DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR ( BAHAGIAN DAGANG ) GUAMAN SIVIL NO: D1-22-1199-2000 ANTARA 1. ORIX CREDIT MALAYSIA SDN. BHD (Dahulunya dikenali sebagai UOL Credit Sdn. Bhd) … PLAINTIF DAN 1. MOHD IKBAL BIN ISMAIL 2. LEE SIEW LENG … DEFENDANDEFENDAN ALASAN PENGHAKIMAN The issue in this case is rather simple, namely was the Plaintiff legally competent to give out the loan (non-revolving loan) to the 1st defendant via the Term Loan Agreement (‘the TLA’)[P5]? Or alternatively, if it was not so competent, whether there ought to be restitution by the 1st Defendant to the Plaintiff for the advantage that the former had obtained as the direct result of the purported revolving fund that the Plaintiff had granted to him. Page 1 of 22 The Plaintiff was at the material time of granting the loan to the 1st Defendant, a money-lending company incorporated in Malaysia and it also had obtained an exemption under section 2A(2) of the Moneylenders Act 1995 to undertake money-lending activities. 2. On the 15th October 1997, the Plaintiff and the 1st Defendant had signed a Non-Revolving Term Loan Agreement (‘the TLA’) whereby the Plaintiff had agreed to lend to the 1st Defendant a loan facility to the tune of RM4 million upon such terms as contained in the said TLA. Among the terms of the TLA, it was provided that the loan facility may be utilized by the 1st Defendant by him giving the Plaintiff Drawdown notice within 3 months from the date of the said TLA. As would be common to all loan agreements, there were also provisions for interest charges to be payable on the principal sum at rates as agreed by both parties. Like all agreements of such nature, there were also a guarantee dated on the same date of the TLA whereby the 2nd Defendant had agreed to guarantee, inter alia, the repayment by the 1st Defendant to the Plaintiff of the loan facility amount with interest, costs, expenses and all amounts payable to the Plaintiff by the Defendant under the TLA. The 1st Defendant had given the drawdown notices to the Plaintiff pursuant to the terms of the TLA and the Plaintiff had obliged, also pursuant to the terms of the said TLA and the whole loan facility of RM4 million was disbursed in three separate tranches on three separate dates, according to instructions given by the 1st Defendant to the Plaintiff. Page 2 of 22 The 1st Defendant had paid part of the interest as outlined in the repayment schedule sent to the 1st Defendant. Apart from that payment, the 1st Defendant had failed to repay the Plaintiff the balance of the loan facility amount still owing, which at the 31st January 1999 had stood at RM4,565,898.55. 3. Despite 2 notices of demand for the repayment of the loan facility in the above sum having been sent to the 1st and the 2nd Defendants, both of them had failed to deliver on their part of the bargain under the TLA. Thus this action was instituted against both of them by the Plaintiff to recover from them the balance sum with interest and costs. The guarantor was one Lee Siew Leng, the 2nd Defendant cited in this action. But action against him had been discontinued by the Plaintiff as he had since, been declared a bankrupt. But he did come to this Court to testify on behalf of the 1 st Defendant, as SD2. 4. The 1st Defendant had denied liability under the said TLA and averred as the thrust of his defence that the Plaintiff was not in possession of a valid license and legal exemption under the relevant law to give out the kind of loan under which the TLA was categorized. This was contained in paragraph 2 of the statement of defence. It was also pleaded by the defence that the interest charged were excessive and that the Plaintiff had failed to realize the securities that had been deposited before embarking on this mode of Page 3 of 22 recovery of the said loan facility. It was the stated case of the defence that on account of this apparent illegality and breach by the Plaintiff, the present claim by the Plaintiff ought to be dismissed with costs. 5. So in the scheme of things pertaining to this case, the issue that had taken centre-stage in the trial must necessarily be whether the Plaintiff was legally competent to issue the loan facility to the 1 st Defendant on such terms as contained in the TLA. It would have been competent to do so, if it had, at the material time in question when the TLA was entered into, been issued with a valid moneylending license by the Ministry of Local Housing Government. 