A.H.T. Syngas Technology NV v Future NRG Sdn Bhd

Case Significance

Confirms that a friendly loan which offends the Moneylenders Act 1951 is illegal and unenforceable and cannot be recovered by counterclaim, and that it cannot be set off against a separate construction debt absent any agreement to that effect.

This High Court decision at Shah Alam concerns a counterclaim for the repayment of a purported friendly loan, decided after the plaintiff's own claim had been dismissed for non-compliance with a consent order on security for costs. Following that dismissal, the defendant, Future NRG Sdn Bhd, proceeded to trial on its counterclaim against the plaintiff, A.H.T. Syngas Technology NV, for the repayment of a €200,000 sum advanced as a "friendly loan" carrying interest at 5.5% per annum, with a further 2% per annum if the loan remained unpaid by a stipulated date. The court heard the counterclaim over a full trial on documents in the agreed bundles whose authenticity was not disputed though their contents were. The central question was whether the defendant could recover the €200,000 as a loan. The court held that the €200,000 "friendly loan" was illegal under the Moneylenders Act 1951, so that the counterclaim to recover it could not succeed. It also rejected the plaintiff's alternative contention that the sum could be utilised to offset an amount said to be due for the construction of a one-megawatt coal-gasification system, holding that argument unfounded and devoid of merit, because the plaintiff had made no application for an advance payment for that construction, the €200,000 had been given as a loan and not as an advance payment, and there was nothing in the loan applications or other documentary evidence to show any agreement permitting such a set-off. Concluding that the counterclaim failed, the court dismissed the defendant's counterclaim with costs of RM20,000. The judgment is a useful illustration that a loan which offends the Moneylenders Act 1951 is unenforceable and cannot be recovered by counterclaim. The decision reflects the settled principle that the courts will not lend their aid to enforce a transaction that contravenes the licensing regime of the Moneylenders Act 1951, whatever label the parties attach to the advance.