Does the principal loan sum in a presumed (or actual) illegal moneylending transaction need to be restituted (read: repaid) to the moneylender/loaner?
The issue was addressed by the Federal Court in Triple Zest Trading & Suppliers & 2 Ors v Applied Business Technologies Sdn Bhd [Federal Court Civil Appeal No. 02(f)-16-02/2022(A)] (“Triple Zest“).
Triple Zest was a case which involved allegations of illegal moneylending in relation to an agreement with a principal loan sum of RM800,000.00 and an “agreed profit” of RM800,000.00.
In Triple Zest, the Appellants therein obtained leave to appeal to the Federal Court based on the following 5 questions of law:
(i) Whether a loan agreement which charges an interest at the rate of one hundred (100%) percent within a period of 30 days is legal under the law?
Federal Court’s answer: Negative
(ii) If the answer to question (i) is illegal, whether the Court should still assist the moneylender to recover the principal amount lent?
Federal Court’s answer: Negative
(iii) Whether as long as a person who does not “carries on or advertises or announces himself or holds 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?
Federal Court’s answer: Negative
(iv) Whether the Moneylenders Act 1951 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?
Federal Court’s answer: Negative
(v) Whether a person who is not defined as a moneylender can lend money at any interest rate?
Federal Court’s answer: Negative
In arriving at its decision, the Federal Court made the following remarks on the remedy of restitution:
“The court will not render assistance to those who come before it with unclean hands and the remedy of restitution under section 66 of the Contracts Act will not avail such litigants. The remedy under that section is only available where the contract is discovered to be void or when it becomes void and not where it is void ab initio as is the case with the loan agreement in the present case.” (Emphasis ours)
It appears that the effect of Triple Zest is that the principal loan sum in a presumed (or actual) illegal moneylending transaction need not be restituted to the moneylender/loaner.