In the case of Wee Kah Lee v Silverdale Investment Pte Ltd  4 SLR 429, the question was raised of when a loan is repayable where there is no express term as to the time for repayment.
The plaintiff was one of eight shareholders of the defendant, who was the developer of a residential property. The plaintiff, having agreed to invest in the project, had given various loans to the defendant to enable it to finance the purchase and development of the property. The loans were interest-free, unsecured and had no fixed term for repayment.
The plaintiff asked for the repayment of the loans after the property was sold. The defendant, however, refused payment on the basis that the plaintiff's demand was premature. The defendant argued that repayment of the loans would come from the proceeds of the sale of the property and at that point in time, the defendant had not collected the full proceeds of sale. Moreover, the proceeds that had been collected were deposited into the project account in accordance with the Housing Developers (Project Account) Rules and could not yet be released. The plaintiff then instituted an action to claim repayment.
At trial, the plaintiff alleged that the loans were repayable on demand. The defendant argued that to give business efficacy to the shareholders agreement, it was necessary to imply that the loans were repayable only after moneys could be released from the project account. The defendant claimed that to determine that the loans were repayable on demand would require other shareholders to advance further loans to the defendant in order that the plaintiff could be repaid, which could have been noone's intention.
It was decided by the High Court that in ordinary circumstances, payment of money imports a prima facie obligation to repay, in the absence of circumstances by which a presumption of advancement can or may arise. Citing the decision in Seldon v Davidson  2 All ER 755, the court held that in the absence of any term governing the time for repayment, a loan would be repayable on demand or at least within a reasonable time of a request for repayment.
The court was of the opinion that the two alternatives (ie, repayment on demand or repayment within a reasonable time) in this context would mean the same thing, as a debtor could hardly be expected to pay instantaneously upon a demand or request for repayment. What would be construed as a 'reasonable time' would depend on all the circumstances surrounding the loan, including the relationship between the parties, the purpose and the size of the loan.
The court proceeded to apply the test of necessity found in Reigate v Union Manufacturing Co (Rams Bottom) Ltd and Elton Cop Dyeing Co Ltd  1 KB 592 (applied in the local case of Bethlehem Singapore Pte Ltd v Ler Hock Seng  1 SLR 1) to decide whether a term governing repayment, as argued by the defendant, should be implied within the loans. The test of necessity states:
"[A] term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated someone had said to the parties 'What will happen in such a case?' they would both have replied, 'Of course, so and so will happen; we did not trouble to say that; it is too clear'. Unless the court comes to such conclusion as that, it ought not to imply a term which the parties themselves have not expressed."
Applying the test of necessity, the court reached the decision that it was of commercial necessity that shareholders should not be allowed to withdraw from the enterprise whenever they wished. Therefore, in the present case where the loans advanced by the plaintiff to the defendant were specifically for joint investment in a development project, there should necessarily be an implied term that the loans would be repaid only after all moneys due to the defendant were received and all creditors had been paid. This was in line with the common intention of bringing the development project to fruition.
For further information on this topic please contact David Ang or Andrew Quah at Drew & Napier by telephone (+65 535 0733) or by fax (+65 535 4864) or by e-mail ([email protected] or [email protected]). The Drew & Napier web site can be accessed at www.drewnapier.com.
The assistance of Jenna Ng Pei Suin is acknowledged with appreciation.
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