“If a rose by any other name would smell as sweet, a corpse flower by any other name would smell as foul”
 

- per Abdul Rahman Sebli CJ (Sabah and Sarawak)
in Triple Zest Trading & Suppliers & 2  Ors v Applied Business Technologies Sdn Bhd

The Federal Court in Triple Zest Trading & Suppliers & 2  Ors v Applied Business Technologies Sdn Bhd [2023] 8 AMR 225 provided guidance as to the approach to be taken in determining whether a person who is ostensibly not a licensed moneylender is carrying on the business of moneylending under the Moneylenders Act 1951 (“MA51”).
 
Brief facts
 
The first appellant borrowed a sum of RM800,000 from the respondent (“the loan”). The loan was to be repaid together with another RM800,000 as “agreed profit”. Upon the signing of the loan agreement, the first appellant deposited the titles to two parcels of land and four undated cheques for RM400,000 each as security for the loan. The second and third appellants also signed personal guarantees to guarantee the repayment of the loan.
 
The High Court’s Decision
 
When the first appellant defaulted in repaying the loan, the respondent commenced proceedings in the High Court against the appellants to recover the loan and the “agreed profit” and to enforce the securities. In their defence, the appellants contended, inter alia, that the entire transaction was an illegal moneylending transaction.
 
After a full trial, the High Court decided in favour of the respondent and ordered the appellants to pay RM1.6 million (comprising the principal amount of the loan and the “agreed profit”) plus interest at 4% from the date of judgment until the date of full settlement.
 
The learned High Court Judge found that the loan was not an illegal moneylending transaction as  there was no evidence that the respondent was a “moneylender” carrying on the business of “moneylending”.
 
The Court of Appeal’s Decision
 
On appeal, the Court of Appeal ordered the appellants to pay RM800,000 being the amount of the loan to the respondent with interest at 4% from the date of the High Court decision until the date of realisation. Unlike the High Court, the Court of Appeal did not order the appellants to pay the “agreed profit” to the respondent.
 
The Court of Appeal agreed with the High Court’s finding that the respondent had rebutted the presumption of moneylending under section 10 OA of the MA51. In addition, the Court of Appeal also made its own finding that the presumption had been rebutted by the respondent.
 
The Federal Court’s Decision
 
The Federal Court allowed the appellants’ appeal and set aside the decision of the Court of Appeal. The major points in the Federal Court's judgment are explained below.
 
In delivering the judgment of the court, Tan Sri Dato’ Abdul Rahman Sebli (Chief Judge (Sabah and Sarawak)) said that the learned trial judge had erred by focussing too much on the meaning of “moneylender” without regard to the meaning of “moneylending” and “interest”. According to His Lordship, the three meanings must be read together and harmoniously.
 
The expressions “moneylender”, “moneylending” and “interest” are defined in section 2 of the MA51: 

According to His Lordship the “agreed profit” of RM800,000 was in fact and as a matter of law “interest” within the meaning of section 2 of the MA51, as it was “in excess of the principal paid or payable to a moneylender.” By whatsoever name called, the amount was nothing but “interest” at the rate of 100% disguised as “agreed profit”. “If a rose by any other name would smell as sweet, a corpse flower by any other name would smell as foul.”
 
The Federal Court further opined that the High Court also fell into serious error when it failed to consider section 10 OA of the MA51 which reads:
 
“Where in any proceedings against any person, it is alleged that such person is a moneylender, the proof of a single loan at interest made by such person shall raise a presumption that such person is carrying on the business of moneylending until the contrary is proved.”
 
According to the Federal Court, section 10 OA is a rebuttable presumption that imposes on the respondent the legal burden of proving, on the balance of probabilities, that it was not carrying on the business of “moneylending” when it lent the RM800,000 to the appellants at a profit of RM800,000. The presumption is that the respondent was carrying on the business of moneylending “until the contrary is proved.” In the context of the present case, if no evidence is led by either side on the question of whether the respondent was carrying on the business of moneylending, the burden of proof would not have been discharged by the respondent.
 
By not addressing his mind to section 10 OA of the MA51, it was not possible for the learned trial judge to come to the right decision on the question of whether the respondent had succeeded in discharging its legal burden of proving that the single or “one off” loan that it gave to the appellants was not moneylending “at interest”.
 
The Federal Court said that the Court of Appeal had erred by purporting to agree with the High Court that the respondent had rebutted the presumption of moneylending under section 10 OA as the High Court did not make such a finding of fact. To the contrary, the High Court found that “not a shred of evidence” had been adduced by the appellants to show that the respondent had held itself out as carrying on or advertising or announcing itself as carrying on the business of moneylending.
 
The Court of Appeal also made its own finding of fact that even if the presumption had arisen under
s. 10 OA, the respondent had rebutted the presumption as it carried on the business of information technology and that the loan agreement was entered into with the respondent. The Court of Appeal also added that there was no evidence or sufficient proof before the trial court that the respondent was engaged in moneylending business.
 
