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Advocates
  • Goddard
  • Peacock
  • Loughsborough
  • Nisbet Drew
  • C.D. Myles
  • J.N. Gray
  • H.H. Maddocks
  • C.T. Lequesne
Judges
  • Salvesen
  • Fairfield
  • Justice Lords Thankerton
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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Goddard
  • Peacock
  • Loughsborough
  • Nisbet Drew
  • C.D. Myles
  • J.N. Gray
  • H.H. Maddocks
  • C.T. Lequesne
Judges
  • Salvesen
  • Fairfield
  • Justice Lords Thankerton
See more information ...
Smart Summary

Structured Summary of the Opinion delivered by Lord Fairfield

Factual and Procedural Background

This is a consolidated appeal from the decision of the Court of Appeal at Johore Bahru, which reversed the judgment of the trial Judge (Mills J.). The appellants are referred to collectively as the moneylenders and the respondents as the borrowers.

By originating summonses dated 23 November 1936 the moneylenders applied to the Court of the Judge at Johore Bahru for an order requiring the borrowers to show cause why several rubber estates charged to the moneylenders should not be sold at public auction, subject to terms in each summons.

The borrowers, by affidavit in answer, asked the Court to declare the transactions usurious and unfair and to hold the interest charged (24% compounded monthly and capitalised) excessive; they also complained that compound interest was charged despite ample security and asked that the transactions be re-opened under the Usurious Loans Enactment. The borrowers had originally alleged undue influence in obtaining signatures but that claim was abandoned on appeal and is not considered further in this opinion.

The loans in issue in this appeal are identified in the record by letters (e), (n) and (r); the borrowers also appealed in respect of loans (o), (p) and (q), which were agreed to stand or fall by the decision on (e), (n) and (r).

The Usurious Loans Statute in force at the dates of the transactions permitted the Court, where it had reason to believe that (a) the interest is excessive and (b) the transaction was substantially unfair, to re-open transactions, take accounts, relieve the debtor of liability for excessive interest, and order repayment where appropriate. (The statute's relevant provisions are recited in the opinion.)

Legal Issues Presented

  1. Whether the interest charged at 24% (capitalised and payable by monthly instalments) was excessive and the transactions substantially unfair, so as to permit the Court under the Usurious Loans Statute to re-open the transactions and relieve the debtors of liability for excessive interest.
  2. Whether compound interest (interest on interest) charged under the transactions ought to be allowed for particular transactions, and if not, what rate and form of interest should be allowed.
  3. Whether the judgment of the trial Judge (which found the 24% charge not unreasonable) should be reversed and the Court of Appeal's reversal should be affirmed.

Arguments of the Parties

Borrowers' Arguments

  • The several transactions were usurious and substantially unfair, and the interest charged (24%) was excessive.
  • Compound interest was charged despite the loans being amply secured; they asked for re-opening of transactions under the Usurious Loans Enactment and relief from liability for excessive interest.
  • They filed affidavits (including that of Loo Thon Poo) and relied on the uncontradicted affidavit of the valuer Vaithyalingham and the unchallenged affidavit of Cheong Hock Chye, which stated that typical secured rates in Johore and Singapore were generally in the region of 6–9% (not exceeding 9% for trust securities, and a little more for other securities).
  • Before the trial Judge, counsel for the borrowers stated: "We submit to 18 percent." (a concession subject to the Court's finding).

