Donald McArthy Trading v Pankaj: Legality of L/C Facility Agreement under Moneylenders Act
In Donald McArthy Trading Pte Ltd and Others v Pankaj s/o Dhirajlal (trading as TopBottom Impex), the Court of Appeal of Singapore dismissed the appeal, upholding the lower court's decision that an agreement between Donald McArthy Trading Pte Ltd and Pankaj, where Pankaj provided his letter of credit facilities to Donald McArthy Trading Pte Ltd in exchange for commission and interest, did not constitute illegal moneylending under the Moneylenders Act. The court found that the arrangement was a loan or rental of credit facilities, not a loan of money, and therefore the Moneylenders Act did not apply.
1. Case Overview
1.1 Court
Court of Appeal of the Republic of Singapore1.2 Outcome
Appeal Dismissed
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
The Court of Appeal held that an agreement to use letters of credit facilities in exchange for commission and interest was not illegal moneylending.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Donald McArthy Trading Pte Ltd | Appellant | Corporation | Appeal Dismissed | Lost | P Jeya Putra, Wendy Leong Marnyi |
| Vinod Kumar Ramgopal Didwania | Appellant | Individual | Appeal Dismissed | Lost | P Jeya Putra, Wendy Leong Marnyi |
| Nidhi Vinod Didwania | Appellant | Individual | Appeal Dismissed | Lost | P Jeya Putra, Wendy Leong Marnyi |
| Pankaj s/o Dhirajlal (trading as TopBottom Impex) | Respondent | Individual | Appeal Dismissed | Won | Mahtani Bhagwandas, Letchamanan Devadason |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Chan Sek Keong | Chief Justice | Yes |
| Lee Seiu Kin | Judge | No |
| Andrew Phang Boon Leong | Justice of the Court of Appeal | No |
4. Counsels
| Counsel Name | Organization |
|---|---|
| P Jeya Putra | AsiaLegal LLC |
| Wendy Leong Marnyi | AsiaLegal LLC |
| Mahtani Bhagwandas | Harpal Mahtani Partnership |
| Letchamanan Devadason | Steven Lee Dason & Khoo |
4. Facts
- The first appellant is a limited company.
- The second and third appellants are the directors and shareholders of the first appellant.
- The respondent is the sole proprietor of a business known as TopBottom Impex.
- The parties have known each other for more than 20 years.
- The respondent would allow his letter of credit facilities with his banks to be used by the first appellant to finance goods purchased by it.
- The first appellant would reimburse the respondent the actual principal amount used, the costs and disbursements charged by the respondent’s banks, a 1.5% commission charge on the amount of each letter of credit used and interest fixed at 12% per annum.
- The first appellant defaulted in reimbursing the respondent the amounts of the letter of credit facilities used by it.
5. Formal Citations
- Donald McArthy Trading Pte Ltd and Others v Pankaj s/o Dhirajlal (trading as TopBottom Impex), CA 93/2006, [2007] SGCA 8
6. Timeline
| Date | Event |
|---|---|
| Appellants and respondent entered into an agreement where the respondent would allow his letter of credit facilities to be used by the first appellant. | |
| First appellant made frequent use of the respondent’s letter of credit facilities. | |
| Appellants pleaded that the agreement was terminated. | |
| Respondent commenced an action alleging that the first appellant was merely a shield for the second and third appellants’ fraudulent activities. | |
| Appellants amended their defence to plead that the transactions under the respondent’s letter of credit facilities were moneylending transactions. | |
| Kan Ting Chiu J decided against the appellants in their application under O 33 rr 2 and 3(2) of the Rules of Court. | |
| Court of Appeal dismissed the appeal. |
7. Legal Issues
- Whether the agreement between the parties constituted moneylending under the Moneylenders Act
- Outcome: The court held that the agreement was a loan or rental of credit facilities, not a loan of money, and therefore the Moneylenders Act did not apply.
- Category: Substantive
- Whether the respondent was an unlicensed moneylender within the terms of the Moneylenders Act
- Outcome: The court did not need to determine this issue as it had already found that the agreement was not a moneylending arrangement.