In the opinion of the Federal Court, in finding that there was no evidence that the respondent was engaged in a moneylending business, both the Court of Appeal and the High Court were in fact saying that the appellants led no evidence at the trial to discharge their burden of proving that the respondent was carrying on the business of moneylending. This, according to the Federal Court, is wrong because under section 1O 0A of the MA51, the onus was not on the appellants to prove that the respondent was carrying on the business of moneylending. Rather, the burden was on the respondent to prove to the contrary that it was not carrying on the business of moneylending.
 
As it was alleged in the pleadings that the respondent was a moneylender, it automatically kicked in the presumption that the respondent was carrying on the business of moneylending “until the contrary is proved.” Failure by the respondent to rebut the presumption must lead to the finding that the presumed fact is true.
 
To successfully rebut the presumption under section 10 OA of the MA51, the respondent must prove 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 the MA51.
 
According to the Chief Judge, not only had the respondent failed to adduce any evidence to show that the loan was not lent at interest, but to the contrary, the evidence clearly showed that loan carried an exorbitant interest rate of 100% which the respondent described as “agreed profit”.
 
As the respondent had failed to show proof to the contrary, the presumption in section 10 OA applied and it was deemed to be carrying on the business of moneylending. As the respondent was not a licensed under the MA51 to carry on moneylending business, the loan agreement was unenforceable under section 15 of the MA51 which states that “[n]o moneylending agreement in respect of money lent … by an unlicensed moneylender shall be enforceable.”
 
The Federal Court also held that the loan agreement was void as the “consideration”, i.e. the “agreed profit”, was unlawful under section 24 of the Contracts Act 1950, in particular, paragraph (a) (the consideration is forbidden by law), paragraph (b) (consideration is of a nature that, if permitted, would defeat any law), and paragraph (e) (the court regards it as immoral, or opposed to public policy) thereof. As the court will not assist litigants with “unclean hands”, the remedy of restitution under section 66 of the Contracts Act 1950 will not be available to such litigants. Hence, the decision by the Court of Appeal in allowing the respondent to recover the principal amount of the loan (but not the interest) would set a “disturbing” precedent of legitimising illegal moneylending by allowing illegal moneylenders to recover the principal loan amount in spite of the illegality of the transaction.
 
Commentary
 
Although section 10 OA was introduced into the MA51 vide the Moneylenders (Amendment) Act 2011 that came into operation on 15 April 2011, it is not an entirely new provision. The MA51 had previously included a section 3 which, inter alia, provided that “… any person who lends a sum of money in consideration of a larger sum being repaid shall be presumed until the contrary be proved to be a moneylender.” This provision was deleted from the MA51 pursuant to the Moneylenders (Amendment) Act 2003 that came into operation on 15 April 2003.
 
It can be seen that there is a significant distinction between the repealed section 3 and section 10 OA. The presumption in the repealed section 3 can be applied to both civil and criminal proceedings under MA51. However, section 10 OA applies where in “proceedings against any person, it is alleged that such person is a moneylender.” While it is clear that the presumption in section 10 OA can be relied on in criminal proceedings against a person who is alleged to be a moneylender, it is less clear whether it can be applied in civil proceedings initiated by a lender to recover moneys lent to a borrower.
 
The above does not appear to have been argued before the Federal Court. Be that as it may, our apex court has applied the presumption in section 10 OA to the instant case where civil proceedings were initiated by a lender to recover a loan and “agreed profits” from the borrower and persons who provided security for the loan. It is not difficult to understand why the Federal Court would do so. Section 10 OA would be of limited use if it were to be given a narrow interpretation in that it only applies in criminal proceedings. This would, arguably, defeat the purpose of the MA51 which is “An Act for the regulation and control of the business of moneylending, the protection of borrowers of the monies lent in the course of such business, and matters connected therewith”. [Emphasis added]
 
Thus, as the law now stands, the granting of a single loan in return for a sum greater than the principal amount (howsoever described) may trigger the presumption under section 10 OA of MA51 that the person is carrying on the business of moneylending. In such event, the burden lies on the person granting the loan to prove on the balance of probabilities that it is not carrying on such business. Failure to rebut the presumption would lead to a finding that the presumed fact is true.
 
This decision also provides helpful guidance on the approach to be taken in determining whether a person who is ostensibly not a licensed moneylender is carrying the business of moneylending under the MA51. According to the Federal Court, the three key definitions of “moneylender”, “moneylending” and “interest” in section 2 of the MA51 must be read together in a harmonious manner. In addition, the effect of the presumption in section 10 OA of the MA51 must be considered when it is alleged that the lender of an interest bearing loan is a moneylender.
 
Case commentary by Kok Chee Kheong (Partner) of the Corporate Practice of Skrine.