'Nonsense' for an unlicensed moneylender to go to court to recover loans: Court of Appeal

SINGAPORE - The Court of Appeal refused to allow a company that had engaged in unlicensed moneylending to recover a principal sum loaned to a borrower, saying to do so would "make a nonsense" of the purpose of the Moneylenders Act to deter illegal moneylending.

In a rare sitting of five Judges of Appeal instead of the usual three, Singapore's highest court rejected an appeal by the trading company, which wanted back the $10.3 million it claimed were investments and if not paid would result in the borrowers being unjustly enriched.

The court found the money to be illegal loans instead, and in judgment grounds released on Monday(Jan 22), said the case underlined the "strong need to deter illegal moneylending due to its status as a serious social menace in Singapore."

The lender's claim that the borrowers would benefit unfairly, "cannot succeed because to permit recovery of even the principal sums would undermine and stultify the fundamental social and public policy against unlicensed moneylending which undergirds the MLA," wrote Judge of Appeal Andrew Phang on the court's behalf.

In the case, Ochroid Trading and its sole director, Mr Ole Prytz Rasmussen, had entered into a joint venture in VIE Import & Export, started in 2003 by Ms Chua Siok Lui and Mr Sim Eng Tong. VIE was de-registered in November 2012.

The series of agreements under dispute involved "loans" to VIE for the purchase and resale of specified foods and food-related products. The funds were to be repaid with a "profit" on a stated date.

Some 76 deals made over four months from December 2007 that became the subject of the suit, were still unpaid.

Ochroid and Mr Rasmussen had sued in the High Court for breach of contract, among other things. It wanted the duo to return $10.25 million, which included the alleged profits or, alternatively, $8.9 million, which excluded the alleged profit. They argued the funds were genuine investments in VIE's business and not loans.

The High Court last year disagreed, finding the plaintiffs' primary aim was to lend money at high interest rates, and dismissed their claims, which they appealed.

The Court of Appeal, presided over by Chief Justice Sundaresh Menon and including the Judges of Appeal Andrew Phang, Judith Prakash, Tay Yong Kwang and Steven Chong, heard their case in October last year and reserved judgment.

The appellants were represented by a team of lawyers led by Mr Gary Low while the first respondent Ms Chua appeared in person and the second respondent Mr Sim was defended by a quartet of lawyers led by Mr Sarbjit Singh Chopra.

The appeal court found the appellants were unable to show the judge was wrong in finding the relevant transactions to be loans and that they were unlicensed moneylenders under the MLA.

Although the parties' agreement was made as part of a commercial relationship, the court made clear the Act "extends not just to the rogue 'loan shark' who preys on the poor and vulnerable, but to anyone who engages in the business of moneylending within the meaning of MLA without license."

The court added there is no general right of "restitutionary recovery"- recovery of the principal sum excluding interest- under Singapore law where the contract is prohibited under statute and/or common law.

There are exceptions to the right, for instance if the plaintiff entered into the illegal contract under a mistake or on the basis of fraud or if the party backs out of the contract before its illegal purpose is effected, said the court in its 121-page judgment.

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