6. In that regard, the Plaintiff had put in documents marked as P3 and P4 to show that at the material time when it had given out the said loan facility to the 1st Defendant, it was duly authorized to do so. SP1 who had appeared before this Court had testified that by virtue of P3 the Plaintiff was properly and legally clothed to give out loans similar to the one that it had given to the 1st Defendant on 15th October 1997. 7. It was the evidence of SP1 in this Court that the Minister of Housing and Local Government (‘the said Minister’) who was empowered under the Moneylender’s Act 1995 (‘the MLA 1995’) had granted the Plaintiff exemption under section 2A(2) thereunder, via a Page 4 of 22 letter dated 2nd May 1996. The said section 2A(2) provides the said Minister with the necessary power to exempt anybody including any company or society from all or any of the provisions of the said MLA 1995 subject to such limitations, restrictions or conditions as the said Minister may specify in the notification in the Gazette. The said letter containing the exemption was marked as P3 and the exemption was to be effective for 3 years with effect from the date that it was issued. It was in the evidence of SP1 that the Plaintiff had construed that the exemption as having exempted it from the operation of all the provisions of the MLA 1995 including the giving out of loan or money lending such as the one that the Plaintiff had given out to the 1st Defendant in this case. SP1 was adamant on this score as could be seen from the Notes of Evidence (‘NOE’) especially during crossexamination by learned Counsel En Siew, thus: “Q: Nowhere in this agreement was it mentioned that the loan was for credit leasing and share financing? PW1: Yes. Q: Please look at clause 2.2 of the term loan (m.s 14 Ikatan B) it was given for ‘personal investment ’purpose? PW1: Yes. Page 5 of 22 Q: I put it to you that this personal investment term loan, is not the exempted money lending condition granted to the Plaintiff. PW1: 8. I disagree.” Premised along that line of examination, the learned Counsel En Siew then proceeded to put to the SP1 (PW1) the thrust of the 1st Defendant’s case, as follows at page 7 of the NOE: “Q: I put it to you that the loan term agreement between the Plaintiff and the Defendant no.1 was unlawful and illegal, because it did not fulfill the conditions of the exemption. A: 9. I disagree.” As such, it would be appropriate at this stage to look at P3 to see what really was exempted by the Minister, to the Plaintiff with regard to the extent of the operation of the provisions of the MLA 1995. For that purpose, the operative words in P3 that must be given due consideration must necessarily by the followings: “…bahawa Yang Berhormat Menteri Perumahan dan Kerajaan Tempatan setelah mempertimbangkan permohonan tuan dan bersetuju memberi pengecualian kepada UOL Page 6 of 22 Credit Sdn Bhd di bawah seksyen 2A(2) Akta Pemberi Pinjaman Wang 1951 untuk tempoh tiga tahun mulai 17 April 1996 sehingga 16 April 1999 dengan syarat-syarat berikut:(a) 10. Aktiviti: (i) Pemajak kredit; dan (ii) Pembiayaan syer.” From the above, it was forwarded in this Court by the Plaintiff’s witnesses that the exemption had covered activities such as giving of personal loan such as the one that it had extended to the 1st Defendant in this case. In the course of his submissions the learned Counsel had urged before this Court that the material wordings of the said P3 as quoted above were different from the words employed in the eventual Gazette that had appeared some 2 years down the road. To appreciate that point raised by the learned Counsel, I would now reproduce the operative words in the Gazette that had been tendered in this Court as P4. The said P4 reads, at the material portion, thus: “…the Minister exempts UOL Credit Sdn Bhd ,a company incorporated in Malaysia, from the Act for a period of three years with effect from 17th April 1996 to 16th April 1999: Provided that - Page 7 of 22 (a) 11. Its activities of money lending shall be limited to (i) Credit leasing; and (ii) Share financing.” While the witnesses for the Plaintiff in their evidence, had indicated that their interpretation of the P3 was wide enough to bring the lending of personal loan under the umbrella of the exemption, the learned Counsel En. J. Edwin Rajasooria in his submission had pointed out that the Gazette P4 was more specific in terms of it setting out the exact scope of the exemption in terms of the moneylending activities that the Plaintiff was allowed to carry out under the exemption. In not so many words, he also seemed to imply that the P3 was ambiguous in stating out what activities were prohibited. But with due respect, such line of argument was not supported by the evidence led before this court and ought therefore to be rejected. 