Tan Boon An v Lee Peng Too (BA-11BNCC-9-10/2019)

What Lee Swee Seng JCA said in the following passage relating to the moneylending transaction disguised as a sale and purchase of property in the case of Mahmood bin Ooyub v. Lee Chee Long [2020] MLJU 1868; [2020] 1 LNS 660 is also true regarding other forms of disguise including various forms of illegal moneylending which do not involve the use of property title: “[1] It is not always easy to discern and distinguish the real from the fake, the genuine from the sham. It is often a world of genuine imitation that we find ourselves to be in. It is no different in the seedy world of illegal moneylending or "along" as is our local parlance for it. Human nature being what it is, we are not far from the days of The Merchant of Venice, where Shylock demanded his pound of flesh! If at all, the subterfuge and chicanery have become more sophisticated.”

While human ingenuity has enabled the illegal moneylenders to contrive many various forms of disguise to camouflage their moneylending transactions, the experience and knowledge gained by other people over a long period of time have led the Courts to discern the forms of disguise in vogue and to expose illegal moneylending transactions in the daylight by declaring them as illegal moneylending transactions in contravention of the law. Although the Court’s exposure of a particular form of disguise in the daylight may not be as prompt as the contrivance of the disguise by ingenious moneylenders, such exposure serves as a much-needed 3 relief to the victims of exorbitant interests charged by the unlicensed moneylenders.

In relation to the use of sale and purchase of properties as a form of disguise, we now have the expository judgments of the Court of Appeal in Mahmood bin Ooyub v. Lee Chee Long (supra) and Global Globe Property (Melawati) Sdn Bhd v. Jangka Prestasi Sdn Bhd [2020] 6 CLJ 1 to guide the courts in such type of cases. Additional guides on anlaysing this type of moneylending under disguise as property transactions can be obtained from the High Court’s decisions by Evrol Mariette Peters JC in Chew Yee Hui v. Tan Siew [2020] 1 LNS 136 and in Pannir Selvam Sinnaiyah & Anor v. Tan Chia Foo & Ors [2019] 1 LNS 2031. As far as I know, there is no similar judgment of an appellate court which provides a wide or encompassing guide for the other forms of moneylending which do not involve a property transaction. Sometimes, the details of the other forms of disguise may vary from transaction to transaction, rendering it even more difficult for the subordinate courts to discern and recognize them in particular cases.

The Respondent in this appeal, who was the Plaintiff in the action before the Magistrate’s Court below, sued the Appellant/Defendant for recovery of RM74,000/= said to be money lent to the defendant as a friendly loan. The Plaintiff also alleged that (1) to convince the Plaintiff to give the said loan, the Defendant gave six (6) undated cheques in the same amount of the loan and promised to compensate the Plaintiff for the loss of interest due to the premature 4 withdrawal of the monies from the Plaintiff’s fixed deposit account in Public Bank; (2) a loan agreement dated 14.04.2018 was signed by the parties whereby the Defendant agreed to repay the loan by instalments. The Defendant argued that (a) the money was channeled through the Defendant for high-interest investment which turned out to be a loss; and (b) further or alternatively, the loans were not friendly loans but were illegal moneylending transactions in contravention of the Moneylenders Act whereby the Plaintiff used the Defendant as intermediary to find customers. For ease of reference, the parties herein are referred to as the Plaintiff and the Defendant in the same manner as in the Magistrate’s Court below.

The Plaintiff was at all material times not a licensed moneylender and was not a person or an entity exempted under the First Schedule of the Moneylenders Act. There was no property sale and purchase involved in the transaction.

At the Magistrate’s Court, the issues before the Magistrate’s Court were confined to (1) whether the Plaintiff entered into a valid friendly loan contract with the Defendant; (2) whether the Defendant breached the friendly loan contract and Agreement; (3) whether the agreement was signed by the Defendant with his free consent; and

whether the transaction of friendly loan including the Agreement was tainted with illegally and was therefore invalid and void: see paragraph [12] of the Magistrate’s Grounds of Judgment. The Magistrate held that it was a friendly loan and was not illegal, and therefore granted judgment in favour of the Plaintiff together with interest and costs. 5

On appeal this Court on 2 July 2020 allowed the Defendant’s appeal with costs and held that the transaction was an illegal moneylending transaction and not a friendly loan.

Dissatisfied with the said decision dated 2 July 2020, the Plaintiff applied to the Court of Appeal for leave to appeal, and on 7 January 2021the Court of Appeal granted leave to appeal. On 15 January 2021 the Plaintiff filed his notice of appeal for the appeal to the Court of Appeal.

Notwithstanding the fact that the amount of the subject-matter on appeal is small, the legal issues involved in this appeal is of much relevance and importance to other cases of similar nature so much so that this Court finds it appropriate to discuss and explain the case authorities and principles in detail.

The Plaintiff having pleaded his cause of action in contract on the basis of a friendly loan, this Court has to deal with the issues in the present case based on the pleaded cause of action. As the core issue in dispute is whether the transaction in question was a friendly loan or a moneylending transaction, this Court will attempt to discuss and analyse the principles and guidelines pertaining to this core issue first.

The relevant sections of the Moneylenders Act 1951 are as follows: Interpretation 6

In this Act, unless the context otherwise requires - “borrower” means a person to whom money is lent by a moneylender; “interest” does not include any sum lawfully charged in accordance with this Act by a moneylender for or on account of stamp duties, fees payable by law and legal costs but, save as aforesaid, includes any amount by whatsoever name called in excess of the principal paid or payable to a moneylender in consideration of or otherwise in respect of a loan; “moneylender” is as follows: “moneylender” means any person who carries on or advertises or announces himself or holds himself out in any way as carrying on the business of moneylending, whether or not he carries on any other business;” “moneylending” means “the lending of money at interest, with or without security, by a moneylender to a borrower.” “moneylender” means any person who carries on or advertises or announces himself or holds himself out in any way as carrying on the business of moneylending, whether or not he carries on any other business;” “moneylending agreement” means an agreement made in writing between a moneylender and a borrower for the repayment, in lump sum or instalments, of money borrowed by the borrower from the moneylender; 7

“Contract by unlicensed moneylender unenforceable No moneylending agreement in respect of money lent after the coming into force of this Act by an unlicensed moneylender shall be enforceable.” (emphasis added) Interest for secured and unsecured loans 17A. (1) For the purposes of this Act, the interest for a secured loan shall not exceed twelve per centum per annum and the interest for an unsecured loan shall not exceed eighteen per centum per annum.

Notwithstanding subsection (1), interest shall not at any time be recoverable by a licensee of an amount in excess of the sum then due as principal unless a Court, having regard to all the circumstances, otherwise decrees.

Where in a moneylending agreement the interest charged for a secured loan or an unsecured loan, as the case may be, is more than that specified in subsection (1), that agreement shall be void and have no effect and shall not be enforceable. Prohibition of assisting unlicensed moneylending 8 29AA. (1) Any person who assists a moneylender in contravention of subsection 5(1) shall be guilty of an offence under this Act and shall be liable to imprisonment for a term not exceeding two years or to a fine not exceeding twenty thousand ringgit or to both.

For the purpose of subsection (1), where the bank account, passbook, automated teller machine card, credit card or charge card of any person, or the post-dated cheque issued by any person, is proved to the satisfaction of the court to have been used to facilitate the carrying on of the business of a moneylender in contravention of subsection 5(1), that person shall be presumed, until the contrary is proved, to have assisted the moneylender in the contravention of subsection 5(1). The First Schedule of the Moneylenders Act 1951 has specifically exempted from the application of the Act loans by local authorities, statutory corporations, co-operative societies, licensed banks and financial institutions, insurance companies, takaful companies, pawnbrokers, development financial institutions, finance companies, inter-company loans between related corporations, company loans to its directors or officers or employees, debt securities, capital market persons, scheduled institutions under the Banking and Financial Institutions Act, credit card or charge card issuing companies, and Labuan-licensed companies.