Moneylenders' (Appellants') Arguments

  • The trial Judge treated reported decisions of the Courts of Johore and India in a way that supported his conclusion that 24% was not unreasonable; the appellants relied upon that approach and on English decisions to support their position.
  • Appellants cited the decision of Channel J. in Carrington Ltd. v. Smith (1906) in support of their appeal; the citation indicates reliance on authorities that take account of a willing and intelligent borrower's agreement to the interest charged.
  • The record does not contain detailed affidavit-based contradictions to the borrowers' affidavits of local practice (Cheong Hock Chye) or the valuer's evidence; however, the appellants advanced legal authorities in support of validation of the transactions as entered into between the parties.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
(1932) 1 KB 691 (reported decision cited by a member of the Board) Principle that in a renewal or fresh transaction it makes no difference to validity whether the parties formally pay and re-lend the sum or treat the outstanding principal and interest as an acknowledged debt and agree a fresh forbearance; renewal/acknowledgement can include interest. The court relied on this reasoning to support the proposition that a new transaction acknowledging a debt (including interest) and agreeing payment can validly include interest on interest; this precedent was used to justify allowing compound interest where the evidence showed the interest had been included and acknowledged in subsequent transactions.
Paton v. Inland Revenue Commissioners (1938) AC 341 Confirmed the correctness of treating a settlement of a balance and then making a fresh start with the total debt (which includes interest) — i.e., that parties can agree a fresh arrangement that includes interest in the new debt. The court quoted Lord Atkin's passage to confirm the principle that settlement and fresh agreement with the total debt (including interest) is valid; used to support the view that treating outstanding interest as part of a new acknowledged debt is permissible in principle.
Carrington Ltd. v. Smith (1906) 1 KB 79 Authority (Channel J.) recognising that the fact a willing and intelligent borrower agreed to interest is a legitimate circumstance to be taken into account when assessing fairness, but it is not conclusive by itself. The appellants cited this decision in support of their appeal. The court observed that Channel J.'s approach was correct in principle but emphasised that such an agreement by the borrower is only one factor and not determinative; the court was not satisfied borrowers fully understood the transactions and therefore did not give decisive weight to any supposed agreement to the higher rate.
Reading Trust v. Spero (1930) 1 KB 492 Qualified approval by the Court of Appeal of the reasoning in Carrington Ltd. v. Smith — i.e., the borrower's agreement is a relevant but not conclusive factor. The court noted the qualified approval in Reading Trust to indicate support for the limited proposition that borrower agreement is a relevant circumstance; nonetheless the Board reiterated that agreement alone does not resolve fairness where other evidence indicates excessiveness or unfairness.

Court's Reasoning and Analysis

The Board (their Lordships) concluded that the trial Judge's judgment was wrong and the Court of Appeal's reversal was right, for reasons set out in the opinion. The reasoning proceeded in identifiable steps:

  1. Evaluation of the evidentiary material: The only evidence directly bearing on the question whether 24% was excessive consisted of three uncontradicted affidavits — by a borrower (Loo Thon Poo), by the valuer (Vaithyalingham), and by Cheong Hock Chye — the last of which stated that secured rates usually varied from 6–9% (never more than 9% in the case of trust securities) and that other secured loans were only a little more than 9% in Singapore and Johore. The moneylenders filed no affidavit in opposition to these factual assertions.
  2. Errors identified in the trial Judge's approach (as listed by their Lordships): (a) treating reported decisions of Johore and India as evidence of facts and factual inferences (which was incorrect); (b) failing to give effect to the unchallenged affidavit of Cheong Hock Chye about usual local rates; (c) failing to give sufficient weight to the fact that the loans were amply secured; and (d) failing to consider the harsh contractual power in the contracts permitting moneylenders to enforce payment upon any unpaid instalment, which was relevant to whether the transactions were substantially unfair between the parties.
  3. On the question of excessiveness and unfairness: Given the unchallenged evidence of usual rates and the ample security, their Lordships agreed with the Court of Appeal that 24% was excessive and the transactions were substantially unfair. They accepted the Court of Appeal's conclusion that the transactions should be re-opened and the debt adjusted under the Usurious Loans statute.
  4. On the question whether compound interest should be allowed: Their Lordships reviewed the factual matrix of the particular transactions. They analysed transaction (e) and the way its capitalised interest and subsequent loans incorporated interest outstanding into later transactions (items (f), (g), (n), etc.) as set out in the record (Ex. C, Sch. A). They explained the legal principle — supported by the cited English authorities — that when a loan has been incurred for interest and that interest is added to the amount agreed to be due in a subsequent transaction (i.e., acknowledged as a debt in a renewal/forbearance), it is not in principle objectionable to include interest on that acknowledged amount.
  5. On reliance upon English authority: The Board noted English decisions are not binding in an appeal from Johore, but their reasoning may be helpful. The Board relied on the reasoning in the (1932) 1 KB 691 passage and on Lord Atkin's speech in Paton v. Inland Revenue Commissioners (1938) to support the principle that a fresh start/agreement can lawfully include interest and therefore may validate arrangements which, in substance, incorporate previously accrued interest into a renewed debt.
  6. On the relevance of borrower consent: While the appellants relied on authority (Carrington Ltd. v. Smith and Reading Trust v. Spero) that agreement by a willing and intelligent borrower is a factor to be considered, the Board stated it was not satisfied by the evidence that the borrowers fully understood the transactions. For that reason, the Board would not give decisive weight to any claimed borrower consent to the 24% rate.
  7. Conclusion as to the proper rate: The Board accepted the Court of Appeal's determination that 15% per annum was the appropriate rate to be allowed under the proved circumstances for the transactions in question (e), (n) and (r). However, they differed from the Court of Appeal in one respect: they would not restrict that 15% to simple interest only (they would strike out the Court of Appeal's direction that the 15% be "simple interest"), thereby allowing interest to be charged on sums acknowledged to be owing (i.e., allowing interest on interest insofar as the transactions properly acknowledged such debts).
  8. Costs and ancillary provisions: Their Lordships proposed that the costs of the appeal to His Majesty be met by an order allowing the respondents nine-tenths of their costs; they advised His Majesty accordingly.

