Moneylenders (colloquially, loan sharks or Ah Long) are the bane of society. As a Great White is to a bleeding seal, so is a moneylender to a penurious debtor. They encircle and bide their time, waiting for the opportune moment to strike.
A crucial distinction between a Great White and a moneylender would be that the former is a crucial part of the food chain, not so much the latter.
The FC decision of Triple Zest v Applied Business Technologies
The facts
Applied Business Technology (ABT) was an ICT company. Triple Zest approached it for a loan of RM800,000. The parties executed a Friendly Loan Agreement (Re: “Friendly”). The Agreement specified that the loan sum of RM800,000 would be extended, with an “agreed profit” of an additional RM800,000.
Triple Zest also procured guarantees from its directors, in favour of ABT. Triple Zest’s directors also deposited title deeds of its directors with ABT.
Triple Zest defaulted. ABT sought an order compelling the lands be transferred to it. Alternatively, ABT sought an order for a sum of RM1.6m.
The High Court and the CA
The HC determined that the full sum of RM1.6m was payable.
On appeal, the CA slashed this to 800k.
The FC
In a momentous decision, the FC overturned the CA and held that the entire agreement was null and void for being contrary to public policy.
The ratio of the FC
The FC did not mince its words. Firstly, the FC held that the longstanding authority of Ngui Mui Khin v Gillespie Bros [1980] 2 MLJ 9 had been determined prior to the latest amendments to the Moneylenders Act 1951. The FC noted as follows:
[24] In the present case, not only was the respondent not punished for contravening section 5(2) of MA51 but it was in some way given a helping hand by the court, albeit unwittingly. Without being derogatory, the decision of the courts below can be likened to allowing a robber to claim back his cost and expenses in a botched robbery attempt.
[25] It makes a mockery of MA51 and the Financial Services Act 2013. While banks and licenced moneylending companies need to obtain licences and abide by strict monetary regulations, unlicensed moneylenders need only to use the term “agreed profit” in place of “interest” as “consideration” in carrying on their illegal moneylending activities.
The FC went on to hold that even one instance of lending money at interest would fall afoul of moneylending:
[36] We have said in paragraph 16 above that the learned trial judge referred to those provisions of MA51 in coming to the conclusion that the respondent was not carrying on the business of “moneylending”. The learned judge should not have stopped at those provisions. He should have gone on to apply his mind to the meaning of “interest” given by section 2 of MA51, which is of crucial importance in determining whether the respondent was carrying on the business of “moneylending” when it lent the RM800,000.00 to the appellants with the “agreed profit” of RM800,000.00.
[39] So, by clause 1 of the loan agreement the “agreed profit” of RM800,000.00 to be earned by the respondent was the “consideration” for the RM800,000.00 loan. Read with clause 3, this “agreed profit” of RM800,000.00 was in fact and as a matter of law “interest” within the meaning of section 2 of MA51, as it was a sum that was “in excess of the principal paid or payable to the moneylender”.
[41] The “consideration” of RM800,000.00 payable to the respondent at any time before or at the expiry of the agreement period of 30 days was nothing but “interest” at the rate of 100% disguised as “agreed profit”. By whatsoever label it was given, the RM800,000.00 was “any amount by whatsoever name called in excess of the principal paid or payable to a moneylender”. If a rose by any other name would smell as sweet, a corpse flower by any other name would smell as foul.
The FC further held that even one instance of moneylending shall lead to a (rebuttable) presumption of a person being a moneylender to arise. The burden then shifts to the moneylender to prove otherwise:
[44] It is a rebuttable presumption, a legal principle that presumes something to be true unless proven otherwise. Section 10OA of MA51 imposed on the respondent the legal (as opposed to evidential) burden of proving, on the balance of probabilities, that it was not carrying on the business of “moneylending” when it lent the RM800,000.00 to the appellants at a profit of RM800,000.00. The presumption is that it was carrying on the business of moneylending, “until the contrary is proved”.
[52] This is wrong because by the reversal of the onus of proof by section 10OA of MA51, the burden was not on the appellants (borrower) to prove that the respondent was carrying on the business of moneylending. Rather, the burden was on the respondent (moneylender) to prove to the contrary that it was not carrying on the business of moneylending.
