Lorrain Esme Osman v Elders Finance Asia Ltd

• Judge: Chan Sek Keong J
• Judgment Date: 09 January 1992
• Neutral Citation: [1992] SGCA 5
• Citation: [1992] SGCA 5
• Defendant Counsel: Engelin Teh and Susan Lim (Colin Ng & Partners)
• Published date: 19 September 2003
• Plaintiff Counsel: Sia Moon Joon and Thio Ying Ying (Chor Pee & Co)
• Date: 09 January 1992
• Docket Number: Civil Appeal No 117 of 1988
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether loan made in or outside Singapore,'Residing',Whether company was a moneylender,Loan by foreign company not licensed under Moneylenders Act (Cap 188),Whether company came within exception (c) of the definition of moneylender under the Act,Credit and Security,s 5(1) Moneylenders Act (Cap 188),'Carrying on business',Whether company residing and carrying on business of moneylending in Singapore,Words and Phrases,Whether promissory note issued by borrower illegal and void and unenforceable

Cur Adv Vult

The facts of this appeal are straightforward and not in dispute. Private Investment Company for Asia (PICA) SA (`Pica`) were a corporation incorporated in Panama with the principal purpose of making and facilitating capital investments in enterprises located in Asia and the Far East. The region was divided into two groups, the southern countries group comprising Brunei, Indonesia, Malaysia, Papua New Guinea, Singapore, Sri Lanka and Thailand, and the northern countries group comprising Taiwan, Korea, Philippines and Hong Kong. The group office and operating headquarters for the former was in Singapore and for the latter in Japan. There were also representative offices in Indonesia, Malaysia, Thailand and Singapore covering the southern countries group.

Concomitant with Pica`s principal purpose was that of acting as investment management consultants or advisers. Sometime between 1983 and 1988 following a reorganization of the Pica group of companies the respondents succeeded in title to Pica. This action originally commenced in the name of Pica was, by an order of court to carry on these proceedings dated 31 October 1988, carried on in the respondents` name. For the sake of convenience we shall refer to the respondents hereafter as `Pica`.

The appellant, Lorrain Esme Osman (`Osman`) was said to have been a prominent entrepreneur in Malaysia at the material time. It appears from the evidence and the documents disclosed at the trial that Osman was invited sometime in August 1982 to take up 30% of the equity in a company which was being incorporated in the Cayman Islands, a well-known tax haven, for the purchase of a bulk carrier and conversion into a drillship, the infamous Eniwetok, which would subsequently be chartered out. Pica, it appears, were engaged to act and were acting as the financial advisers to this venture which was a joint venture between various parties.

On or about 16 August 1982, Osman telexed Pica in which he said: `I confirm agreement to Keppel entering into purchase agreement on arrangement for me to have option to take up 30 PCT within 30 days.` In the same telex he said that he would be grateful if either Keppel or Pica could arrange for bridging finance in respect of his 30% pending finalization of long term financing arrangements. Pica must have agreed to make the bridging loan themselves for on 20 August 1982, Osman deposited certain securities with Pica`s representative office in Kuala Lumpur as security for a loan of US$1,260,000 to be made to him by Pica. Also on 20 August 1982 Osman telexed Pica confirming his instructions to them that the sum of US$1,260,000 be paid into Lloyds Bank International in New York on account of Lloyds Bank, Hong Kong, favouring Holman Fenwick William`s Hong Kong account. By the same telex he authorized disbursement of the funds on his behalf and to arrange for `Kempas` to accept the share certificates on his behalf.

On 23 August 1982 it appears that Osman signed, sealed and delivered a promissory note for US$1,260,000 in favour of Pica, payable within one month. This note is not the subject of this appeal but it is pertinent to observe that it was typed on Osman`s letterhead bearing his Kuala Lumpur address; provides for the payment of interest calculated by reference to the Singapore inter-bank market; provides that all sums payable under the note are to be in United States dollars and settled through the New York clearing house inter-bank payments system; and provides that the note is made in Singapore and that it shall be governed by and construed in accordance with the laws of Singapore.

