WEEK 12.

1 Money Lending

Issue 1: Is this a loan transaction?

Quasi-credit  MLO only applies to loans so cannot apply to quasi-credit
transactions transactions where there is no “loan”.
 Hire purchase transaction – bailment for hire + option to
purchase.
 Helby v Matthews [1895] AC 471
 McEntire v Crossley Bros Ltd [1895] AC 457
 Phillips v Phillips (1861) 4 De GF&J 208
 Conditional Sale Transaction – ROT.
 Olds Discount Co. Ltd. v John Playfair
- A loan involves the advance of money with the obligation to repay it, there
is no such transaction in a conditional sale.
loan doess not  Definition of loan – includes discount.
have to be “loan” (貸款) includes advance, discount, money paid for or on
interest account of or on behalf of or at the request of any person, or the
bearing forbearance to require payment of money owing on any account
whatsoever, and every agreement (whatever its terms or form may be)
which is in substance or effect a loan of money, and also an agreement to
secure the repayment of any such loan, and “lend” (貸出) and “lender” (貸
款人) shall be construed accordingly;
 Neither the definition of “money lender” nor the definition of “loan”
refer to the charging of interest.
 Charging of interest is not a requirement to be a loan. An interest
free advance could still constitute a loan.
a. Is this loan subject to an applicable exemption under Schedule 1?
Exemptions  S3 - Authorized institutions under Banking Ordinance
 S33A – General Exception
-loans / lenders exempted by the Registrar after consultation with the
Financial Secretary.
 S33B – Specific Exception
-particular loan or loans, on application by a money lender (after
Registrar consults with Financial Secretary).
 Exempted persons (lenders) – Schedule 1 Part 1
 Exempted loans – Schedule 1 Part 2.
S3 MLO Ordinance not to apply to authorized institutions
This Ordinance shall not apply to—
(a) an authorized institution within the meaning of the Banking
Ordinance (Cap. 155); or
(b) as respects a loan made to such an authorized institution, any
person who makes such loan.
Schedule 1 1. Any subsidiary of on authorized institution within the meaning of the
Part 1 – Banking Ordinance (Cap. 155).
Exempted 2. A co-operative society registered under the Co-operative Societies
Persons Ordinance (Cap. 33).
3. A credit union registered under the Credit Unions Ordinance (Cap. 119)
and the Credit Union League of Hong Kong incorporated under Part XI of
that Ordinance.
4. A trade union registered under the Trade Unions Ordinance (Cap. 332).
5. An insurer, within the meaning of the Insurance Companies Ordinance
(Cap. 41), authorized under that Ordinance to carry on a class, or classes, of
insurance business specified in Part 2 of the First Schedule to that
Ordinance.
7. University Grants Committee.
8. A bank which is—
(a) incorporated or established outside Hong Kong;
(b) recognized as a bank by the relevant banking supervisory authority
(within the meaning of section 2(9) of the Banking Ordinance (Cap. 155))
which has been declared in writing by the Monetary Authority appointed
under section 5A of the Exchange Fund Ordinance (Cap. 66) to be a banking
supervisory authority in respect of which he is of the opinion that it
exercises adequate prudential supervision for the purposes of this
paragraph; and (Replaced 49 of 1995 s. 53)
(c) carrying on banking business in the place where that banking
supervisory authority is located. (Replaced 49 of 1995 s. 53)
9 An organization—
(a) which is a member of the International Union of Credit and
Investment Insurers (“The Berne Union”); or
(b) in respect of which the Registrar has declared in writing that he is
satisfied that it was established by one or more national governments with
the object of financing, or guaranteeing the financing of, the export of a
country’s goods or services.
10. A corporation licensed to carry on a business in securities margin
financing under Part V of the Securities and Futures Ordinance (Cap. 571).
(Replaced 5 of 2002 s. 407)
11. A corporation licensed to carry on, or an authorized financial institution
registered for carrying on, a business in dealing in securities under Part V of
the Securities and Futures Ordinance (Cap. 571) who engages in securities
margin financing in order to facilitate acquisitions or holdings of securities by
the corporation or institution for its client. (Replaced 5 of 2002 s. 407)
Schedule 1 1. A loan made bona fide by an employer to his employee.
Part 2 – 2. A loan made to a company secured by a mortgage, charge, lien or
Exempted other encumbrance—