While the 2011 Amendment Act A1390 has clarified some aspects of the legislation including the non-applicability of the Act to inter-company loans between related corporations, there are still several aspects of the Act which remain rather vague, thereby rendering the 9 tasks of the courts in cases of allegations of unlicensed moneylending rather arduous or at time adventurous MONEYLENDING, FRIENDLY LOAN AND CARRYING ON

In Tan Aik Teck v. Tang Soon Chye [2007] 5 CLJ 441, Mokhtar Sidin HMR stated: “A friendly loan is opposed to the normal borrowing from a moneylender or financial institution. A friendly loan is a loan between two persons based on trust. There may be an agreement such as an I.O.U. or security pledged to repayment but most important there will be no interest imposed. In my view, the defendant had been wrongly advised by his solicitors that in order to qualify for a friendly loan, the loan must be between friends. In my view, a friendly loan is a loan given by the lender to the borrower based on mutual trust whereby the borrower was to repay the loan within the specified time with no interests charged.” This was cited with approval by the Court of Appeal in Song Teik Kim v. Lina Dimbad & Anor [2019] 7 CLJ 223: “He called it a friendly loan because there was no interest provided in the agreement. If that was true, why did he pay interests to the first respondent? All these raised questions in our minds about the so-called friendly loan and what actually transpired on that day.” 10

In section 2 of the Moneylenders Act 1951, “moneylending” is defined to mean “the lending of money at interest, with or without security, by a moneylender to a borrower” and “moneylender” is defined to mean any person who carries on or advertises or announces himself or holds himself out in any way as carrying on the business of moneylending, whether or not he carries on any other business;”. These two definitions in the same statute are rather strange. From human experience and common sense, a person who carries on the business of moneylending will certainly not lend his monies to his customer at no interest whatsoever. Since it is inevitable that a moneylender (i.e. a person who carries on the business of moneylending) charges interests on the loans he provides to his customers, one wonders why there is this definition of “moneylending” as “the lending of money at interest …, by a moneylender to a borrower” instead of “the lending of money at interest …, by a lender to a borrower”. Over the years, the case law has developed to the effect that in the context of the Moneylenders Act, the word “moneylender” therefore has a special statutory as defined in the Act and it does not mean any person who is a lender of a sum of money. A “moneylender” within the meaning of the Act is a person who carries on or advertises or announces himself or holds himself out in any way as carrying on the business of moneylending, whether or not he carries on any other business and the loan(s) he provides to a borrower is an interest-bearing loan. It is to be noted that a person can have several callings or businesses at the same time and that to constitute “moneylending” by a person, the business of moneylending does not have to be the sole or principal calling or business activities of the person, as confirmed by the use of the expression “whether or 11 not he carries on any other business” in the section 2 definition. Section 2 of the Act defines “interest” to include “any amount by whatsoever name called in excess of the principal paid or payable to a moneylender in consideration of or otherwise in respect of a loan”.

In the case of Edgelow v. MacElwee [1917] 1 KB 205 on the construction of English Moneylenders Act of 1900, the Court held: “The Money-lenders Act, 1900, precludes an unregistered moneylender from enforcing any contract made in the course of his money-lending business: see Bonnard v. Dott (1); In re Robinson's Settlement. (2) Sect. 6 of the Act defines a moneylender as follows: "The expression 'moneylender' in this Act shall include every person whose business is that of money-lending, or who advertises or announces himself or holds himself out in any way as carrying on that business." A man does not become a moneylender by reason of occasional loans to relations, friends, or acquaintances, whether interest be charged or not. Charity and kindliness are not the bases of usury. Nor does a man become a money-lender merely because he may upon one or several isolated occasions lend money to a stranger. There must be more than occasional and disconnected loans. There must be a business of moneylending, and the word "business" imports the notion of system, repetition, and continuity: see Newton v. Pyke (3), per Walton J.; Fagot v. Fine (4), per Bankes and Lush JJ.; and Newman v. Oughton (5), per Ridley and Avory JJ. The line of demarcation cannot be defined with closeness 12 or indicated by any specific formula. Each case must depend on its own peculiar features. It is ever a question of degree. But if it appears that the transactions are sufficiently numerous to require the inference that a system and business of money-lending is carried on, then the requirements of the definition in s. 6 of the Act of 1900 are fulfilled and the question arises whether the case falls within the exceptions indicated in that section….. On the one hand a legitimate business must not be checked if the lending of money is reasonably and bona fide incidental to its successful prosecution. On the other hand the law must not permit an apparently legitimate business to be made the mere clock and pretext for the unlawful trade of an unregistered money-lender. Evasion of the Money-lenders Act should be repressed, and judges, I think, should be astute to recognize the possibilities of ingenious subterfuge and subtle device…. A man may follow concurrent callings. If one of such callings be the trade of a money-lender, then the Act must be complied with” [Emphasis added]

The notion of a degree of system, continuity and repetition were applied in Malaysia in connection with our Moneylenders Act 1951. For example, the Federal Court in Ng Mui Khin v. Gillespie Bros [1979] 1 LNS 60 held as follows: “At the outset we wish to observe that the Moneylenders Ordinance, 1951 does not apply to moneylending but only to moneylenders. It does not make every moneylending transaction illegal and unenforceable. It is only a moneylending transaction of a moneylender which is the subject-matter of the Ordinance and must 13 comply with its provisions on pain of being declared illegal and unenforceable by the court. We make this simple and obvious observation because it was canvassed very strongly before us by counsel for the appellants that since the transactions between the respondents and the client are moneylending transactions, the respondents must be a moneylender and the guarantee which the appellants signed is therefore unenforceable. This submission overlooks the fact that the party to a transaction who thereby becomes the creditor may or may not be a moneylender. He is a moneylender if within the meaning of section 2 of the Ordinance he can be said to be a person "whose business is that of moneylending". To prove business requires some sort of continuity or system or repetition of similar transactions. (Chow Yoong Hong v. Choong Fah Rubber Manufactory [1962] AC 209 at 218 [1962] MLJ 74). [Emphasis added] As explained in Edgelow v. MacElwee, “The line of demarcation cannot be defined with closeness or indicated by any specific formula. Each case must depend on its own peculiar features. It is ever a question of degree.”

Illegal moneylenders do not openly profess or declare themselves to be carrying on the business of moneylending. Their strategy and scheme is to be surreptitious and to conceal as much information as they can from the members of the public and from their borrowers regarding the transactions or series of interest-bearing loan transactions with various borrowers. In human experience and in the ordinary course of events in life, it is very unlikely for another person to know what are the loan transactions the lenders have with other 14 borrowers, the names of other borrowers and the details of other transactions with other borrowers. When faced with a suit filed by the plaintiff-lender, it is very difficult for the defendant-borrower to find evidence of the lender’s other loan transactions or the terms thereof in order to prove “some sort of continuity or system or repetition of similar transactions “ so as to constitute proof of carrying on the business of moneylending.

In the face of such acute difficulty to find evidence of other loan transactions with other borrowers to show “some sort of continuity or system or repetition of similar transactions “, defendants-borrowers naturally run to statutory presumption in aid of their defences against the suits by lenders-plaintiffs in cases of claims by unlicensed lenders for recovery of loans and interests. A statutory presumption which the defendants-borrowers often resort to is section 10 OA of the Moneylenders Act which provides as follows: “Presumption as to the business of moneylending 10 OA. 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.”

There has not been consistency in the decisions of the High Court regarding the scope and applicability of section 10 OA of the Moneylenders Act to civil proceedings. For example, the High Court in Tiong Shiun San & Ors v. Lee Kim Jiung [2020] 1 LNS 598 held that section 10 OA presumption also applies to civil proceedings, whereas the High Court in Dato' John Lee Siew Neng v. Anuar Abdul Aziz 15 [2020] 1 LNS 804 held that section 10 OA applies only to criminal proceedings but not to civil proceedings.

In Global Globe Property (Melawati) Sdn Bhd v. Jangka Prestasi Sdn Bhd [2020] 6 CLJ 1 the Court of Appeal in a civil appeal held that section 10 OA statutory presumption also applies to civil proceedings: see paragraphs [135] to [140] of the judgment delivered by Lee Swee Seng JCA and reproduced below: “[135] The definition of "moneylender" is as follows: "moneylender" means any person who carries on or advertises or announces himself or holds himself out in any way as carrying on the business of moneylending, whether or not he carries on any other business; (emphasis added) [136] There was also another amendment effected to the Moneylenders Act 1951 which came into force on 15 April 2011. It introduced s. 10OA which according to the explanatory statement to the bill, it seeks to facilitate the proof of business of moneylending. Section 10OA makes even more difficult for lender who had charged interest on the loan given to say it was a one-off transaction by allowing a legal presumption to be drawn against the lender as follows: Presumption as to the business of moneylending 10OA. 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. (emphasis added) 16 [137] A brief evolution of the amendments brought to the Moneylenders Act 1951 by the 2003 Amendment and the 2011 Amendment can be found in the case of Menta Construction Sdn Bhd v. SPM Property & Management Sdn Bhd & Anor [2017] 1 LNS 675; [2017] MLJU 526 as follows: [98] There were major amendments introduced on 1 November 2003, with respect to the Moneylenders Act 1951. The changes brought about by the Moneylenders (Amendment) Act 2003 (MAA 2003) Act A1193 - PU(B) 332/2003. The watershed amendment was in the definition of "moneylender" which was amended to read: "moneylender" means any person who lends a sum of money to a borrower in consideration of a larger sum being repaid to him. [99] Under such a definition, it would appear that even a single transaction would be caught if the agreed amount to be repaid would be more than the amount lent if one is not a licensed moneylender. Parliament must have realised that the net might have been cast too broadly such that even genuine friends who want to help might be caught even if they were to merely charge the borrower the costs of their funds. [100] There was a further amendment effected in 2011 (vide Moneylenders (Amendment) Act 2011) of which the definition of "moneylender" under the old regime (Moneylenders Act 1951) has been re-introduced and re-adopted again. In Leong Chooi Peng v. Tee Yam [2011] 1 LNS 1709, I had made this comment at the postscript as follows: 17 Perhaps Parliament has cast its net too wide in that in trying to stamp out the bad loan sharks it had also stymied the benign friends who can only be beneficial when in one's hour of need, help comes in a friendly loan where a borrower would not mind covering the cost of fund of the lender. Call it interest, call it a consideration of a larger sum being repaid - it is a harsh reality in a real world where the love of money in as much as the lack of money is a root of all kinds of evil. There seems to be a change of heart in the Moneylenders (Amendment) Act 2011 (Act A 390) which came into force on 15 April 2011 vide P.U.(B) 174/2011. 'Moneylender' has now been redefined to mean any person who carries on or advertises or announces himself or holds himself out in any way as carrying on the business of moneylending, whether or not he carries on any other business. A new section 10OA now 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. Being a rebuttable presumption, those cases that deal with the meaning of 'the business of moneylending' as referred to in Muhibbah Teguh 's case (supra ) might well prove relevant again in the future in resolving a once-off friendly loan transaction with interest. (emphasis added) 18 [138] Therefore, even though this appears to be a once-off or one-off transaction, the burden has now shifted to the lender to show that it is not in the business of moneylending. The guidance provided in the case of Muhibbah Teguh Sdn Bhd v. Yaacob Mat Yim [2005] 4 CLJ 853 would be helpful where Vincent Ng J (as he then was) held, at p. 857: It is axiomatic that one or two moneylending transactions (even in consideration of a larger sum) does not make the lender a moneylender within the purview of the definition of 'moneylender' in s. 2 of the Act. It is also axiomatic that the Act is intended to apply to moneylenders exclusively and not to moneylending transaction or transactions per se. This statement of law was again affirmed by Federal Court in Yeep Mooi v. Chu Chin Chua & Ors [1960] 1 LNS 169; [1981] 1 MLJ 14 which I shall discuss later in this judgment. (See also Cheong Kim Hock [1992] 2 SLR 349, Lek Peng Lung [1992] 2 SLR 150 and Subramaniam Dhanapakiam [1991] 1 LNS 101; [1991] 2 MLJ 447.) [139] We had held that the interest element is in the RM400,000 reflected on the first SPA which we had held was never cancelled, the question is whether a single transaction shown can make the plaintiff a moneylender. It is not in dispute that the plaintiff does not have a moneylending license. In the light of the presumption in s. 10OA of the Moneylenders Act 1951, a presumption is drawn that it is a moneylending transaction. [140] The plaintiff had not adduced any evidence to rebut the presumption and the stand taken by the plaintiff was that it was a 19 sale and purchase of property transaction. Having made that election, the plaintiff cannot resile from it and indeed did not lead evidence to rebut the presumption.” The Court of Appeal in Mahmood bin Ooyub v. Lee Chee Long [2020] 1 LNS 660 also held to the same effect that an isolated loan transaction with interest would raise the statutory presumption. In the factual context of these cases decided by the Court of Appeal, the interests charged was high rates of interests.