Before the expiration of one month Osman requested that the payment of the above note be extended by 60 days but Pica would only agree to an extension to 25 October 1982 provided that Osman agreed to roll over the US$1,260,000 and execute a fresh note. Accordingly on 23 September 1982 Osman executed a second promissory note in terms identical, to the first note, except for the amount payable. The reason given by Osman was that there was some delay in the arrangement for alternative funding. On 1 November 1982 for the same reason Osman requested Pica, again to roll over the amount payable under the second note for a further month. This was agreed to by Pica and on 16 November 1982 Osman executed the promissory note, the subject of this appeal, in terms identical with the first note in every particular, except that the principal amount stated in the note was $1,296,317.56. The note dated 16 November 1982 was signed by Osman in Kuala Lumpur and sent to Pica in Singapore by express post on 18 November 1982.

Osman failed to pay. On 13 April 1983 Pica commenced this action against Osman as the maker of the promissory note dated 16 November 1982 for the principal sum of US$1,296,317.56 and interest thereon in terms of the note. The defence was as brief as the statement of claim was. It was that Pica carried on the business of moneylending at their operating headquarters and group office for southern countries in Singapore without being licensed to do so under s 5 of the Moneylenders Act (Cap 188) (`the Act`) and accordingly the note was illegal and void under s 15 and unenforceable against Osman.

The same issues canvassed at the trial were canvassed before us, namely, (a) whether Pica was a moneylender within the meaning of that word as defined by s 2 of the Act and if so, whether Pica came within exception (c) of the definition; (b) whether Pica was residing and carrying on the business of moneylending in Singapore; and (c) whether the loan to Osman was made by Pica in Singapore or outside Singapore.

The learned trial judge decided that Pica was not a moneylender within the meaning of the Act, that the loan was an `offshore` loan and that Pica did not carry on the business of moneylending in Singapore nor was it residing in Singapore within s 5(1) of the Act. In his written judgment [see [1989] 3 MLJ 29 ] he said at p 31:

The facts of the present case and the law, in my view, put the original plaintiffs [Pica] clearly within the exception. I found that the original plaintiffs were not a `moneylender` within the meaning of the Act.

The original plaintiffs are a Panamanian company with a branch office in Singapore. The defendant is a Malaysian. The loan was funded from New York deposited in a Hong Kong account for the purchase of shares in a company incorporated in the Cayman Islands. The loan was secured by property in Malaysia. It is clear that the loans given by the original plaintiffs were offshore loans and that the original plaintiffs did not carry on the business of moneylending in Singapore nor were they `residing` in Singapore within s 5(1) of the Act.

In our view it is logical to consider issue (b) before considering issues (a) and (c) because if Pica was not `residing` in Singapore within the meaning of s 5(1) of the Act, it would not be subject to the provisions of the Act. It was an admitted fact that the loan to Osman was made by Pica as principal and not as agent. It was also admitted that Pica was not licensed under the Act or exempted under s 36 of the Act.

Accordingly we will consider, firstly, whether Pica was `residing` in Singapore within the meaning of s 5(1) of the Act; secondly, whether Pica `was carrying on business` in Singapore; thirdly, whether that business was the business of `moneylending` and if so whether Pica came within exception (c) of the definition of `moneylender` in s 2 of the Act; and lastly, whether the loan was made in Singapore or outside Singapore.

The relevant provisions of the Act which need to be considered are the definition of `moneylender` in s 2 and exception (c), s 5(1) and (2) and s 15. They are as follows:

`moneylender` includes every person whose business is that of moneylending or who carries on or advertises or announces himself or holds himself out in any way as carrying on that business whether or not that person also possesses or earns property or money derived from sources other than the lending of money and whether or not that person carries on the business as a principal or as an agent but does not include -

(c) any person bona fide carrying on the business of banking or insurance or bona fide carrying on any business not having for its primary object the lending of money in the course of which and for the purposes whereof he lends money;

5 (1) Every moneylender residing and carrying on the business of moneylending in Singapore whether as principal or as an agent shall take out a licence annually.

(2) A licence shall be taken out in respect of each name under which moneylending business is conducted. No licence shall be granted to a person not ordinarily resident in Singapore or to a firm where the person proposed to be responsible for the management of the firm is not ordinarily resident in Singapore.

15 No contract for the repayment of money lent by an unlicensed moneylender shall be enforceable:

Provided ...

Was Pica residing in Singapore?

It is not surprising...