Case Summaries

Evan Lim Industrial / Warehousing Development Pte Ltd v MWA Capital Pte Ltd and another [2018] SGCA 76

SUPREME COURT OF SINGAPORE

13 November 2018

Case summary

Evan Lim Industrial / Warehousing Development Pte Ltd v MWA Capital Pte Ltd and another [2018] SGCA 76
Civil Appeal No 109 of 2017

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Decision of the Court of Appeal (delivered by Justice Belinda Ang Saw Ean):

Outcome: CoA dismisses creditor’s challenge to liquidators’ acceptance of the interest rates charged for a loan to a company by a licensed moneylender, finding that the creditor had failed to prove that the interest rates were excessive.

Pertinent and significant points of the grounds of decision

  • The appellant, as an unsecured creditor of the company concerned, had the locus standi to seek the court’s intervention under s 23(1) of the Moneylenders Act (Cap 188, 2010 Rev Ed) (“the MLA”) by virtue of s 315 of the Companies Act (Cap 50, 2006 Rev Ed): at [24].

  • Section 23(1) of the MLA contains two requirements which are to be read conjunctively: (a) the interest or late interest charged is “excessive”; and (b) the loan transaction is “unconscionable or substantially unfair”: at [27].

  • It does not invariably follow from a finding of an excessive interest rate that the loan transaction in question would therefore be considered either unconscionable or substantially unfair: at [28], [31], [32], [35].

  • An “excessive” interest rate is one that is significantly higher than what other licensed moneylenders could or would reasonably have charged a borrower in a similar situation: at [41].

  • In order for a court to find that a loan transaction is unconscionable or substantially unfair, the court must examine the commercial setting as well as the purpose and effect of the transaction. In addition, the court must undertake a qualitative and objective assessment of all the other facts and circumstances of the case, including: (a) the circumstances leading up to the loan transaction; (b) the conduct of the moneylender vis-à-vis the borrower, in particular, whether the borrower was in a vulnerable position and whether the moneylender took grossly unfair advantage or otherwise exploited the borrower’s weakness; and (c) the terms of the transaction: at [56], [57].

     

Background

1          This appeal arose out of the liquidation of Ivy Lee Realty Pte Ltd (“the Company”) following the acceptance by the second respondents, the Company’s liquidators (“the Liquidators”), of the proof of debt lodged by the first respondent, MWA Capital Pte Ltd (“MWA”), for the unpaid principal and interest due under a loan agreement made between the Company and MWA on 4 July 2014 (“the MWA Loan Agreement”). The appellant, Evan Lim Industrial/Warehousing Development Pte Ltd (“Evan Lim”), a creditor of the Company, challenged the Liquidators’ acceptance of MWA’s proof of debt, contending that the interest and default interest rates charged by MWA were “excessive and unconscionable or substantially unfair” under s 23(1) of the MLA. This appeal focussed on whether Evan Lim had succeeded in proving that the requirements set out in s 23(1) were met.

The material facts

2          In or around 2011, the Company was involved in developing a condominium (“the D8 Property”). The development project was financed by United Overseas Bank Limited (“UOB”), which held a legal mortgage over, among other things, the D8 Property. Subsequently, the development project ran into financial difficulties, and the Company borrowed money from various non-bank sources in an attempt to tide over these difficulties. Several of these loans were packaged as investments when, in reality, they were simply loans with relatively high interest rates.

3          In July 2014, the Company borrowed $10m from MWA, a licensed moneylender, to settle some of its other debts. The loan was to be repaid in full within six months. The contractual and default interest rates (collectively “the Interest Rates”) stipulated under the MWA Loan Agreement were 5% and 8% per month respectively. MWA received various forms of security for the loan, including a charge over the Company’s rights, titles and interest in the D8 Property which ranked behind that of the first legal mortgagee, UOB.

4          The Company subsequently defaulted on the MWA Loan Agreement, whereupon MWA commenced legal proceedings and obtained summary judgment against the Company for the undisputed principal sum owed under the MWA Loan Agreement. When the Company failed to make payment under the summary judgment, it was ordered to be wound up. The Liquidators then sold the D8 Property. The net proceeds of sale available for distribution to the Company’s creditors, after the redemption of UOB’s mortgage and other expenses (“the D8 Proceeds”), was lower than the Liquidators’ adjudication of MWA’s revised proof of debt as at 9 November 2015. The prospect facing the general creditors (including Evan Lim) was that the whole of the D8 Proceeds would go to MWA.