Holding and Implications

Holding:

The appeal is dismissed, with the following qualifications and orders as derived from the opinion:

  • The judgment of the Court of Appeal at Johore Bahru reversing the trial Judge is affirmed so far as it relates to the three transactions identified as (e), (n) and (r).
  • The Court of Appeal's order is varied by striking out the words "simple interest" from its direction that interest be allowed at 15% per annum; consequently the 15% rate applies to sums acknowledged to be owing and therefore interest on interest is permitted where the transactions properly acknowledged such debts.
  • The Court of Appeal's consequential orders (as set out in its judgment and quoted in the opinion) — that the transactions and accounts be re-opened from 18 June 1927, that the borrowers be relieved from payment of any sum in excess of the sums actually advanced and interest thereon at 15% per annum, that sums paid in excess be repaid, and that an account be taken charging borrowers with interest at 15% per annum on sums from time to time owing — are affirmed subject to the variation regarding the word "simple."
  • If sums are found due to the moneylenders they shall stand charged upon the lands in the proportions stated and carry interest at 12% per annum until payment; if the certified amount and interest remain unpaid by a specified date, the lands may be sold by public auction under court direction (these procedural consequences were part of the Court of Appeal's order quoted in the opinion and are therefore preserved).
  • Costs: Their Lordships advised that the respondents (chargees/borrowers) be allowed nine-tenths of their costs of the appeal to His Majesty.

Implications:

The direct effect on the parties is that the Court of Appeal's order (re-opening accounts from 18 June 1927 and allowing interest at 15% per annum) is upheld for the transactions (e), (n) and (r), but without the restriction to simple interest; this means acknowledged debts that include interest may bear further interest in accordance with the way the transactions were continued. The opinion makes clear that no new binding rule of law for Johore is asserted beyond the statutory powers under the Usurious Loans Enactment and the application of established principles as discussed; English decisions were used as persuasive authority only.

Order accordingly — their Lordships will advise His Majesty as described in the opinion.

Show full summary ...

    S.R.M.S. Chethambaram Chettiar v. Loo Thon Poo

    Lord Fairfield:-

    This is a consolidated appeal from the decision of the Court of Appeal at Johore Bahru in the State of Johore reversing the decision of the trial Judge, Mills J. It may be convenient to say at once that their Lordships are satisfied that the judgment of the trial Judge was wrong that its reversal by the Court of Appeal was right and ought to be affirmed, except in one respect which will be dealt with later in this judgment. It will save their Lordships the trouble of stating the names of appellants and respondents, where they differ, if they refer to the appellants collectively as the moneylenders and the respondents as the borrowers. By originating summonses dated 23rd November 1936, the moneylenders made application to the Court of the Judge at Johore Bahru for an order for the borrowers to show cause why the several rubber estates which had been charged to the moneylenders by certain instruments of charge should not be sold at public auction, subject to the terms stated in each summons.

