City Hardware Pte Ltd v Kenrich Electronics Pte Ltd

• Judge: V K Rajah J
• Judgment Date: 31 January 2005
• Neutral Citation: [2005] SGHC 24
• Citation: [2005] SGHC 24
• Defendant Counsel: James Goon Hoong Seng and Sham Chee Keat (Ramdas and Wong)
• Published date: 01 February 2005
• Plaintiff Counsel: Peter Gabriel, Ismail bin Atan and Calista Peter (Gabriel Law Corporation)
• Date: 31 January 2005
• Docket Number: Suit No 1108 of 2003
• Court: High Court (Singapore)
• Subject Matter: Credit sales,Whether purchaser needing to take possession of goods before delivery can be considered complete,Whether transactions structured to avoid Moneylenders Act,Whether commercial transactions constituting illegal moneylending,Illegal money-lending,Money and moneylenders,Passing of property,"moneylending" and "loan of money",Words and Phrases,Whether transactions constituting sale of credit facilities,Personal Property,Whether transactions amounting to commission transactions for banking facilities,Section 2 Moneylenders Act (Cap 188, 1985 Rev Ed),Credit and Security

31 January 2005 Judgment reserved.

V K Rajah J:

Introduction

1 In these proceedings, the defendant pleads that certain commercial transactions it has entered into with the plaintiff ought to be voided. It asserts that these transactions constitute de facto and de jure moneylending. The parties’ rival contentions squarely bring into sharp focus the objectives and ambit of the Moneylenders Act (Cap 188, 1985 Rev Ed) (“MLA”). Is the MLA invariably contravened whenever the object of a transaction is to raise money?

2 The plaintiff is engaged in the business of selling and distributing sanitary fittings, in addition to other household goods and appliances. Its recent average annual turnover was in the region of $30m. Lau Chui Chew (“LCC”) has been the managing director of the plaintiff since its incorporation.

3 The defendant used to trade in electrical appliances and electronic equipment. Since 2003, however, it has remained a dormant company. Goh Boon Chye (“GBC”) was the managing director of the defendant while it conducted business.

4 LCC became acquainted with GBC in or around 1990 while GBC was an employee of Pertama Holdings Ltd (“Pertama”). Around this time, Thunderflash Enterprise Sdn Bhd (“Thunderflash”), a Malaysian company, whose managing director was an acquaintance of both LCC and GBC, proposed a trading relationship between the plaintiff and Pertama. Given that Pertama was averse to extending credit to foreign companies, Thunderflash could not obtain credit directly from Pertama for any electronic goods it sought. Thunderflash therefore proposed that the plaintiff purchase any such goods from Pertama and subsequently resell these goods to Thunderflash at a profit. This arrangement proved to be beneficial to all the parties involved and subsisted uneventfully until about 1992.

5 In these transactions (“Thunderflash transactions”), the plaintiff would purchase the goods that were required by Thunderflash from Pertama by paying cash. The plaintiff would then resell the same goods to Thunderflash on credit. GBC would initially settle the particulars of the goods desired and invoices required after discussions with Thunderflash, and thereafter arrange for Pertama to issue invoices to the plaintiff. The plaintiff would then instruct its bank to make payment directly to Pertama. After Pertama’s receipt of the moneys, GBC would arrange for delivery of the goods from Pertama directly to Thunderflash.

6 Subsequently, GBC left the employ of Pertama and incorporated his own company, Perdana Electronics Pte Ltd (“Perdana”). In late 1999, GBC proposed to the plaintiff that they initiate similar sub-sale arrangements for goods that Perdana intended to procure from overseas suppliers (“Perdana transactions”). The plaintiff was amenable to this proposal. GBC in turn liaised with the overseas suppliers directly. The overseas suppliers would thereafter address the invoices to the plaintiff; these invoices would be forwarded by the overseas suppliers to GBC who would then hand them over to the plaintiff, who subsequently arranged for its bank to issue letters of credit in favour of the various overseas suppliers. The plaintiff would then invoice Perdana for payment. Perdana would pay the plaintiff a marked-up price which the plaintiff contends included a profit for arranging the banking facilities and the delivery of the goods to Perdana by its forwarding agent, Confi Logistics Pte Ltd (“Confi”).

The genesis of the claims

7 In February 2000, GBC approached the plaintiff and proposed a similar trading relationship between the plaintiff and the defendant, which he had recently incorporated. The overseas suppliers for this relationship were mainly from Hong Kong and Taiwan. The arrangement involving these overseas suppliers (“Overseas transactions”) lasted from about February 2000 to January 2002. The structure of the Overseas transactions was conceptualised by GBC who would also determine the type and quantity of goods that were to be purchased. GBC directly negotiated with the overseas suppliers without reference to LCC. It also appears that GBC apparently held himself out, from time to time, to be a representative of the plaintiff. Various letters from overseas suppliers addressed to the plaintiff were expressly marked to his attention.

