Pankaj s/o Dhirajlal v Donald McArthy Trading Pte Ltd and Others

• Jurisdiction: Singapore
• Judge: Kan Ting Chiu J
• Judgment Date: 26 July 2006
• Neutral Citation: [2006] SGHC 131
• Docket Number: Suit No 221 of 2005
• Date: 26 July 2006
• Published date: 27 July 2006
• Year: 2006
• Plaintiff Counsel: Mahtani Bhagwandas and Letchamanan Devadason (Harpal Mahtani Partnership)
• Citation: [2006] SGHC 131
• Defendant Counsel: P Jeya Putra and Wendy Leong (AsiaLegal LLC)
• Court: High Court (Singapore)
• Subject Matter: Section 2, 3 Moneylenders Act (Cap 188, 1985 Rev Ed),Credit and Security,Defendant paying plaintiff commission and interest in addition to principal sum under letters of credit for provision of such service,Plaintiff making arrangement with own bankers to issue letters of credit to be used to pay for goods purchased by defendant,Illegal money-lending,Whether agreement for such arrangement illegal and unenforceable,Whether plaintiff illegal moneylender,Whether such arrangement amounting to moneylending,Money and moneylenders

26 July 2006 Judgment reserved.

Kan Ting Chiu J:

1 The parties in this case had an arrangement whereby the plaintiff would get his bankers to issue letters of credit which were used to pay for goods the first defendant purchased. When the letter of credit is issued and the goods are paid for, they would be taken by the first defendant. For the benefit of the service, the first defendant agreed to pay the plaintiff the principal sum of the letter of credit, a commission charge, and interest.

2 The plaintiff, Pankaj s/o Dhilrajlal, is the sole proprietor of a business known as Topbottom Impex. The first defendant is a limited company, Donald McArthy Trading Pte Ltd. The second and third defendants who are husband and wife are described by the plaintiff to be the controlling minds and wills of the first defendant. The plaintiff seeks to lift the corporate veil of the first defendant to make the second and third defendants liable for the debts the first defendant owes to him.

3 The arrangement was described in paras 6 and 7 of the statement of claim:

6. In or about 1998, the 2^nd Defendant approached the Plaintiff for assistance to help him finance the purchase of metals from his overseas suppliers. The 2^nd Defendant informed the Plaintiff that his own letter of credit facilities with his bankers were already fully utilized, but he needed additional funds to take advantage of business opportunities. The 2^nd Defendant proposed to the Plaintiff an agreement whereby the Plaintiff was to open letters of credit for him in the name of the 1^st Defendants [sic] or any of his nominated companies, in exchange for which the 2^nd Defendants [sic] would reimburse the Plaintiffs [sic] all principal amounts used and interests charged by the banks, costs and disbursements charged by the bank, a 1.5% commission charge to the Plaintiffs [sic], as well as interest to compensate the Plaintiff for the loss of use of his funds. The 2^nd Defendant proposed for convenience that the bank interest which was at the time between 10% and 10.5% per annum, and the interest payable to the Plaintiff, would be calculated jointly and fixed at a flat rate of 12% per annum in total. The 2^nd Defendant further proposed that if he or the 1^st Defendants [sic] or any of his nominated company fail to make payments on time and this resulted in penalty interest by the bank to the Plaintiffs [sic], the Plaintiffs [sic] would be entitled to charge an additional 2% interest per annum to him and/or the 1^st Defendant, as per the bank’s method of computing interest.

7. As the Plaintiff had existing facilities with his bankers, the Plaintiff accepted the 2^nd Defendant’s proposal that the Plaintiff open Letters of Credit on his behalf to enable the 1^st Defendants [sic] and/or other of his nominated companies to purchase metals or other goods from its suppliers, in consideration of the 1.5% commission and 12% per annum interest charge, and a full indemnity for, and prompt payment of the amounts under the letter of credit, bank costs and disbursements. The Plaintiff also accepted the 2^nd Defendant’s offer that if the payments became overdue and the bank imposed late payment penalty interest, the Plaintiff would be entitled to charge another 2% per annum in interest. These are the principal terms of the oral agreement (hereinafter “the Agreement”) between the Plaintiff and the 2^nd Defendant acting in his personal capacity and on behalf of the 1^st Defendant, jointly.

4 The plaintiff quantified the total amount due as at 14 January 2005 as comprising US$361,459.66 as principal, and US$239,441 interest, and he claimed from the defendants those amounts, continuing contractual interest, and alternatively, damages.

