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2023 MarsdenLR 1610

COURT OF APPEAL PUTRAJAYA
SHIM VUI GEH – Appellant
Versus
DAYANG MASTURA SAHARI & ANOTHER APPEAL – Respondent
[Civil Appeal Nos: S-01(NCvC)(W)-139-03/2022 & S-01(NCvC)(W)-140-03/2022]

Petitioner Advocates:Tsang Hieng Yee ,Respondent Advocate: Sharatha Masyaroh John Ridwan Lincon

A friendly loan with reasonable interest upon default does not constitute illegal moneylending if the lender does not engage in a pattern of lending activities as a business.

Headnote:(A) Moneylenders Act 1951 - Sections 2, 10OA, 15, and 17A - Appeal concerning legality of loans and imposition of interest - High Court found loan transactions to be illegal moneylending due to interest charged, declaring them null and void - The appeal examined whether the lender's actions constituted moneylending under the Act and if the transactions could be classified as friendly loans. (Paras 10, 40, 57, 120)

(B) Legal principles on moneylending - The court established that a single transaction may trigger presumption of moneylending, but evidence must show a system or pattern of transactions to substantiate this claim. (Paras 22, 40, 57)

(C) Security for loans - The court ruled that security could not be taken by outright transfer of property as it contravenes statutory provisions designed to protect borrowers. (Paras 80, 90)

(D) Judicial findings - The court found that the loans were friendly loans, not constituting moneylending as defined, allowing recovery of the principal amounts without the unlawful interest. (Paras 120, 122) (E) Result - Appeal allowed in part; judgment for repayment of loan amounts with interest awarded. (Paras 120, 122)

Table of Content
1. nature of friendly loans and interest imposition (Para 1 , 2 , 3)
2. background of the suits and parties involved (Para 4 , 5 , 6 , 7 , 8 , 9)
3. high court's findings on legality of loans (Para 10 , 11 , 12 , 13 , 14)
4. arguments regarding moneylending and rebuttals (Para 15 , 16 , 17 , 18 , 19)
5. court's observations on lending practices (Para 20 , 21 , 22 , 23)
6. acknowledgment of indebtedness and understanding (Para 24 , 25 , 26 , 27 , 28)
7. implications of loan agreements (Para 29 , 30 , 31 , 32)
8. legal binding nature of signed documents (Para 33 , 34 , 35 , 36 , 37)
9. definitions and implications of moneylending (Para 38 , 39 , 40 , 41 , 42)
10. changes in moneylending law and definitions (Para 43 , 44 , 45 , 46 , 47)
11. relationship between parties and context of loans (Para 48 , 49 , 50)
12. concept of friendly loans and associated risks (Para 51 , 52 , 53 , 54)
13. court's discretion in awarding interest (Para 55 , 56 , 57 , 58)
14. legal framework governing interest in loans (Para 59 , 60 , 61 , 62 , 63 , 64)
15. evidence and rebuttals in moneylending cases (Para 65 , 66 , 67 , 68)
16. security agreements and their legal standing (Para 69 , 70 , 71 , 72)
17. conditions for exercising options to purchase (Para 73 , 74 , 75 , 76)
18. legality of outright transfers as security (Para 77 , 78 , 79 , 80)
19. legal safeguards for borrowers in loan agreements (Para 81 , 82 , 83 , 84)
20. judicial interpretation of land transfer laws (Para 85 , 86 , 87 , 88)
21. consequences of unlawful agreements in land transactions (Para 89 , 90 , 91 , 92)
22. court's stance on prevalent but unlawful practices (Para 93 , 94 , 95 , 96)
23. impact of freedom of contract in vulnerable situations (Para 97 , 98 , 99 , 100)
24. indefeasibility of title and land registration (Para 101 , 102 , 103 , 104)
25. legal outcomes of void agreements (Para 105 , 106 , 107 , 108)
26. potential for set-off in loan agreements (Para 109 , 110 , 111 , 112)
27. counterclaims and torts in legal proceedings (Para 113 , 114 , 115 , 116)
28. judicial discretion in tort claims (Para 117 , 118 , 119)
29. final judgment and orders (Para 120 , 121 , 122 , 123)

Lee Swee Seng JCA:

[1] A friend in need is a friend indeed and a wise teacher once said "Give to the one who asks you and do not turn away from the one who wants to borrow from you." Yet money has, on many an occasion, soured and spoilt friendship as can be seen here in the parties suing each other over the true nature of money lent, the sum of which is not disputed in the Statement of Agreed Facts ("SAFs").

[2] This judgment shall explore whether a lender may charge reasonable interest upon default to repay by the borrower in a friendly loan or would the imposition of interest of any amount upon default make the loan an illegal moneylending transaction. It shall also delve into the interplay of the presumption of moneylending even though there is only a single transaction of a loan at interest and the proof of the business of moneylending by a moneylender.

[3] There is also the related issue of whether a lender may take as "security" for a loan an option to purchase the lands put up as security for the loan together with a sale and purchase agreement and a memorandum of transfer duly signed when the loan was acknowledged to have been taken and upon a default in payment, to then effect the transfer over from the borrower to the lender. What then is the effect of such a transfer even if the loan is a friendly loan?

At The High Court

[4] There were 2 Suits heard together in the High Court below. One was brought by Dayang Mastura Bt Sahari ("Dayang") in Suit SDK- 22NCvC-1/1- 2020(HC) ("Dayang's Suit") and the other by Mohd Harun Indra Bin Pg Elias ("Harun") in Suit SDK-22NCvC-26/12-2019(HC) ("Harun's Suit"); both in the High Court in Sabah and Sarawak at Sandakan.

[5] Dayang is Harun's mother and it is not disputed that Harun had asked his mother to help him to borrow from one Shim Vui Geh ("Shim"), the 1st defendant in both

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2023 MarsdenLR 1610

COURT OF APPEAL PUTRAJAYASHIM VUI GEH – AppellantVersusDAYANG MASTURA SAHARI & ANOTHER APPEAL – Respondent[Civil Appeal Nos: S-01(NCvC)(W)-139-03/2022 & S-01(NCvC)(W)-140-03/2022]

A friendly loan with reasonable interest upon default does not constitute illegal moneylending if the lender does not engage in a pattern of lending activities as a business.

Cases Referred (4)

COURT OF APPEAL PUTRAJAYA
SHIM VUI GEH – Appellant
Versus
DAYANG MASTURA SAHARI & ANOTHER APPEAL – Respondent
[Civil Appeal Nos: S-01(NCvC)(W)-139-03/2022 & S-01(NCvC)(W)-140-03/2022]