North Star (S) Capital Pte Ltd v Megatrucare Pte Ltd: Illegality of Loan Guarantee & Mental Capacity
In North Star (S) Capital Pte Ltd v Megatrucare Pte Ltd and Yip Fook Meng, the General Division of the High Court of Singapore addressed the enforceability of a personal guarantee. North Star sought to enforce a guarantee against Yip Fook Meng after Megatrucare Pte Ltd defaulted on a loan. Yip raised defenses including illegality under the Moneylenders Act, mental incapacity, and non est factum. The court, presided over by Dedar Singh Gill J, dismissed North Star's claim and granted Yip's counterclaim, declaring the guarantee unenforceable due to illegality under section 14(2)(a) of the Moneylenders Act, finding the loan agreement to be a sham.
1. Case Overview
1.1 Court
General Division of the High Court1.2 Outcome
Plaintiff's claim dismissed; second defendant's counterclaim granted for a declaration that the Guarantee is unenforceable under section 14(2)(a) of the Moneylenders Act.
1.3 Case Type
Civil
1.4 Judgment Type
Judgment
1.5 Jurisdiction
Singapore
1.6 Description
Singapore court case regarding the enforceability of a loan guarantee, focusing on illegality under the Moneylenders Act and the guarantor's mental capacity.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| North Star (S) Capital Pte Ltd | Plaintiff, Defendant in counterclaim | Corporation | Claim Dismissed | Lost | Ivan Lee Tze Chuen, Letchamanan Devadason |
| Megatrucare Pte Ltd | Defendant | Corporation | Default | Default | |
| Yip Fook Meng | Defendant, Plaintiff in counterclaim | Individual | Counterclaim Allowed | Won | Yeoh Oon Weng Vincent |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Dedar Singh Gill | Judge of the High Court | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Ivan Lee Tze Chuen | LegalStandard LLP |
| Letchamanan Devadason | LegalStandard LLP |
| Yeoh Oon Weng Vincent | Malkin & Maxwell LLP |
4. Facts
- North Star (S) Capital Pte Ltd extended a $300,000 loan to Megatrucare Pte Ltd on 22 June 2017.
- Yip Fook Meng signed a personal guarantee on the same day, undertaking to pay all sums owed by Megatrucare.
- Yip Fook Meng also provided a Letter of Authority assigning $309,000 from the sale proceeds of his property.
- The sale of Yip's property was scheduled for completion on 30 June 2017, shortly after the loan agreement.
- Yip Fook Meng was appointed a director of Megatrucare on 14 June 2017 but was not a shareholder.
- Yip Fook Meng had mental incapacity due to "mental retardation" or "mild intellectual impairment".
- Megatrucare defaulted on the loan, and North Star sought to enforce the guarantee against Yip Fook Meng.
5. Formal Citations
- North Star (S) Capital Pte Ltd v Megatrucare Pte Ltd and another, Suit No 1148 of 2017, [2021] SGHC 110
6. Timeline
| Date | Event |
|---|---|
| Yip Fook Meng appointed as a director of Megatrucare Pte Ltd. | |
| Dr. Lai Junxu examined Yip Fook Meng. | |
| Yip Fook Meng signed the Letter of Authority before a Commissioner for Oaths. | |
| Credit Facility Agreement and Guarantee signed. | |
| Completion of the sale of the Rangoon Road Property. | |
| Yip Fook Meng affirmed an affidavit in support of FC/SUM 2315/2017. | |
| Date of repayment stated on the face of the Loan Agreement. | |
| Family Court declared that Yip Fook Meng was unable to make decisions relating to his property and affairs. | |
| Trial began. | |
| Judgment reserved. | |
| Judgment issued. |
7. Legal Issues
- Illegality of Guarantee under Moneylenders Act
- Outcome: The court held that the Guarantee was unenforceable under s 14(2)(a) of the Moneylenders Act because the loan agreement was a sham and the plaintiff was an unlicensed moneylender.
