Hong Kong Property Services (Agency) Ltd. v. Chan Yuen Wa

DCCJ 1648/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1648 OF 2006

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Coram :  Deputy District Judge Anthony Chow in Chambers (open to public)

Date of Hearing:  17^thh November 2006

Date of Handing down of Judgment:  24^th November 2006 

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JUDGMENT

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1.This is an application for summary judgment under Order 14 rule 1 of the Rules of District Court.

The claim:

2.The plaintiff is a limited company carrying on the business of estate agency service to the public.

3.On or about 6/10/2005, t he defendant as purchaser, entered into a provisional agreement of purchase and sale (the “Provisional Agreement”) for a property known as Unit B, 25^th Floor, Block 8, One SilverSea, 18 Hoi Fai Road, Kowloon (the “Property”) from the developer, Active Success Development Limited (the “Developer”).

4.At the time of the Provisional Agreement, a sum of HK$500,000.00 had to be paid to the Developer as deposit.

5.The parties agreed that upon the defendant executing an application form (the “Application”), a sum of HK$500,000.00 was paid by the plaintiff to the Developer on behalf of the defendant (the “Advance”). The defendant repaid HK$200,000.00 by way of a credit card payment on 6/10/2005 and a further sum of HK$100,000.00 by cheque on or about 2/11/2005.

6.Despite numerous requests and demands, the defendant refused to repay balance of the Advance in the sum of HK$200,000.00, the plaintiff now sues.

The Defence:

7.The sole defence raised in the Statement of Defence was the plaintiff was an unlicensed moneylender, within the meaning of the Money Lenders Ordinance (Cap. 163) Laws of Hong Kong (the “MLO”) and in accordance to s.23 thereof, the plaintiff is not entitled to recover the amount owed.

8.Although the Statement of Defence only contained the MLO defence, in paragraphs 8, 10, 11 and 12 of the defendant’s affirmation in opposition, she mentioned at the time she executed the Application, the plaintiff promised her a rebate of HK$200,000.00, from the commission the plaintiff would receive from the Developer.

9.In his written skeleton argument, Mr. Wong, counsel for the plaintiff, dealt with this rebate issue as if it was a pleaded defence. In view of the fact the rebate issue was not pleaded, I seek clarification from Mr. Chan, solicitor for the defendant, prior to commencement of this hearing.

10.Mr. Chan declined to amend the Statement of Defence and specifically stated he would only rely on the MLO defence. The hearing proceeded accordingly.

The Law:

11.The legal principle is well known: The defendant must show that there are triable issues. He has to satisfy the court that he has a ‘real or bona fide defence.’ If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court. [Para 14/4/9 Hong Kong Civil Procedure 2006].

The Issues:

12.Section 23 of the MLO states:

“ 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. “

13.In an Order 14 application, where the sole defence was based on the MLO, Madam Record G. Li S.C. held in Oriental Patron China Investment Ltd. v. Wong Chun Hung HCA 9947/2000, the real issue is: 

“…whether the defendant has shown enough to raise the inference that the plaintiff is a money lender as defined in section 2(1) of the Ordinance which provides:

‘( 1) In this Ordinance, unless the context otherwise requires…

‘ money lender’ (放債人) means 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, but does not include-

(a) a person specified in Part 1 of Schedule 1; or
(b)  as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan; (Amended 69 of 1988 s. 2)’”.

14.In Oriental Patron China Investment Ltd., Madam Record G. Li, S.C. further held:

“One does not start by asking whether the loan is an exempted loan under Part 2 of Schedule 1. If the business of the person in question is not the making of loans and the person does not advertise or announce himself or hold himself out in any way as carrying on the business of making loans, then that person is not a money lender and it is then unnecessary to consider the provisions in Part 2 of Schedule 1.”

15.Therefore, in this Order 14 application, where the sole defence is based on the MLO, the issues are: (1) Was the plaintiff in the business of making loans? Only if this was answered in the affirmative, then (2) Was the transaction an exempted transaction under Part 2, Schedule 1 of the MLO?

16.Finally, the proviso in section 23 of the MLO gave the court a residual discretion to order enforcement of all or part of the loan, even if the answers to both issues were of the affirmative, if not doing so would be inequitable under the circumstance of the case.

(1) Was the plaintiff in the business of making loans?

17.Although in paragraph 2 of the Statement of Defence, the defendant specifically denied that the plaintiff is in the business of an estate agency, in paragraph 3 of the defendant’s affirmation in opposition she stated:

“ My relationships with the Plaintiff commenced in about 2004 when I purchased a property situated at Pacifica. In all these transactions, the Plaintiff was represented by a Mr. Sam Cheung who introduced the flats to me and I was not required to pay any commission to the Plaintiff in all these earlier transactions. I was not told that the Plaintiff was my agent. It was my belief and is still my belief that the Plaintiff was not my agent. In all these earlier transactions including the present one, the Plaintiff through its sales representative at the site introduced the flats to potential buyer; filling up documents and further the same to the agent of the Vendor developer for follow up. After that, the transactions were followed by the Vendor's developer's appointed agent including the preparation of the Provisional Agreement. The Plaintiff had no further involvement. There was no element of advancement by the Plaintiff in the earlier transactions as happened at this occasion.” Emphasis added.