loans (a) registered, or to be registered, under the Companies Ordinance (Cap.
622);
(ab) registered, or to be registered, under a provision of the Companies
Ordinance (Cap. 32) as in force from time to time before the
commencement date* of section 2 of Schedule 9 to the Companies
Ordinance (Cap. 622), having a continuing effect under Schedule 11 to the
Companies Ordinance (Cap. 622);
(ac) registered under a former Companies Ordinance as defined
by section 2(1) of the Companies Ordinance (Cap. 622); or
(b) which would, in the case of a company referred to in paragraph (b)
or (c) of the definition of “company” (公司) in section 2(1)—  
(i) where the mortgage, charge, lien or encumbrance was created
before the commencement date* of section 2 of Schedule 9 to the
Companies Ordinance (Cap. 622), be able to be registered under a former
Companies Ordinance as defined by section 2(1) of the Companies
Ordinance (Cap. 622) if the company were incorporated under that former
Companies Ordinance; or
(ii) where the mortgage, charge, lien or encumbrance is created on or
after that commencement date, be able to be registered under the
Companies Ordinance (Cap. 622) if the company were incorporated under
that Ordinance.
3. A loan made by a company under a bona fide credit-card scheme
operated by the company to any holder of a credit-card issued under that
scheme.
4. A loan made bona fide for the purchase of immovable property on the
security of a mortgage of that property and a loan made bona fide to
refinance such a mortgage.
5. 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.
6. A loan made by a licensed pawnbroker under the Pawnbrokers
Ordinance (Cap. 166), being a loan to which that Ordinance applies.
7. A loan made by any statutory body under any power conferred by law in
that behalf.
8. A loan made from—
(a) a fund established by resolution of the Legislative Council or by or
under an Ordinance;
(b) any superannuation or provident fund.
9. A loan made from any chit-fund operated under the Chit-Fund
Businesses (Prohibition) Ordinance (Cap. 262).
10. (a) A loan made by a holding company to its subsidiary or by a subsidiary
to its holding company or another subsidiary company of the same holding
company.
(b) Sections 13, 14 and 15 of the Companies Ordinance (Cap. 622) shall
apply to the interpretation of this paragraph as it applies to the
interpretation of that Ordinance.
11. A loan made to a company where the loan—
(a) forms part of a transaction involving the export from, or the import
into, Hong Kong of goods or services; and
(b) is for the purpose of facilitating that export or import, as the case
may be, of those goods or services.
12. (a) A loan made to a company that has a paid up share capital of not less
 than $1,000,000 or an equivalent amount in any other approved currency.
(b) For the purposes of this paragraph
“approved currency” (認可貨幣) means a currency—
(i) freely convertible into Hong Kong dollars; or
(ii) approved in writing by the Registrar for the purposes of this
paragraph.
13. A loan upon terms involving the issue by a company of debentures or
other securities in respect of which a prospectus has been registered under
the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.
32).
14. A loan made to a company the shares or debentures of which are
listed on—
(a) a recognized stock market as defined in section 1 of Part 1 of
Schedule 1 to the Securities and Futures Ordinance (Cap. 571); or
(b) any other stock market declared in writing, by the Securities and
Futures Commission referred to in section 3(1) of the Securities and Futures
Ordinance (Cap. 571), to be approved for the purposes of this paragraph.
15. A loan made to the subsidiary of a company referred to in paragraph 14.
Issue 2: Does the Lender require to be licensed?
Basic System S7(1) No person shall carry on business as a money lender
under the (a) without a licence;
MLO (b) at any place other than the premises specified in such licence; or
(c) otherwise than in accordance with the conditions of a licence.
a. Is the Lender carrying on business as a money lender in Hong Kong?
The Money Lenders Ordinance does not have any expressed territorial ambit.
But (Hong Kong Shanghai (Shipping) Ltd. v The Owners of the Ships or Vessels “Cavalry’),
 The Ord directed primarily to domestic transactions.
 the lender should in fact carry on the business of a
money lender in Hong Kong
“business of Definition of “money lender” contemplates a business.
lending - “money lender” means every person whose business (whether or not he
money” 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 …

