Edward Wong Finance Co Ltd v. Connie Wen and Another

HCA003436/1977

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Coram: Zimmern, J.

Date of Judgment: 6 April 1978

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DECISION

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1. This is an appeal by the Plaintiff from the decision of the learned Registrar giving the 1st Defendant herein unconditional leave to defend on the ground I am told that the sum claimed could have been an enforcement of a security given in a money lending transaction.

2. By its Statement of Claim the Plaintiff claims as a holder in due course against the 1st and 2nd Defendants as drawer and indorser respectively of a cheque for $31,383 in favour of the 2nd Defendant which was dishonoured upon presentation. The writ was only served on the 1st Defendant who entered an appearance on 9/12/77 and served an amended defence on the Plaintiff on 30/12/77. To show cause the 1st Defendant besides relying on her defence, filed four affirmations. Her Counsel dropped all the contentions and arguments raised therein save two. First, he says the Plaintiff did not take the cheque in good faith in that the Plaintiff had notice of defect of title of the indorser therefore under Section 29(1)(b) of the Bills of Exchange Ordinance the Plaintiff was not a holder in due course. The 1st Defendant's depositions on this point are at best nebulous and shadowy and do not support her contention. This argument fails. Second, he says the presentation of the cheque so long (just short of 6 months) after due date was an enforcement of a security given in a money lending transaction and the Plaintiff has not complied with Order 83 concerning Moneylenders' Actions. He relies heavily on paragraph 6 of Johnny Hwang's (a director of the Plaintiff company) affirmation of 25/1/78 which reads as follows:

"(6) On or about the 16th September 1975 the 2nd Defendant approached the Plaintiff for a sum of money. As security for the loan, the 2nd Defendant deposited with the Plaintiff, a cheque, subject matter of these proceedings, dated the 28th December 1975 drawn by the 1st Defendant and duly endorsed by the 2nd Defendant. On receiving the said cheque as security, I caused a cash cheque be made to the 2nd Defendant in the sum of $29,121.00. There is now produced and shown to me marked "JH-1" a true copy of the cheque stub of the said cash cheque with the name of the 2nd Defendant and the date of 16th September 1975 inscribed thereon. There is further produced and shown to me marked "JH-2" a true copy of a piece of paper containing some rough calculations made by one of my subordinates in respect of the transaction. As can be seen there from, the second entry from the top refers to a sum of $31,383.00 which is the amount of the cheque in question. There is then written the dates of 16th September and 28th December. That indicates the period for which the loan was to be made. The said period is a period of 103 days, which figure can be seen next to the date of 28th December. The interest is then calculated at 2.1% which gives a figure of $2,262.71. The Plaintiff therefore advanced the balance of $31,383.00 after deducting the said interests of $2,262.71 to the 2nd Defendant."

No further argument was advanced to impugn the validity of the transaction between the Plaintiff and the 2nd Defendant or to assert in any way that the Court ought to re-open the transaction on the ground that it was harsh and unconscionable. The Plaintiff at all material times was a registered moneylender.

3. Counsel for the 1st Defendant has made it quite clear that this is a technical point and the issues appear to me to be these.

Turning first to the (A) issue, I also set out paragraph (4), (5) and the first sentence of paragraph (7) of Johnny Hwang's affirmation already referred.

The fact that the deponent in his affirmation has used words familiar in the money lending world such as "loan" "advance" and indeed has used the words "as security for the loan, the defendant deposited with the plaintiff a cheque subject matter of these proceedings" does not by themselves make it a money lending transaction. Nor does the fact that the Plaintiff is a registered moneylender by itself make any particular transaction entered into by it a money lending transaction. The Plaintiff was at all material times a finance company and licensed money-lender. Every licensed commercial bank carries on the business of a moneylender but its business is not so confined, e.g. its outward bills department will in the course of its business daily discount bills of its customers drawn on third parties and if any bill is dishonoured the remedy of the Bank is only on the bill against its customer as drawer or indorser. There is not a tinge of money lending in such a transaction. The test in these cases was laid down by Lord Devlin in the judgment of the Privy Council in Chow Yoong Hong v. Choong Fah Rubber Manufactory⁽¹⁾ from Malaya.