- Category: Substantive
- Whether the transactions made under the agreement were illegal and unenforceable
- Outcome: The court did not need to determine this issue as it had already found that the agreement was not a moneylending arrangement.
- Category: Substantive
8. Remedies Sought
- Monetary Damages
9. Cause of Actions
- Breach of Contract
10. Practice Areas
- Commercial Litigation
11. Industries
- Finance
- Banking
- Import/Export
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Pankaj s/o Dhirajlal v Donald McArthy Trading Pte Ltd | High Court | Yes | [2006] 4 SLR 79 | Singapore | The Court of Appeal was hearing an appeal against the decision of the High Court in this case. |
| Lorrain Esme Osman v Elders Finance Asia Ltd | Court of Appeal | Yes | [1992] 1 SLR 369 | Singapore | Cited for the principle that the Moneylenders Act is intended to protect individuals from unscrupulous moneylenders, not to impede legitimate commercial intercourse between commercial persons. |
| Litchfield v Dreyfus | King's Bench Division | Yes | [1906] 1 KB 584 | United Kingdom | Endorsed Farwell J’s observations with respect to the Money-lenders Act 1900 (c 51) (UK), stating that what he said was equally true of the MLA. |
| City Hardware Pte Ltd v Kenrich Electronics Pte Ltd | High Court | Yes | [2005] 1 SLR 733 | Singapore | Cited for the principle that the courts should not adopt an over-extensive application of the MLA even though its provisions may be literally construed to cover most commercial situations, as that would not advance the legislative purpose of the Act. |
| Ferguson v O’Neil | Supreme Court of Victoria | Yes | [1943] VLR 30 | Australia | Cited for the definition of a loan of money as a simple contract whereby one person pays or agrees to pay a sum of money in consideration of a promise by another person to repay the money upon demand or at a fixed date. |
| Chow Yoong Hong v Choong Fah Rubber Manufactory | Privy Council | Yes | [1962] AC 209 | Malaysia | Cited for the principle that the court must look at the nature of the transaction which the parties have agreed and if in form it is not a loan, it is not to the point to say that its object was to raise money for one of them. |
| Nissho Iwai International (Singapore) Pte Ltd v Kohinoor Impex Pte Ltd | High Court | Yes | [1995] 3 SLR 268 | Singapore | Cited as a case that decided that similar transactions were not loans of money. |
| Tan Sim Lay v Lim Kiat Seng | High Court | Yes | [1996] 2 SLR 769 | Singapore | Cited for the principle that the extension by one party for the use of another the credit facilities at the disposal of the former in consideration of payment of a commission is not moneylending. |
| Whole Rife Investments Limited v ACI Engineering (S) Pte Ltd | High Court | Yes | [1998] SGHC 308 | Singapore | Cited for the principle that the Moneylenders Act related only to pure money transactions and not to transactions which were essentially concerned with the granting of credit facilities even though interest may have been charged for delayed payment or pursuant to an agreement. |
| Gillespie Bros & Co v Ngui Mui Khin & Anor | Federal Court | Yes | [1980] 1 MLJ 87 | Malaysia | Cited for the principle that the Moneylenders Act related only to pure money transactions and not to transactions which were essentially concerned with the granting of credit facilities even though interest may have been charged for delayed payment or pursuant to an agreement. |
13. Applicable Rules
| Rule Name |
|---|
| Rules of Court (Cap 322, R 5, 2004 Rev Ed) |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Moneylenders Act (Cap 188, 1985 Rev Ed) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Letter of Credit Facilities
- Moneylenders Act
- Moneylending
- Commission
- Interest
- Unlicensed Moneylender
15.2 Keywords
- Moneylenders Act
- Letter of Credit
- Credit Facilities
- Moneylending
- Singapore
- Commercial Law
16. Subjects
- Moneylending
- Credit Facilities
- Banking Law
- Finance Law
17. Areas of Law
- Credit and Security
- Money and Moneylenders
- Contract Law