Sheagar s/o T M Veloo v Belfield International (HongKong) Ltd

• Judge: Sundaresh Menon CJ
• Judgment Date: 19 May 2014
• Neutral Citation: [2014] SGCA 26
• Citation: [2014] SGCA 26
• Docket Number: Civil Appeal No 127 of 2013
• Published date: 29 May 2014
• Hearing Date: 17 March 2014
• Plaintiff Counsel: Foo Soon Yien and Fatima Musa (Bernard & Rada Law Corporation)
• Date: 19 May 2014
• Defendant Counsel: R Dilip Kumar (Gavan Law Practice LLC)
• Court: Court of Appeal (Singapore)
• Subject Matter: Statutory Illegality,Illegality under International and Foreign Law,Money and Moneylenders,Contract,Illegal Moneylending,Credit and Security,Illegality and Public Policy

Sundaresh Menon CJ (delivering the grounds of decision of the court): Introduction

This is an appeal against the decision of the High Court judge (“the Judge”) in Suit No 876 of 2011 (“S 876/2011”). In that suit, Belfield International (Hongkong) Ltd (“the Respondent”) claimed against Sheagar s/o T M Veloo (“the Appellant”), the sum of US$358,000 with contractual interest plus costs on an indemnity basis. The claim was made pursuant to a guarantee given by the Appellant in respect of a loan extended to Blue Sea Engineering Pte Ltd (“BSE”) by the Respondent.

The Appellant raised defences based on illegality under the Moneylenders Act (Cap 188, Act 31 of 2008) (“the MLA”), the Business Registration Act (Cap 32, 2004 Rev Ed) (“the BRA”) and the Hong Kong Money Lenders Ordinance (Cap 163) (HK) (“the HKMLO”). The Judge rejected these defences and judgment was entered for the Respondent. The Appellant appealed against the whole of the Judge’s decision.

At the close of the hearing we dismissed the appeal. Our reasons for doing so, in brief, were as follows. First, as regards illegality under the MLA, we found that the MLA did not apply because the Respondent was an “excluded moneylender” under s 2 of that Act. Second, we found that the Appellant could not rely on illegality under the BRA because it had not pleaded this. Third, we found that the giving of the loans did not contravene the HKMLO. We now set out the grounds for our decision in full.

Facts Parties to the dispute

The Appellant was the managing director of BSE at all material times. BSE was in the business of carrying out painting, piping and electrical works in the marine industry. It was a wholly owned subsidiary of Great Sea Holdings Pte Ltd (“GSH”). Apart from BSE, there were nine other companies in the GSH group. As he held more than 99% of the shares in GSH, the Appellant had effective control over BSE and its related companies.

The Respondent is a company incorporated in Hong Kong. Its directors are Henri Adriaan Hamelers (“Henri”), the managing director, and Gregorio Tolentino Ang Jr. The Respondent claims to be in the business of providing commodities brokerage and the structuring of trade finance services. In these proceedings, however, the Appellant took the position that the Respondent was also in the business of moneylending.

The background

Sometime in 2008, the Appellant needed a loan to overcome some cash-flow problems faced by the GSH group. He therefore approached Chandrasegar Chidambaram (“Chandra”) seeking his assistance to procure a loan. Chandra is an advocate and solicitor. At that time he was also a director of BSE. Chandra introduced the Appellant to Govender Dayanandan (“Daya”) who was then working with Bahrain Bank in Singapore. Daya in turn introduced the Appellant to Tan Yong Hong (“Eric”) who was a retired banker. Daya and Eric were business associates of Henri and the Respondent.

According to the Appellant, he informed Daya and Eric that he needed a loan of US$348,000 for the various companies and projects he was involved in. After discussions between them, it was agreed between the Appellant, Daya and Eric that any loan would be made to BSE. On this basis Daya and Eric made a recommendation to the Respondent to extend a loan of US$348,000 to BSE (“the First Loan”).

On 27 August 2009 the Respondent held a directors’ meeting and passed a resolution to extend the First Loan to BSE. The First Loan Agreement, the First Subordination Agreement and the First Deed of Guarantee (collectively “the First Loan Documents”) were signed on the same day. Pursuant to the First Deed of Guarantee the Appellant stood as guarantor for the First Loan. On 1 September 2009, the First Loan amount of US$348,000 was paid into BSE’s bank account in Singapore.

Sometime in January 2010, the Appellant sought Daya’s assistance to procure a further loan of US$358,000 from the Respondent (“the Second Loan”). The Respondent agreed to extend such a loan to BSE. The Second Loan Agreement, the Second Subordination Agreement and the Second Deed of Guarantee (collectively “the Second Loan Documents”) were signed on 29 January 2010. The terms and conditions for the Second Loan were identical to the First Loan. Pursuant to the Second Deed of Guarantee, the Appellant stood as guarantor for the Second Loan. On 3 February 2010 the Second Loan amount of US$ 358,000 was paid into BSE’s bank account in Singapore.

