Lena Leowardi v Yeap Cheen Soo

• Court: Court of Appeal (Singapore)
• Judge: Sundaresh Menon CJ
• Judgment Date: 26 November 2014
• Neutral Citation: [2014] SGCA 57
• Citation: [2014] SGCA 57
• Defendant Counsel: Ong Ying Ping, Lim Seng Siew and Susan Tay Ting Lan (OTP Law Corporation)
• Published date: 01 December 2014
• Plaintiff Counsel: Isaac Tito Shane, Justin Chan Yew Loong and Neo Wei Chian Valerie (Tito Isaac & Co LLP)
• Hearing Date: 29 September 2014
• Docket Number: Civil Appeal No 55 of 2014
• Date: 26 November 2014
• Subject Matter: Money and Moneylenders,Credit and Security

Steven Chong J (delivering the judgment of the court): Introduction

This case concerns the classic tale of two innocent victims of a scam leading to the legal conundrum as to which of two victims ought to bear the legal consequences as a result of the actions of a fraudster. Many instances of such a situation in the common law of contract are often to be located in relation to the formation of a contract (of which the issue of mistaken identity is perhaps the most prominent).

This appeal, however, arises in a somewhat different and more unusual context – that of moneylending in general and the potential applicability of the Moneylenders Act (Cap 188, 2010 Rev Ed) (“the Act”) in particular. It is not only a tale of fraud and trickery but also of sharp business sense and practice, all of which were wrapped up in the perhaps naïve optimism and desire on the part of the victims in seeking out their respective pots of gold at the end of their respective rainbows. As it turns out, neither of the victims found his or her pot of gold because those pots never existed in the first place. Indeed, the rainbows were conjured up by a fraudster and were utterly illusory. In their place, a legal storm occurred instead: one victim turned on the other in order to minimise the damage she suffered whilst the other sought to rely on the Act in order to resist the former, resulting in the legal proceedings that are before us.

In the simplest terms, these proceedings involved a fraudster who managed to persuade Lena Leowardi (“the Appellant”) to lend him not insignificant sums of money on four successive occasions, from which one set of contracts arose (“the Loan Agreements”). The fraudster provided another set of contracts in which he promised “bonus payments” to the Appellant (“the Promissory Notes”) upon the occurrence of an event. When these “bonus payments” are repayable if at all has a material bearing on the applicability of the Act. However, notwithstanding the promise of the “bonus payments”, the Appellant would not have lent the sums to the fraudster without a further “inducement”; she would only lend the sums of money to the fraudster if the latter was able to procure someone to guarantee repayment of these sums. In came Yeap Cheen Soo (“the Respondent”) who guaranteed the repayment of two out of the four Loan Agreements. The Respondent similarly obtained separate promissory notes from the fraudster for agreeing to act as his guarantor. Two independent contracts of guarantee (“the Guarantees”) were subsequently entered into between the Appellant and the Respondent (which are the contracts in issue before the court in these proceedings). The fraudster defaulted in the payment of the Loan Agreements and had the temerity or the guile to voluntarily declare himself a legal bankrupt. Not surprisingly, the Appellant (as already mentioned) sued the Respondent on the Guarantees. In essence, the Respondent resisted this claim, arguing that the Guarantees were not enforceable as the sums lent by the Appellant to the fraudster pursuant to the Loan Agreements were moneylending transactions that were proscribed under the Act. However, in order to make good his defence, the Respondent had a threshold hurdle to cross. In particular, he had to persuade the trial judge (“the Judge”) that the Loan Agreements were inextricably connected with the Promissory Notes because it was the latter set of contracts that contained the alleged “bonus payments” that had to be repaid which (the Respondent argued) triggered the presumption of moneylending under s 3 of the Act. If, on the contrary, these two aforementioned sets of contracts were separate and independent of each other, though they may be connected, there would be no basis for the Act to apply in which event the presumption would not arise. The Judge agreed with the Respondent and proceeded to hold that the Act applied and that the presumption in s 3 of the Act had not been rebutted. In the premises, he held that the Respondent had made good his defence under the Act and therefore found in his favour (see Lena Leowardi v Yeap Cheen Soo [2014] SGHC 44 (“the Judgment”)). The Appellant mounted the present appeal. What is interesting is that whilst the parties focused on the application of the Act in their respective cases before this court, it seems to us that what is crucial to the outcome of this appeal hinges, instead, on the applicability of the Act in two (related) aspects.