12. Having looked at the evidence of the Plaintiff’s witnesses on this issue, I had found that they could not articulate under which of the 2 stated activities listed down in P3, namely credit leasing and share financing, would the money-lending activity of giving out of a personal loan such as the one which it had extended to the 1st Defendant would fall under. Page 8 of 22 13. Having considered the evidence so led, to my mind, in so far as the exemption order by the Minister is concerned, the activities as listed down there in both in P3 and P4, are specific activities with peculiar implications attaching to them. As alluded to by me earlier, no attempts were made by the Plaintiff’s witnesses to explain to this Court how a giving out of a personal loan for investment of the nature of the loan given to the 1st Defendant could be categorized under any one of the 2 stated activities in the exemption order appearing in both P3 and P4. I therefore would find as a fact that the Plaintiff had failed to establish by way of evidence that the TLA it had entered into with the 1st Defendant was one that was allowed under the exemption. It is clear that the exemption order was not a complete exemption that would have the effect of exempting the Plaintiff from all the operative provisions of the relevant Act. In fact, it was one that was a limited exemption order to allow the Plaintiff to do the activities of credit leasing and share financing. The SP1 had agreed during cross-examination when put by the learned Counsel for the D1st Defendant that nowhere in the TLA was it ever mentioned that the said loan facility extended to his client was for credit leasing and share financing ( page 6 of the NOE). Therefore premised on that finding by me, I would rule that the TLA was not a legally binding document between the parties as it was entered into when in fact the Plaintiff was not properly and legally clothed to execute such an agreement. In other words, I would agree with learned Counsel for the 1st Defendant that the TLA was illegal and was of no legal effect and everything that was provided under it was Page 9 of 22 also of no effect. As such, by virtue of section 15 of the MLA 1995, repayment of the money so lent shall not be enforceable under the terms of the said TLA. So, the Plaintiff could not enforce the TLA as a basis to recover the loan facility that it had extended to the 1st Defendant when it was not empowered to do so, as the exemption order P3 and P4 was limited in nature and did not allow nor permit the Plaintiff from lending out the loan as in TLA. 14. However, be that as it may, is the Plaintiff left without any relief? At the outset, I agree with the stand taken by the Plaintiff’s learned Counsel that section 15 of the MLA 1995 does not prohibit nor does it curtail restitution or compensation under section 66 of the Contracts Act 1950 to be pursued by a lender in the position of the Plaintiff. But whether the Plaintiff could succeed through that avenue for its remedy is yet another matter which this Court ought to determine on due consideration of the evidence in the light of the law in force. 15. The learned Counsel for the 1st Defendant had objected to this course of action be even considered and he had submitted, not without basis I must say, that the matter of restitution was not specifically pleaded by the Plaintiff in its Statement of Claim against his client. The Order 18, Rules of the High Court 1980 was and indeed must be referred to. Rule 7 of Order 18 1980 provides that facts not evidence must be pleaded. Rule 8 then states the matters Page 10 of 22 that must be pleaded but it does not state that law must be specifically pleaded. Rule 11 of the same Order 18 does say though, that points of law may be pleaded. Having considered the submissions I am of the view that the rules as contained under Order 18 do not provide as a mandatory requirement that points of law must be pleaded in the pleadings. I agree with the submission of the plaintiff’s learned Counsel that a party does not have to expressly plead restitution (which is a point of law) as the statement of claim is meant to contain only facts, not the evidence or the law. In fact, it was impressed upon this Court by learned Counsel for the Plaintiff, that an analogy could be drawn with the legal issue of estoppel which was not pleaded in the case of Masjaya Trading Sdn Bhd v Kedah Cement Sdn Bhd [2004] 4 CLJ 18. The Court of Appeal in that case had held in that case that “Although the plaintiff’s pleaded case did not expressly raise estoppel, all relevant facts on which an estoppel might arise were