- Category: Substantive
- Sub-Issues:
- Personal loan illegality
- Unlicensed moneylender
- Related Cases:
- [2014] 3 SLR 524
- [2021] SGCA 17
- Mental Incapacity
- Outcome: The court held that the plaintiff did not have actual or constructive knowledge of the second defendant’s mental incapacity at the time the Guarantee was signed and was not prepared to annul the Guarantee under s 19(1)(c) MCA on the basis of the second defendant’s mental incapacity where the common law does not see fit to do so.
- Category: Substantive
- Sub-Issues:
- Constructive knowledge of mental incapacity
- Annulment of contract under Mental Capacity Act
- Related Cases:
- [1989] 2 SLR(R) 60
- [2015] 4 SLR 81
- Non Est Factum
- Outcome: The court rejected the second defendant’s plea of non est factum, finding that he had the ability to understand the Guarantee and that it was adequately explained to him.
- Category: Substantive
- Sub-Issues:
- Radical difference between signed document and understanding
- Negligence in signing document
- Related Cases:
- [2015] 5 SLR 62
- [1971] AC 1004
- (2009) 257 ALR 658
- Pleadings
- Outcome: The court found that personal loan illegality had not been adequately pleaded but that it was entitled to invoke illegality of its own motion.
- Category: Procedural
- Sub-Issues:
- Adequacy of pleading illegality
- Related Cases:
- [1950] 1 KB 359
- [2014] 3 SLR 609
8. Remedies Sought
- Enforcement of Guarantee
- Declaration that the Guarantee is unenforceable
9. Cause of Actions
- Enforcement of Guarantee
- Breach of Contract
10. Practice Areas
- Commercial Litigation
11. Industries
- Finance
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Edler v Auerbach | N/A | Yes | [1950] 1 KB 359 | N/A | Cited for the principle that the court is entitled to invoke illegality of its own motion if unpleaded facts, which taken by themselves show an illegal object, have been revealed in evidence and the whole of the relevant circumstances are before the court. |
| Ting Siew May v Boon Lay Choo and another | Court of Appeal | Yes | [2014] 3 SLR 609 | Singapore | Affirmed the principle in Edler v Auerbach that the court is entitled to invoke illegality of its own motion if unpleaded facts, which taken by themselves show an illegal object, have been revealed in evidence and the whole of the relevant circumstances are before the court. |
| ANC Holdings Pte Ltd v Bina Puri Holdings Bhd | N/A | Yes | [2013] 3 SLR 666 | N/A | Cited for the principle that judicial reluctance to allow a party to rely on illegality when that party has not pleaded it is attributable solely to the court’s concern that the court may have been deprived of relevant facts and not because of possible procedural unfairness to the other party. |
| Fan Ren Ray and others v Toh Fong Peng and others | Court of Appeal | Yes | [2020] SGCA 117 | Singapore | Affirmed the principle in ANC Holdings Pte Ltd v Bina Puri Holdings Bhd that judicial reluctance to allow a party to rely on illegality when that party has not pleaded it is attributable solely to the court’s concern that the court may have been deprived of relevant facts and not because of possible procedural unfairness to the other party. |
| Sheagar s/o T M Veloo v Belfield International (Hong Kong) Ltd | N/A | No | [2014] 3 SLR 524 | N/A | Cited for the principle that to rely on s 14(2) of the MLA, the second defendant must prove that the plaintiff is an “unlicensed moneylender” and that in ascertaining who the true borrower is under a loan, the substance of the transaction, and not its form, is determinative. |
| Toh Eng Tiah v Jiang Angelina and another appeal | Singapore Court of Appeal | No | [2021] SGCA 17 | Singapore | Cited for the principle that to establish that the Loan Agreement is a sham, the second defendant must prove that it is not intended to create enforceable legal obligations, but is intended to deceive third parties. |
