Donald McArthy Trading Pte Ltd and Others v Pankaj s/o Dhirajlal (trading as TopBottom Impex)

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 14 February 2007
• Neutral Citation: [2007] SGCA 8
• Docket Number: Civil Appeal No 93 of 2006
• Date: 14 February 2007
• Published date: 16 February 2007
• Year: 2007
• Plaintiff Counsel: P Jeya Putra and Wendy Leong Marnyi (AsiaLegal LLC)
• Citation: [2007] SGCA 8
• Defendant Counsel: Mahtani Bhagwandas (Harpal Mahtani Partnership) and Letchamanan Devadason (Steven Lee Dason & Khoo)
• Court: Court of Appeal (Singapore)
• Subject Matter: Respondent making arrangement with own bankers to issue letters of credit for payment of goods purchased by first appellant,Sections 2 Moneylenders Act (Cap 188, 1985 Rev Ed),First appellant paying respondent commission and interest in addition to principal sum under letters of credit for provision of such service,Whether such arrangement illegal and unenforceable,Credit and Security,Money and moneylenders,Illegal money-lending,Whether arrangement amounting to moneylending

14 February 2007

Chan Sek Keong CJ (delivering the grounds of decision of the court):

1 This was an appeal against the decision of Kan Ting Chiu J in Pankaj s/o Dhirajlal v Donald McArthy Trading Pte Ltd [2006] 4 SLR 79 (“Pankaj”), who decided against the appellants in their application under O 33 rr 2 and 3(2) of the Rules of Court (Cap 322, R 5, 2004 Rev Ed) for three issues of law to be determined as preliminary issues (“the preliminary issues”). These issues were as follows:

(a) Whether the respondent was a moneylender within the terms of the Moneylenders Act (Cap 188, 1985 Rev Ed) (“MLA”);

(b) If issue (a) was answered in the affirmative, whether the respondent was an unlicensed moneylender within the terms of the MLA; and

(c) If issues (a) and (b) were answered in the affirmative, whether the transactions made under the agreement as pleaded by the respondent in the statement of claim pursuant to which the respondent was claiming for sums allegedly due from the appellants (including interest payments) were in fact loans made by an unlicensed moneylender and were illegal and thus unenforceable and/or void as they infringed the MLA, and afforded the appellants a complete defence to the respondent’s alleged claims under the agreement.

At the conclusion of the hearing of the appeal, we unanimously dismissed the appeal. We now give the reasons for our decision.

Facts

2 For the purposes of the determination of the preliminary issues, the appellants agreed to proceed on the basis of the respondent’s pleaded case at its highest. The effect of this approach was that where there was a dispute on the material facts, the court was to accept those facts as alleged by the respondent. In our view, this was the correct approach to take as the power to order the trial of a preliminary issue of law would not have been exercised unless there was no substantial disagreement on the material facts.

3 Accordingly, putting aside any disputed facts that could be determined at the main trial, the relevant material facts for the purpose of these proceedings were as follows. The first appellant is a limited company, Donald McArthy Trading Pte Ltd. The second and third appellants are the directors and shareholders of the first appellant. The respondent is the sole proprietor of a business known as TopBottom Impex. The parties have known each other for more than 20 years. Sometime in or about 1997, the appellants and the respondent came to an agreement (“the Agreement”) whereby the respondent would allow his letter of credit facilities with his banks (“L/C facilities”) to be used by the first appellant to finance goods purchased by it. In consideration of this service, the first appellant would reimburse the respondent the actual principal amount used, the costs and disbursements charged by the respondent’s banks, a 1.5% commission charge on the amount of each letter of credit used and interest fixed at 12% per annum (which might be adjusted to 14% if the first appellant was late with repayment).

4 From mid-1998 to at least 2000, the first appellant made frequent use of the respondent’s L/C facilities subject to the terms of the Agreement. However, the first appellant defaulted in reimbursing the respondent the amounts of the L/C facilities used by it, as a result of which the respondent commenced an action on 1 April 2005, alleging that the first appellant was merely a shield for the second and third appellants’ fraudulent activities and seeking to lift the corporate veil of the first appellant, consequently claiming from the appellants the sums of US$361,459.66 as principal and US$239,441 as interest.

5 The appellants did not deny the existence of the Agreement but pleaded that it was terminated in October 2000 and all outstanding sums had been paid back to the respondent. Subsequently, the appellants changed solicitors, following which their defence was amended on 7 November 2005 to plead that the transactions under the respondent’s L/C facilities were moneylending transactions, and that as the respondent was an unlicensed moneylender, these transactions were unenforceable under the MLA. It was in relation to this defence and pursuant to the appellants’ subsequent application that Kan J was asked to determine the preliminary issues. In relation to these issues, he held, respectively, that first, there was no loan of money by the respondent to the first appellant; instead, the respondent had in fact lent or rented his L/C facilities to the first appellant, and the MLA was thereby inapplicable: see Pankaj ([1] supra) at [23]. Secondly, if the transactions were in law moneylending arrangements, Kan J held that the respondent was an unlicensed moneylender within the terms of the MLA, and the appellants would therefore have a complete defence to the respondent’s claims: Pankaj at [38] and [39].

