The Hong Kong and Kowloon Credit Association Ltd v. Attorney General

HCMP000363/1981

Money-lenders Ordinance - not retrospective - offences - powers of police - securities seized in error to be returned to lenders not borrowers.

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Coram: Bewley, J.

Date of Judgment: 2 July. 1981

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JUDGMENT

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1. On 12th December, 1980, the Money Lenders Ordinance came into operation. It repealed and replaced Cap. 163, a short ordinance passed in 1912, which, inter alia, permitted the Court to give a borrower relief from unconscionable transactions, provided for the registration of money lenders and imposed penalties for false representations.

2. The new ordinance goes very much further. It is a wideranging piece of legislation, which, in the words of the headnote, is "to provide for the control and regulation of money lenders and moneylending transactions, the appointment of a Registrar of Money Lenders and the licensing of persons carrying on business as money lenders; to provide protection and relief against excessive interest rates and extortionate stipulations in respect of loans; to provide for offences and for matters connected with or incidental to the fore-going; and to repeal the Money Lenders Ordinance." It is unlikely that it was greeted with acclaim by money lenders in Hong Kong.

3. Under s.34 the Governor-in-Council is empowered to make regulations and he has done so. The Court is concerned, in particular, with Reg. 12, which is in these terms:

"No money lender shall demand or accept as security for any loan any -

4. The plaintiff is an association of money lenders. It claims to represent the elite of the money lending profession, but does not embrace all those that are subject to the Ordinance. Some of the plaintiff's members are concerned by the action of the police, who have entered their premises under warrant and seized securities and documents, which they refuse to return, even in those cases where it is conceded that no crime has been committed. The plaintiff seeks certain declarations accordingly.

5. Reg. 12 has given rise to difficulties of interpretation. The police have, I understand, received conflicting advice as to their duties and obligations thereunder. Counsel for the Crown has informed me that the police are looking to the Court for guidance and, whether or not the declarations sought, or any of them, are granted, will comply with any indication or opinion that the Court feels it is able to give.

6. The following matters are agreed between the parties:

7. Affidavits have been sworn by Mr. Patrick Tsang, solicitor, on behalf of the plaintiff and by Superintendent B.W. Munford, on behalf of the police. There is no other evidence.

Search Warrants

8. The first matter I propose to deal with is a subsidiary one concerning warrants to enter premises. S.28 provides -

"For the purpose of ascertaining whether the provisions of this Ordinance are being or have been complied with by any money lender, the Registrar or any other person authorized by the Registrar in writing in that behalf may enter any premises where the business of such money lender is being carried on any may demand the production of and inspect the money lender's licence or any books, accounts, documents or writings relating to any loan made by the money lender or relating to his business as a money lender, and may take notes, copies or extracts thereof or therefrom."

9. It gives the police restricted right in respect of the securities etc. found on the premises, in the sense that they are not permitted to remove the documents themselves.

10. The police, however, in some instances, invoked the much wider power given by S.50(7) of the Police Force Ordinance, Cap. 13. A warrant issued under this subsection allows them to take possession of the actual securities. It reads -

"(7) Whenever it appears to a magistrate upon the oath of any person that there is reasonable cause to suspect that there is in any building, vessel (not being a ship of was or a ship having the status of a ship of war) or place any newspaper, book or other document, or any portion or extract therefrom, or any other article or chattel which may throw light on the character or activities of any person liable to apprehension under this section or on the character or activities of the associates of any such person, such magistrate may by warrant directed to any police officer empower him with such assistants as may be necessary by day or by night -

11. It is submitted by Mr. Jackson-Lipkin, for the plaintiff, that the police were wrong to take action under s.50; where the Money Lenders Ordinance specifically provides for a search warrant, for the purposes of ascertaining whether the provisions of the Ordinance are being complied with, that is the authority under which the police should act.

12. On the other hand, a warrant under the Money Lenders Ordinance may be obtained when there is no suspicion that any offence has been committed; not so under s.50. I think, therefore, that it was intended that the two provisions should be invoked in different circumstances. Under s.28 the police may make routine inspections of money lenders' premises. Any document, about which they wish to make further enquires, may be copied. To permit disruption of business by the removal of the original document itself, in such a case, would be somewhat harsh.