Parol evidence rule does not preclude the Court from examining and analysing whether or not an act or document is a sham. This principle has been clearly stated in the textbook Sarkar on Evidence and consistently applied by the Indian courts. In GLOBAL GLOBE PROPERTY (MELAWATI) SDN BHD v. JANGKA PRESTASI SDN BHD [2020] 6 CLJ 1 further clarified on this principle in the following paragraphs of the judgment: [101] In the House of Lords case of AG Securities v. Vaughan & Ors [1990] 1 AC 417, Bingham LJ explained a "sham agreement" as follows: A written agreement is a sham where it incorporates clauses by which neither party intends to be bound and which is obviously a smoke screen to cover the real intentions of both contracting parties: Hadjiloucas v. Crean [1987] 3 All ER 1008, 1014, per Purchas LJ. The accepted definition of a sham is that given by Diplock LJ in Snook v. London and West Riding Investments Ltd [1967] 2 QB 786, 802: 20 As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a 'sham', it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v. Maclure (1882) 21 Ch D 309, CA and Stoneleigh Finance Ltd v. Phillips [1965] 2 QB 537), that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. [102] Put simply, a sham exists where the parties say one thing intending another (see Donald v. Baldwyn [1953] NZLR 313, at p. 321, per FB Adams J). [103] In a world of genuine imitation, it is often not easy to discern a sham from what it really is in substance for those bent on perfecting the art of deception would try their level best to leave behind no trace. [104] We therefore, with the greatest of respect to the learned trial judge, cannot accept his lament that if it really was a 21 moneylending transaction then ironically there were no documents on the loan agreement and nothing showing the amount of the loan and the repayment and interest (see para. [33] of the grounds of judgment of the High Court). [105] Precisely because a sham agreement can very easily be abused with the controlling party slipping into its dark side, the Court of Appeal in Hitch And Others v. Stone (Inspector of Taxes) (2001) STC 214 referred to the Snook v. London And West Riding Investments Ltd [1967] 2 QB 786 and laid down the applicable test to sniff and smoke out a sham document as follows: [64] An inquiry as to whether an act or document is a sham requires careful analysis of the facts and the following points emerge from the authorities. [65] First, in the case of a document, the court is not restricted to examining the four comers of the document. It may examine external evidence. This will include the parties' explanations and circumstantial evidence such as evidence of the subsequent conduct of the parties. [66] Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties. [67] Third, the fact that the act or document is uncommercial, or even artificial, does not mean that it is a sham. A distinction is to be drawn between the situation where parties make an 22 agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship. [68] Fourth, the fact that parties subsequently depart from an agreement does not necessarily mean that they never intended the agreement to be effective and binding. The proper conclusion to draw may be that they agreed to vary their agreement and that they have become bound by the agreement as varied (see for example Garnac Grain Co Inc v. HMF Faure & Fairclough Ltd [1966] 1 QB 650 at 683-684 per Diplock LJ, which was cited by Mr Price). [69] Fifth, the intention must be a common intention (see Snook ).... (emphasis added) [106] The above test was followed by our Court of Appeal in Dr Mansur Hussain & Ors v. Barisan Tenaga Perancang (M) Sdn Bhd & Ors [2019] 1 LNS 661; [2019] MLJU 1552 where Abang Iskandar JCA (now CJSS) observed as follows: [46] It had been observed that the policy considerations that underpin the concept of sham are the protection of the rule of law, to prevent abuse of fundamental legal principles and the prevention of evasion of statutes, among others. It was also commented that the Snook case (supra ) had narrowed down the test for sham. See the relatively recent case of Autoclenz Ltd v. Belcher [2011] UKSC 41, a landmark case in the UK on labour law and contract law; and the 23 related article by Toby Graham, appearing in Trusts and Trustees, volume 22, Issue 8, October 2016. Indeed, on the authority of the case of Sri Kelangkota-Rakan Engineering JV Sdn Bhd v. Arab Malaysian Prima Realty Sdn Bhd [2001] 1 CLJ 779; [2001] 1 MLJ 324, the courts are entitled to go behind the impugned agreement or transaction to ascertain the true nature of such agreement or transaction. In the case of Lori Malaysia Bhd v. Arab Malayasian Finance Bhd [1999] 2 CLJ 997, it was there observed by our apex court that in other Common Law countries, courts were slow to declare commercial contracts as void on ground of illegality, but having said that if the circumstances so warrant, the courts would not shy away, from doing what would be in accord with what the law expects to be done, as a keeper of the public conscience. The fact that the apex court had done that could be seen in the recent case of Merong Mahawangsa Sdn Bhd & Anor v. Dato' Shazryl Eskay bin Abdullah [2015] 8 CLJ 212; [2015] 5 MLJ 619 FC, among others. (emphasis added)” The Court of Appeal in Mahmood bin Ooyub v. Lee Chee Long [2020] 1 LNS 660 also held to the same effect regarding sham or illegal transactions. If the law were otherwise, the Courts will not be able to find any illegal moneylending transaction any of the court cases, as all that the illegal moneylenders have to do is to disguise the moneylending transactions by some written documents or agreements which ex facie will not show any illegality. Not only that, all other illegal transactions which are not of the nature of 24 moneylending would also be similarly disguised as written agreements or documents which ex facie will not show any illegality.

From the above, it can be concluded that the High Court’s decisions on this point in the cases of Tarique Azam v. Hamdan Mohamad [2018] 1 LNS 1068, Mohd Nazasli Abdul Aziz v. Elite Jets Sdn Bhd [2020] 1 LNS 893 and Dato' John Lee Siew Neng v. Anuar Abdul Aziz [2020] 1 LNS 804 have been overruled by the Court of Appeal in the abovementioned two cases.

In this regard, it is to be noted that the controversy arising from the ambiguity in the relevant statutory provisions in section 2 definitions of moneylender and moneylending agreement and section 10 OA presumption on an isolated transaction of interest-bearing loan is unlikely to subside when with the Court of Appeal’s decisions in Mahmood bin Ooyub and Global Globe Property (Melawati) Sdn Bhd cases. The other decisions which put forward an apparently forceful arguments to the contrary include Vincent Ng J’s decision in Muhibbah Teguh Sdn Bhd v. Yaacob Mat Yim [2005] 4 CLJ, Azizul Azmi Adnan J’s judgment in Dato’ John Lee Siew Neng v. Anuar Abdul Aziz [2020] 1 LNS 804 which have cited the previous courts’ judgments decided at various points of time including the pre-amendment period.