First (and bearing in mind that this case involved a submission of no case to answer), did the pleadings permit the Respondent to invoke s 3 when only s 5 of the Act was referred to? Secondly, even assuming that this pleading obstacle could be surmounted, were (as the court below held) the Loan Agreements inextricably and necessarily connected to the Promissory Notes such that the “bonus payments” were payable together with payment of the loan amounts? As already alluded to above, this was a threshold requirement in the present case before the Act could be invoked. However, as the precise facts of the present case are of the first importance, it is necessary to now turn to a more specific rendering of the same.

The Facts

We note that the parties are not disputing the facts as set out in the Judgment.

Parties to the dispute

The Appellant was an Indonesian businesswoman who stayed at Lucky Plaza apartments. She had a friend, Thomas Tan Boon Chai (“Thomas”), who owned a jewellery store in the same building. Thomas introduced the Appellant to Choong Kok Kee (“Choong”) who eventually borrowed money from the Appellant. The Respondent was the guarantor for two of these loans. It should be noted that the Appellant did not know either Choong or the Respondent before Choong was introduced to her by Thomas.

Background to the dispute

On 29 November 2010, Thomas was introduced to Choong by his long-time friend Grace Soh. Ms Soh came to his store together with Choong and one Steven Pang Kia Boon. Choong informed Thomas that he was the beneficiary of the funds under his brother-in-law’s estate in the United Kingdom worth some US$7.2m (“the Funds”). Choong requested from Thomas a loan of $140,000 to pay the administrative fees required to release the Funds. He promised to repay the loan within three to four weeks together with a reward of $100,000. Thomas then lent $140,000 to Choong. Subsequently, Thomas lent further sums to Choong despite Choong not returning him any money. He lent to Choong $250,000 on 20 January 2011, $44,000 on 11 February 2011 and $25,000 on 25 April 2011 for the same purpose of releasing the Funds. According to Thomas’ police report, he was promised a reward of $163,000 by Choong in return for all the loans.

In March 2011, Choong asked Thomas to lend him a further sum of $200,000 for the same purpose mentioned above but Thomas was unable to do so. Thomas then approached the Appellant and informed her of Choong’s situation and asked if she could lend Choong the money. Thomas also informed her that he wanted to help Choong retrieve the Funds so that Choong could repay him the loan monies he had already advanced. However, the Appellant was suspicious and asked for more information. In response to the Appellant’s query, Choong told her that the Funds had been sent to Bank Negara, Malaysia because it attracted a lower rate of tax in Malaysia. Among the documents provided by Choong to the Appellant was a “RELEASE ORDER FORM” purportedly issued by the London Metropolitan Police and signed by one “Dave Prebbel”. To satisfy herself that the Funds were genuine, the Appellant actually contacted the London Metropolitan Police to speak to Dave Prebble but was told that he was not in. The Appellant informed Choong that she would only be willing to lend him the money if he could obtain a guarantee from a third party for the repayment of any loan advanced. The Appellant also requested for the loan agreement to be drawn up by a lawyer.

The First Loan Agreement

On 22 March 2011, the Appellant met Choong and the Respondent at the lawyer’s office of Messrs Oliver Quek & Associates to execute the loan agreement (“the First Loan Agreement”). The Appellant met the Respondent for the first time on that occasion. The Respondent was the guarantor for this loan. Under the First Loan Agreement the Appellant agreed to lend $200,000 to Choong and he was to repay the sum within six weeks of the date of the agreement. There was no provision for any interest payment for the loan. The Respondent pledged his apartment at 3 Petain Road #03-02, Singapore as security for this Loan. Subsequently, the Appellant advanced the $200,000 to Choong.

On or about 22 March 2011, the Appellant signed a promissory note issued by Choong (“the First Promissory Note”). It stated that Choong was to pay the Appellant $400,000 within a month for her “investment” of $200,000. The Respondent was not aware of this promissory note.

The Second Loan Agreement

In April 2011, Choong requested more money from the Appellant and showed her a document purporting to prove that he needed to pay more money to secure the release of the Funds. The Appellant agreed to loan him a further sum of $380,000. Similarly, another loan agreement was executed at the office of Messrs Oliver Quek & Associates on 15 April 2011 (“the Second Loan Agreement”). Under the Second Loan Agreement, Choong promised to repay the $380,000 within six months. Like the First Loan Agreement, the Second Loan Agreement also had no provision for any interest payment. The Respondent was not a party to the Second Loan Agreement and it was Choong who pledged his Housing Development Board (“HDB”) apartment at Block 212 Bishan Street 23 #06-249, Singapore as security for the Second Loan Agreement.

After the Appellant had advanced the sum of $380,000 to Choong, the latter issued her another promissory note which she duly signed on 18 April 2011 (the “Second...