pleaded. That was sufficient and an express plea was not necessary.” I agree that such attempt at the stated analogy was valid. Likewise in this case before this Court, the same circumstances had obtained and as such what the appeal Court had said in the Masjaya Trading case [supra] must therefore apply in full force here as well. Premised upon that consideration, I would dismiss the objection raised by the learned Counsel for the 1st Defendant in that regard. Page 11 of 22 16. Perhaps it would be useful at this stage to see what the state of the law is regarding the invocation of section 66 of the Contracts Act 1950. A short reference to a few decided cases of high authority maybe helpful as they are hardly controversial. The case that would readily come to mind on section 66 of the Contracts Act 1950 must be the Privy Council case of Menaka v Lim Kum Chum (1977) 1 MLJ 91 which effectively held that the respondent moneylender who had contravened section 8 of the Moneylenders Ordinance and who therefore could not enforce his illegal contract with the appellant on account of the illegality, was entitled to recover the same sum that was lent to the appellant under section 66 of the Contracts Act as the respondent was not aware of the illegality of the transaction at the time of the execution of the documents and that the illegality was discovered subsequent thereto. Similarly in the case of Ahmad bin Udoh & anor v Ng Aik Chong (1970) 1 MLJ 82 the Federal Court had ruled in favour of the respondent by invoking section 66 of the Contracts Act 1950 as the parties were ignorant that they were in fact executing an illegal agreement, thereby entitling him to be restituted by the appellant of the advantage which the appellant had derived from him. 17. From these cases, it has become clear that the determining factor that tilted the balance in favour of both the respondents there had been the act that the parties were unaware of the illegal character of the agreement at the time when they executed the said Page 12 of 22 agreement. The learned Counsel for the Plaintiff had urged this Court to find likewise. Having looked at the evidence again, I have to agree with him. To my mind, it was clear that the Plaintiff had lent the RM4 million to the 1st Defendant on the strength of the exemption order P3that was issued by the Minister concerned. It could be a mistake or out of sheer ignorance on the part of the Plaintiff as to the true ambit or scope of the said exemption, but what is clear has been that the Plaintiff was ignorant of the illegality of the transaction involving the TLA (P5) with the 1st Defendant. It was also clear from the evidence of the 1st Defendant that he had not entered into the TLA with the Plaintiff for an illegal purpose. His evidence on that matter reads: “Q: Setuju dengan saya tujuan pinjaman P5 itu adalah sah? A: Saya tidak faham soalan. Sekarang saya kata saya setuju setelah P/B terangkan maksud soalan itu, iaitu bukan untuk tujuan haram seperti judi dan sebagainya.” ( See NOE at page 36 ) 18. Now let us then see whether the1st Defendant had obtained an advantage from the Plaintiff pursuant to the said TLA. A narration of how the 1st Defendant had obtained advantage from the impugned TLA (P5) can be clearly seen below, essentially from a scrutiny of his own evidence recorded in this Court. It was in the evidence of the Page 13 of 22 1st Defendant Mohd. Iqbal bin Ismail (SD3) that he had admitted to having signed the TLA [P5] with the Plaintiff and that he was the principal borrower of the same loan but that he was not responsible to repay for the same loan because the proceeds from the said loan were purportedly used to finance the so-called CN Gallery project and that the repayment for the same loan was to be made by Syarikat Metro Jelita Sdn Bhd. In his own words, at page 32 of the NOE, the Defendant had said on being questioned by learned Counsel for the plaintiff En. J. Edwin Rajasooria: “Q: Berpandukan P5, setuju dengan saya bahawa kamu adalah bertanggungjawab untuk membayar balik pinjaman berkenaan dengan P5 ini? A: Tidak, sebab wang dari pinjaman ini adalah untuk membiayai projek CN Gallery dan pembayaran balik adalah dibuat oleh Syarikat Metro Jelita Sdn Bhd. Q: Saya cadangkan jawapan kamu tadi adalah tidak benar, kerana terma-terma P5 tidak ada berkata demikian. A: 19. Saya tidak pasti.” Now, as evidenced from the answers given by SD3, the 1st Defendant in this case, his understanding of his contractual obligations pursuant to an agreement was shown to be totally Page 14 of 22 misconceived. It is clear that the obligations under a contractual agreement are based