In Menta Construction Sdn Bhd v. SPM Property & Management Sdn Bhd & Anor [2017] 1 LNS 675; [2017] MLJU 526, the High Court held that the statutory presumption was rebutted in the circumstances of that case involving a loan with 8.8% per annum interest by a developer to his contractor in an ongoing construction 25 project. The relevant passages of the judgment in Menta Construction case are reproduced below: “[102] Here there is no evidence of regularity, continuity or system where the Plaintiff has also either before or after this particular Loan Agreement, also lent to others. Neither has the Plaintiff made further loans to the 1st Defendant other than this particular transaction covered under the Loan Agreement. The loan is in relation to an existing construction project where the Plaintiff is a contractor and the 1st Defendant the employer. It is incidental in that sense to a continuing business relationship where the Plaintiff was helping the 1st Defendant with the latter's temporary cashflow problem. The intention of the parties then was that the loan was to be repaid in 6 months. [103] I would hold that the Plaintiff has rebutted the presumption of being involved in the business of moneylending.” The ratio decidendi on this issue that can be gleaned from Menta Construction case is that where the interest-bearing loan is incidental to a continuing business relationship between the parties for the primary purpose of facilitating or assisting a party’s performance of his obligations under the ongoing business relationship, the loan is not a moneylending in contravention of the statute even if it is interest-bearing.

At all material times the Plaintiff was not a licensed moneylender and was not a person or an entity exempted under the First 26 Schedule of the Moneylenders Act.

The Plaintiff alleged that he lent a sum of money to the Defendant. In the Magistrate’s Court, the Plaintiff sued the Defendant for recovery of RM74,000 which he alleged was a friendly loan provided to the Defendant. There was no property sale and purchase involved in the loan transaction.

In his oral evidence, the Plaintiff (aged 62) said that he was a neighbour of the Defendant and that he paid a total cumulative amount of RM95,000 to the Defendant periodically from 17.01.2017 to 22.01.2017 in 6 payments by cash : see Q & A5 of his Witness Statement.

According to the Plaintiff’s evidence in his Witness Statement, the 6 periodic payments were made by the Plaintiff to the Defendant:

17.01.2017 : RM19,000 after deducting RM1,000 “being the agreed compensation to me due to premature withdrawal of my money in the fixed deposit account (Q & A7) after withdrawing RM60,000 from his joint account with his wife (Exhibit P1: fixed deposit certificate);

23.01.2017 : RM9,500 after deducting the “agreed compensation sum of RM500 into the account of the Defendant’s wife : see Q & A8 to to Q & A10; cash deposit slip with 27 Public Bank marked as Exhibit “P2” and WhatsApp message with photograph of cash marked as Exhibit “P3”.

03.02.2017 : RM28,500 after deducting RM1,500 as “the agreed compensation due to premature withdrawal in the fixed deposit account”: Q & A12 to 13; cash deposit slip at Public Bank : Exhibit P4A; split into RM10,000 into the account of the Defendant’s wife and the balance to the Defendant: Q & A14.

(4)

10.02.2017 : RM23,750 after deducting RM1,250 for “agreed compensation due to premature withdrawal from fixed deposit account” : Q &A15; fixed deposit statement in Exhibit

(5)

21.02.2017 : RM4,250 after deducting “the agreed compensation of RM750.00”, and it was paid into the Defendant’s wife’s account upon the Defendant’s request : Q& A16 – 18; cash deposit slip in Exhibit P7 and WhatsApp conversations in Exhibit P3”.

(6)

22.02.2017 : RM4,800 after deducting “agreed compensation” of RM200, was paid to the Defendant via his relative Lai Oi Mooi’s 28 account : Q & A19 and 20, Exhibit P8A and

According to the Plaintiff, the loans were repayable within 3 months after the date of remittance of the money: Q & A23.

The Plaintiff also produced copies of 6 undated cheques given by the Defendant to secure the repayment of the loan: Exhibits P9A and P9B. The total cumulative amount of these 6 undated cheques is RM95,000.

The Plaintiff in his evidence asserts in Q & A 21 that the reason the Defendant agreed to pay compensation was “I informed the Defendant that my money was deposited in the fixed deposit account for retirement purpose and that I did not intend to use it. In order to convince me to lend the money to him, the Defendant offered to pay the compensation at a rate of 5% of the loan amount which was higher than the interest rate of fixed deposit account”. However, this so-called “compensation” is interest within the meaning of the Moneylenders Act, as section 2 of the Act defines “interest” to include “any amount by whatsoever name called in excess of the principal paid or payable to a moneylender in consideration of or otherwise in respect of a loan”.

In the Defendant’s evidence, he (aged 55) testified that he was an electrical chargeman and he knew the Plaintiff as a neighbour for about 20 years: Q & A1 of Tan Boon An’s Witness Statement. 29

The Defendant stated that he did not borrow money from the Plaintiff, and that as the Plaintiff wanted to do the business as loan shark (“ah long”) the Plaintiff sent him a video of “ah long” matter (DBOA, page 12) and asked the Defendant to find customers and follow the method shown in the video: Q&A3.

The Defendant testified that he did not receive any of the following monies shown in the Plaintiff’s Bundle of Documents :

page 2 : RM9,100.11 comprising of RM1,500 + 1,000 + 4,800 + 1,000 + 300.11 + 500 [see Q & A5];

page 3 : RM245,003.26 comprising of 1,236.92 + 60,000 + 1,236.94 + 27.78 + 60,000.00 + 122,501.64 [see Q & A6];

page 4 : RM13,750.00 comprising of 9,500 + 4,250 [see Q & A7];

page 5 : RM43,750.00 comprising of 30,000 + 4,250 + 9,500.00 [see Q & A8];

page 6 : RM9,500.00 [Q & A9];

page 7 : RM12,000.00 comprising 2,000 + 10,000 [Q & A10];

page 8 : RM4,250 [Q & A11]; 30

page 9 :

RM110,875.88 comprising of 47.23 + 30,000 + 71 + 25,000 + 55,437.94 [Q & A12]

In asserting that the Plaintiff was operating as “ah long”, the Defendant referred to the following pages and amounts of repayments by other persons to the Plaintiff and also the 5% per month interest payments:

RM1,000.00 on 17.2.2017 (page 14 of Defendant’s Bundles of Documents, “DD”;

(ii) RM2,600.00 on 3.3.2017 (page 17 of DD);

(iii) RM2,000.00 on 23.3.2017 (page 19 of DD);

(iv) RM1,500.00 on 6.4.2017 (page 19 of DD);

RM1,100.00 on 19.5.2017 (page 23 of DD);

(vi) RM1,000.00 on 3.6.2017 (page 24 of DD) and

(vii) RM2,000.00 on 25.6.2017. See Q & A16 at page 152 of Appeal Record in Enclosure 4.

The Defendant also asserted that undated cheques totalling RM95,000 were issued to the Plaintiff because the customers who borrowed monies were introduced by the Defendant and the Plaintiff wanted to hold the undated cheques to be used for collecting repayments from customers introduced by the Defendant : Q & A28, 17 + 019. The Defendant said the undated cheques were given without consideration: Q & A30.

Notwithstanding the Defendant’s service of Notice To Produce copies of the Plaintiff’s bank account statements which received the 31 relevant repayments and reminder thereof with warning of Evidence Act section 114(g) adverse inference, the Plaintiff did not produce the requested documents : see Q & A19 - 23 and letters referred to therein.

The Defendant also produced as evidence and marked as Exhibit P3 the WhatsApp communications between the Defendant and the Plaintiff (parts of which both parties as well as the Magistrate made references) and also testified as to his detailed explanations of the WhatsApp messages. The contents of the WhatsApp conversations between them are reproduced below:

page 13 of Bundle (Appeal Record in Enclosure 5, page 37) of e-filed copy in CRT system) WhatsApp from Plaintiff to Defendant : “ 3 Feb 2017 WhatsApp from Plaintiff to Defendant : For info total loans;

17/01/2017 - RM20,000 (5%) (Hold cheque – Tan Boon An)

23/01/2017 - RM10,000 (5%) (No cheque hold)

03/02/2017 - RM30,000 (4%) for 1 month (Hold cheque RM20,000 and no cheque RM10,000) Total loans - RM60,000 14:58 32 Please confirm above, tq. 14:59

WhatsApp from Defendant to Plaintiff : OKTQ 15:31 WhatsApp from Plaintiff to Defendant : Please bank in monthly interest for 1 n 2 into my mbb ac as given on 17/1/17 whatsapp 15:52 WhatsApp from Plaintiff to Defendant : OK 16:04 17 Feb 2017 WhatsApp from Plaintiff to Defendant : Mr Tan interest for RM20k due 11:00 Received rm1k TQ 19:35 21 Feb 2017 WhatsApp from Defendant to Plaintiff : Tan Joo Lang 12:21 4316847303 Public Bank WhatsApp from Plaintiff to Defendant : Bank in RM4250 please give cheque tq 13:30 Mr Tan please write 2 cheques – 1 21:00 for rm10k (23/10/17) and 1 cheque for RM5k this afternoon bank in amount. another rm10k no cheque + rm20k (CIMB cheque – Kwong Lay Heong Trading is for 1 mth loan due on 3//317 TQ 33 22 Feb 2017 WhatsApp from Defendant to Plaintiff : LAI OI MOOI 14:15

