Belfield International (Hong Kong) Ltd v Sheagar s/o T M Veloo

• Jurisdiction: Singapore
• Judgment Date: 04 October 2013
• Date: 04 October 2013
• Docket Number: Suit No 876 of 2011
• Court: High Court (Singapore)

Belfield International (Hong Kong) Ltd

Plaintiff

and

Sheagar s/o T M Veloo

Defendant

[2013] SGHC 206

Lai Siu Chiu J

Suit No 876 of 2011

High Court

Contract—Illegality and public policy—Statutory illegality—Lender lending money to borrower company with guarantee by guarantor—Borrower defaulted—Whether loan agreement was unenforceable under s 5 Moneylenders Act 2008 (Act 31 of 2008) —Whether lender was an ‘excluded moneylender’ under s 2 Moneylenders Act 2008—Whether loan agreement was a sham being a personal loan to guarantor disguised as a corporate loan—Sections 2 and 5 Moneylenders Act 2008 (Act 31 of 2008)

Contract—Illegality and public policy—Statutory illegality—Lender lending money to borrower company with guarantee by guarantor—Guarantee containing ‘principal debtor clause’ making guarantor liable to borrower as principal debtor—Borrower defaulted—Whether loan agreement was unenforceable under s 5 Moneylenders Act 2008 (Act 31 of 2008) —Whether lender was an ‘excluded moneylender’ under s 2 Moneylenders Act 2008—Whether ‘principal debtor clause’ in guarantee made guarantor the borrower—Sections 2 and 5 Moneylenders Act 2008 (Act 31 of 2008)

Contract—Illegality and public policy—Statutory illegality—Lender lending money to borrower company with guarantee by guarantor—Lender company incorporated in Hong Kong—Lender not registering as a business under Business Registration Act (Cap 32, 2004 Rev Ed) —Whether loan agreement was unenforceable under s 21 Business Registration Act for non-registration—Whether lender's giving of loans constituted ‘business’ under s 2 Business Registration Act—Sections 2, 5 (1) and 21 Business Registration Act (Cap 32, 2004 Rev Ed)

Contract—Illegality and public policy—Statutory illegality—Lender lending money to borrower company with guarantee by guarantor—Lender company incorporated in Hong Kong—Moneys disbursed and to be repaid from lender's bank account in Hong Kong—Whether Hong Kong Money Lenders Ordinance (Cap 163) applied—Whether lender was carrying on business as moneylender in Hong Kong—Sections 2 (1) Hong Kong Money Lenders Ordinance (Cap 163)

Statutory Interpretation—Definitions—Lender lending money to borrower company with guarantee by guarantor—Lender company incorporated in Hong Kong—Lender not registering as a business under Business Registration Act—Whether loan agreement was unenforceable under s 21 Business Registration Act for non-registration—Whether lender's giving of loans constituted ‘business’ under s 2 Business Registration Act—Sections 2, 5 (1) and 21 Business Registration Act (Cap 32, 2004 Rev Ed)

Belfield International (Hong Kong) Limited (‘the plaintiff’) claimed against Sheagar s/o T M Veloo (‘the defendant’) for US$358,480.57, interest and costs under a guarantee that he gave for the plaintiff's loan extended to Blue-Sea Engineering Pte Ltd (‘Blue-Sea’), of which the defendant was the managing director and effective owner. The plaintiff was a company incorporated in Hong Kong and was in the business of providing commodities brokerage and structuring of trade finance services. Henri Adriaan Hamelers (‘Henri’) was one of its two directors.

Govender Dayanandan (‘Daya’) and Tan Yong Hong (‘Eric’) were the business associates of Henri. The defendant was introduced to Daya by his friend CChandrasegar, who was a fellow director of Great Sea with the defendant.

The defendant informed Daya and Eric that Blue-Sea required a loan of US$348,000 as Blue-Sea was having cash flow problems. Daya and Eric performed a due diligence check on and a credit appraisal of Blue-Sea and the Great Sea group of companies to ascertain their commercial viability and their loan serviceability. After Daya, Eric and Henri had gone through the financial documents, the plaintiff agreed to extend a loan of US$348,000 to Blue-Sea (‘the first Loan’). The defendant gave a personal guarantee for the loan.

About four months after the first Loan was extended and again at the request of the defendant, the plaintiff granted Blue-Sea another loan for US$358,000 (‘the second Loan’). Similarly, the defendant gave a personal guarantee for the second Loan.

The plaintiff's lawyer conducted all the required legal searches and prepared the legal documents for the loan (the documents will be referred to as the first and second Loan Agreements, the first and second Subordination Agreements, and the first and second Deeds of Guarantee and Indemnity).