    The borrowers by their affidavit in answer asked the Court to say that the several transactions to which the originating summonses related were usurious and unfair, and that the interest charged was excessive; they also complained that compound interest was charged although there was ample security and they asked for an order that the transactions should be re-opened under the Usurious Loans Enactment. The borrowers also complained that their signatures to the charges were obtained by undue influence. As this claim was abandoned when the case came before the Court of Appeal it is unnecessary for their Lordships to say anything about it. The loans and charges with which the present appeal is concerned are identified in the evidence by the letters (e), (n) and (r). The borrowers also appealed with regard to loans identified by letters (o), (p) and (q). It was agreed that the loans identified by the letters (o), (p) and (q) should stand or fall by the decision in this appeal with reference to the transactions identified by the letters (e), (n) and (r). By the Usurious Loans Statute in force at the date of each of the impeached transactions it was provided as follows:

    (1) Where, in any proceeding to which this Enactment applies, whether ex parte or otherwise, the Court has reason to believe (a) that the interest is excessive and (b) that the transaction was between the parties thereto substantially unfair, the Court may exercise all or any of the following powers :

    (1) re-open the transactions, take an account between the parties and relieve the debtor of all liability in respect of excessive interest.

    (2) notwithstanding any agreement purporting to close previous dealings and to create a new obligation, re-open any account already taken between them, and relieve the debtor of all liability in respect of any excessive interest and if anything has bean paid or allowed to account in respect of such liability, order the creditor to repay any sum which it considers to be repayable.

    In all the transactions of loan and charge which fall to be considered in the present appeal the interest charged was 24 percent. Such interest charged at that rate was on each transaction capitalised and made payable by monthly instalments. The only evidence before the trial Judge which affects the question whether 24 percent. was or was not excessive and unfair as between the parties consisted of (1) the affidavit of Loo Thon Poo, one of the borrowers, (2) the affidavit of Vaithyalingham, the valuer, which was not contradicted by any affidavit on the part of the moneylenders, and (3) the affidavit of Cheong Hock Chye which also was unchallenged by any affidavit in opposition. In the last mentioned affidavit it was stated by the deponent that in the case of trust securities where a loan is not permissible if it exceeds two-thirds of the value of the property charged as at the date of the loan, the rate of interest charged varied from 6 to 9 percent. simple interest, but was never more than 9 percent. In the case of other securities it is stated in this affidavit that interest charged had been a little more but not very much more than 9 percent., both in Singapore and the State of Johore. The facts stated in this affidavit were not challenged by any affidavit in opposition filed by or on behalf of the money-lenders. If this evidence be accepted the inference is plain that where the security is not a trust security the interest usually charged on a fully secured loan in the State of Johore had only been a little in excess of 9 percent. All the loans and charges with which this appeal is concerned, namely (e), (n) and (r) were amply secured by charges on rubber estates which had been well looked after and kept in good order.

    In their Lordships' opinion the trial Judge was wrong in concluding that the charge of 24 percent. interest was not unreasonable and excessive and was not unfair as between the parties. They agree with the Court of Appeal that his decision in this respect was wrong and that the Court of Appeal was right in reversing it. Their Lordships have come to this conclusion for the following reasons : (1) The trial Judge was wrong in treating the reported decisions of the Courts of Johore and India as evidence of the facts and inferences of fact stated in these reports. (2) The learned Judge failed to give effect to the unchallenged evidence of Cheong Hock Chye as regards the rate of interest usually charged in the State of Johore. (3) The learned Judge failed to attach sufficient weight to the consideration that in all cases the loans were amply secured. (4) In considering whether the several transactions with which the proceedings before the trial Judge were concerned were substantially unfair between the parties the Trial Judge failed to consider and give effect to the fact that in all these transactions the contract contained a very harsh term giving power to the money-lenders to enforce payment of the loan and interest, if any instalment became due and unpaid.

    Their Lordships are accordingly of opinion that the judgment of the Court of Appeal was right, except in so far as it required the interest throughout to be reckoned as simple interest. Their Lordships also think it right to make some observations on one of the passages contained in the judgment of the Court of Appeal. In para. 2 of p. 55 of the record the Acting Chief Justice in delivering the oral judgment of the Court of Appeal said :

    Before us counsel agreed that in Johore 18 percent. was in the past quite a common rate of interest on charges, but now by Enactment No. 4 of 1937 which came into force on 16th March 1937 S. 3 of the Usurious Loans Enactment, it is provided that until the contrary is proved, if the interest exceeds 12 percent. per annum in the case of secured, and 18 percent, per annum on unsecured loans, the Court shall presume that the interest charged is excessive and the transaction substantially unfair.

