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11 December 2023 Unmasking Unlicensed Moneylending:

Federal Court’s Decision In The Triple Zest
Case

At first glance, borrowing or lending money appears as a routine

financial transaction, a means to overcome temporary financial
hurdles to achieve personal milestones. However, in the evolving
landscape of informal peer-to-peer lending or other alternative
financial arrangements, unsuspecting individuals might find
themselves inadvertently cast into the roles of “moneylenders”,
with legal ramifications under the Moneylenders Act 1951 (MA
1951). This circumstance was explored in the recent Federal Court
decision of Triple Zest Trading & Suppliers Sdn Bhd & Ors v
Applied Business Technologies Sdn Bhd [2023] 6 MLJ 818.

Brief Facts

This case revolves around the 1st Appellant, who approached the
Respondent for a loan of RM800,000 to fund its business. The
parties subsequently entered into a loan agreement involving a
rather peculiar arrangement:

1. The loan of RM800,000 has to be repaid with another

RM800,000 as “agreed profit”.

2. As part of the collateral, the 1st Appellant deposited title

deeds for two parcels of land co-owned by the 2nd Appellant
and her child.

3. Four undated cheques, each for the sum of RM400,000.00

in favour of the Respondent.

4. The directors of the 1st Appellant also provided personal

guarantees.

The 1st Appellant defaulted and in response, the Respondent

initiated legal action against the Appellants, seeking not only the
repayment of the full RM1.6 million but also the transfer of the two
parcels of land. The High Court held that the full RM1.6 million was
payable but the amount was halved by the Court of Appeal. At the
final appeal, the Federal Court set aside the previous rulings of the
High Court and Court of Appeal and allowed the Appellants’
appeal.
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Analysis

The crux of the Triple Zest case hinges on whether the loan
agreement was an illegal moneylending agreement.

The Federal Court examined the definition of moneylending under

Section 2 of the MA 1951, which characterised it as “lending
money at interest, with or without security by the moneylender to
the borrower”. The term ‘interest’ is, in turn, defined under Section
2 as the amount above the principal, which was to be paid and/or
was payable to the moneylender in consideration of or otherwise
in respect of a loan. The loan agreement had explicitly outlined
that the agreed profits constituted the “consideration” for the
RM800,000 loan. Consequently, in line with Section 2, the agreed
profits were, in fact, and as a matter of law, a 100% ‘interest’ rate,
regardless of its label. As poetically described by the Federal
Court, “If a rose by any other name would smell as sweet, a corpse
flower by any other name would smell as foul.”

Additionally, the Federal Court underscored the significance of

Section 100A of the MA 1951, which stipulates that in a proceeding
against an individual alleged to be a moneylender, “the proof of a
single loan at interest” automatically raises a presumption that the
person is engaged in the business of moneylending until the
contrary is proven.

The Federal Court also emphasised that the burden to disprove

the presumption does not rest with the Appellants but squarely on
the Respondent where they would have to prove that they were
not lending money at any interest. On the facts, the Federal Court
noted that not only had the Respondent failed to adduce any
evidence to show that the agreed profits were not ‘interest’ but all
available evidence indicates, beyond a shadow of a doubt, that the
loan agreement was a shrewd attempt to “push profiteering to a
new level”.

Further, Section 24 of the Contracts Act 1950 expressly stipulated

that an agreement is void if the object or consideration is unlawful.
In this case, such ‘consideration’ would be forbidden by law, and it
was of such nature that if permitted, it would defeat any law and
be regarded as immoral and contrary to public policy. The Federal
Court went so far as to draw a parallel between the loan agreement
and the audacious claim of the Respondent, likening it to the vivid
analogy of “allowing a robber to claim back his cost and expenses
in a botched robbery attempt”.

Recognising the paramount importance of deterring unlicensed

moneylenders from persisting in illicit financial practices, the
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Federal Court asserted that they should not play a role in

unwinding an illegal agreement from its inception, by restoring
parties to their original position. Consequently, given that the
Respondent was not a licenced moneylender as per Section 5 of
the MA 1951, the loan agreement, which was contrary to Section
24 of the Contracts Act 1950 as explained above, was declared to
be null and void. As such, the Respondent’s claims were also
dismissed in their entirety.

Conclusion

The Federal Court's ruling in the Triple Zest case delivers a clear
and decisive message against unlicensed moneylending activities.
This development undoubtedly provides a great deal of comfort for
borrowers, but it also serves as a cautionary tale to stakeholders
in the business and commercial scene wherein:

1. If an allegation of moneylending is raised, the mere proof

of a single loan at interest will automatically trigger the
presumption of moneylending, which can only be
disproved by the purported lender.

2. If one fails to disprove the aforementioned, the lender

would be deemed as an unlicensed moneylender, and
consequently, be deprived and/or precluded from any
entitlement to repayment whatsoever.

In essence, this also serves as a call for heightened diligence and

legal compliance within the business and commercial domain,
urging stakeholders to be vigilant in financial transactions and
lending practices to avoid falling afoul of these stringent legal
standards.