THE UPDATE SCOOP (#12/2025)
Moneylending Contract Void but Not Illegal – Restitution Claim Allowed | Moneylending
By TAY & HELEN WONG – 31 October, 2025
The enforceability of a moneylending agreement that does not comply with the Moneylenders Act 1951 (the MLA) and recoverability of the monies disbursed under such agreement were the focal points in the Court of Appeal (CA) decision in Golden Wheel Credit Sdn Bhd v Dato’ Siah Teong Din [2025]. In this case, the plaintiff (P) was a licensed moneylender under the MLA. The defendant (D) was a shareholder and director of a property development company (the Company). P and D entered into two moneylending agreements (as secured by the guarantee from the Company) pursuant to which P disbursed about RM3.4 mil to the Company. As the Company was eventually wound up, P sued D for the return of the unpaid principal. Interestingly, P did not seek to enforce the moneylending agreements which were void and unenforceable due to non-compliance with various requirements of the MLA. Instead, P relied on restitution of the unpaid principal under s.66 and 71 of the Contracts Act 1950 (the CA 1950) as well as the equitable principles of moneys had and received and unjust enrichment. This found favour with the CA 1950.
At the forefront, it must be made clear that whilst all illegal agreements are void, not all void agreements are illegal. No doubt the moneylender agreements in this case were void on many grounds such as the use of the wrong prescribed statutory form (Schedule J instead of Schedule K), the charging of interest at the rate for unsecured loan and non-delivery of stamped copies of the agreements to D before disbursing the loaned monies. However, the object of the loans under the agreements for the payment of the sums owed by the Company to its main contractor for a residency project was not forbidden by law or fraudulent. Neither was it immoral nor against public policy. As for the consideration of the agreements, i.e. the interest charged, although the rate of interest charged was in error, the said rate was not excessive or extortionate — it was 18% per annum, the limit for unsecured loans under the MLA. The error in the interest rate charged made the agreements void, of no effect and unenforceable pursuant to s 17A(3) MLA and P was guilty of an offence; but such non-compliance did not render the agreements illegal either under the MLA or s 24 CA 1950.
Section 66 of the CA 1950 provides that any person who had received advantage under a void agreement is bound to compensate or provide restitution to the person from whom he received the advantage. The COA adopted the recent Federal Court’s guidelines in Detik Ria Sdn Bhd v Prudential Corporation Holdings Limited & Anor [2025] to determine whether restitution under s.66 CA 1950 ought to be granted to P when the contract was found to be void and/or illegal. It is a two-stage assessment: (1) evaluating the centrality of the illegality within the context of the statute breached; and (2) assessing the proportionality of denying a s.66 remedy in light of the illegality with the following factors, among others, to be considered: (a) culpability; (b) was the contract performed; and (c) the intent of the parties in embarking on the transaction.
Under (1), the nature of illegality of the statute concerned (the MLA) was considered. The MLA prohibited unlicensed moneylenders from entering into moneylending agreements; but the moneylending agreements in this case were not illegal either under the MLA or s 24 CA 1950. They were entered into by a licensed moneylender, did not impose extortionate interest rates on the borrower, and neither their consideration nor object was immoral or against public policy.
Under (2) on proportionality, the agreements were transparently structured as loan agreements by a licensed moneylender, without any attempt to disguise their true nature. The interest rates charged were within the statutory limits prescribed by the MLA, although they were erroneously applied as unsecured loans. While the agreements were in the wrong prescribed form, they were nonetheless, in a form prescribed by the Regulations and identified as moneylending agreements. The terms accurately represented their intended purpose, with no attempt to conceal the nature or object of the transactions. Accordingly, the application of proportionality to the matrix of facts supported the grant of a s 66 remedy. In this context, refusing a s 66 remedy would not constitute a proportionate response, particularly given that the agreements, though void, were not illegal.
The High Court’s decision that the moneylending agreements were illegal was set aside. P’s claim for restitution of the unpaid principal was allowed.
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Tags: [illegal void agreement] [moneylending] [restitution] [s.66 Contracts Act 1950]