8 The invoices from the overseas suppliers, although addressed to the plaintiff, were again sent to GBC at his home. GBC would thereafter forward the invoices to the plaintiff. The plaintiff in turn would arrange for its bank to issue the letters of credit in favour of the overseas suppliers. When the goods arrived in Singapore, the plaintiff’s port clearance agent, Confi, would arrange for the port clearance and deliver the goods to the defendant. The plaintiff would invoice the defendant for the goods with a mark-up, which it asserts signified its profit margin.

9 GBC would periodically visit the plaintiff’s office to sign the plaintiff’s invoices to confirm that the goods had been delivered to the defendant in good order and condition and that the invoiced amounts were correct. Payment of these invoices would be made in accordance with the credit period agreed between GBC and LCC for each transaction. The credit periods varied between the various transactions, ranging from one to three months.

10 Around March 2000, soon after the commencement of the Overseas transactions, GBC visited the plaintiff’s office with a proposal. GBC desired to expand the defendant’s trading relationship with the plaintiff. He offered a cheque signed in blank (“the Cheque”) to LCC in order to reassure the plaintiff of his personal commitment in the event of a default by the defendant. The plaintiff, through LCC, accepted the Cheque as security for any default by the defendant in meeting its payment obligations to the plaintiff. It is pertinent to note that the payee’s name in the Cheque was left blank and the printed words “or bearer” were not deleted. The Cheque was a bearer instrument.

11 In or about June 2000, GBC again approached the plaintiff and proposed further transactions with another local supplier, Aloh Pte Ltd (“Aloh”). The negotiations apropos the goods to be purchased from Aloh were left, as in the earlier Thunderflash transactions, the Perdana transactions and the Overseas transactions, entirely to GBC. Again, GBC solely determined both the goods to be purchased and their prices, arranging for the invoices to be forwarded to the plaintiff. The plaintiff would then instruct its bank to make payment directly to Aloh. GBC would directly arrange for delivery of the goods from Aloh to the defendant (“Aloh transactions”).

12 The plaintiff was aware that Aloh had a close working relationship with the defendant but denies any knowledge of the actual ownership and/or business operations of Aloh throughout the course of the trading relationship. In reality, Aloh was another front for GBC. It is only now established that GBC’s brother-in-law and his wife, who were until May 2002 the ostensible directors cum shareholders of Aloh, had completely left the day-to-day management of that company to GBC. GBC’s wife offered the following explanation for the charade:

A: Because there are certain goods which, initially because Kenrich is solely under my name and my husband’s name, so Aloh is under my brother’s name, so we can use Aloh to buy goods from certain suppliers, because if they were to know that Aloh belongs to us, some of them might not want to supply goods, so we need Aloh to buy certain goods, then sell to Kenrich.

Q: So some suppliers would not know that Aloh and Kenrich are controlled by the same people.

A: Yes.

[emphasis added]

13 I accept LCC’s evidence that he implicitly trusted GBC and believed that Aloh was an independent supplier. The provision of the Cheque by GBC had also fortified his confidence in the viability of the business transactions and GBC’s bona fides. Aloh and the defendant maintained different premises and had separate administrative staff. Indeed it was established, when GBC and his wife were cross-examined, that GBC had not only signed on behalf of Aloh all delivery orders and invoices but had used a wholly different signature when attesting to the Aloh documents. When queried why he employed different signatures, GBC’s hesitant and unconvincing response revealed that he did not want his suppliers to know that Aloh was owned by him. That is not the whole truth. I accept that he similarly did not want the plaintiff to be aware of his actual relationship with Aloh. It also bears mention that until the Aloh transactions materialised late in the relationship, all the suppliers the defendant introduced to the plaintiff were independent entities. LCC, by dint of the hitherto successful and unblemished relationship with GBC, had absolute confidence in him. The Aloh transactions were carried out in a manner broadly similar to all the earlier transactions they had been involved in together.

14 The plaintiff would invoice the defendant for the goods inclusive of the mark-up which had been agreed to prior to each transaction. The defendant would sign the plaintiff’s invoices to confirm that it had received the goods in good order and condition and that the price of the goods, inclusive of the mark-up, was acceptable. It is incontrovertible that the transactions bore ex-facie all the adornments of regular sale and purchase transactions conducted at an arm’s length.

15 The plaintiff facilitated the Aloh transactions by purchasing the goods for cash from Aloh and selling them on credit to the defendant. It is noteworthy that goods and services tax (“GST”) was paid on each leg of the transactions, that is to say, in relation to the plaintiff’s purchase from Aloh as well as the defendant’s purchase of the same goods from the plaintiff. The structure of the relationship would not have struck one as a sophisticated subterfuge; nor was it an elaborate guise to evade the...