Court Of Appeal Reaffirms Singapore's Tough Stance Against Illegal Money Lending.

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Asia Pacific Legal Updates


8 March, 2018


Court Of Appeal Reaffirms Singapore's Tough Stance Against Illegal Money Lending.


In a rare sitting of five Judges of Appeal, the Court of Appeal in Ochroid Trading Ltd v Chua Siok Lui [2018] SGCA 5 ruled that money in an illegal moneylending transaction cannot be recovered by way of a claim of unjust enrichment, otherwise it would “make a nonsense of the legislative prohibition” as set out in the Moneylenders Act (Cap. 188, 1985 Rev. Ed.) (MLA). [Note: Duane Morris & Selvam represented respondent Sim Eng Tong in this case.] The Court of Appeal further stated that the appellants’ claim in fraudulent misrepresentation and the tort of conspiracy had not been made out.




The appellants, Ochroid Trading Ltd and its sole director, Ole Prytz Rasmussen, commenced legal proceedings against VIE Import & Export and Sim for the return of monies that had been lent to VIE in contravention of the MLA.




The court had to determine:


  • Whether the claim failed because the agreements were illegal moneylending contracts, which are unenforceable under the MLA; and
  • On the alternative claim for unjust enrichment, what impact, if any, the illegality of a contract has on the independent claim in unjust enrichment to recover the benefits conferred under an illegal contract.


Taking the second issue first, the Court of Appeal noted that this was a vexing area of the law, particularly after the landmark decision of the U.K. Supreme Court in Patel v Mirza [2017] AC 467.


After a detailed analysis of Patel, the Court of Appeal decided not to follow Patel, noting at [125] that the majority in Patel have, with respect:


  • Introduced further uncertainty into the analytical process by superimposing an additional inquiry based on a “range of factors” test across the board to all situations of common law illegality; and
  • Created an unprincipled distinction between the principles which apply to statutory illegality and those which govern common law illegality.


The Court of Appeal held that it was unnecessary to achieve remedial justice in the Singapore context, given the flexibility of the principles laid down in Ting Siew May v Boon Lay Choo and another [2014] 3 SLR 609.


The Court of Appeal reaffirmed its approach taken in Singapore. At the first stage, the court will have to ascertain whether the contract is prohibited either pursuant to a statute (expressly or impliedly) and/or an established head of common law public policy. If the contract is indeed prohibited, there can be no recovery pursuant to the (illegal) contract. This is subject to the caveat that, in the general common law category of contracts which are not unlawful per se but entered into with the object of committing an illegal act (and only in this category), the proportionality principle laid down in Ting Siew May ought to be applied to determine if the contract is enforceable.


A party who has transferred benefits pursuant to an illegal contract might be able to recover those benefits on a restitutionary basis. This is the second stage of inquiry. There are three possible legal avenues for such recovery: 1) where the parties are not in pari delicto; 2) where the doctrine of locus poenitentiae applies; and 3) where the plaintiff brings an independent cause of action for the recovery of the benefits conferred under the illegal contract which does not allow the plaintiff to enforce and thereby profit from the illegal contract.




On the present facts, the moneylending contracts were found to be unenforceable under the MLA. The question was whether the defense of illegality operated to defeat the independent claim in unjust enrichment. This turned on the application of the concept of stultification to the present facts, and whether to permit recovery of the principal sums would undermine the fundamental policy underlying the MLA and make nonsense of the legislative prohibition, which rendered the contracts void and unenforceable in the first place.


The Court of Appeal held that it did. At [219], it held that the alternative claim in unjust enrichment could not succeed because to permit recovery of even the principal sums would undermine and stultify the fundamental social and public policy against unlicensed moneylending, which undergirded the MLA. The Court of Appeal referred to the strong need to deter illegal moneylending due to its status as a serious social menace in Singapore.




The Court of Appeal’s 121-page judgement—clarifying the law, the interplay between illegality and unjust enrichment, and its refusal to follow Patel—is a welcome decision.


It is also noteworthy that the Court of Appeal made clear that the policy of the MLA 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 the MLA without license.


Duane Morris Selvam LLP


For further information, please contact:


Sarbjit Singh Chopra, Managing Director, Duane Morris & Selvam