Secretary for Justice v. Global Merchant Funding Ltd

HCMA 716 /2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MAGISTRACY APPEAL NO. 716 OF 2013

(ON APPEAL FROM ESS NO. 43438 OF 2011)

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JUDGMENT
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Hon Kwan JA (giving the judgment of the court):

1.The respondent was acquitted of one charge of carrying on a business as a money lender without a licence. The Secretary for Justice, being the applicant, brought an appeal by way of case stated. On 2 April 2015, we handed down judgment dismissing the appeal with costs to the respondent. Of the three questions posed for this court in the case stated, we answered the key question in the negative, finding that the trial magistrate did not err in holding that money advanced by the respondent to merchants in the form of the Merchant Cash Advance (“MCA”) is not a loan within section 2 of the Money Lenders Ordinance, Cap 163 (“MLO”). We did not find it necessary to answer the other two questions.

2.By a notice of motion dated 9 April 2015, the applicant requested this court to certify that the following points of law of great and general importance are involved in the decision, pursuant to section 32(2) of the Hong Kong Court of Final Appeal Ordinance, Cap 484:

“1. Whether the reference to “loan” in section 2 of the Money Lenders Ordinance, Cap 163 will apply to a transaction which:

(i) is not one of the traditional forms of discounting such as bill discounting, block discounting or the sale of book debts, and,

(ii) involves no discounting of any debt due from another person but in which, in consideration of a cash advance, the recipient of the cash advance (1) undertakes to pay a larger sum to the one making the advance and (2) makes provision by way of assignment for payments to be made out of anticipated future income accruing from credit card transactions whilst remaining liable as primary obligor for the amount so due to the extent that the income necessary to make the agreed payment does not materialize either at all or at the rate agreed, and,

(iii) where there are no receivables due from any third person or none having a face value corresponding to the amount due from the recipient of the cash advance?

2. In order to come within the definitions of “loan” and “interest” in section 2 of the Money Lenders Ordinance, Cap 163 is it a requirement that there should be a definite time for payment or that the rate of interest should be ascertained by reference to a definite time for payment?

3. In determining whether a transaction is a loan within the meaning of section 2 of the Money Lenders Ordinance, Cap 163 (“the Ordinance”), whether inability to comply with sections 18 and 19 of the Ordinance is a factor to be considered?”

3.This application is opposed by the respondent.

4.The applicant submitted that the first point of law is a substantial point and clearly one of public interest and general importance, as this new form of funding through MCA, which is essentially different from traditional forms of discounting, has been promoted to and targeted at small and medium enterprises in Hong Kong.  The decision of this court involves an extension of the principles established in the authorities concerned with discounting to transactions of a new kind, and this new form of funding has not been the subject of any reported decision.

5.The respondent submitted that no point of law of principle, let alone one of great and general importance, arises from the decision of this court.  The question whether a particular transaction is in substance a loan under the MLO is fact specific and depends on the particular circumstances and the precise contractual terms of the transaction.  There was no controversy over the law.  The only controversy was the correct interpretation of the terms of the MCA contract in accordance with the established legal principles.  This court had simply applied the established legal principles to the salient features of the MCA contract.  It was also submitted that the applicant’s position to re-characterise the MCA transaction as a loan within section 2 of the MLO is untenable and against all established authorities.

6.We agree with the applicant that our decision gives rise to a substantial point of law, and we do not think the arguments advanced by the applicant and rejected by us are untenable.  The court was concerned with a new form of funding not hitherto considered in reported decisions.  Although our decision is fact specific in the sense that it involves the application of established principles to the salient features and specific terms of this kind of transaction, this new way of funding is a business sought to be promoted to small and medium enterprises in Hong Kong.

7.We will certify the question as framed in the first point as points of law of great and general importance involved in the decision.

8.We decline to certify the other two questions in the notice of motion.  They are essentially the same as questions 1 and 2 of the case stated and we did not find it necessary to answer them as it was common ground in the appeal that the answers to these questions would not affect the correctness of the acquittal and we did not think the answers to these questions would have affected the characterization of the MCA contract (§§5, 47, 50 and 51 of our judgment).  They are not properly questions “involved in the decision” of this court for the purpose of certification under section 32(2).

9.We will not award costs to the respondent as the applicant is substantially successful in this application.

Written submissions by Mr Clifford Smith SC and Mr Anthony Chau SPP,for the Appellant (Applicant)

Written submissions by Mr Simon Westbrook SC and Mr Derek C L Chan, instructed by Tanner De Witt, for the Respondent (Respondent)