Sheagar s/o T M Veloo v Belfield International (Hongkong) Ltd  SGCA 26
In Sheagar s/o T M Veloo v Belfield International (Hongkong) Ltd, the Singapore Court of Appeal had to determine whether a loan agreement and guarantee was enforceable under the Singapore Moneylenders Act (the “MLA”), and the Hong Kong Money Lenders Ordinance (the “HKMLO”). The Court of Appeal also set out the principles to be adopted when determining whether a loan and guarantee were unenforceable under section 14(2) of the MLA.
The respondent, a Hong Kong incorporated company, had extended two loans to a company in Singapore of which the appellant was the managing director. The appellant also had effective control over the company at all material times. The appellant had given a personal guarantee, executed in two separate deeds of guarantee, to secure both loans. Subsequently, the appellant sold off the company, which was then placed in provisional liquidation. The appellant did not inform the respondent of these developments which constituted an event of default under both loans. However, after the respondent sent letters of demands to the company and the appellant, the appellant reassured the respondent of his commitment to repay the loans and signed two letters of undertaking to fulfil his obligations under the personal guarantee by repaying the loans. The first loan was duly repaid but not the second loan. The respondent commenced an action for the repayment of the second loan and contractual interest.
In the High Court
The appellant argued that the second loan and guarantee were unenforceable pursuant to:
- section 14(2) of the MLA on the basis that the respondent was an “unlicensed moneylender” since the loans to the company were in fact personal loans to him (which would prevent the respondent from relying on the definition of an “excluded moneylender” in section 2 of the MLA);
- section 21(1)(a) of the Singapore Business Registration Act (the “BR Act”) given that the respondent conducted the business of moneylending in Singapore but had not registered its business in contravention of section 5 of the BR Act; and
- section 23 of the HKMLO and it would be contrary to the public policy of Singapore to enforce the second loan as the second loan was illegal under Hong Kong law and its enforcement would breach the principle of international comity.
The High Court judge rejected all the appellant’s defences and entered judgment for the respondent. In particular, the High Court held that the respondent was an “excluded moneylender” under section 2 of the MLA. The appellant appealed to the Court of Appeal and raised the same arguments.
In the Court of Appeal
Illegality under the MLA
The Court of Appeal noted that it is settled law that the MLA prohibits the business of moneylending and not the act of lending money. Further, the Court of Appeal found that the entire scheme of the MLA did not apply to an excluded moneylender since the MLA is only engaged if it is established that the lender is a “moneylender” within the meaning of the term in section 2 of the MLA (and that expressly excluded an “excluded moneylender”).
The Court of Appeal further set out the following principles to be adopted in relation to section 14(2):
- In order to rely on section 14(2), the borrower must prove that the lender was an “unlicensed moneylender”.
- If the borrower can establish that the lender has lent money in consideration for a higher sum being repaid, he may rely on the presumption contained in section 3 of the MLA to discharge this burden.
- The lender must then prove that he either does not carry on the business of moneylending or possesses a moneylending licence or is an “exempt moneylender”.
- However, if there is an issue as to whether the lender is an “excluded moneylender”, the legal burden of proving that he is not will fall on the borrower.
In the instant case, the Court of Appeal held that the loans were in the nature of commercial, as opposed to personal, loans. As such, the Court of Appeal held that the loans were entered into between commercial entities for commercial purposes and the loans therefore fell within the definition of “excluded moneylender”. Accordingly, the loans were enforceable.
Illegality under the BR Act
The Court of Appeal held that the appellant was precluded from relying on the BR Act in the appeal. The issue of illegality under the BR Act was never pleaded by the appellant and the Court of Appeal did not allow the appellant to amend its pleadings to include such a defence.
Illegality under the HKMLO
As for the appellant’s arguments in respect of the HLMLO, the Court of Appeal found that the appellant had not discharged its burden of proving that the respondent was carrying on the businessof moneylending much less that this business was in Hong Kong.
Given the above, the appeal was dismissed.
This case sets out the court’s treatment of a borrower raising the defence of unlawful moneylending in the context of a commercial transaction. It is therefore useful as an illustration of how parties that do make loans in the course of its business (as opposed to as a business) can structure the transaction to avoid falling foul of the restrictions against unlawful moneylending.