1629.0016.2721 Maybank WhatsApp from Plaintiff to Defendant: K will bank in about 4pm rm4800 14:23 Transferred rm4800 to Lai Oi Mooi 15:49 Please issue your cheque to me. …………. TQ WhatsApp from Defendant to Plaintiff : OKTQ 16:26 23 Feb 2017 WhatsApp from Plaintiff to Defendant : Mr Tan today I go Melaka come back about 6pm 8:26 3 Mar 2017 WhatsApp from Plaintiff to Defendant : rm2600 received with thanks. Hope today 8:26 RM30k can clear 9 Mar 2017 WhatsApp from Plaintiff to Defendant : 10/3/17 rm25k interest due 14:55 34 13 Mar 2017 WhatsApp from Plaintiff to Defendant : Balance rm250 when can collect 20:08 17 Mar 2017 WhatsApp from Plaintiff to Defendant : Rm20k interest due today tq 10:06 Loans status: 11:17

17/1 - rm20k

23/1 – rm10

3/2. – rm30k*

10/2 – rm25k

21/2 - rm5k

22/2. – rm5k Total - RM95k Rm30k* - to be returned on 3/4/17 Interests pymt schedule: 11:28

17th of the mth (rm20K) - rm1k

23rd of the mth (rm20k) - rm1k a. 21/2 - rm5k b. 22/2 – rm5k c. 23/1 - rm10k

10th of the mth (rm25k) – rm1250 Please confirm tq above interests rm2k can bank in today 11:32 23 Mar 2017 WhatsApp from Plaintiff to Defendant : 35 Rm2k received kam sia 19:24 WhatsApp from Defendant to Plaintiff : OK 19:30 3 Apr 2017 WhatsApp from Plaintiff to Defendant : Please arrange return rm30k tomorrow. 10:26 I need it as inform last month tq 5 Apr 2017 WhatsApp from Plaintiff to Defendant : Tak masuk pun 17:49 6 Apr 2017 WhatsApp from Defendant to Plaintiff : Bank in 1500 17:07 9 Apr 2017 WhatsApp from Plaintiff to Defendant : Rm25k interest due tomorrow – 10/04/2017. 19:26 Please advise once credited tq 16 Apr 2017 WhatsApp from Plaintiff to Defendant : Reminder-rm20k interest due tomorrow 17/4 19:24 And rm10k return 18/4 (1/2 mth) less rm250 TQ 24 Apr 2017 WhatsApp from Plaintiff to Defendant : 36 No. 2 - rm20k interest due on 25th (tomorrow) 16:27 as agreed. Tq 2 May 2017 WhatsApp from Plaintiff to Defendant : Rm30k interest due tomorrow (3th May) thanks 15:07 9 May 2017 WhatsApp from Plaintiff to Defendant : 10/5/17 rm25k interest due 15:11 12 May 2017 WhatsApp from Plaintiff to Defendant : Weekly interest for 5/5/17 & 12/5/17 overdue 15:56 n capital suppose to return after 1st week (5/5/17). When can return capital 17 May 2017 WhatsApp from Plaintiff to Defendant : Interest for no. 1 due. For info check just now 21:19 not bank in yet 19 May 2017 WhatsApp from Plaintiff to Defendant : Interest rm1k received + rm100 for rm2k wkly loan 12:03 5/5/17. Balance 12/5 & 19/5 interests. Can return rm2k this weekend 37 23 May 2017 WhatsApp from Plaintiff to Defendant : Interest for no. 2 due agreed to pay on 25th 12:18 3 Jun 2017 WhatsApp from Plaintiff to Defendant : Interest for No.2 abv rm1k received. 14:18 Rm30k interest due 2day. Capital rm30k to be 14:21 Returned end of month Rm2k weekly loan interests not paid for 12th 19th 14:25 26th & 2nd Jun Hopefully can return capital as promised TQ 10 Jun 2017 WhatsApp from Plaintiff to Defendant : No.3 rm25k interest due 12:10 17 Jun 2017 WhatsApp from Plaintiff to Defendant : No. 1 rm20k interest due 9:34 To-date interest due; 11:16

3/06 – Rm30k (1.5k)

10/06 – rm25k (1.25k)

17/06 – rm20k (1.0k) Ttl due – rm3.75k Rm2k wkly loan interest due – 12/05, 19/05, 26/05, 2/06, 9/06 & 16/06 = rm600 11:19 38 25 Jun 2017 WhatsApp from Plaintiff to Defendant : Interest 12/05, 19/05, 26/05, 2/06, 9/06, 16/06 20:34 & 23/06=rm700 No. 2 interest rm1k due 20:35 Capital rm2k received/returned tq 20:37 28 Jun 2017 WhatsApp from Plaintiff to Defendant : June interest not r’ced: 12:19

3/06 – Rm30k (1.5k)

10/06 – rm25k (1.25k)

17/06 – rm20k (1.0k)

23/06 – rm20k (1.0k) Ttl due – rm4.75k +rm700 G/ttl=rm5.45k 12:22 4 Jul 2017 WhatsApp from Plaintiff to Defendant : Mr Tan please give me a date to settle the rm30k. 20:38 I need this money badly. Mr Tan can we talk tomorrow morning? 22:08 5 Jul 2017 WhatsApp from Plaintiff to Defendant : Rm30k Jul interest due. As promised to be 19:25 returned by 10/06/17 As promised to be returned by 10/07/17 19:26 39 10 Jul 2017 WhatsApp from Plaintiff to Defendant : Jul interests: 12:43

3/07(rm30k) – rm1.5k

10/07(rm25k) – rm1.25k 14 Jul 2017 WhatsApp from Plaintiff to Defendant : Who is willing to adopt a dog? It’s free! There are rottweilers, golden …… ʼʼ

In the present case, the Plaintiff in his evidence did not give a detailed or cogent explanation of the contents in the WhatsApp conversation between him and the Defendant.

On the other hand, the Defendant in his evidence has given his detailed explanation of each item of the WhatsApp conversations as follows : Q & A in Defendant’s Witness Statement and page # thereof Page # of L4 Defendant’s explanation Q & A29 & 30 page 13-14 3.2.2017 14:58 and 14:59 messages 117 – 118 Plaintiff’s message to Defendant on summary of investments made between them including dates of loans, amounts of locus interests charged, total amount of loan. At Plaintiff’s request, Defendant confirmed the investment summary 40 was correct. 2 items with no cheques. Cheques for record only but no loan; cheques without consideration. Q & A31 at page 13 3.2.2017 15:52 message 118 Plaintiff instructed Defendant to collect monthly interests from borrowers or for borrowers to pay into Plaintiff’s MBB account. These interests were to be collected from customers introduced by the Defendant. Q & A32 page 14 11:00 message 118 Plaintiff’s instruction to Defendant to collect late interest from borrower for the loan of RM20,000. Q & A33 -35 page 14 19:35 message 119 Plaintiff confirmed there was payment or RM1,000 from third party borrower directly into the Plaintiff’s bank account. The detailed explanation of the Defendant continued until Q & A76 for each and every item of WhatsApp messages.

On the first issue, the Magistrate found that:

the Defendant failed to prove that he was an intermediary for the loans or that there was any third person who received the loans;

section 114(g) adverse inference could not be drawn against the Plaintiff because the Defendant did not prove the involvement of third persons, 41

the 6 undated cheques were to serve as security for the Defendant’s repayment of the loans and the defendant’s defence that the cheques were to be used to demand payment from third parties does not hold water;

the Plaintiff has discharged the burden of proving that the loans were friendly loans pursuant to a friendly loan contract: see paragraphs [17] to [32] of Grounds of Judgment.

On the second issue, the magistrate found that (a) the agreed compensation of 5% was retained every time the loan was disbursed and the total compensation of RM11,000 was treated as part of the payment towards the principal sum as the Defendant was finding at difficult to repay; (b) the total repayment of RM20,000 was made by the Defendant and not by any third party; (c) the loan agreement dated 10.04.2018 confirmed the breach of friend loan contract : paragraphs [33] to [47] of Grounds of Judgment.

On the third issue, the Magistrate found that the loan agreement dated 10.4.2018 was signed with the Defendant’s free consent and the Defendant has failed to prove his defence of misrepresentation, fraud or non est factum : paragraphs [48] to [54] of Grounds of Judgment.

On the fourth issue, the Magistrate referred to the presumption under section 10 OA of the Moneylenders Act 1951 and the case of Tarique Azan v. Hamdan Mohamad [2018] 1 LNS 1068 and concluded that the Plaintiff has rebutted the statutory presumption : see paragraphs [55] to [57] of the Grounds of Judgment. The reasons and factors taken into account, by the Magistrate in such 42 conclusion are stated in paragraphs [58] to [61] of the Grounds of Judgment, and these reasons and factors are as summarized below:

the Plaintiff and the Defendant were neighbours and had known each other for about 20 years: paragraph [58];

the Plaintiff had to withdraw the monies from the Fixed Deposits and savings accounts : paragraph [58];

the compensation at 5% of the loan money cannot be considered as interest – bearing moneylending transaction, as it was the agreed compensation due to premature withdrawal of the monies from the Plaintiff’s fixed deposit: paragraph [59]; and

the Defendant agreed in cross-examination that the Plaintiff did not hold himself out as a moneylender or represent that he was into moneylending business : paragraph [60], citing the case of Sundaran Subramaniam v Alanrio Properties Sdn Bhd & Ors [2016] 10 CLJ 645. PRESUMPTION UNDER SECTION 10 OA OF MONEYLENDERS ACT 1951

Following the decision of the Court of Appeal in Mahmood bin Ooyub (supra) and Global Globe Property (Melawati) (supra), the Magistrate was correct in holding that as the Plaintiff’s loans to the Defendant were with interests within the meaning of the 43 Moneylenders Act, the statutory presumption under section 10 OA applies. The effect is that there is presumption that the Plaintiff was carrying on the business of moneylending. It is a rebuttable presumption, and it shift the ones of proof to the Plaintiff to prove that he is not carrying on the business of moneylending.

