MONEYLENDING

TRIPLE ZEST TRADING & SUPPLIERS & ORS v. APPLIED BUSINESS TECHNOLOGIES SDN BHD [2023] 10 CLJ 187 [ Federal Court]

Brief facts

The first appellant, Triple Zest Trading & Suppliers (‘TZ’), had sought a loan (‘loan agreement’) from the respondent, Applied Business Technologies Sdn Bhd (‘ABT’), who agreed to a loan amount of RM800,000 (‘principal loan sum’) to be repaid with another RM800,000 as consideration (‘agreed profit’). ABT was in the business of general trading, and had no licence to carry on the business of moneylending. The second appellant (‘TZA') and the third appellant (‘TZB’) were the directors of TZ and acted as the personal guarantees of TZ in the loan agreement. TZ deposited with ABT, the title deeds of two parcels of land belonging to TZB and a third party, and four undated cheques, each in the sum of RM400,000 from TZ’s account, as collateral. TZ defaulted in the repayment of the loan sum, prompting ABT to commence an action against TZ, TZA and TZB in the High Court.

In the High Court, ABT sought an order (i) for the two parcels of land be transferred to it, or (ii) for the RM1.6 million be repaid together with legal costs, and if (ii) was ordered, that the two parcels of land be auctioned to recover the amount owed. TZ, TZA and TZB argued that the loan was an illegal moneylending transaction, that they never agreed to the agreed profit nor pledged the two parcels of land as security for the loan and that ABT had exercised undue influence on TZA and TZB into signing the personal guarantees.

High Court’s Decision

This court ordered TZ, TZA and TZB to pay ABT RM1.6 million – the principal loan plus the agreed profit, with interest. As for the two parcels of land, the court decided that they were not transferable, as one of the co-owners had nothing to do with the loan agreement, so ABT had no cause of action against her.

The court decided that the loan agreement was not an illegal moneylending transaction as there was no evidence that ABT was a ‘moneylender’ carrying on the business of ‘moneylending’ nor did it hold itself out as carrying on, advertising or announcing itself as ‘carrying on the business of moneylending’, contrary to s.2 of the Moneylenders Act 1951 (‘the Act’). The High Court judge opined that it was common practice among the business community to lend money. It was a ‘one off’ loan transaction, having no element of continuity or system or repetition of similar transactions to qualify ABT as being in the ‘business of moneylending’.

Dissatisfied with the decision of the High Court, both parties appealed to the Court of Appeal. TZ, TZA and TZB appealed against the whole of the High Court’s decision whereas ABT appealed against the part of the decision that disallowed the transfer of the two parcels of land or ordering the lands to be auctioned off to recover the amount owed.

Court of Appeal’s Decision

The Court of Appeal held that TZ, TZA and TZB were only liable to repay RM800,000 – the principal loan sum, together with interest but not the agreed profit. ABT’s appeal on the other hand was dismissed in totality and it was further ordered to return the title deeds of the two parcels of land. The grounds of the decision were that (i) ABT had adduced sufficient evidence to rebut the presumption that it was a ‘moneylender’ under s.10OA of the Act and that (ii) in a ‘friendly loan’ as in the present case, the lender ought not to charge any interest.

TZ, TZA and TZB further appealed to the Federal Court, arguing that they were not liable to pay any sum of money to ABT and for the determination of the following questions of law:

(i) whether a loan agreement which charges an interest at the rate of 100% within a period of 30 days is legal under the law?;

(ii) if the answer to question (i) is illegal, whether the court should still assist the moneylender to recover the principal amount lent;

(iii)whether as long as a person does not ‘carry on or advertise or announce himself or hold himself out in any way as carrying on the business of moneylending’, he will not be defined as a moneylender despite him lending money at an interest rate of 100% per month?;

(iv) whether the Act only regulates moneylenders and if a person was found to be not a moneylender, he is at liberty to enter into loan agreement charging any interest rate including interest at the rate of 100% per month?; and

(v) whether a person who is not defined as a moneylender can lend money at any interest rate?

Federal Court’s Decision

The Federal Court set aside the Court of Appeal’s decision, allowing TZ, TZA and TZB’s appeal with costs of RM60,000. The court’s answers to all the questions of law were in the negative.Chief Judge (Sabah & Sarawak) Abdul Rahman Sebli in delivering the judgment of the court held:-

[1] The meaning of ‘moneylender’, ‘moneylending’ and ‘interest’ in the Act must be read together and read into the relevant terms of the loan agreement in determining whether ABT was carrying on the business of ‘moneylending’. The agreed profit was in fact ‘interest’ under s.2 of the Act, as ‘whatsoever name called’, it was still a sum that was ‘in excess of the principal paid or payable to the moneylender’. Under s.10OA of the Act, a person is presumed to be a moneylender, if there is a single loan made at interest until the contrary is proved. However, not only had ABT not adduced any evidence to show that the RM800,000 it lent to TZ, TZA and TZB was not lent at interest, there was no doubt that the principal loan sum carried an exorbitant interest rate of 100% which ABT had included in the loan agreement under the guise of it being its ‘agreed profit’.

[2] The High Court in allowing ABT’s claim would create a fertile breeding ground for illegal moneylenders as it set the precedent that an unlicensed moneylender could lend money at 100% interest without being punished for it and further guaranteed that the principal loan sum was recoverable with the court’s aid. In fact, ABT was never entitled to recover both the principal loan sum and the agreed profit as the loan agreement was void to begin with. rendered the loan agreement void under s.24 of the Contracts Act 1950 and a party that suffers loss due to an illegal contract, cannot sue the other contracting party to recover losses.

[3] Similarly, the Court of Appeal’s decision would essentially ‘legitimise illegal moneylending’ by allowing illegal moneylenders to recover the principal loan sum despite the illegality of the transaction.

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