LU GIR KUANG v 1. ) LLC DEVELOPMENT SDN. BHD. 2. ) LING THOR YUEN

Case Significance

Illustrates how a court looks behind the form of a set of agreements to the true bargain and declines to enforce a contract that is in substance the brokering of illegal moneylending contrary to public policy.

This High Court decision at Shah Alam concerns a claim to recover unpaid service fees where the central question was whether a set of agreements was a sham concealing an illegal moneylending transaction. The plaintiff, an intermediary, sued a property developer company and its managing director for RM2.150 million said to be due as unpaid service fees under a Service Agreement, supported by a Personal Guarantee and Indemnity, both dated in December 2020, alongside an Investment and Shareholder Agreement of the same period. The defendants contended that this set of agreements was a sham to disguise a loan advanced by an unlicensed moneylender, and that the Service Agreement was therefore illegal as a contract to broker an illegal moneylending arrangement. The court framed the issues as whether the Investment Agreement was a genuine transaction or a sham based on an illegal moneylending transaction, whether, if the true bargain was in the nature of a loan, that loan contravened the Moneylenders Act 1951, and whether the Service Agreement was tainted by that illegality and so unenforceable. Applying the statutory rebuttable presumption of a moneylending business and the principles governing loans at exorbitant interest, the court looked to the true bargain behind the documents rather than their form. It concluded that the arrangement was in substance a loan bearing exorbitant interest, characteristic of moneylending, and that the consideration for the service fee under the Service Agreement was in truth the brokering of an illegal moneylending arrangement, which the court regarded as opposed to public policy within section 24 of the Contracts Act 1950, so that it would not lend its aid to enforce the Service Agreement. The plaintiff's claim was accordingly dismissed, and, given the plaintiff's participation in the illegality, the court made no order as to costs. The judgment is a useful illustration of how a court looks behind the labels of a set of agreements to the true bargain, and declines to enforce a contract that is in substance the brokering of illegal moneylending.