    Before the trial Judge the borrowers' counsel said : We submit to 18 percent.

    because it is the highest allowed but the Court may think it too much. It seems probable that the counsel for the borrowers in the Court of Appeal meant no more than what he had stated in the argument before the trial Judge. Even if this be an incorrect interpretation of what counsel said in the Court of Appeal it does not follow that because 18 percent. had been in the past quite a common rate of interest on charges it could not be regarded as excessive and unfair, it is not unusual for borrowers to submit to a rate of interest which is excessive and unfair rather than run the risks of litigation, including it may be the risk of having to incur the expense of an appeal to His Majesty in Council. If by the words quoted above the Court of Appeal meant that the enactment of 1937 should be used to construe the earlier enactment they were certainly wrong, but they may merely have meant to use the later statute as some evidence that 24 percent. was considered excessive by a representative Section of the Protectorate, in which case their observations quoted above would not be liable to serious criticism.

    Their Lordships ought now to consider the evidence relating to the several loans and charges with which this appeal is concerned in order to determine on which of these transactions the questions arise whether the charge of compound interest, that is to say interest on interest, ought to be allowed. In the case of the transaction of loan and charge identified as (e) the amount of cash paid to the borrowers by the money-lenders was 3000 the capitalized interest was 600 payable by monthly instalments. No part of the capital or capitalised interest on this loan was paid by the borrowers. These sums, whether capital or interest, were included in loan (f) and again in loan (g); and in loan (n) a balance of interest on (e) was included as still undischarged. The evidence relating to all transactions by way of loan and charge are conveniently summarised in Ex.C, Sch. A, which is to be found on pp. 88 and 89 of the record. No. 5 in this schedule relates to transaction (e), No.11 relates to transactions (l), (m) and (n) and No. 12 to transactions (o), (p), (q) and (r). It is clear that transactions (l), (m) and (n), and (o), (p), (q) and (r) included interest charged on interest.

    Their Lordships are of opinion, where a loan has been incurred for interest and this interest is added to the amount agreed to be due when a new transaction is agreed between the parties which includes the payment of interest as an acknowledged debt this is not in principle open to any sound objection. As one member of this Board, when sitting in the Court of Appeal, pointed out in (1932) 1KB 691 1at p. 706, it ought not to make any difference to the validity of a transaction by way of a renewal of a loan, whether the parties go through the form of payment by the borrower of the whole amount due and a relending of the same amount by the money-lender, or the transaction is carried out without any such payment by treating the amount of principal and interest still due as a debt acknowledged by the borrower together with an undertaking by the borrower to pay the amount of the agreed debt. That this view is right in principle is confirmed by the following passage in the speech of Lord Atkin in Paton v. Inland Revenue Commissioners, (1938) AC 341=107 LJ KB 354=158 LT 426=82 SJ 212=54 TLR 504=(1938) 1 All ER 786 at p. 348, where his Lordship used these words in relation to a case involving six monthly settlements :

    If you settle that is agree the balance at the end of six months there is nothing to prevent your making a fresh start with the total debt which no doubt includes interest and agreeing to forbear from suing for the whole debt at a rate of interest meantime.

    Their Lordships do not fail to bear in mind that English decisions are not binding either in fact or in law on a question arising in an appeal from a judgment in the State of Johore. Nevertheless, the reasoning of Judges in the English Courts may prove helpful in solving a similar problem arising in that State. It is only in this sense that their Lordships rely in the authorities referred to above. The appellants cited the decision of Channel J., in Carrington Ltd. v. Smith, (1906) 1 KB 79=75 LJ KB 49=93 LT 779=54 WR 424=22 TLR 109 in support of their appeal, and the qualified approval of that decision by the Court of Appeal in Reading Trust v. Spero, (1930) 1 KB 492=99 LJ KB 186=46 TLR 117=74 SJ 12. It is apparent from the judgment of Lord Fairfield (then Lord Justice Greer) and from that of Lord Justice Slesser, that Channel J. was right in taking into account the fact that a willing and intelligent borrower had agreed to the interest charged, but that this was only one of the circumstances to be taken into account and was not of itself conclusive.