Purpose of the MLA

6 Before giving our reasons for our decision on the preliminary issues, it would be useful to restate the legislative purpose of the MLA and the relevant principles that have been established by case law on the scope of the MLA. It is trite that a court should give effect to the legislative purpose when interpreting an Act of Parliament. From the transcripts of parliamentary debates on the enactment and subsequent amendments of the MLA, it is clear that Parliament intended the MLA to be a social legislation designed to protect individuals who, being unable to borrow money from banks and other financial institutions, have to turn to unscrupulous unlicensed moneylenders who prey on people like them. For example, in Singapore Parliamentary Debates, Official Report (2 September 1959) vol 11 at col 593, Mrs Seow Peck Leng made the following remarks:

This Bill [referring to the Moneylenders Bill] is laudable for the fact that it protects the poor from the clutches of unscrupulous moneylenders. This Bill, in my opinion, should be implemented as soon as possible to ease the hardship of those already victimised and to prevent those who, because of financial difficulties, may be victimised in the future …

It is the very, very poor, Sir, who need protection most, who usually take loans of less than $100, and I think that they are the ones who should be protected …

[emphasis added]

These expressions of legislative purpose have been reiterated whenever the MLA has come up for amendment in Parliament. For example, in Singapore Parliamentary Debates, Official Report (28 May 1993) vol 61 at col 294, Prof S Jayakumar (the Minister for Law) said:

Sir, this Bill amends the Moneylenders Act to increase the quantum of penalties for illegal moneylending…

Members, I am sure, would have read numerous accounts in the press of illegal moneylenders or loansharks resorting to the use of threats and violence in extracting payment from debtors for loans given. These loans were often at exorbitant rates of interest. They prey on debtors who, having no access to the usual channels of raising finance, had no recourse except to look to those loansharks for their funds.

[emphasis added]

7 In a similar vein, this court in Lorrain Esme Osman v Elders Finance Asia Ltd [1992] 1 SLR 369 at 378, [39] endorsed Farwell J’s observations in Litchfield v Dreyfus [1906] 1 KB 584 at 590 with respect to the Money-lenders Act 1900 (c 51) (UK), stating that what he said was equally true of the MLA. Farwell J had said that:

The Act [referring to the English Act] was intended to apply only to persons who are really carrying on the business of money-lending as a business, not to persons who lend money as an incident of another business or to a few old friends by way of friendship. This particular Act was supposed to be required to save the foolish from the extortion of a certain class of the community who are called money-lenders as an offensive term.

8 These comments echo the views which the English Select Committee took into account when enacting the English Money-lenders Act 1900. The Crowther Committee’s Report on Consumer Credit (Cmnd 4596, 1971) at para 2.1.22 summarised these views as follows:

… Much of the evidence given to the Committee, and to its successor appointed in 1898, was concerned with such victims of the rapacious moneylender as the widow forced to borrow on a bill of sale of her household effects, and the young son of the aristocracy who in the course of sowing his wild oats ran up large debts, at exorbitant interest, which his family [was] later blackmailed into paying to avoid the publicity of court proceedings.

9 The thrust of these comments is clear. The statutory provisions of the MLA, as V K Rajah J observed in City Hardware Pte Ltd v Kenrich Electronics Pte Ltd [2005] 1 SLR 733 (“City Hardware”) at [27],“have the salutary objective of proscribing rapacious conduct by unlicensed and unprincipled moneylenders” who prey on individuals who turn to them out of financial destitution. The provisions of the MLA are not intended to apply to transactions made at arm’s length between commercial entities. It has never been the objective of the MLA to prohibit or impede legitimate commercial intercourse between commercial persons. Indeed, Rajah J pointed out that the courts should not adopt an over-extensive application of the MLA even though its provisions may be literally construed to cover most commercial situations, as that would not advance the legislative purpose of the Act. In City Hardware at [22], Rajah J said that:

A court has to bear in mind these crucial observations [referring to the judicial pronouncements of the purpose of the MLA and similar foreign legislation] when interpreting and applying the provisions of the MLA. It cannot be denied that ex facie, its provisions have an extensive reach appearing to embrace a myriad of commercial situations. In my view, it would nonetheless be wholly inappropriate to apply the MLA to commercial transactions between experienced business persons or entities, which do not prima facie have...