5 The defendants did not deny that there was an agreement, but they claimed in their defence that it was made at the initiative of the plaintiff:

6. The Defendants say that the Plaintiff approached the 2^nd Defendant to offer his credit facilities for the 2^nd Defendant’s companies’ use in 1996 and in 1997. The Plaintiff informed the 2^nd Defendant that he had obtained large credit lines which were over and above his business requirements and that in order to maintain his large credit lines, he was willing to open Letters of Credit (“LC”) for use by any of the 2^nd Defendant’s companies for a commission. The 2^nd Defendant did not accept any of the Plaintiff’s offer in 1996 and in early 1997. Save as aforesaid, paragraph 6 of the Statement of Claim is denied

7. The Defendants further say that in spite of the 2^nd Defendant’s rejection of the Plaintiff’s offers, the Plaintiff continued to make several calls to the 2^nd Defendant to offer the use of his LC facilities. Sometime in mid 1997, the 2^nd Defendant agreed to give the Plaintiff some business through one of the 2^nd Defendant’s companies, Donald & McArthy Pte Ltd, which was subsequently wound up n 2000. The terms of the oral agreement between the Plaintiff and the 2^nd Defendant was that the Plaintiff would receive 1.5% commission of the total purchase value of goods bought by the 2^nd Defendant’s companies, with a 45-day interest-free credit period (hereinafter referred to as the “LC Agreement”)

6 The defence pleaded was that the arrangement was terminated in October 2000 and all outstanding sums had been paid to the plaintiff, and that the plaintiff had applied rates of interest charges in the invoices in excess of the rates which were agreed to.

7 After filing that defence, the defendants changed solicitors and enlarged their defence. By an amendment to the defence, it was pleaded that the agreement was unenforceable as it infringed the Moneylenders Act (Cap 188, 1985 Rev Ed) (“the Act”). The defendants pleaded that:

22A … even if the LC Agreement persisted beyond October 2000, which is denied, it is illegal and thus, unenforceable as it infringes [the Act].

The Defendants aver that the Plaintiff had used the LCs as a cover for lending money to the 1^st Defendants which was allegedly repayable with interest. By the Plaintiff’s own admission in Paragraph 10 of the Statement of Claim, interest was to be charged at the rate of 12% per annum for on time payments and 14% per annum for late payments.

The Plaintiff also admitted in Paragraph 11 of the Statement of Claim that he had kept a general ledger in respect of the interest payments which was calculated as “per the banks method of computation”. Clearly, the Plaintiff had treated himself like a bank and had intended to lend money which was to be repaid with interest.

The fact that these interest payments were not indicated in the commercial invoices as stated in Paragraph 10 of the Statement of Claim, demonstrates that the LC transactions were carefully structured and deliberately disguised by the Plaintiff with a view to evading [the Act].

The Defendants aver that there was a system and continuity in the Plaintiff’s moneylending activities as evidenced by the high volume of LC transactions which had in fact been made from 1997 to 2002 … Since the Plaintiff is an unlicensed moneylender, his claims for outstanding sums due under the LC Agreement against the Defendants, which includes interest, would be unenforceable.

8 The plaintiff responded in his reply that:

9. The Plaintiff denies that the transactions were structured or disguised to evade [the Act]. The Plaintiff avers that the transactions did not fall within [the Act] but was a pure business transaction for the use of the Plaintiffs’ [sic] banking facilities, for good consideration.

9 After pleadings closed, the defendants applied for and obtained an order under O 33, rr 2 and 3(2) of the Rules of Court (Cap 322, R 5, 2004 Rev Ed) for the trial of the following preliminary issues:

(a) Whether the Plaintiff is a moneylender within [the Act]?

(b) If the issue (a) above is answered in the affirmative, whether the Plaintiff is an unlicensed moneylender?

(c) If the issues (a) and (b) above are both answered in the affirmative, whether the Agreement (as pleaded by the Plaintiff in the Statement of Claim) and the transactions made thereunder and pursuant to which the Plaintiff is claiming for sums allegedly due from the Defendants (including interest payments), are in fact loans made by an unlicensed moneylender (the Plaintiff), and are illegal and thus unenforceable and/or void as they infringe [the Act], and affords the Defendants a complete defence to the Plaintiff’s alleged claims under the Agreement (which are in fact claims for repayments of loans made by the Plaintiffs).

10 Subsequent to that, directions were given for the parties to exchange affidavits of evidence-in-chief. The plaintiff filed one affidavit, and the second defendant filed one on behalf of the defendants. In his affidavit, the plaintiff deposed that:

7. Mr Vinod Kumar Ramgopal Didwania (“Vinod”) [the second defendant] was a casual friend of my family. I have been acquainted with him for over twenty years since we first met each other at community dinners and functions. In the early 1990s, through his company Donald Mcarthy Pte Ltd (D&M) he had asked me to quote for commodities and we had an informal, on and off, business relationship. This acquaintanceship and business relationship became a friendship in or around 1995 or 1996 through more frequent social meetings. We visited each other’s homes and our wives got along well with each other.

8. … Vinod approached me with a business proposal. As stated I already had an informal business relationship with him through D&M on an on-off basis at this time and he did not give me any reason to doubt his credibility at the time.

9. He said he was in need of assistance as he was unable to capitalize on opportunities for his company due to the fact that his LC facilities were already fully utilized. At the time I did not know that it was untrue. I believe now that his companies did not have facilities as he would not have passed a credit risk assessment by the...