In paragraph 23 above this Court has noted that it is unlikely that the controversy arising from the ambiguity in the relevant provisions regarding section 10 OA presumption would subside with the Court of Appeal’s aforesaid two decisions. Even if section 10 OA presumption under the Moneylenders Act were assumed to be not applicable to civil proceedings, the Court in the particular circumstances of our present case would still make the factual presumption that the Plaintiff was carrying on the business of moneylending.

Section 114 of the Evidence Act 1950 provide inter alia as follows:

“Court may presume existence of certain fact The court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular case. ILLUSTRATIONS The court may presume— ….

that a bill of exchange accepted or endorsed was accepted or endorsed for good consideration; 44 ….

that evidence which could be and is not produced would if produced be unfavourable to the person who withholds it; ….” But the court shall also have regard to such facts as the following, in considering whether the maxims do or do not apply to the particular case before it:

(iv) as to illustration (c)—A, the drawer of a bill of exchange, was a man of business. B, the acceptor, was a young and ignorant person completely under A’s influence; …..

(viii) as to illustration (g)—a man refuses to produce a document which would bear on a contract of small importance on which he is sued, but which might also injure the feeling and reputation of his family;…”

The illustrations are examples of factual presumptions which the Court may make, but the illustrations are not exhaustive examples of situations where factual presumptions may be made.

In our present case the evidence adduced, in particular the WhatsApp conversations, shows that the Plaintiff charged an upfront interest of 5% upon the disbursement of each loan and thereafter charged interests periodically at the rate of 5% per month : see sub-paragraphs 28(1) to 28(b) above, and the word “interest” appeared many times in the WhatsApp conversations. The rates of interests charged were exorbitantly high, being 5% per month (equivalent to 60% per annum) over and above the initial upfront 45 deduction of 5%. Contrary to the Plaintiff’s allegation that there was only one-off 5% purported compensation fo premature withdrawal of fixed deposits, the monthly interests were charged and collected repeatedly every month after the initial upfront deduction of 5% upon the loan drawdowns. In addition, there were also weekly interests charged for some tranches of loans. Moreover, the names of some third parties were also expressly mentioned in the Wahtsapp messages on the loan transactions, including Lai Oi Mooi, Tan Joo Lang and Kwong Lay Heong Trading. These exorbitantly high interest rates were many times higher than commercial bank’s interest rates on loans and more than three times the maximum rate of 1.5% per month (or 18% per annum) which a licensed moneylender can charge for an unsecured loan: see section 17A(1) of the Moneylenders Act. In the premises, even if the presumption under section 10 OA of the Moneylenders Act were assumed to be inapplicable to a civil proceeding, the particular facts and circumstances of the present case warrant a presumption pursuant to section 114 of the Evidence Act 1950 that the Plaintiff in giving the loans and in his dealings with the Defendant was carrying on a business of moneylender and was not giving a friendly loan to the Defendant.

Whether or not a presumption made pursuant to a statute has been rebutted in a particular case depends on the facts and circumstances. 46

In assessing whether the impugned transaction is a friendly loan or a moneylending transaction, the Court has to consider and scrutinize all the relevant factors and circumstances of the case, guided by the five points stated in paragraphs [64] to [69] of the Court of Appeal’s judgment in Global Globe Property (Melawati) supra and the guidelines and examples in the previous decided cases and come to a conclusion as to whether the Plaintiff’s version of friendly loan or the Defendant’s version of moneylending is more probable or more likely, having regard to the course of natural events, human conduct and public and private business in their relation to the type of transaction in the particular case. This assessment and scrutiny cannot be done by taking one or two factors in isolation but has to be done by considering all the relevant factors and circumstances before coming to an eventual conclusion as to which version is more probable, though a factor or circumstance may have more weight than the others in the factual matrix of the case.

In Tan Aik Teck v. Tang Soon Chye [2007] 5 CLJ 441, Mokhtar Sidin HMR described “a friendly loan” in the following words: “A friendly loan is opposed to the normal borrowing from a moneylender or financial institution. A friendly loan is a loan between two persons based on trust. There may be an agreement such as an I.O.U. or security pledged to repayment but most important there will be no interest imposed. In my view, the defendant had been wrongly advised by his solicitors that in order to qualify for a friendly loan, the loan must be between friends. In my view, a friendly loan is a loan given by the lender to 47 the borrower based on mutual trust whereby the borrower was to repay the loan within the specified time with no interests charged.” It is to be noted that the Court of Appeal was giving a brief description of “friendly loan” pure and simple which does not carry interest whatsoever in the factual context of that case. However, this dictum cannot be interpreted to mean that every loan which carries an interest would automatically constitutes a moneylending in contravention of the Moneylenders Act.

Where the statutory presumption under section 10 OA of the Moneylenders Act applies or where the factual presumption under section 114 of the Evidence Act arises, a loan with interest is presumed to be moneylending unless it is proved to the contrary. If the statutory presumption under section 10 OA of the Moneylenders Act does not apply and the factual presumption under section 114 of the Evidence Act cannot be made, then the Court has to consider and scrutinize all the relevant factors and circumstances in order to decide whether or not an interest-bearing loan in a particular case constituted moneylending in contravention of the Act. Sometimes, a lender would disguise the interests by other forms, such as upfront deduction from the principal amount of loan drawdown, undated cheques or documented acknowledgment of receipts for total amounts larger than the actual amount of disbursed loan, taking security at grossly-discounted value, etc.

From the decided cases, there are three types of loans provided by persons other than the licensed financial institutions and licensed moneylenders : 48

(A) friendly loans pure and simple, without any interest charged, (“friendly loans pure and simple”);

(B) friendly loans with interest provided by persons who do not carry on the business of moneylending (“permissible interest-bearing friendly loans”); and

(C) moneylending with interests by persons who carry on the business of moneylending.

Illegal moneylenders in category (C) are usually ingenious in disguising the interests under various forms of camouflage. From the insights gained from decided cases and according to human experience and habits of people, such camouflage can take many forms including (but not limited to):

upfront deduction of interest (“i”) from the loan principal amount (“P”) and then give the reduced principal (“P - i”) to the borrower, while describing or stating the total loan amount as P;

describing an upfront deduction amount as compensation for loss of use of money or loss of interest which would otherwise be purportedly earned if deposited with a financial institution or if utilised in the lender’s ordinary course of life or business;

disbursing the full principal amount of the loan but taking in security in the form of property at grossly-discounted value; 49

disbursing the full principal amount of the loan but taking in security in the form of undated cheques for full principal amount plus the deferred interest amount,

disbursing the full principal amount of the loan but taking in security in the form written agreement or acknowledgment of debt or receipt stating the total amount of loan as the full principal amount plus the interest amount;

disbursing the full principal amount of the loan and stating in written the agreed extra-over amount as agreed compensation;

describing the loan as a friendly loan. The motive or purpose of the camouflage is to disguise type (C) loan (which is illegal moneylending) to make it appear like either type (B) loan or type (A) friendly loan which do not contravene the Moneylenders Act. At times, the forms of camouflage in a particular transaction may be a combination or hybrid of two or more forms of camouflage. The abovementioned forms of camouflage are non-exhaustive examples, as it is virtually impossible to predict the full ambit of the human ingenuity in disguising a transaction.

While there can be other subsidiary factors and circumstances to be considered, the main factor and circumstances which distinguish an illegal moneylending transaction [i.e. type (C) loan] from the other two types of loans [i.e. type (A) friendly loan pure and simple or type 50

(B) permissible interest-bearing loan] are the dominant or primary motivation behind the provision of the loan. For type (C) loan, the illegal moneylender’s dominant or primary motivation in the loan transaction is excessively high rate of interest and the collections of the periodic interests. For type (A) loan, the dominant or primary motive of the lender of a friendly loan pure and simple is to help a friend in need with no interest and out of goodwill or charitable heart, while that of a lender in a permissible interest-bearing loan (type B) is to help a friend, acquaintance, business associate or related person in need without carrying the cost of funding the loss of use of the money. The difference in motivation can only be gathered by inference from the terms of the loan, the pre-loan relationship between the parties, the conduct of the parties subsequent to the provision of the loan and other relevant circumstances.