on the principle of privity of contract between the contracting parties alone. P5 is clear as regards who the contracting parties were. They were the Plaintiff as the giver of the RM4 million loan and the SD3 as the principal borrower to whom the loan was granted to upon conditions as stipulated in the P5 pertaining, among others, to its repayment. P5 did not state that the said loan would be repaid by the Syarikat Metro Jelita Sdn Bhd, as alleged by the SD3. On the contrary, it was SD3 who had the obligation to repay the said loan. The fact that SD3 was not even sure, when it was put to him that the P5 did not state such a stipulation to the effect that the said loan was to be repaid by the Syarikat Metro Jelita Sdn Bhd, had put the credibility of the SD3 to be in great doubt. If he was not sure of his above quoted statement, which was clearly intended to exonerate him from liability under the said loan, it was made without basis whatsoever and his feigned ‘ignorance’ on that critical issue had bordered on being contemptuous. In fact, when he was cross-examined by the learned Counsel for the Plaintiff, his answers were mostly non-committal nor conclusive. At page 31 of the Notes of Evidence, he had answered when he was asked by learned Counsel En. J. Edwin Rajasooria thus: “Q: Kamu ada baca terma-terma perjanjian dalam P5 sebelum kamu tandatanganinya? Page 15 of 22 A: 20. Saya tidak pasti, sebab perkara ini sudah lama.” Somehow it made this Court to ponder why and how did the 1st Defendant (SD3) agree to sign on P5 as the principal borrower for such a substantial sum of money over which he had illustrated to this Court, through his answers that he had little interest in. It must be borne in mind that the SD3 was no simpleton. In fact, he was the Financial Controller in the employment of Syarikat Metro Jelita for 1 year in 1997. His answers were littered with “saya tidak pasti” or “saya tidak tahu” must therefore be viewed as suspect. This case might be old, but the involvement of SD3 in the scheme of things relating to the said loan had been such that, as a reasonable person, he ought to be constantly appraising himself of the development of the matter relating to the said RM4 million loan. But that apparent lackadaisical attitude on his part as shown throughout his evidence before this Court had shown to this Court his attitude towards the whole thing and that can only be viewed as a negative. 21. It was also in evidence before this Court that the 1st Defendant had given the necessary instructions to the Plaintiffs who had acted on the same and had released and drawn-down the RM4 million loan facility in 3 different tranches. This was admitted to by the 1st Defendant during his cross-examination by learned Counsel for the Plaintiffs. This can be clearly seen at page 33 of the Notes of Evidence as follows: Page 16 of 22 “Q: Sila lihat muka surat 35,38 dan 41 Ikatan ‘B’. Setuju dengan saya bahawa kamu telah arahkan plaintiff untuk keluarkan wang pinjaman seperti tertera dalam muka surat 2 tersebut ke dalam akaun bank Lee Siew Leng dan Leong Kok Chengdi BBMB? A: Saya setuju. Q: Sila lihat m.s. 36, 39 dan 42 dalam ikatan ‘B’. Setuju dengan saya jumlah RM4 juta telahpun dimasukkan dalam akaun tersebut atas arahan kamu kepada Plaintiff? A: 22. Setuju.” The 1st Defendant had also agreed that he had received from the Plaintiffs the repayment schedules as appear on pages 37, 40 and 43 of Bundle ‘B’ for the loan in between October and November of 1997. It is to be borne in mind that the 1st Defendant had also agreed that the loan that he had obtained from the Plaintiff had been a loan that was not for an illegal or an unlawful purpose. At page 3536 of the Notes of Evidence, the followings had appeared: “Q: Setuju dengan saya apabila kamu tandatangani P5 dengan plaintiff, kamu beranggapan pinjaman tersebut adalah satu pinjaman yang sah? Page 17 of 22 A: Saya tidak pasti. Q: Setuju dengan saya tujuan pinjaman P5 itu adalah sah? A: Saya tidak faham soalan. Sekarang saya kata saya setuju setelah P/B terangkan maksud soalan itu, iaitu bukan untuktujuan haram seperti judi dan sebagainya.” 23. So, from the above, 2 things are clear. First, if the TLA (P5) had been valid, the 1st Defendant would have been liable under it to suffer the full brunt of the said TLA. Secondly, it is clear that the 1st Defendant benefitted financially from the Plaintiffs in relation to the RM4 million loan facility. It was the Plaintiff’s submission that because the 1st Defendant had given the instructions for the release of the monies and that the Plaintiff had so released it on such instructions, it would matter not who finally dealt with the monies so released. For all intents and purposes, it was the 1st Defendant who had benefitted from release of the said loan facility. The learned Counsel for the 1st Defendant did not agree. How would the law deal with such a situation? 