[53] In our view, the error stems from the reliance by both courts below on Gellespie Bros (supra). That was a case that was decided before section 10OA of MA51 was enacted and which only came into force on 15.4.2011 vide Act A1390. That explains why, in the absence of such provision, the Federal Court in that case required evidence of “some sort of continuity or system or repetition of similar transactions” before a person can be said to be carrying on the business of moneylending. The reliance by both the High Court and the Court of Appeal on the case was therefore misconceived and had misguided them into thinking that the burden was on the appellants to prove that the respondent was carrying on the business of moneylending.
The FC further noted that it would not be open to a moneylender to show that he runs “a separate business”. To rebut the presumption, an individual would have to prove that they were not lending money at interest:
[56] To successfully rebut the presumption under section 10OA of MA51, the respondent must prove on the balance of probabilities that by entering into the loan agreement with the appellants, it was not engaging in an act of “lending of money at interest, with or without security, by a moneylender to a borrower”, which is the meaning ascribed to the word “moneylending” by section 2 of MA51.
Key takeaways
From the above, the following principles may be gleaned:
1. When an allegation of moneylending is raised, proof of a single loan at interest will give rise to a presumption of moneylending;
2. The presumption is rebuttable if the moneylender can show that he did not lend money at interest;
3. If the Court makes a finding that a person is a moneylender, the loss lies where it fals. The moneylender shall not be entitled to any repayment whatsoever.
With such an emphatic pronunciation, a great deal of comfort ought to be accorded to borrowers. Their position in law is greatly fortified, with that of moneylenders now at serious risk.
Post-script: The CA decision of Shim Vui Geh v Dayang Masturah [S-01(NCVC)(W)-139-03/2023]
Interestingly, not more than 2 days before the FC decision in Triple Zest, the CA in Shim Vui Geh also issued its Grounds of Judgment.
Thankfully, the decision in Shim is reconcilable with Triple Zest. In Shim, the alleged moneylender (Shim) had advanced a loan to Harun and Madam Dayang (Harun’s mother). In return, Harun and Madam Dayang pledged lands to Shim. A Friendly Loan Agreement was executed, which mandated interest at the rate of 1.5% per annum.
Harun did not repay the loans. Instead, Harun and Madam Dayang filed suits seeking declarations that Shim was a moneylender.
Shim counterclaimed and sought orders compelling that the lands be delivered-up to him.
The CA undertook a fascinating dissection of the law. Interestingly, the CA noted that a reasonable imposition of interest (such as that which one would obtain from a fixed-deposit) would be reasonable to impose (paras 53-56).
The CA ultimately concluded that the outright transfer of the lands to Shim as “security” for the loan would be unlawful (paras. 69-114). This would be due to the fact that it circumvented the Sabah Land Rules. The CA also noted that the lack of a valuation report as to the value of the lands may potentially lead to Shim being excessively compensated (paras. 89-91).
The CA allowed Shim a refund of the exact sum lent, together with Court-ordered interest at the rate of 5% per annum. The interest clause of 1.5% per annum (in the FLA) was struck-down.
Whilst one may argue that the legal position taken by the CA in Shim on Section 10OA has been supplanted by Triple Zest, the factual basis of Shim would justify the return of monies. Very much the ends justify the means (on the facts).
Conclusion
With these 2 decisions, the law on moneylending has been made clear. A moneylender will now face a real and serious risk of having his ill-placed lending dissipated. With the interpretation of Section 10OA being conclusively made in favour of borrowers, the FC has taken an unequivocal stance against illegal moneylending.
GAVIN JAYAPAL
The information contained herein is for general information purposes only. The writer does not endeavour to keep the information up to date and correct, makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the article or the information, products, services, law, cases or related graphics contained herein for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
Consult your solicitor before you undertake any legal action whatsoever. In no event will the writer be held liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this article.
Through this article you are able to link to other websites which are not under the writer’s control. The writer has no control over the nature, content and availability of those sites. The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.