A lender of type A loan (re. friendly loan pure and simple) does not ask for any interest, being consistent with his dominant or primary motivation behind the transaction. Such friendly lender does not state any interest in the loan agreement, does not deduct upfront from the principal amount of loan, and does not ask the borrower for interests on the loan in the course of their dealings before the default in repayment occurs. Consistent with dominant or primary motive to help a friend in need, the conversation shortly before the disbursing of the friendly loan would probably include the lender’s inquiry as to the borrower’s reason or purpose of the friendly because a person is unlikely to finance a friend’s intended harmful or foolish venture or activity such as gambling or another illegal and immoral venture. 51

A lender of type B loan (i.e. permissible friendly loan with interest), consistent with his dominant or primary motivation to help a friend or associate or related person in need without the lender carrying the cost of loss of use of money, asks for a reasonable rate of interest which is comparable to the prevailing bank interest rates on loans for his genuine loss of use of money. Such a friendly lender would not charge grossly excessive rate of interest and will be very unlikely to make any upfront deduction as compensation from the loan upon disbursing the loan to his friend or associate or related person. Sometimes, consistent with dominant or primary motive to help a friend or associate or related person in need, the conversation shortly before the disbursing of the friendly loan would probably include the lender’s inquiry as to the borrower’s reason or purpose of the friendly because a person is unlikely to finance an intended harmful or foolish venture or activity such as gambling or another illegal and immoral venture of a friend, associate or related person.

An illegal moneylender of type C loan (i.e. moneylending in contravention of statutes) asks for excessively high rate of interest very much higher than the bank’s prevailing interest rates on loans or even much higher than the 18% per annum interest (i.e. the maximum interest rate which section 17A of the Moneylenders Act allows a licensed moneylender to charge for unsecured loan, and also the standard rate charged by traders on their buyers for overdue payments). As the dominant or primary motive of the illegal moneylender is to make excessively high interest income and to recover the principal as well, his primary concern before the disbursement of loan would be the ability or perceived ability of the 52 borrower to service the periodic interests and to repay the principal and it is unlikely for him to inquire about the borrower’s purpose of obtaining the loan. Consistent with his dominant or primary concern, an illegal moneylender’s focus and primary concern in his dealings and communications with his borrower after the disbursement of the loan would be on collection of periodic interests and recovery of the principal loan.

Examples of type B friendly loans are shown in the dicta of the various decided case including:

Menta Construction Sdn Bhd v. SPM Property & Management Sdn Bhd & Anor [2017] 1 LNS 675; [2017] MLJU 526 where the High Court held that the statutory presumption was rebutted in the circumstances of that case involving a loan with 8.8% per annum interest by a developer to his contractor in an ongoing construction project;

Sellammah Ramasamy v. FJI Lead Sdn Bhd & Anor [2020] 1 LNS 126 where the court found that plaintiff was doing the business of a grocery store and incidental thereto the plaintiff gave two loans to the defendants who had family relationship with the plaintiff and that no interest was charged on the said loans and there was no upfront deduction of any alleged compensation upon the disbursement of the loans.

The post-disbursement conversations and communications between the lender and the borrower often provides a telling picture of the real type of loan that has been transacted between them. 53 Type A and type B friendly loans, being transacted between friends and related persons, flows from and is an offshoot of the overall friendship or sufficiently proximate relationship between the parties in the transaction. In the ordinary course of experience and human conduct, one would expect their post-disbursement conversations and communications to cover various aspects of life including their past friendship and relationship, their businesses or works, their pastimes or usual activities, matters of general interest in life, etc. As for an illegal moneylender, one would expect to see conversations or communications between the lender and borrower to be either solely or primarily on loan monies, repayments and interest payments, reminder for payments. Even where a friendly lender in type A or type B loan transactions wants to remind his friendly borrower to repay the loan, the initial reminders are likely to be gentle or polite reminders that should not damage their pre-existing friendship or proximate relationship, and after the gentle or polite reminders have been ignored, subsequent reminders are likely to try to call upon the borrower’s conscience or reputation or pre-existing relationship to repay the friendly loan which was provided as a favour. Of course, when things deteriorated further, there would come a point of time when the friendship or relationship broke up.

Where the main factors and circumstances point clearly to a loan being of a particular type, other subsidiary factors and circumstances are unlikely to tip the balance of probabilities save in exceptional situations. However, where the main factors and circumstances do not point clearly to either type, the other 54 subsidiary factors and/or circumstances would be of aid in arriving at the eventual conclusion as to the real type of the loan.

Now we analyse and scrutinize the evidence in our present case to assess whether the loan transaction in our present case is consistent with it being a type B friendly loan or type C illegal moneylending.

In our present case –

the Plaintiff deducted 5% upfront from the loan amount;

in the WhatsApp conversations subsequent to the loan disbursement, the Plaintiff asked for and collected interest payments many times;

there were multiple tranches or sub tranches of loans provided by the Plaintiff to various persons including the Defendant, the Defendant’s wife Tan Joo Lang, Lai Oi Mooi, and Kwong Lay Heong Trading;

in connection with some parts of the tranches of loan, there were weekly interests charged and/or collected;

in connection with the other parts of the tranches of loan, there were monthly interests charged and/or collected; 55

the interest rate charged periodically was excessively highly, being 5% per month (or 60% per annum) in addition to the upfront deduction of 5% upon drawdowns;

in the WhatsApp conversations, what the Plaintiff talked about were loans, servicing and collections of periodic interests, interest payments, amounts of interest, repayment due dates;

in the WhatsApp conversations, the Plaintiff never asked the Defendant as to the purpose of the loans and never asked for repayment in a tone or manner in which friend, assciates or related persons would approach or deal with one another;

in the WhatsApp conversations neither the Plaintiff nor the Defendant talked about the usual things or matters which are the normal or ordinary topics discussed between friends, associates or related persons; and

the words “interest” were used, and the reminders on servicing of periodic interests, charging of periodic interests, and confirmations of receipt of periodic interest payments were communicated, numerous time throughout the WhatsApp conversations between the Plaintiff and the Defendant. In the entire circumstances as summarised above, the Plaintiff’s dominant or primary motivation behind the loan transactions was to earn excessively high rate of interests plus repayment of principal loan, and the evidence clearly shows the loan transaction as illegal moneylending, i.e. type C loan. 56

The evidence adduced, as summarised in paragraphs 28 to 38 above, shows that there were multiple tranches of money lent to several persons including the Defendant, the Defendant’s wife Tan Joo Lang, Lai Oi Moi and Kwong Lay Heong Trading. and the period collections of monthly interest payments in respect of these borrowers’ loans. In the premises there was some continuity of loan activities to constitute carrying on the business of moneylending within the meaning of section 2 of the Moneylending Act.

Moreover, the statutory presumption under section 10 OA of the Moneylending Act applies, and alternatively the factual presumption of carrying on moneylending business also applies pursuant to section 114 of Evidence Act in the circumstances of the present case: see paragraphs 45 to 49 above.

The Magistrate erred in principle and/or was plainly wrong in holding that the statutory presumption has been rebutted. The facts on excessively high rate of interest, the Plaintiff’s dominant motive was for excessive rate of interests, etc as stated in paragraph 64 above also tip against any rebuttal of presumption. Those facts reinforce the presumption of carrying on moneylending business. The other two minor factors, namely the parties being neighbours and the Plaintiff’s withdrawal of monies from fixed deposits or savings in bank do not tip the balance of probabilities in favour of the Plaintiff.

Premature withdrawal of fixed deposits per se does not point towards a friendly loan. In the ordinary course of human life and experience, a person who does not use his money for an interim period of time would place his money in fixed deposit to earn interest 57 during the interim period. Fixed deposits are usually placed for periodic intervals of monthly, bi-monthly, quarterly, half-yearly or yearly periods, with or without auto-renew instruction. Unless a depositor has the uncommon luxury of time to withdraw his fixed deposit money on the very day it matures, most of the fixed deposits are withdrawn prematurely – be it one day premature, several days premature or months premature. The loss of interest arising from premature withdrawal of fixed deposit is less than the interest amount to be earned for each placement period, and is very likely to be less than 1 year of interest income.

In our present case, the Plaintiff’s premature withdrawal of fixed deposits resulted in the following losses of income:

RM47.23 : see page 220 (top) of Appeal Records; where “FD PREMATURE WITHDRAWAL” was stated. The other fixed deposits do not state premature withdrawal. The documents show the loss due to premature withdrawal is a far cry from the total amounts of 5% deducted upfront from the loan disbursements. In the circumstances, the 5% upfront deductions from the loan disbursements were not genuine compensation for loss of interest income arising from premature withdrawal.

Bearing in mind that the moneylenders’ dominant or primary motivation is to make as much interest incomes as they possibly can from their own monies, it is even more likely for moneylenders to place their monies in interest-earning fixed deposits during the interim period rather than for moneylenders to leave their monies 58 idling in the current account or in physical cash with no interest income whatsoever during the interim period.

In the premises, the Plaintiff’s premature withdrawal of fixed deposit in the circumstance of the present case is a neutral factor and it does not tip the balance of probabilities in favour of a friendly loan type A or type B.