Business of money lending - “a commercial enterprise systematically and

regularly, with a view to profit, and implicit in this idea are the features of
continuity and system.” (Hyde v Sullivan)
 One transaction could constitute a business. However, generally, the
conduct of business does require more than one transaction as it is
usually thought that there should be ‘more than occasional or
disconnected loans’ Edgelow v MacElwee
 A question of fact
- Litchfield v Dreyfus (art dealer lent $ to clients to help them
purchase art – biz = sale of arts – lending $ is incidental – not in
the biz of lending $- recoverable)
- Edgelow v MacElwee (a solicitor lent $ to ppl – used law firm as a
 disguise of the $ lending biz – could not recover his loan)
Issue 3: If applicable, have the provisions of the MLO, in particular S18, been complied
with?
Compliance Contract must comply with S18:
with S18  Reduced to writing within 7 days but before
loan advance / grant of security.
 Note / Memorandum must be ‘personally
signed by Borrower’ and contain information prescribed in S18(2).
 Copy must be given to Borrower at signing.
S18(2) MLO The note or memorandum shall contain all the terms of the agreement and
in particular shall set out—
(a) the name and address of the money lender;
(b) the name and address of the borrower;
(c) the name and address of the surety, if any;
(d) the amount of the principal of the loan in words and figures;
(e) the date of the making of the agreement;
(f) the date of the making of the loan;
(g) the terms of repayment of the loan;
(h) the form of security for the loan, if any;
(i) the rate of interest charged on the loan expressed as a rate per cent
per annum, or the rate per cent per annum represented by the interest
charged as calculated in accordance with Schedule 2; and
(j) a declaration as to the place of negotiation and completion of the
agreement for the loan.
Consequences S18(1) provides contract is unenforceable but
of breach of See S18(3):
S18 Notwithstanding subsection (1), if the court before which the enforceability
of any agreement or security comes in question is satisfied that in all the
circumstances it would be inequitable that any such agreement or security
which does not comply with this section should be held not to be
enforceable, the court may order that such agreement or security is
enforceable to such extent, and subject to such modifications or exceptions,
as the court considers equitable.
Issue 4: What is the effective interest rate (Schedule 2)?
Under 48%
Above 48% but not exceeding 60% - presumed extortionate.
Above 60% - illegal.
Interest  No implied right of interest – must be stated in K
 If no interest provided for, none can be charged
Islamic Press Agency v Al-Wazir [2001] EWCA Civ 1276
 Payment by a borrower (or third person on his behalf) to lender as the
price for the loan.
 Simple interest
 Compound interest – illegal S22(1).
“Any agreement made for the loan of money by a money lender shall
be illegal if it provides directly or indirectly for
(a) the payment of compound interest;”
  Definition of interest in S2 MLO
…includes any amount (by whatever name called) in excess of the principal,
which amount has been or is to be paid or payable in consideration of or
otherwise in respect of a loan; (***Brokerage/handling fee label does not
matter)
 Under MLO:
 Interest rate charged must be specified in the Agreement (S18)
 True Annual Percentage Rate of interest is calculated in
accordance with Schedule 2.
- Method of calculation assumes that each payment is divided between
principal and interest in a fixed ratio.
High Interest S25 – interest rates above 48% p.a. are extortionate. (**rebuttable
Rates presumption)
But see S25(9A).
Nothing in this section shall apply to- (a) a loan specified in paragraph 12
in Part 2 of Schedule 1;
S24 – interest rates of 60% p.a. or above illegal.
But see S24(5)(a).
(5) Nothing in this section shall apply to- (a) a loan specified in paragraph
12 in Part 2 of Schedule 1;
 Court’s powers under s25 to reopen extortionate transactions.
 This is of general application, not limited to money lenders
 Does not apply to banks or institutions referred to in s3.
MLO 1. Any amount paid or payable to the lender under the agreement (other
Schedule 2 – than simple interest charged in accordance with the proviso to section 22(1))
Calculation shall be appropriated to principal and interest in the proportion that the total
of True amount of principal bears to the total amount of the interest. (Amended 69 of
Annual 1988 s. 34)
Percentage 2. The amount of principal outstanding at any time shall be taken to be the
Rate of balance remaining after deducting from the principal the total of the portions
Interest of any payments appropriated to principal in accordance with paragraph 1.
3. The several amounts taken to be outstanding by way of principal during
the several periods ending on the dates on which payments are made shall be
multiplied in each case by the number of calendar months during which those
amounts are taken to be respectively outstanding, and there shall be
ascertained the aggregate amount of the sum so produced.