24. Now, from a perusal of the evidence adduced before this Court, it had become clear to me that when both parties had signed and entered into this agreement as in P5 both parties had acted in Page 18 of 22 good faith. There was proper documentation of the P5 and its related attendant documents. This had not been a case where both of them had illegally entered into P5 ab initio or for an illegal purpose or for an unlawful consideration. All the while the Plaintiff had been acting under the belief that it had been so exempted to lend money under the exemption order P3 based on its interpretation of P3 as could be seen clearly from the evidence of SP1. But what has also become clear is that the 1st Defendant had benefitted from P5. He had got what he wanted from the P5 but he was not repaying it despite acknowledging that he had instructed the Plaintiff to release the money totaling RM4 million and despite having received the demand notices sent by the Plaintiff. 25. In this kind of situation, section 66 of the Contracts Act 1956 would of necessity apply to remedy an injustice that could be occasioned to the Plaintiff when the P5 was subsequently found to be unenforceable by virtue of section 15 of the Moneylenders Act 1995. As could be seen from the evidence of the 1st Defendant himself (SD3), this has not been a contract that had been entered into by both parties in pari delicto for if that had been the case, this Court, like any other Courts in this country would have just let everything that had got to do with the TLA(P5) lie wherever it may be and the Court will not intervene and lend its hands to either of the parties in such illegal contracts which are unlawful ab initio. Such has not been the factual matrix concerned with this case. In this Page 19 of 22 case, the Plaintiff had disbursed the RM4 million to the various bank accounts on the instructions of the 1st Defendant on account of the purportedly legally competent contract in TLA (P5). As such, it had become clear that the 1st Defendant had received an advantage under the said P5 for which the Plaintiff must be restituted. It would appear therefore that the Plaintiff would be on firmer ground to succeed against the 1st Defendant on the ground that under the circumstances, it would be unconscionable to allow the 1st Defendant to be unjustly enriched as a direct result of getting the money from the said loan facility from the Plaintiff which subsequently had become unenforceable by law. Under such circumstance, it is the law too that there ought to be restitution by the Defendant to the Plaintiff under section 66 of the Contracts Act 1950. But as the Plaintiff was not exempted under the Money Lending Act 1995, they could not charge any interest for the same, from the date of the disbursement of the said loan to the 1st Defendant. So, the sum recoverable under section 66 of the Contracts Act 1950 must necessarily be lower than the sum which the Plaintiff was claiming on the basis that the TLA (P5) was enforceable. 26. As such, I enter judgement in favour of the Plaintiff, not on the premise that the TLA was enforceable against the 1st Defendant but rather on account of the fact that the circumstances of this case had convinced this Court to rule in favour of the Plaintiff that there ought to be restitution by the 1st Defendant to the Plaintiff for the Page 20 of 22 advantage that the Defendant had obtained pursuant to the impugned TLA(P5) under section 66 of the Contracts Act 1950. As such, there shall be judgement entered in favour of the Plaintiff for the sum being the balance of the RM4 million loan still not paid back by the 1st Defendant to the Plaintiffs, namely RM3,720.959.00 together with interest from the date of judgment till full payment. Each party to bear own costs. 27. Order accordingly. …………………………………………………..... ( ABANG ISKANDAR BIN ABANG HASHIM ) JUDGE HIGH COURT OF MALAYA KUALA LUMPUR. Dated: 08th January, 2010. Counsel For the Plaintiff: Mr. J. Edwin Rajasooria from Tetuan K S Ong & Co, Advocates and Solicitors Page 21 of 22 Counsel for Defendant: En. Daniel Siew and En. C.M. Tan for 1st Defendant From Tetuan Joseph Ting & Co Advocates and Solicitors Cases referred to: 1. Masjaya Trading Sdn Bhd v Kedah Cement Sdn Bhd [2004] 4 CLJ 18. 2. Menaka v Lim Kum Chum (1977) 1 MLJ 91 3. Ahmad bin Udoh & anor v Ng Aik Chong (1970) 1 MLJ 82 Page 22 of 22