(1) for calculating the effective rate – held: no, the defrauded monies paid to the fraudsters are not within the definition of 'interest' on the available evidence, as there is no evidence linking the payments to the loan made by the lender; the judge erred in treating the payments as made to the plaintiff's agents in the legal sense, and the approach in Skyline Credit of reading section 27(4) into the definition of 'interest' in section 2(1) is rejected – the upfront fee of $37,000 is properly treated as 'interest' – what is the amount of 'the amount actually lent' (principal) – held: the deemed principal should be $863,000, being the contractual $1 million less the $37,000 upfront fee deducted at source and the $100,000 cash cheque issued to facilitate payment to the intermediary, but not the $110,000 paid from the crossed cheque marked 'account payee only' – no double counting arises from deducting the $37,000 from the principal and including it as interest – whether section 22(1) is breached by the default interest provision – held: no, the proviso to section 22(1) permits the lender to charge simple interest on the overdue payment at a rate such that the effective rate does not exceed the effective rate payable on the principal apart from default – the contractual provision for interest at 2.5% per month, increasing to 5% on default, is permissible – discretion under section 25(1) to reopen the transaction – the court adopts the consensus approach and reopens the transaction by reducing the amount repayable to $220,872.24, consisting of $167,183 (the balance of the SHKF loan) plus $53,689.24 (the amounts retained by the defendant), with interest at the judgment rate from 21 December 2018 – the court rejects the request for interest at the SHKF rate of 20.4% per annum – appeal allowed in part, with the original judgment dismissing the claim set aside – the judge's costs order on an indemnity basis in favour of the defendant is not disturbed – costs of the appeal: no order as to costs, save that the defendant's own costs are to be taxed in accordance with the Legal Aid Regulations.
Legal issues: Whether sections 27(3) and 29(10) MLO are engaged in respect of defrauded monies paid to an intermediary · Whether defrauded monies paid to fraudsters are 'interest' under section 2 MLO · What should be the amount of the 'principal' under section 2 MLO for calculating the effective rate of interest · Whether section 22(1) MLO was breached by the default interest provision · How the discretion under section 25(1) MLO to reopen the transaction should be exercised
Outcome: Appeal allowed in part. The original judgment dismissing the plaintiff's claim was set aside and replaced with a judgment in favour of the plaintiff in the amount of $220,872.24 with interest at the judgment rate from 21 December 2018. The judge costs order in favour of the defendant on an indemnity basis was not disturbed. Costs of the appeal: no order as to costs, save that the defendant's own costs are to be taxed in accordance with the Legal Aid Regulations.
Cited by 3 cases · Cites 4 cases