5          The Liquidators then applied for, among other things, an order that they be authorised to repay monies to MWA as a secured creditor out of the D8 Proceeds. In response, Evan Lim filed Summons No 2281 of 2017 (“SUM 2281”) pursuant to s 315 of the Companies Act to reverse or modify the Liquidators’ decision to affirm the Interest Rates charged under the MWA Loan Agreement, contending that the Interest Rates were “excessive and unconscionable or substantially unfair” under s 23 of the MLA. The High Court dismissed SUM 2281, reasoning that Evan Lim had not established that the MWA Loan Agreement was unconscionable or substantially unfair.

The CoA’s decision

6          The Court of Appeal (“the CoA”) dismissed Evan Lim’s appeal against the High Court’s decision. Two main issues were decided by the CoA:

(a)        whether Evan Lim, as an unsecured creditor of the Company, had the locus standi to pray in aid of the court to step in and exercise its statutory powers under s 23(1) of the MLA (“the Jurisdiction Issue”); and

(b)        whether, in respect of the MWA Loan Agreement, the requirements set out in s 23(1) for reopening a loan transaction were met (“the Section 23 Issue”).

7          On the Jurisdiction Issue, the CoA agreed with Evan Lim that it did have the locus standi to seek the court’s intervention under s 23(1) of the MLA even though it did not fall into any of the classes of persons identified in s 23(4) of the MLA as being eligible to seek relief under s 23(1). Under s 23(5) of the MLA, read with s 327(2) of the Companies Act, the Liquidators had the discretion to invoke s 23 of the MLA and determine whether the requirements for reopening the MWA Loan Agreement were met. Since, in this case, the Liquidators either decided not to invoke their powers pursuant to s 23(5) of the MLA or omitted to consider these powers, Evan Lim was entitled to rely on s 315 of the Companies Act to challenge their decision: at [24].

8          On the Section 23 Issue, the CoA noted that s 23(1) of the MLA contains two requirements for reopening a loan transaction which are to be read conjunctively as follows: (a) the interest or late interest charged is “excessive” (“the first limb”); and (b) the loan transaction is “unconscionable or substantially unfair” (“the second limb”). It does not invariably follow from a finding of an excessive interest rate that the loan transaction in question would therefore be considered unconscionable or substantially unfair: at [27], [28], [31]–[32], [35].

9          An “excessive” interest rate is one that is significantly higher than what other licensed moneylenders could or would reasonably have charged a borrower in a similar situation. The inquiry is a “relative” one, and the particular interest rate before the court must be assessed against the interest rates charged in similar transactions. On the facts of the case, there was simply no evidence as to what interest rates other licensed moneylenders could or would reasonably have charged the Company for a loan similar to MWA’s $10m loan to the Company in July 2014. The interest rates charged by banks were not appropriate comparators because the Company clearly did not have access to bank loans at the material time. Further, it was immaterial that the Interest Rates exceeded the statutory interest rate caps set out in the Moneylenders Rules 2009 (GN No S 72/2009) because those caps did not apply to corporate borrowers such as the Company. Evan Lim thus failed to satisfy the first limb of s 23(1) of the MLA: at [41], [42], [45], [52].

10        With regard to the second limb of s 23(1), the CoA noted, by way of observations, that in order for a court to find that a loan transaction is unconscionable or substantially unfair, there must at least be evidence of the commercial setting as well as the purpose and effect of the loan transaction. The court must also undertake a qualitative and objective assessment of all the other facts and circumstances of the case, including: (a) the circumstances leading up to the loan transaction (including whether independent legal advice was available to the borrower); (b) the conduct of the moneylender vis-à-vis the borrower, in particular, whether the borrower was in a vulnerable position and whether the moneylender took grossly unfair advantage of the borrower’s financial weakness or otherwise exploited that weakness in a manner which would offend good conscience or attract moral condemnation; and (c) the terms of the transaction (including but not limited to the interest rates charged). Considering these factors, the CoA had no difficulty reaching the conclusion that there was simply nothing on the facts of the case to warrant a finding that the MWA Loan Agreement was “unconscionable or substantially unfair”: at [56], [57], [63].

 

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

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