13. If, however, the police have information that an offence has been committed, it is only proper that they should be allowed to go in with a warrant to remove the evidence itself. The fact that the plaintiff has given a written undertaking to supply copies of documents and, meanwhile, not to dispose of the originals, is beside the point. The duty and power of the police to investigate crime, by taking such steps as are prescribed by law, cannot be fettered by such an undertaking.

14. This power exists - subject to the magistrate's discretion - in s.50. There was no need for it to be repeated in the Money Lenders Ordinance. It will, of course, be more difficult to obtain a warrant under s.50 than under s.28. For these reasons I hold that the two sections are perfectly compatible. The police should apply for a warrant under whichever is, in the circumstances, appropriate.

15. I come now to Reg. 12.

Tenancy Agreements

16. Is a Housing Authority tenancy agreement a 'document establishing the identity or nationality of the holder', and thus a prohibited document under Reg. 12(a)? Is it a photograph that is caught by Reg. 12(c)?

17. Such a tenancy agreement is a very common form of security. It is regarded by the holder, rightly or wrongly, as a document of value. It contains the name, address and photograph of the borrower - particulars that are especially useful to the lender.

18. It thus goes some way towards identifying the borrower. But it does not go far enough - this is conceded by counsel for the Crown - to establish his identity. It would be a simple matter to substitute the photograph. There is no laminated protection, as in the case of an identity or warrant card. The document could be the tenancy agreement of another person.

19. Nor are such documents primarily for the purpose of proving identity, as in the case of the other documents mentioned in the subsection. Counsel for the Crown concedes that, despite the disjunctive construction of the word 'or' in Cap. 1, it is within the true intent and meaning of Reg. 12(a) that the term 'other documents'' refers to documents similar to those specified, the purpose of which is to show identity. Tenancy agreements are, therefore, not within Reg. 12(a).

20. The photograph, however, if not necessarily that of the tenant, is in every case that of the borrower. Does it make any difference that the photograph is incidental to the main reason for accepting the document? I think not. S.19 of the Interpretation Ordinance provides -

"An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit."

21. I have in mind the evils, including the improper use of photographs, as adumbrated in Mr. Munford's affidavit, that are sought to be prevented by the Ordinance.

22. I do not accept that, just because there is a separate sub-regulation dealing with photographs, the prohibition should not extend to photographs mounted on a document. Once the lender has received the tenancy agreement, he has accepted a photograph of the borrower - whether he has demanded it or not - and he has accepted it qua security. This seems to me perfectly plain. It is only if the language of a statute is equivocal, and there are two reasonable meanings of that language, that the interpretation that will avoid the penalty is to be adopted. Re H.P.C. Productions Ltd.⁽¹⁾ In my judgment any other interpretation of the words is unreasonable. If such a tenancy agreement is to be accepted lawfully by a money lender, the photograph must first be detached.

Photostat Copies

23. The commonest and most efficient form of identification in Hong Kong is the identity card issued under the Identification of Persons Ordinance. Since October, 1980, everyone must carry his identity card and produce it on demand. This, no doubt, is one of the reasons behind Reg. 12(a). It is also inconvenient for the holder to have to surrender to a money lender various other documents of identification. But there is no hardship in giving him a photostat copy.

24. On the other hand, most documents establishing identity will bear a photograph of the holder and will be prohibited under Reg. 12(c). As I have indicated above, a photograph in a document remains a photograph and it makes no difference that such a document is a document establishing identity and, therefore, within Reg. 12(a). It follows that a photostat copy of a document bearing a photograph also amounts to a photograph. I do not agree with Mr. Jackson-Lipkin's submission that, if you photostat a document falling within Reg. 12(a), you are stretching interpretation to the limit to say that you are offending under Reg. 12(c). There was no need for the words 'or containing a photograph' to be added to Reg. 12(a), since the matter fell under Reg. 12(c).

25. Nevertheless, I see no reason why a photostat copy of a document within Reg. 12(a) that does not contain a photograph of the borrower, if one exists, should not be demanded or accepted by a money lender. Had the legislation intended to exclude copies, it would have said so.