| Mak Chik Lun and others v Loh Kim Her and others and another action | N/A | Yes | [2003] 4 SLR(R) 338 | N/A | Cited for the two tests to determine whether a person is in the business of moneylending. |
| Law Society of Singapore v Leong Pek Gan | N/A | Yes | [2016] 5 SLR 1091 | N/A | Affirmed the two tests in Mak Chik Lun and others v Loh Kim Her and others and another action to determine whether a person is in the business of moneylending. |
| Re BKR | N/A | No | [2015] 4 SLR 81 | N/A | Cited by the second defendant, but the court found that it does not involve the annulment of a contract under the MCA. |
| Mahidon Nichiar bte Mohd Ali and others v Dawood Sultan Kamaldin | N/A | No | [2015] 5 SLR 62 | N/A | Cited for the two requirements for invoking the doctrine of non est factum. |
| Saunders (Executrix of the Will of Rose Maud Gallie, deceased) v Anglia Building Society | N/A | No | [1971] AC 1004 | N/A | Cited for the principle that a plea of non est factum requires clear and positive evidence before it can be established. |
| Ford (by his tutor Watkinson) v Perpetual Trustees Victoria Ltd | N/A | No | (2009) 257 ALR 658 | N/A | Cited for the principle that to successfully establish non est factum, the second defendant must prove that his mental incapacity impaired his understanding to such an extent that the element of consent required for contractual formation is totally lacking. |
| Che Som bte Yip and others v Maha Pte Ltd and others | N/A | No | [1989] 2 SLR(R) 60 | N/A | Cited for the test for determining whether a contract is voidable due to a party’s mental incapacity. |
| Fehily and another v Atkinson and another | N/A | No | [2017] Bus LR 695 | N/A | Cited for the principle that mental capacity encompasses a range of cognitive functions (eg, processing and weighing information) of which understanding is merely a part. |
| BUV v BUU and another and another matter | N/A | No | [2019] SGHCF 15 | N/A | Cited for the principle that the absence of any one cognitive function in s 5(1) (eg, to use or weigh information to make a decision) will result in a finding of incapacity. |
| Chan Kok Kiang v Tan Swan Cheng and another | N/A | No | [1968-1970] SLR(R) 707 | N/A | Cited for the procedure for bringing an application to amend the Notes of Evidence of the trial. |
| City Hardware Pte Ltd v Kenrich Electronics Pte Ltd | N/A | No | [2005] 1 SLR(R) 733 | N/A | Cited for the commercial reality that small businesses are often unable to obtain credit facilities from established financial institutions as a result of their lack of standing, unpredictable cash flow and higher risk profile. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Moneylenders Act (Cap 188, 2010 Rev Ed) | Singapore |
| s 14(2)(a) of the Moneylenders Act (Cap 188, 2010 Rev Ed) | Singapore |
| s 3 of the Moneylenders Act (Cap 188, 2010 Rev Ed) | Singapore |
| s 2 of the Moneylenders Act (Cap 188, 2010 Rev Ed) | Singapore |
| Mental Capacity Act (Cap 177A, 2010 Rev Ed) | Singapore |
| s 19(1)(c) of the Mental Capacity Act (Cap 177A, 2010 Rev Ed) | Singapore |
| Evidence Act (Cap 97, 1997 Rev Ed) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Personal Guarantee
- Loan Agreement
- Moneylenders Act
- Mental Incapacity
- Non Est Factum
- Unlicensed Moneylender
- Letter of Authority
- Sham Loan
- Constructive Knowledge
15.2 Keywords
- Loan Guarantee
- Moneylenders Act
- Mental Capacity
- Illegality
- Singapore
- Contract Law
- Non Est Factum
16. Subjects
- Contract Law
- Civil Procedure
- Banking Law
- Mental Health Law
17. Areas of Law
- Contract Law
- Civil Procedure
- Illegality and Public Policy
- Statutory Illegality
- Moneylenders Act
- Mental Capacity Act