Federal Court says lender can recover RM50mil despite invalid loan

 Court says a defective moneylending agreement does not automatically relieve borrowers of the obligation to repay funds received.

The Federal Court has dismissed KBH Marine Industry Sdn Bhd’s bid to challenge a ruling allowing a lender to recover RM50 million.

PUTRAJAYA:

The Federal Court has dismissed KBH Marine Industry Sdn Bhd’s application for leave to appeal a ruling allowing a licensed moneylender to recover RM50 million it had lent, despite the loan agreement being found invalid under the Moneylenders Act.

A three-member bench chaired by Justice Abu Bakar Jais unanimously held that the five questions of law raised by KBH Marine did not meet the threshold for an appeal under Section 96 of the Courts of Judicature Act 1964.

Justices Nazlan Ghazali and Azimah Omar concurred with the decision.

The dismissal means the Court of Appeal’s ruling stands.

KBH Marine, which had pledged three Penang properties as security for the loan, was also ordered to pay RM50,000 in costs to Ace Credit (M) Sdn Bhd.

The questions raised centred on whether a lender could recover money advanced under a loan agreement that was later declared invalid, and the application of Section 66 of the Contracts Act 1950, which requires parties to return benefits received under a void agreement.

Ace Credit had provided RM50 million to Pioneer Conglomerate in October 2017, with three properties owned by KBH Marine in Penang pledged as security.

After the borrowers defaulted, disputes arose over the validity of the loan agreement, security documents and Ace Credit’s right to recover the money.

In its decision last year, the Court of Appeal ruled that while the loan agreement breached mandatory provisions of the Moneylenders Act and was unenforceable, Ace Credit was still entitled to recover the amount it had paid out.

Justice Lim Chong Fong, who delivered the unanimous judgment, said Section 66 of the Contracts Act allowed a party to reclaim money or benefits provided under an agreement later found to be legally invalid.

However, the court ruled that the security documents linked to the loan, including a charge annexure, memorandum of deposit and private caveats over KBH Marine’s three Penang properties, were unenforceable as they depended on the validity of the loan agreement.

The Court of Appeal rejected the borrowers’ argument that they could retain the RM50 million simply because the agreement was invalid.

It held that seeking repayment of money disbursed was different from enforcing the loan agreement itself and could be allowed to prevent one party from unfairly benefitting at another’s expense.

The court relied on the Federal Court’s earlier decision in Detik Ria v Prudential, which recognised that repayment could be ordered in appropriate cases even where the underlying agreement was void, depending on the nature of the legal breach and circumstances of the case.

Daphne Choy, Tam Xin Shuin and Amanda Lo appeared for KBH Marine, while Dinesh Nandrajog, Keith Loo and Lim Chun Yen represented Ace Credit. - FMT