DATUK CHONG THO CHIN @ CHONG JHO CHIN v ONG KOH HOU @ WON KOK FONG

Case Significance

Illustrates that the courts will look behind apparently ordinary trust and sale documents to their substance: where a declaration of trust and agreement to purchase disguise an illegal moneylending transaction, they are a sham unenforceable under the Moneylenders Act 1951, and the presumption in section 100A places the burden on the lender to rebut.

This High Court decision at Kuala Lumpur, delivered after a full trial, concerns a claim for fraud and fraudulent breach of trust arising from a declaration of trust, and it exposes the underlying transaction as a disguised moneylending arrangement. The plaintiff claimed that, by a declaration of trust executed in 2014 alongside an agreement to purchase seven units of property, the defendant held three of those units on trust for the plaintiff, that the plaintiff had paid the full purchase price of RM1,500,000 for the three trust properties, and that the defendant had committed fraud or fraudulent breach of trust in relation to them. On a thorough examination of the documents and the transactions, the court was not convinced that the declaration of trust and the agreement to purchase were the ordinary conveyancing instruments they appeared to be. It found that the whole transaction was a disguise cleverly portrayed as a usual sale and purchase agreement and declaration of trust, but which in substance covered an illegal moneylending transaction: the plaintiff had lent money at interest, accepting several payments of interest without protest. Applying the presumption in section 100A of the Moneylenders Act 1951, under which a person who lends money at interest is presumed to be carrying on the business of moneylending — a presumption the plaintiff bore the burden of rebutting and did not — and finding the defendant a more credible witness who had not in fact received the RM1,500,000 (which had been paid elsewhere), the court held that the declaration of trust and agreement to purchase were not valid or enforceable instruments. They were a sham, unlawful and unenforceable as being in violation of the Moneylenders Act 1951, so the defendant had not breached the trust and the plaintiff was entitled to no remedy. The court held that the plaintiff had failed to prove his pleaded claim on a balance of probabilities and dismissed the claim with costs.