18.Anyone would agree that “ the Plaintiff through its sales representative at the site introduced the flats to potential buyer; filling up documents and further the same to the agent of the Vendor developer for follow up” are clearly normal activities of an estate agent.

19.In paragraph 8 of the defendant’s affirmation, she also admitted she knew the plaintiff would be earning a commission from the Developer.  These admissions clearly demonstrated the plaintiff was engaged in the business of an estate agency and the defendant had full knowledge of it.

20.But could the plaintiff be also “in the business of making loans”? That question can be answered by looking at what “in the business of” meant?

21.Mr. Chan argued because in various documents, including the Application and the rebate confirmation letter dated 2/11/2005 (the “Rebate Confirmation”), the plaintiff specified it was not the defendant’s agent, the plaintiff’s only function in the transaction was to provide the loan to the defendant and therefore it must be in the business of making loans.

22.Mr. Chan’s argument required a leap of logic as wide as the Grand Canyon, because it ignored the possibility that the plaintiff could be acting as the Developer’s agent. In fact, in the sixth line of the Application, it was clearly stated:

“準買家確認港置只為該發展商之單邊代理。”

23.In paragraph 3 of the Rebate Confirmation it was further stated:

“買方知悉及確認香港置業並不是代表買方之代理，而是上述物業發展商之單邊代理。 ”

There can be no doubt that the plaintiff’s business was an estate agency, sometimes working as the purchaser’s agent, other times as the vendor’s agent and on occasions for both.

24.In any event, “business” is defined in Black’s Law Dictionary, 8^th ed., at page 211 as: “A commercial enterprise carried on for profit; …”. Here it was not disputed that the plaintiff did not charge any fees or interest on the loan. Accordingly, there is no possibility the plaintiff could earn a profit from the loan transaction. The only profit the plaintiff could earn was from a commission paid by the Developer. Where there was no possibility of making a profit, there was no “business” and therefore it follows as plain as daylight that the loan was not a business transaction. The estate transaction was the only “business” transaction involved.

25.Having found the plaintiff was not in the business of making loans, the defendant failed to show enough to raise the inference the plaintiff is a money lender as defined in section 2(1) of the MLO, there is no need for me to consider the other issues; however for completeness, I will evaluate the other issues as well.

(2) Was the transaction an exempted transaction under Part 2, Schedule 1 of the MLO?

26.Paragraph 5 of Part 2 of Schedule 1 to the MLO states:

“ A loan made by a company or a firm or individual whose ordinary business does not primarily or mainly involve the lending of money, in the ordinary course of that business.”

27.As I have already found the plaintiff’s ordinary business was an estate agent, the only issue here was whether the loan was made “in the ordinary course of” an estate agent?

28.In Harvester Stock Investment Co. v. Kwan Siu May [1987] 1 HKC 271 (at 280 and 281), Jackson-Lipkin J., quoting with approval the Rt. Hon LMD de Silva’s decision in Official Assignee of the Property of Koh Hor Khoon & Ors (bankrupts) v. Ek Liong Hin Ltd. [1960] AC 178, stated:

“…(T)he money lending transactions were carried out with the object of preserving and advancing the business and, therefore, for the purposes of the business… . It is sufficient … that the money lending transactions are undertaken genuinely for the purpose of the business, that is, with the object of preserving, advancing or otherwise assisting the business and not necessarily in connection with its primary objects.” 

29.The defendant’s evidence was that the loan was advanced such that she could pay the required deposit to the Developer and entered into the Provisional Agreement. Getting purchasers to enter into purchase agreements are of course the plaintiff’s ordinary business. Clearly, the loan was made in the ordinary course of the plaintiff’s business.

(3) The Residual Discretion:

30.Boiled down to its essence, the sole defence was: Although I borrowed HK$500,000.00 from the plaintiff and only repaid HK$300,000.00 of it, I should not have to repay the rest, because the plaintiff was not licensed.

31.The purpose of the MLO is to regulate the business of money lending and to provide a system of registration and control for this type of business activities. The MLO was not meant as an avenue for borrowers to escape legal liability for money owed. Bearing in mind that the plaintiff did not charge the defendant any fees or interest and the defendant’s admission that she borrowed the money from the plaintiff, it is plainly inequitable to the plaintiff, if it cannot recover the same. Accordingly, if I had to I would have exercised my discretion to allow the plaintiff to recover balance of the loan from the defendant.

Orders:

32.Judgment for the plaintiff in the sum of HK$200,000.00

33.Costs of this action together with costs for this application and all costs reserved be to the plaintiff, to be taxed if not agreed, with certificate for counsel.

Representation:

Mr. Anson Wong, instructed by Messrs Iu, Lai & Li, for the Plaintiff

Mr. E. Chan, of Messrs C.Y. Chan & Co., for the Defendant