The defendant subsequently sold Blue-Sea, removed himself as a director, and placed Blue-Sea under provisional liquidation. In reply to the plaintiff's letters of demand, the defendant sent two letters of undertaking to the plaintiff, undertaking to fulfil his obligations as the guarantor of the first and second Loans (‘the first Letter of Undertaking’ and ‘the second Letter of Undertaking’).

The plaintiff received a letter dated 4 November 2010 from Blue-Sea's liquidator, requesting the plaintiff to file a proof of debt by 8 November 2010, the plaintiff did not do so.

The first Loan was completely repaid by the defendant as its guarantor. However, the second Loan remained outstanding.

The plaintiff alleged that Blue-Sea had breached the second Loan Agreement and that events of default had occurred due to the company's liquidation. The defendant contended that the second Loan Agreement and the second Deed of Guarantee and Indemnity were unenforceable pursuant to: (a) ss 5 and 14 (2) of the Moneylenders Act 2008 (Act 31 of 2008); (b) ss 5 and 21 (1) (a) of the Business Registration Act (Cap 32, 2004 Rev Ed); and/or (c) the Hong Kong Money Lenders Ordinance (Cap 163) (‘the Hong Kong Money Lenders Ordinance’).

Held, allowing the claim and dismissing the cross-claim:

(1) An ‘excluded moneylender’ was not caught by the prohibition in s 5 of the Moneylenders Act 2008 against carrying on the business of moneylending without a licence in Singapore. Section 2 of that Act defined ‘excluded moneylender’ to include any person who lent money solely to corporations, or who carried on any business not having for its primary object the lending of money in the course of which and for the purposes whereof he lent money: at [31] .

(2) The documentary evidence showed that the second Loan was a corporate loan extended by the plaintiff to Blue-Sea. The defendant's argument that the second Loan Agreement was a sham to the extent that it was a personal loan to the defendant disguised as a corporate loan was rejected. Consequently, the plaintiff was an ‘excluded moneylender’ under s 2 of the Moneylenders Act 2008: at [35] and [46] .

(3) Although the plaintiff could have filed a proof of debt against Blue-Sea pursuant to the winding-up rules, the plaintiff was entitled to sue the defendant as the guarantor of the loan without having to exhaust the option of first pursuing Blue-Sea: at [38] .

(4) Even though the credit checks could have been done in a more rigorous manner, failure to do so did not detract from the fact that there was a genuine effort by the plaintiff in credit appraisal. The plaintiff was entitled to rely on Daya and Eric to do the credit checks, given that they were retired bankers with financial experience: at [40] .

(5) It was not unreasonable for the plaintiff to have disbursed the second Loan before the due diligence searches were done because Blue-Sea had a good track record of performing its obligations under the first Loan Agreement: at [43] .

(6) Even if the ‘management fee’ was effectively disguised interest that the plaintiff charged the defendant, that did not mean that the second Loan Agreement was a sham: at [45] .

(7) The ‘principal debtor clause’ in the second Deed of Guarantee and Indemnity did not make the defendant the borrower in the second Loan: at [48] .

(8) Pursuant to s 21 (1) of the Business Registration Act, where a person carried on business without being registered, the defaulter's rights under a contract in relation to the business carried on by the defaulter would not be enforceable: at [51] .

(9) The type of activity encompassed by the phrase ‘activity carried on for the purposes of gain’ under the definition of ‘business’ in s 2 of the Business Registration Act was confined to an activity which was not only carried on for the purpose of gain, but which had a sufficient degree of system, repetition and continuity: at [55] .

(10) Since the giving of loans by the plaintiff did not constitute a business, and the second Loan Agreement and the second Deed of Guarantee and Indemnity were not related to the plaintiff's business of commodities brokerage and structuring of trade finance services, the disability stated in s 21 of the Business Registration Act did not apply: at [56] .

(11) The parties did not have a common intention to use the second Loan Agreement to commit an act which was illegal under Hong Kong law, because the second loan transaction was not caught by the Hong Kong Money Lenders Ordinance: at [65] .

(12) Applying Hong Kong law, the plaintiff was not carrying on the business of moneylending because there was no sufficient degree of system, repetition and continuity. The plaintiff only advanced loans to four companies between 2009 and 2010. The plaintiff did not seek out the borrowers, and the plaintiff neither advertised nor announced nor held itself out in any way as carrying on a moneylending business. The plaintiff only made loans to four companies because of requests from them through friends. The small proportion of the plaintiff's profits and revenue derived from the giving of loans to the four companies was consistent with the finding that the plaintiff was not carrying on the business of moneylending: at [72] to [78] .

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