Bank Books

26. The next question is the disposal of the bank books now in the hands of the police. Some of these are in respect of pre-ordinance loans. Only where the terms of these loans have been so altered as to constitute fresh loans, does the retention of the books render the money lender liable to con viction. So far as this case is concerned, it is an agreed fact that no offence has been committed in respect of these books.

27. Why then should the money lenders not have them back? The reason, according to counsel for the Crown, is section 36, which though transitional in nature, is retrospective in effect. It reads:-

28. Mr. Sinclair submits that the section precludes the Court from putting a money lender in a more favourable position, vis a vis the borrower, in relation to the enforcement of the loan agreement, than he would have been before the Ordinance was passed.

29. It is certainly a convoluted piece of English. Mr. Jackson Lipkin argues that it deals only with contractual matters - the rights and obligations of the parties enforceable in a civil court - and is, therefore, no concern of the police: unless a criminal offence has been committed in respect of the bank books, they should be returned to the lender.

30. Mr. Sinclair replies that, in that event, the lender would be in a superior position, so far as enforcement is concerned, than the post-ordinance lender, who is not allowed to accept a bank book. That would be so, even though no civil action to recover the loan were commenced by the lender, as mere possession of the security improves the prospects of enforcement.

31. Support for this view is found in the ratio of Cohen v. Lester (J) Ltd.⁽²⁾, which was stated at p.507 by Tucker J. thus:-

"In my opinion, the true position is that, when the defendants maintain that they are entitled to keep this jewellery unless and until the plaintiff pays the money which she owes them, they are really seeking to enforce the contract of April 13, 1937, which they admit to be unenforceable under s.6 of the Act, and that is so although they do not claim to realize their security by sale and although their contention is set up by way of defence and not by claim or counterclaim."

32. This case was applied by the Privy Council in Kasumu & Others v. Baba Egbe⁽³⁾. In that case the respondent mortgaged certain leasehold land to a licensed money lender as security for a loan. The money lender had admittedly kept no book recording the transactions as required by s.19 of the Money Lenders Ordinance of Nigeria and the transaction was therefore unenforceable under that section. In proceedings by the respondent claiming redemption of the property and recovery of possession, it was held that the respondent was entitled to possession, cancellation of the mortgage and delivery up of the cancelled deeds of the property without being obliged to pay the outstanding balance of the loan. Lord Radcliffe said, at page 551:

"When the governing statute enacts that no loan which fails to satisfy any of these requirements is to be enforceable it must be taken to mean who it says, that no Court of law is to recognize the lender as having a right at law to get his money back. That is part of the penalty which the statute imposes .......... If a Court therefore were to impose terms of repayment as a condition of making any order for relief it would be expressing a policy of its own in regard to such transaction which is in direct conflict with the policy of the Acts themselves."

33. Kasumu's case was applied in another money lending case, in which the plaintiff was the borrower, Barclay v. Propsect Mortgages Ltd.⁽⁴⁾

34. On these authorities counsel for the Crown argues that, if the Court were to order the police to return the books to the lenders, it would be providing them with additional means of enforcement, an additional advantage that the later lenders do not possess.

35. This is because, apart from the subsisting right of action by civil suit, the lender would be able to bring additional pressure to bear on the borrower by the mere fact that he had the book. But for this fact, the borrower might be unwilling to repay. This might be the incentive that made him do so. It is, therefore, he submits, a benefit accruing to the lender that is more favourable than is possible under the post-ordinance requirements. Furthermore, were the borrower then to sue the lender for the return of the books, it would seem, on the authority of Kasumu, that the borrower must succeed, without having to repay the loan.

36. It is not disputed that the lenders have a right to get their money back. They are entitled to enforce their agreements, but only to the extent that the post-ordinance lenders may do so. But it depends what is meant by 'enforce'.

37. S.36 specifically says that nothing in the ordinance shall render any agreement or security void or unenforceable. A security remains a proper security. Yet the money lender is in a better position, if he gets the book back, than he could possibly be in the case of a new loan. Is it the intention of s.36 to prevent this situation?

38. The intention of the ordinance as a whole is certainly to protect borrowers. It is a harsh piece of legislation, so far as money lenders are concerned. Mr. Sinclair is perfectly correct when he says that the section omits any limitation to a particular mode of enforcement and contrasts s.36(2) with s.25 and s.36(3), which refer specifically to court proceedings. If Kasumu applies to this situation, the definition of 'enforce' given by the Privy Council, which embraces the retention of property in assertion of a claim, must see the Crown home.