4. The total amount of the interest shall be divided by one-twelfth part of the
aggregate amount mentioned in paragraph 3 and the quotient, multiplied by
one hundred, shall be taken to be the rate of interest per cent per annum.
5. If having regard to the intervals between successive payments it is desired
so to do, the calculation of interest may be made by reference to weeks
instead of months, and in such a case the foregoing paragraphs shall have
effect as though in paragraph 3 the word “weeks” were substituted for the
words “calendar months”, and in paragraph 4 the words “one-fifty-second”
were substituted for the words “one-twelfth”.
6. Where any interval between successive payments is not a number of
complete weeks or complete months, the foregoing paragraphs shall have
 effect as though 1 day were one-seventh part of a week or one-thirtieth part
of a month (as the case may be).
Interest Rate  Any agreement for the repayment of a loan or for the payment of
Restrictions - interest on a loan in respect of which the effective rate of interest
S25(3) MLO exceeds 48 per cent per annum shall, having regard to that fact alone,
be presumed for the purposes of this section to be a transaction which
is extortionate; but except where such rate exceeds the rate specified
in section 24(1), the court may declare that any such agreement is not
extortionate for the purposes of this section if, having regard to all the
circumstances relating to the agreement, the court is satisfied that
such rate is not unreasonable or unfair.
Interest Rate  Above 60% p.a. illegal (S24(1)).
Restrictions - Any person (whether a money lender or not) who lends or offers to lend money at an
S24(1) MLO effective rate of interest which exceeds 60 per cent per annum commits an offence.
Interest Rate Restriction can apply to:
Restrictions  one off loans
 by people not in the business of lending money generally.
 Restriction does not apply to banks. (S3 MLO)
 This Ordinance shall not apply to—
(a)an authorized institution within the meaning of the Banking Ord; or
(b)as respects a loan made to such an authorized institution, any person who
makes such loan.
Issue 5: If the MLO is applicable but hasn’t been complied with, potential civil and criminal
consequences.
Consequences  S29 contains various offences.
of breach - S29(1) Any person who carries on business as a money lender—
criminal (a) without a licence;…
commits an offence.
S29(4) Any money lender who—
(a) fails to make a note or memorandum in writing of an
agreement in compliance with section 18;
(b) fails to give a copy of such note or memorandum to the
borrower in compliance with section 18(1)(a); or
(c) fails to include in or attach to such copy a summary in writing
in compliance with section 18(1)(b),
commits an offence.
 Penalties set out in S32:
S32 MLO – 32. Penalties and disqualification
Criminal (1) Any person who commits an offence under this Ordinance shall be liable
Penalties —
(a) in the case of an offence under section 29, to a fine of $100,000 and
to imprisonment for 2 years;
(b) in the case of any other offence for which no penalty is provided, to a
fine of $10,000 and to imprisonment for 6 months.
(2) Where any person is convicted of an offence under this Ordinance, the
magistrate may order that such person shall be disqualified from holding a
licence for such period not exceeding 5 years from the date of such
 conviction as may be specified in the order.
(3) A licence held by any person against whom an order is made under
subsection (2) shall, as from the date of the order, cease to have effect for
the purposes of this Ordinance.
Consequences  Potentially disastrous and draconian consequences.
of breach - S23, loan not recoverable if money lender not licensed. (Targeting those In
civil the biz of lending $, not applied to private lender)

Loan etc. not recoverable unless money lender licensed

 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.

 However, court has discretionary power in the proviso to S23.

=> Even if lender does not comply, the court may order that the
loan is recoverable as long as the court considers it equitable
Issue 6: Is the s23 proviso applicable?
 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.
 Strong Offer Investment (crt balance the facts and take a view – minor breach may not
cost the recovery of interest)
 Celestial Finance Ltd. = (memo completed within 7 days – but completed 40 days – but
the cured the breach – still entitle to recovery)
 Chan Sze Sze Gabrielle (Lender single woman with children – borrower wealthy person
– lender not in biz of lending $ - even if – the crt would exercise the provision – crt
sympathetic to exercise the discretion in L’s favour to the extent possible)
S25(1) Powers If Section 25 is applicable, the Court can re-open harsh or unconscionable
contracts.
“the court may reopen the transaction so as to do justice between the parties having
regard to all the circumstances, and, for that purpose, make such orders and give such
directions in respect of the terms of the transaction or the rights of the parties
thereunder as the court may think fit.”
Code of  Non-statutory code by the licensed Money Lenders Association
Money Limited
Lending
Practice