Agreements designed to conceal a loan by unlicensed moneylenders render the agreements illegal and unenforceable under the Moneylenders Act.

Introduction

[1] The question for determination in the trial of this case is whether a set of agreements signed by the parties is a sham to conceal a loan by an unlicensed moneylender. This is the contention of the Defendants who are being sued on 2 of the agreements by the Plaintiff for recovery of RM2.150 million as unpaid service fees.

[2] The set of agreements comprises a Service Agreement dated 21 December 2020 ("Semce Agreement"), a Personal Guarantee & Indemnity dated 21 December 2020 ("Guarantee") and an Investment and Shareholder Agreement dated 24 December 2020 ("Investment Agreement").

[3] The participants in the transactions evidenced by the said set of agreements are a property developer (the 1st Defendant, "LLC"), its director (the 2nd Defendant, "Ling"), an intermediary (the Plaintiff, "Lu") and one Ng Pang Chong ("Ng"). Ling is the Managing Director and substantial shareholder of LLC. The other shareholder is Ling's wife.

[4] Lu sued LLC and Ling for recovery of the unpaid balance of service fees in the sum RM2.150 million under the Service Agreement and Guarantee. Separately, it was disclosed at the start of the trial of this case that Ng had also filed a separate suit against LLC and Ling for recovery under the Investment Agreement in BA-22NCvC-18-01/2025.

[5] The Defendants' defence in this action is that Lu and Ng had worked together on the transaction, and characterized the Service Agreement and Investment Agreement as part of an illegal moneylending transaction. The Defendants also pleaded that the Service Agreement is illegal because it is otherwise a contract to broker an illegal moneylending transaction. No evidence was led or submissions offered on the other pleaded defences i.e misrepresentation by Lu of his services and qualifications.

[6] In this Judgment, this Court determined the following issues:

a) whether the Investment Agreement is a genuine transaction or a sham based on an illegal moneylending transaction

b) if the true bargain was in the nature of a loan, whether the said loan was in contravention of the Moneylenders Act 1951

c) whether the Service Agreement is tainted by the illegality and is therefore also unenforceable

Background Facts

[7] Sometime in 2018, LLC launched a development called the Moolan Ipoh Development Project ("Moolan Project"). According to Ling, LLC ran into financial difficulties and he was desperate for money. Lu was a common friend of both Ling and Ng and he connected the 2. It is common ground that these were the circumstances that led the parties to the impugned transaction.

[8] LLC, Ling and Lu entered into the Service Agreement dated 21 December 2020 by which Lu would act as a "coordinator of the Moolan Project, whose scope was to introduce LLC to potential investors in the Moolan Project, coordinate meetings and introduce professionals as may be required by LLC. Lu had no advisory, financial or any other function.

[9] Under the Service Agreement, for RM3.5 million received by LLC under any written agreement signed between the potential investor and LLC ("Definitive Agreement"), Lu was to receive a total of RM2.350 million in fees ("Semce Fee") payable in 2 tranches — RM200,000.00 upon execution of the Definitive Agreement, and the balance within the earlier of 36 calendar months from the date of the Definitive Agreement or handover of completed units of the Moolan Project, subject to the possibility of a 6-month extension.

[10] In conjunction with the Service Agreement, Ling signed the Guarantee to guarantee LLC's indebtedness under the Service Agreement. LLC, Ling and Ng