39. Mr. Jackson-Lipkin submits, however, that Kasumu and the other cases cited have no application. They were all civil actions between borrower and lender: the Crown and the police were not involved. Furthermore, the contracts with which they were concerned were unenforceable ab initio.

40. The legislature was careful not to make it an offence per se to retain bank books lawfully accepted before 12th December, 1980. It could easily have done so had it wished. Of course, it did not envisage the present situation, in which the police have seized books not liable to seizure.

41. It seems to me quite wrong that, in this situation, the Crown should be able to pray in aid a transitional section, which, as I see it, deals only with the contractual rights of the parties. What is this to do with the police? On the face of it, nothing at all.

42. The section is concerned with enforcement by the lender of the agreement or security. It does not say that the borrower may successfully sue the lender for the return of his security, thus putting him in the same position as a post-ordinance borrower.

43. It is not right to take sub-section (2) in isolation and then focus on the word 'enforceable'. The section must be read as a whole. As I read it, sub-section (3) deals with the procedural aspects of a civil action by a money lender against the borrower, the substantive rights of the parties having been spelt out in sub-section (2).

44. I am not suggesting that it is not possible to read it in the way suggested by counsel for the Crown, but, in my judgment, it is straining every principle of interpretation so to do. I am satisfied that, for the reasons given, the cases cited by Mr. Sinclair may be distinguished.

45. The police must give the books back to the money lenders. The ball will then be in the borrowers' court. They can take such action as they see fit.

I am asked to make 9 declarations. These, of course, are discretionary and do not follow as a matter of course from the above findings.

46. The first is that those provisions of the Money Lenders Ordinance, 1980, which relate to pre-ordinance securities, do not operate retrospectively. This is too widely drawn, having regard to s.36, and I do not think it would be right to make a declaration in these terms.

47. The next declaration is that Reg. 12 of the Money Lenders Regulations 1980 does not operate retrospectively. Although Mr. Sinclair conceded that this regulation could not create retrospective criminal liability, he maintained that, because of its interaction with s.36, it contained an element of retrospection. According to the Oxford English Dictionary, the word means 'operative with regard to past time'. Giving the words of the regulation their ordinary meaning, as I must, I cannot conceive that they are retrospective in any sense of the word. I, therefore, make the declaration sought.

48. The third declaration is in the alternative:

49. Either of these declarations would, however, conflict with para. 3 of the agreed facts and law, which recognizes that offences may arise out of loans and novated loans in respect of lawfully accepted bank books.

50. The next two declarations are connected: (1) The police are obliged to return such bank savings or deposit account books as they have in fact seized to the said lenders and not to the borrowers, and (2) The police are not entitled to hand over such bank savings or deposit account books to any other person or persons than the said lender.

51. I have already said as much earlier in this judgment and I am satisfied that the plaintiff is entitled to both these declarations.

52. Counsel for the Crown agrees in broad terms with the wording of the next declaration, which reads, "The transitional provisions contained in s.36 of the said ordinance do not and are not intended to render the operation of the criminal provisions of the said ordinance or the regulations retrospective." I make this declaration accordingly.

53. I have already commented on the next declaration. Mr. Jackson Lipkin concedes that comment from the Court is more desirable in this instance than a declaration that the police should not have seized the books in the face of the undertaking by the plaintiff's solicitors.

54. In the light of my conclusions concerning tenancy agreements and photostat copies of documents of identity, I do not think it would be right to make the additional declarations that are prayed in Mr. Patrick Tsang's affirmation of 22nd May, 1981. They are too widely framed and might prove misleading to the police.

55. I will hear the parties as to costs.

Representation:

Mr. Jackson-Lipkin, Q.C. & Mrs. Jackson-Lipkin (Tsang, Chan & Sum) for plaintiff

Mr. M.M. Sinclair, S.C.C., for defendant

(1) (1962) 2 W.L.R. 51.

* Note Clearly a misprint for 'than'.

(2) 1939 1 K.B. 504

(3) 1956 A.C. 539

(4) 1974 2 A.E.R. 672.