In 2010, legal proceedings were commenced against BSE in Singapore by various parties. On 26 August 2010 the Appellant was also sued in his personal capacity by another party. It was against this backdrop that sometime between 29 July 2010 and 20 October 2010, the Appellant arranged to sell BSE to Holcroft Finance Corporation (“Holcroft”) and to step down as a director of BSE. There was some dispute concerning the precise dates on which this happened but this was not material in the context of the present appeal. In any event, BSE had been sold to Holcroft and the Appellant had relinquished his directorship by 20 October 2010. BSE was also placed in provisional liquidation on 11 October 2010.

The Appellant did not inform the Respondent of these developments. This constituted an event of default under the First and Second Loans (collectively “the Loans”). On 20 October 2010, the Respondent sent four letters of demand, two to BSE and two to the Appellant, in relation to the Loans. Thereafter, the Appellant met the Respondent’s representatives to discuss the repayment of the Loans. The Appellant reassured them of his commitment to repay the Loans. He also signed two letters of undertaking dated 26 October 2010 (“the First and Second Letters of Undertaking”) to fulfil his obligations under the First and Second Deeds of Guarantee by repaying the Loans by 15 December 2010 and 1 February 2011 respectively.

The First Loan, including all interest and management fees, was duly repaid in full on 16 December 2010. The Second Loan remained outstanding as at 1 February 2011. On 14 February 2011 the Appellant asked Eric for an extension of time to repay the principal amount of the Second Loan. He also proposed to repay the principal amount in instalments.

On 16 February 2011, the Appellant met Henri and Eric to discuss the repayment of the Second Loan. Although the Respondent acceded to the Appellant’s request for an extension of time to pay, it imposed a 2% increase in the monthly interest rate, a restructuring fee of US$3,850 and legal fees of US$1,000. The Respondent also required the Appellant to execute a further letter of undertaking (“the Third Letter of Undertaking”). The Appellant agreed to do so at the meeting but then did not in fact execute the Third Letter of Undertaking.

On 11 March 2011, the Appellant’s solicitors wrote to the Respondent stating that the Appellant was seeking legal advice on the draft Third Letter of Undertaking. On 14 March 2011, the Appellant met with Henri and Daya again to discuss a proposed repayment plan. After this meeting the Appellant did not make any further payments.

On 5 May 2011, the Respondent served a statutory demand on the Appellant. In response, the Appellant filed Originating Summons (Bankruptcy) No 21 of 2011 to set aside the statutory demand. It was then that the Appellant first alleged that the Respondent was a moneylender and therefore, that the Second Loan Agreement and the Second Deed of Guarantee were unenforceable under the MLA. The assistant registrar who heard the matter set aside the statutory demand on the ground that there was a substantial dispute of fact. On 29 November 2011, the Respondent filed S 876/2011 against the Appellant.

The Pleadings

For reasons which will become apparent in the course of these grounds, it is important that we first set out how the parties pleaded their respective cases. In its statement of claim, the Respondent sought repayment of the second loan plus contractual interest under the Second Deed of Guarantee. The Respondent pleaded that by reason of the matters which we have alluded to at [10]-[11] above, BSE was in default of the Second Loan Agreement and the principal loan amount plus interest had become due and payable by BSE as debtor and the Appellant as guarantor. Furthermore, under the Second Letter of Undertaking, the Appellant had undertaken to repay the second loan amount as guarantor on or before 1 February 2011.

In his defence, the Appellant pleaded that the Second Loan Agreement and the Second Deed of Guarantee were unenforceable pursuant to s 14(2) of the MLA on the basis that the Appellant was an “unlicensed moneylender”. The Appellant relied on the fact of the first and second loans having been extended to contend that pursuant to the presumption contained in s 3 of the MLA, the Respondent was presumed to be a moneylender. Insofar as he alleged that the Respondent was carrying on a moneylending business, the Appellant said that the place of the business was both Hong Kong and Singapore.

It was also the Appellant’s pleaded case that the loans to BSE were in fact personal loans to him. He claims to have informed Daya and Eric that he needed money for the various companies and projects he was involved in. Daya and Eric had then suggested that it would be better if the loan was routed through a nominee company. This was to give the cosmetic appearance of a corporate loan when in truth the Appellant was the borrower. In an endeavour to circumvent the provisions of the MLA, BSE had been chosen as the nominee company to enable the Respondent to rely on paragraph (e)(iii)(A) of the definition of an “excluded moneylender” that is found in s 2 of the MLA.

The Appellant pleaded an alternative defence that it would be contrary to the public policy of Singapore to enforce the second loan as it was illegal under Hong Kong law and its enforcement would breach the principle of international comity. To...