    Their Lordships are not satisfied by the evidence in the present case that the borrowers fully understood what they were agreeing to, and in any case their Lordships are of opinion they ought not to disturb the finding of the Court of Appeal that 15 percent. interest was the right interest to allow under all the circumstances proved at the trial. Their Lordships are of opinion that the order of the Court of Appeal in so far it relates to the three transactions (e), (n) and (r) with which alone this appeal is concerned, should be affirmed. The order made by the Court of Appeal was as follows:

    These appeals coming on for hearing this 5th April 1937, before the Honourable Mr. Justice Howes, Acting C.J.S.S. The Honourable Mr. Justice Horne and the Honourable Mr. Justice Laville in the presence of the Honourable Dato Roland Braddell and Mr. S.C. Goho of Counsel for the Appellants-Chargors and the Honourable Mr. R. Williamson and Mr. M.V. Pillai of Counsel for the Respondents-Chargees and all parties having agreed to hear both appeals as one appeal, upon reading the Memorandum of Appeal filed herein and what was alleged by Counsel it is ordered that the appeal do stand for judgment and this appeal standing for judgment this 1st May 1937, in the presence of Mr. S.C. Goho and Mr. C.G. Toh of Counsel for the Appellants-Chargors and Mr. M.V. Pillai of Counsel for the Respondents-Chargees and THIS COURT being of the opinion that interest charged by the Chargees in respect of the advances made to the Chargors herein was excessive and usurious under all the circumstances of the case and also being of the opinion that the judgment of the trial Judge dated 28th January 1937, given herein was wrong doth hereby allow this appeal and set aside the Order of the trial Judge mentioned above and doth declare that all the transactions and accounts whatsoever, arising as from 18th June 1927. Between the Chargors (Appellants) and the Chargees (Respondents) ought to be re-opened and set aside, and that the Chargors (Appellants) ought to be relieved from payment of any sum in excess of the sums actually advanced by the Chargees to the said Chargors and interest thereon at the rate of 15 percent. per annum simple interest; and that if any such excess has been paid by the Chargors, the Chargees ought to repay the same to the Chargors; and the Court does order and judge the same accordingly. And it is ordered that the following account be taken, that is to say, an account of all sums actually advanced by the Chargees to or for the use of the Chargors on and from 18th June 1927, and of all sums received by the Chargees from the Chargors in respect of any such advance, and that on taking such account the Chargors be charged with interest at the rate of 15 percent. per annum (simple interest) on the sums from time to time owing to the Chargees; and that the balance due from either party to the other be certified. And if any sum is found due to be paid by the Chargors to the Chargees such sums shall stand charged upon the lands of the Chargors now charged to the Chargee, in the same proportion at the amounts now charged on the said lands are distributed thereon, and such sums shall carry interest at the rate of 12 percent. per annum until payment. And if the amount so certified and the interest due thereon is not paid on or before 31st July 1937, the said lands shall be sold by public auction, under the direction of the Court, with liberty to apply for such direction as may be necessary.

    Their Lordships are only concerned with the loans and charges identified by the letters (e), (n) and (r); so far as these transactions are concerned their Lordships are of opinion that the order of the Court of Appeal should be affirmed, but varied by striking out the words simple interest. This will have the effect of making the charge of 15 percent. payable on the sums from time to time acknowledged to be owing by the borrowers to the lenders and will thus be allowing interest on interest contrary to the views expressed by the Court of Appeal in their judgment, and their Lordships will humbly advise His Majesty that the appeal should be dismissed subject to the variation with regard to interest already mentioned. With regard to the costs, their Lordships are of opinion that the costs of the appeal to His Majesty will be reasonably met by an order allowing the respondents nine-tenths of their costs, and their Lordships will advise His Majesty accordingly.

    Order accordingly.

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    Comments

    S.R.M.S. Chethambaram Chettiar v. Loo Thon Poo
    (Oct 12, 1939)