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Gold-Plated Deception: Exposing Moneylending Agreements Disguised As Gold Sales

In the realm of investments and financial transactions, what meets the eye may not be the legal reality. The Court of Appeal has recently allowed the following appeals where it resolves around what initially appeared to be a sales agreement was in fact, a cleverly disguised moneylending agreement:


(a)        Lee Kuang Gen v Tan Sri Dato’ Seri M Mahadevan Mahalingam

(Civil Appeal No.: W-02(NCvC)(W)-2021-10/2021)


(b)        David Choong Jin Chai v Tan Sri Dato’ Seri M Mahadevan Mahalingam & Letchumanan Rajoo (Civil Appeal No.: W-02(NCvC)(W)-2155-11/2021)


(c)        David Choong Jin Chai v Tan Sri Dato’ Seri M Mahadevan Mahalingam (Civil Appeal No. W-02(NCvC)(W)-2156-11/2021

Brief Background

It all started when David Choong (DC) was introduced to Tan Sri Dato’ Seri M Mahadevan (TSM) by Lee Kuang Gen (LKG) for sales of gold bars. DC and TSM subsequently entered into several sales of gold agreements (SOGAs) to invest in gold ingots valued at RM 10,993,500.00. TSM claimed that he had transferred the gold ingots of the said value to DC but DC did not pay for the same.  


This led to the initiation of two High Court suits where in Civil Suit 22NCVC-479-09/2015, DC sued TSM and nine others for a declaration that TSM has illegally loaned monies to DC in multiple transactions. Thus, the SOGAs are unlawful and unenforceable under the Moneylenders Act 1951 (MLA).


Meanwhile, via Civil Suit 22NCVC-95-02/2017, tSM sued DC and LKG for collusion by way of inducement, misrepresentation and false promises of handsome return of gold investments, causing him to enter into the SOGAs with DC amounting to RM 10,493,000.  In this suit, DC also filed a counterclaim, claiming that the 10 loans were in contravention of the MLA and thus, were void.


The High Court dismissed DC’s suit and allowed TSM’s suit. Aggrieved by the decision, LKG and DC appealed.


Essentially, the main issues in contention were:


(a)        Whether the SOGAs were genuine agreements for sales of gold?


(b)        If the SOGAs were, in fact, moneylending agreements, did the SOGAs violate the MLA?

The True Nature of the SOGAs

Based on the first SOGA, DC was supposed to pay the balance purchase price in 6 tranches (SOGA Tranches) before December 2014. However, TSM had loaned cash monies to DC on 6 occasions from August to September 2013, totalling RM2,247,500.00 (inclusive of interest charged for each tranche) and paid by DC to TSM (Loan Tranches). Coincidentally, the principal of the Loan Tranches corresponded with the SOGA Tranches. This was supported by remittance forms and bank statements of TSM and DC which showed that the flow of monies was not from DC to TSM to pay off the gold but were instead transactions from TSM to DC. The same scenario could also be observed from subsequent SOGAs, where gold transactions were monetised into cash loans and bearing interests.


As such, the Court of Appeal caught on to the fact that this was a rather peculiar circumstance, considering that in a conventional sales transaction, DC, being the buyer, should be the one transferring funds to TSM, the seller. The inauthenticity and credibility of the “sale of gold” transactions were further solidified when LKG, TSM’s fund manager, affirmed that TSM knew that the Loan Tranches were, in fact, loans to DC with interest of ~9% and not for the sale of gold bars.


It is trite law that courts do not look at labels attached to the document but the substance of the document or transaction by examining the contents of the same and the intention of the parties. This is also in line with the maxim, which states that “equity looks to the intent, and will regard substance rather than form”. As such, the Court of Appeal concluded that the SOGAs were a sham document and did not represent a valid sale and purchase of gold.

Were The SOGAs in Violation of the MLA?

Initially, a person is only deemed as a “moneylender” under the ambit of Section 2 of the MLA if he is running a “moneylending business” where “similar transactions” were being made continuously, systematically or repetitively (see the Federal Court ruling in Ngui Mui Khin & Anor v Gillespie Bros & Co Ltd [1979] 1 LNS 60). However, with the coming into force of Section 10OA of the MLA on 15 April 2011, the proof of a single loan at interest is sufficient to raise a rebuttable presumption that the person was carrying out a moneylending business.

Such legal burden is placed on the alleged “moneylender”, which in this case, would be TSM. TSM must prove on a balance of probabilities that by providing the Loan Tranches, he was not engaging in an act of “lending of money at interest, with or without security, by a moneylender to a borrower”. The Court of Appeal held that TSM had failed to rebut the presumption due to the following reasons:


(a)        TSM’s remittance forms, bank statements and DC’s bank statements served as an unrebuttable fact that DC had indeed received the said loans and paid 9% interest to TSM. Thus, TSM was a “moneylender” under the meaning prescribed in Section 2 of the MLA.


(b)        TSM had also expressly referred to a “loan” and had never made demands for the “return of the gold”.

According to Section 5 of the MLA, only a licensed moneylender under the MLA is allowed to carry on moneylending business. As such, TSM had acted in contravention of Section 5(1) of the MLA. Accordingly, the SOGAs being moneylending transactions camouflaged as sales of gold bars were void and unenforceable under Section 15 of the MLA which provides that any moneylending agreement(s) entered into by an unlicensed moneylender is unenforceable. Coupled with Section 24 of the Contracts Act 1950 (CA), the SOGAs were void as they are caught by Section 24(a) (i.e. forbidden by law), Section 24(b) (i.e. it is of such nature, if permitted, would defeat any law) and Section 24(e) (i.e. against public policy). 


The Court of Appeal also cited the recent Federal Court decision in Triple Zest Trading & Suppliers & Ors v. Applied Business Technologies Sdn Bhd [2023] 10 CLJ 187, whereby the Federal Court held that courts will not assist moneylender(s) to recover the principal amount lent if the loan agreement was illegal. Consequently, the Court of Appeal in this case held that the SOGAs, being a violation of the MLA, were void ab initio. Therefore, the court will not assist TSM in seeking to enforce the illegal SOGAs to recover the monies as he was not entitled to the remedy of restitution (Section 66 of the CA).  

Definition of “Money” in the New Age

Though the “gold” in this case had been monetised, the Court of Appeal took a step further to explore if “gold” (if not monetised and was given in its physical form) would have fallen within the legal definition of “money”, and whether it would then be in contrary to the MLA. As the MLA is silent as to the definition of “money”, the Court of Appeal adopted the dictionary definition under Black Law’s Dictionary, 7th Edition (1999), and held that gold was a “medium of exchange” and/or “assets that can be easily converted to cash”. The Court of Appeal also held that this would “definitely include…cryptocurrencies” as well.


In conclusion, these recent Court of Appeal decisions exposed gold sales agreements as deceptive covers for illicit moneylending transactions, which were void under the Moneylenders Act 1951 if initiated by an unlicensed moneylender. The court's strict approach, seen in their denial of restitution remedies for unlicensed moneylenders, serves as a cautionary lesson on the importance of transparency and adherence to moneylending laws. The court's additional consideration of gold as a form of "money" and its acknowledgement of cryptocurrencies also reflects the adaptability and development of laws to evolving financial landscapes.

15 March 2024


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