Private Investment Company For Asia (PICA) SA

- vs -

Lorrain Esme Osman

Judgment

FA Chua J

1. On 16 November 1982, the defendant, Lorrain Esme Osman, made a promissory note for US $1,296,317.56 in favour of Private Investment Co for Asia (PICA) SA (original plaintiffs). The promissory note was made pursuant to antecedent debts incurred. On 26 January 1983, the original plaintiffs made a demand in writing to the defendant for payment of the principal sum together with interest in terms of the promissory note. No payment being forthcoming, the original plaintiffs brought the present action against the defendant claiming the principal sum and interest totalling US$1,327,257.96. The fact that the defendant took a loan of US$1.2m and that he signed the promissory note covering the loan and interest are not in dispute. The main issue for the court to decide was whether the original plaintiffs were carrying on the business of moneylending in Singapore and are thus required to have a licence under s 5 of the Moneylenders Act (Cap 188) (the Act).

2. The original plaintiffs have adduced evidence which showed that the loan was given as a one-month bridging finance on the request of the defendant pending finalization of his financing arrangements. The promissory note matured but the defendant was unable to pay and requested for several extensions. The final extension having expired and the defendant having failed to pay on the promissory note, the original plaintiffs commenced action.

3. Section 5(1) of the Act provides:

   Every moneylender residing or carrying on the business of moneylending in Singapore whether as principal or as agent shall take out a licence annually.

4. ‘Moneylender’ is defined in s 2 of the Act to include

   every person whose business is that of moneylending or who carries on or advertises or announces himself or holds himself out in any way as carrying on that business whether or not that person also possesses or earns property or money derived from sources other than the lending of money.

   But it does not by s 2(c) include ‘any person bona fide carrying on .... any business not having for its primary object the lending of money in the course of which and for the purposes whereof he lends money’.

5. It was submitted by the defendant that the business of the original plaintiffs was that of moneylending. Counsel for the defendant referred to the original plaintiffs’ annual report 1981 (AB63) and to the original plaintiffs’ articles of incorporation and by-laws (AB1) and submitted that from these two documents the original plaintiffs had announced themselves and held themselves out as carrying on the business of moneylending. They give ‘short, medium and long-term loans’ (AB64) and said ‘the principal activity of the company and its subsidiaries is primarily to provide financial assistance for the establishment of new enterprises and the expansion and diversification of existing companies’ (AB85). The original plaintiff company ‘has its principal purpose the making and facilitating of capital investments in enterprises located in such countries in Asia and the Far East as the board of directors shall from time to time determine’ (AB2).

6. Counsel for the defendant said that the original plaintiffs made such a short-term loan to the defendant within their portfolios at the request of the defendant. The original plaintiffs could, counsel said, have granted an offshore loan, but chose to do it through their Singapore subsidiary and Singapore law would apply. Counsel for the defendant submitted that the original plaintiffs were clearly carrying on business in Singapore the evidence of which could be found in the original plaintiffs’ annual report 1981 (AB63, at AB64) where it was stated ‘PICA’s operations are focused on Asia. Our home office is in Singapore’.

7. In Litchfield v Dreyfus [1906] 1 KB 584 Farwell J in holding that the plaintiff was not carrying on the business of moneylending said, at p 590:

   The Act was intended to apply only to persons who are really carrying on the business of moneylending 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 moneylenders as an offensive term. Moneylending is a perfectly respectable form of business. Nobody says that bankers are rascals because they lend money. It is part of their everyday business. Bill-broking is well known in the City of London, and is a respectable business so long as it is carried on in a respectable manner. But the Legislature in casting its net has cast it very wide; and if a man is carrying on the business of a moneylender he is within the Act, although he may be free from all blame morally. The question in each case is, does he carry on the business of a moneylender? That depends on the facts of the case.

   The definition of ‘moneylender’ and the exception in s 2(c) of the Act is in pari materia with s 6(d) of the Moneylenders Act 1900 in England.

8. In the Privy Council case of Official Assignee v Ek Liong Hin Ltd [1960] 1 All ER 440 the respondents were rubber merchants who lent money to their customers. It was held that the loan transactions which were undertaken genuinely for the purposes of preserving, advancing or otherwise assisting the respondent company’s business of rubber merchants and shippers, though not necessarily undertaken in connection with its primary objects, were made ‘for the purposes’ of that business within s 2 of the Moneylenders Ordinance and was within the exception from the definition of ‘moneylender’.

9. It was also held in Frank H Wright Constructions (Ltd) v Frodoor Ltd [1967] 1 All ER 433 that although loans made by the issuing house were moneylending transactions, they were made bona fide for the purpose of the business of an issuing house, which was a business not having for its primary object the lending of money but in the course of which money was lent and thus the loans were brought within the exception provided by s 6(1)(d) of the Moneylenders Act 1900 and were not void under that Act.

10. In the present case, the original plaintiffs are a foreign company whose principal business, as can be seen from its articles of incorporation and by-laws, is that of making and facilitating capital investments in companies located in Asia and the Far East and to carry out this business the company also has powers to lend money. The lending of money is clearly not its primary business. The transaction which led to the issue of the promissory note sued upon was a joint venture project whereby a company was formed in the Cayman Island for the purpose of purchasing a drillship. Later the defendant was to take up 30% of the equity. The original plaintiffs were the financial advisers on the joint venture project.

11. It was in the course of and for the purpose of this joint venture project that the defendant, as he did not have sufficient funds, requested the original plaintiffs for a temporary bridging loan to purchase a 30% equity in the company, set up in the joint venture project, which the original plaintiffs agreed.

12. The facts of the present case and the law, in my view, put the original plaintiffs clearly within the exception. I found that the original plaintiffs were not a ‘moneylender’ within the meaning of the Act.

13. The original plaintiffs are a Panamanian company with a branch office in Singapore. The defendant is a Malaysian. The loan was funded from New York deposited in a Hong Kong account for the purchase of shares in a company incorporated in the Cayman Islands. The loan was secured by property in Malaysia. It is clear that the loans given by the original plaintiffs did not carry on the business of moneylending in Singapore nor were they ‘residing’ in Singapore with s 5(1) of the Act.

14. For these reasons I gave judgment for the original plaintiffs for the amount as claimed together with further interest as provided in the promissory note and costs to be taxed.

Cases

Frank H Wright (Constructions) v Frodoor [1967] 1 All ER 433; Litchfield v Dreyfus [1906] I KB 584; Official Assignee v Ek Liong Hin [1960] 1 All ER 440

Legislations

Moneylenders Act (Cap 188): s. 2(c), s.5

Moneylenders Act 1900 [UK]: s.6

Representations

Engelin Teh and WL Loy (Shook Lin & Bok) for the plaintiffs.

MJ Sia (Chor Pee & Co) for the defendant.