On unlicensed loans, litigation, and logical outcomes: part 1.

VF met THK, a car dealer, when purchasing a vehicle.

THK invited VF to take part in an investment opportunity - a "cashless profit sharing program" - with returns of 3%...

(meh!)

...per month.¹

(well.)

VF invested $408,000 with THK.

As it turned out, THK eventually only returned the sum of $38,000.

Naturally, VF sued THK.

A slam dunk, perhaps?

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Well, THK was not prepared to go down without a fight.

THK argued² that:

(a) VF had lent money to him;
(b) under the terms of the loan, VF would receive from THK more than what VF had lent to THK.³ As such, VF should be presumed to be a "moneylender" under the Moneylenders Act 2008 ("MLA");
(c) VF was an "unlicensed moneylender" because he was a "moneylender" who did not have the required license or exemption;
(d) the MLA provides that a loan agreement with an "unlicensed moneylender" is unenforceable⁴; and
(e) therefore, VF should not be allowed to enforce the loan agreement.

The matter was first heard by an Assistant Registrar, who held that the presumption that VF was a "moneylender" did not arise, and granted VF summary judgment.

So surely that should have concluded the matter?

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Nope!

THK appealed.

And then: a plot twist.

The High Court Judge held that VF should be presumed to be a "moneylender", because on the face of the documents, VF would receive from THK more than what VF had lent to THK.

So was THK now home free?

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Nope!

A further plot twist.

The High Court Judge went on to hold that VF was able to rebut the legal presumption, because the evidence showed that VF was not in the business of moneylending. As such, VF was not an "unlicensed moneylender".

The Judge therefore held that the loan agreement was enforceable in full, and dismissed THK's appeal.

In other words, VF won. THK has been ordered to pay VF $451,089 plus costs (and will likely have to pay further interest).

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I have several observations, for savvy businesspeople to consider, which I'll share over multiple posts.⁵

1⃣ Before putting real money down, consider obtaining legal advice.

Look, I'm not saying that you need legal advice for every small routine transaction.⁶

But I don't know whether you'd consider an unsecured loan agreement to lend someone $408,000 at a rate of 3% per month to be small and routine.

And considering the amounts at stake in such a scenario, where:

(a) the expected return is $12,240 or more per month; and
(b) there is a risk of the $408,000 loan not being repaid (which, as it turned out, was what happened);

does it really make sense to try and save on a few thousand bucks in legal costs?

And obtaining legal advice before entering into such a transaction may well have led to a different outcome.

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More observations in future post(s).⁷