As regards the fact that the Plaintiff and the Defendant were neighbours for 20 years, this is a neutral factor which does not tip the balance of probabilities in favour of type A or type B friendly loan. This is because of the following reasons:

moneylenders would most probably lent monies at high interest rates to persons who are in urgent or desperate need of monies, whether they are strangers or neighbours or acquaintances;

the main concern of a moneylender is the ability or perceived ability of the borrower to repay the loan plus high interests;

where the borrower is a neighbour, this may probably tend to give added comfort to the moneylender when he knows the whereabouts and property backing of the neighbour;

there is also the probability of a moneylender who operates through a neighbour as intermediary to find customers in the neighbourhood to borrow monies at high interest rates; 59

there is also equal likelihood of a person giving a genuine friendly loan to his neighbour, however, the interest rate (if any) on such friendly loan is unlikely to be excessively high since it is ordinary human nature that a person is unlikely to be seen as taking advantage of a friend or neighbour in need.

The abovementioned circumstances tends to neutralize the factor on the fact of being neighbours as far as the balance of probabilities in our present case is concerned.

In light of the dominant motivation of the Plaintiff to earn excessively high interests, his primary concern was the interest payments and repayment of loans multiple tranches of loans with several recipients of loan monies as summarized in paragraph 64 above, the subsidiary factors of being neighbours and of premature withdrawal –

would not be sufficient to rebut the statutory presumption under section 10 OA of the Moneylenders Act; and / or

would not tip the balance of probabilities in favour of friendly loans type A or type B even if this Court were to assume those subsidiary factors to in favour of the Plaintiff.

In the entire evidence and circumstances of the present case considered and scrutinized in context and properly, this Court has. Come to the conclusion that the Magistrate – 60

erred in principle in not scrutinizing the evidence including contemporaneous documentary evidence of the surrounding circumstances;

erred in principle in failing to appreciate the relevance and/or weight of the contemporaneous documentary evidence of the surrounding circumstances;

erred in principle in the process of evaluation of evidence by giving undue weight to oral evidence without testing its veracity against the contemporaneous documentary evidence;

erred in principle by failing to consider or adequately consider the main factor of the Plaintiff’s dominant or primary motivation was for earning excessively high rate of interests in the course of dealings between the parties;

erred in principle and/or in fact in failing to consider or adequately consider the existence of multiple tranches of loans, different loan periods for different tranches of the loans, several other third persons involved, and multiple dealings on loans which constituted some degree of system, continuity and repetition in the circumstances of the present case; and

was plainly wrong in failing to have proper judicial appreciation of the evidence.

In this connection, it is to be noted that the Magistrate also erred in principle and in fact in holding that the adverse inference under 61 section 114(g) of the Evidence Act did not apply notwithstanding the glaring fact that the Plaintiff refused or neglected to produce his relevant bank statements during the material months despite the Defendant’s written request and then written reminder of such section 114(g) adverse inference should the Plaintiff persisted in such refusal or neglect. Unless there is justifiable reason of privilege or confidentiality (which the Plaintiff here did not assert or prove), it is generally in the interest of a non-licensed lender of an interest-bearing loan, particularly a loan with high interest rate, to produce his relevant bank statements at the material time to rebut any presumption which may arise against him in the particular circumstances of his case or, even if no adverse presumption applies in a particular case, to show the lack of sufficient degree of system, continuity and repetition in the giving of loans. As the Plaintiff in our present case has not shown any justifiable reason for refusing to produce the relevant bank statements for the material period of time despite the charging and collection of exorbitantly high interest interests in these multiple tranches of loans involving several third persons, an adverse inference under section 114(g) ought to be drawn against the Plaintiff that if the said bank statements were produced they would show evidence adverse to his claims here. In the Grounds of Judgment the Magistrate’s main reason for refusing to draw an adverse inference was that the Defendant has not proved there were third persons involved in the loans. With respect, such reason is fallacious and erroneous. In the first place, the WhatApp conversations in Exhibit P3 indeed show the existence of the involvement of third persons such as Tan Joo Nang, Loi Oi Mooi and Kwong Lay Heong Trading. In the second place, the very purpose of the Defendant’s request for copies of the 62 Plaintiff’s bank statements is to obtain additional evidence to prove the involvement of third persons and payments to and repayments by third persons. If this additional evidence can be adduced by the Defendant without the use of the Plaintiff’s bank statements it would be pointless or academic for the Defendant to ask for the bank statements again. Order 24 of the rules of Court 2012 allows discovery of documents including documents which can support a party’s case or defence or which can adversely affect his opponent’s case. One wonders what documents can still be the subject of any discovery of documents if the applicant has to prove, without the requested document, the very thing which the contents of the requested document is supposed to prove.

Therefore, this is a proper case for appellate intervention, and this Court has concluded that the loan transactions between the Plaintiff and the Defendant constituted moneylending within the meaning of Moneylenders Act.

As the Plaintiff is not a licensed moneylender, the loans of the Plaintiff to the Defendant constituted illegal moneylending.

It has been decided by the appellate courts that illegal moneylending is not enforceable by the Court and the unlicensed moneylenders’ suit for recovery of the loan should be dismissed by the Court. Such decided cases include Dr. Mansur Bin Hussein & 3 Ors v. Barisan Tenaga Perancang (M) Sdn Bhd & 4 Ors [2019] 1 LNS 661 (Court of Appeal); Mahmood bin Ooyub (supra); Global Globe Property (Melawati) (supra). 63

In conclusion this Court decided on 2.7.2020 to allow the appeal with costs and held that the Plaintiff’s loans to the Defendant in the present case constituted illegal moneylending and are not enforceable in the Court of Law.

After hearing counsel on the quantum of costs, this Court assessed costs here and below at RM8,000.00.

Even if the loans were assumed to be friendly loans, it is doubtful whether the lender would be able to recover interests at excessively high rate. Moneylenders Act allows a maximum of 18% per annum interest rate for unsecured loans given by licensed moneylenders. In Global Globe Property (Melawati) (supra), the Court of Appeal stated in paragraph [152] as follows : “[152] ……Even if the plaintiff lender is not a moneylender at all, it would be an aberration to allow such a person to charge interest of RM400,000 for a loan of three months when even a licensed money lender would blush under it. A person who is not a moneylender cannot under the guise of a friendly loan exact more onerous terms than what a licensed moneylender is permitted as that would turn the law upside down.” 64 In the context of Global Globe case, Lee Swee Seng JCA was talking about RM400,000 interest amount on a loan of RM1,200,000 for 3 months : see paragraph [10] thereof. This works out to be approximately 11% per month of interest. In another similar case of Mahmood bin Ooyub where the Court of Appeal struck down an illegal moneylending disguised as property transaction, the interest rate charged by the lender was RM3,000 per month for RM100,000 loan, i.e. 3% per month.

Moneylenders Act contains very detailed provisions to require licensing for moneylending business and stringent mandatory requirements of need to explain terms to the borrower, terms of the loan agreement, form and record of loans, etc. After having obtained the moneylending licence and being under mandatory obligations to incur substantial expenses of compliance with the stringent statutory requirements, the licensed moneylenders are only allowed to charge a gross interest rate of not more than 18% per annum. If the non-licensed lenders were allowed to recover loans plus interests thereon at rates much higher than 18% per annum, it would be aberration as rightly described by the Court of Appeal in Global Globe Property (Melawati) (supra). A licensed moneylender who charges more than 18% per annum interest would contravene the Moneylenders Act and would have committed a criminal offence under the Act. If the Court were to allow a non-licensed lender to recover more than 18% per annum interest on the loan, it would probably result in mushrooming of unlicensed moneylending transactions, as even the illegal moneylenders who carry on the moneylending business know that not every borrower would fight the case in court (due to ignorance, lack of finance for 65 litigation, etc) and not every defendant – borrower can prove some degree of system and continuity of lending transactions to successfully defend the suit. In light of such practical social considerations, the abovementioned dictum of Lee Swee Seng JCA when translated into a ratio decidendi in a future decision of the appellate court would go a long way in discouraging the social mischief of illegal moneylending transactions at exorbitantly high rates of interests which has plagued our society for decades. If non-licensed lenders’ friendly loans are capped by legal principle to 18% per annum for unsecured loans and they still face the uncertainty of being denied recovery of loan monies due to illegality, then there would most probably be a substantial drop in illegal moneylending transactions because the illegal moneylenders would find such moneylending ventures too risky and therefore commercially not viable, and at the same time the financial burdens of borrowers in friendly loans type A and type B would also be equitably or conscionably reduced. Many borrowers of type (B) friendly loans would probably suffer inequitably or unconscionably if the courts were to endorse the enforcement of friendly loan transactions at exorbitant rates of interest. The men and women on the street often find it very puzzling and sometimes disillusioned as to how and why interest-bearing loans with exorbitant rates of interest could be upheld as friendly loans when there is nothing friendly regarding the excessively high rates of interest charged thereon.

It will probably go a long way in curtailing the social mischief of exorbitant interests on loans if the Legislature can include deeming provisions to the effect that a secured loan with interest of more than 12% per annum and an unsecured loan with interest of more than 66 18% per annum by any person who is not a licensed moneylender shall be deemed to be moneylending within the meaning of the Moneylenders Act, thereby also rendering the tasks of the courts in these types of cases to be less arduous. Dated : 10th February 2021. Signed ......................................................... TEE GEOK HOCK JUDICIAL COMMISSIONER HIGH COURT OF MALAYA AT SHAH ALAM (NCVC 10) To the parties’ solicitors:

For the Appellant : Messrs Goik, Ramesh & Loo

For the Respondent :