4. Where he said at (pp 216/217)

"Even if the post-dated cheques did produce an excess, that is not "interest" within the definition unless there is a loan. As in the case of the second group of transactions, their Lordships have looked in vain in this first group for anything that can fairly be represented as a lending of money by the plaintiff and the promise to repay. The fundamental error that underlies the defendants' case on both groups of cheques is that because they were, so they say, in need of ready cash, and because the plaintiff supplied them with it and made, if he did, a profit out of doing so, therefore there was a loan and a contract for its repayment. There are many ways of raising cash besides borrowing. One is by selling book-debts and another by selling unmatured bills, in each case for less than their face value. Another might be to buy goods on credit or against a post-dated cheque and immediately sell them in the market for cash. Their Lordships are, of course, aware, as was Branson J., that transactions of this sort can easily be used as a cloak for moneylending. The task of the court in such cases is clear. It must first look at the nature of the transaction which the parties have agreed. If in form it is not a loan, it is not to the point to say that its object was to raise money for one of them or that the parties could have produced the same result more conveniently by borrowing and lending money. But if the court comes to the conclusion that the form of the transaction is only a sham and that what the parties really agreed upon was a loan which they disguised, for example, as a discounting operation, then the court will call it by its real name ..."

5. The facts as I see them in the present are:

Applying the test set down by Lord Devlin, the question is what was the legal nature of the transaction the Plaintiff and the 2nd Defendant had agreed? The answer appears to me in form a discounting operation. Counsel for the 1st Defendant says it can be argued that this is an moneylender's action for the enforcement of a security for money lent therefore unenforceable for non-compliance with rules 2 and 3 of Order 83. A cheque of course is a security for money and it can be charged as a security for the repayment of money lent. Be that as it may the fact of the matter is that if it were a discounting operation the Plaintiff's remedy can only be on the cheque as against the 1st and 2nd Defendants. If the cheque were given as a security for a loan then as against the 2nd Defendant he can sue on the loan or on the cheque or on both in the alternative but as against the 1st Defendant the Plaintiff's cause of action is again only on the cheque. In the event it is latter, the moneylenders Ordinance does change any of this save that it gives her a right to re-open the transaction if it were harsh and unconscionable, but as I have said she cannot impugn the transaction. She nevertheless contends that the Plaintiff has not complied with Order 83. Non-compliance with the rules are only irregularities under Order 2 rule 1. The 1st Defendant filed an affirmation on the 21st January 1978 deposing that the Plaintiff was carrying on the business of a moneylender and that she verily believed that the action was a moneylender's action. Johnny Hwang's affirmation referred to above was not filed till 4 days later i.e. the 25th January 1978. The Order 14 application was issued on 20th December 1977. It was first heard before the Registrar on 4th January 1978 and stood over for a date to be fixed. The parties were back before the Registrar on 26th January 1978 when the summons was again stood over to be heard on 24th February 1978 when the application was dismissed with costs. On the hearing on the 26th January and on the 24th February 1978 no application so far as I know was made to the Registrar to set aside the writ on the ground of irregularity. No application by way of summons after the 1st Defendant's affirmation of 21st January 1978 was made to set aside the writ. A respondent in an Order 14 application is called upon to satisfy the Court with respect to the claim to which the application relates that there is an issue or question in dispute which ought to be tried. She cannot with knowledge of the irregularity prior to a hearing rely on the irregularity and yet argue the matter on the merits as was done before me. That would be taking a fresh step after becoming aware of the irregularity. Her proper and only cause was to apply to set aside the writ under Order 2 rule 2. She did not do so and cannot now complain. (see Boyle v. Sacker⁽²⁾.) I am not satisfied that there is any issue or question in dispute which ought to be tried. The appeal is allowed and the decision of the Registrar is set aside. There will be judgment for the Plaintiff in the sum of $31,383 with interests thereon at the rate of 8 percent per annum the date of dishonour of the cheque i.e. 26th June 1976 to to-day.

Representation:

Ronny Tong (Fairbairn, Kwok & Wang) for the Plaintiff

Winston Poon (Ng & Lee) for the 1st Defendant

(1) [1962] AC 209

(2) (1899) 39 Ch.D 249