Alor Setar Development Corporation Sdn. Bhd. v Ee Engineering (Malaysia) Sdn. Bhd. (KA-12BC-1-06/2025)

At first blush, this appeal appears to be a prosaic contractual dispute over an outstanding construction sum of RM538,000.00. However, a deeper judicial scrutiny of the evidential matrix unravels a systemic and legally fatal flaw: the sub-contract forming the substratum of the Plaintiff's claim is an illegal 'Ali Baba' scheme, meticulously engineered to circumvent government procurement policies. This appeal compels this Court to navigate the strict intersection between the doctrines of public policy under Section 24 of the Contracts Act 1950, the threshold of appellate intervention, and the fatal consequences of defective pleadings when invoking equitable restitutionary remedies.

The Appellant is a Bumiputera construction company registered with the Construction Industry Development Board (CIDB) under the G5 class. The Respondent is a non-Bumiputera company.

The dispute stems from a construction project known as "Cadangan Pembangunan Di Atas Lot 4359, Mukim Gelugor, Tasek Gelugor, Seberang Perai Utara, Yang Mengandungi: a) 1 Unit Bangunan 4 Tingkat Untuk Tetuan Sekolah Tahfiz Al-Islah (“the Project”). The Respondent claimed to have been appointed as the sub-contractor for the Project by the Appellant, pursuant to a Letter of Award dated 1.06.2018. S/N nDbkfIn5i0eoKLfiCDVUfg

It is undisputed that the works for the Project were successfully executed and completed. The Certificate of Practical Completion (CPC) was issued on 03.05.2021, and following the expiration of the defect liability period, the Certificate of Completion of Making Good Defects (CCMGD) was issued on 14.07.2022.

Following the Project's completion, the project owner made full payment to the Appellant, which included the release of the retention sum. Throughout the Project, the Respondent submitted progress claims. On 21.07.2022, the Respondent made a final claim amounting to RM 553,473.47.

On 04.08.2022, the Appellant made a partial payment of RM 15,473.57, leaving an outstanding balance of RM 538,000.00. When the Appellant failed to remit this remaining balance, the Respondent initiated a civil suit in the Sessions Court to recover the RM 538,000.00. Proceedings in the Sessions Court 7. In the court below, the Appellant resisted the Respondent’s claim by raising two primary defences. First, there is the illegality (‘Ali Baba’ scheme). The Appellant contended that the sub-contract arrangement was a sham designed to circumvent government procurement policies restricting such projects to Bumiputera companies. S/N nDbkfIn5i0eoKLfiCDVUfg

The Appellant asserted that it merely lent its name and CIDB license to secure the contract in exchange for a fixed commission of 2% of the project's value, while the Respondent undertook and managed the entirety of the works. The Appellant argued that the contract was void ab initio under Section 24 of the Contracts Act 1950, as it was illegal and contrary to public policy.

Secondly, this is a premature suit. The Appellant pleaded that both parties had mutually agreed in early July 2022 to convert RM 500,000.00 of the outstanding balance into a capital loan. According to the Appellant, this loan was to be repaid to the Respondent on or before 31.12.2023, rendering the Respondent's present suit premature.

After a full trial, the learned Sessions Court Judge (“LSCJ”) delivered his decision, allowing the Respondent's claim of RM 538,000.00 with costs. In his grounds of judgment, the LSCJ held that the Appellant failed to prove the existence of the ‘Ali Baba’ scheme, noting that the Appellant relied on hearsay advice from a lawyer who was never called to testify to substantiate the illegality claim. The LSCJ also rejected the capital loan defence as a mere fabrication, taking into account that the Appellant had still failed to make the payment even after the 31.12.2023 deadline had elapsed.

Dissatisfied with the outcome, the Appellant preferred the present appeal (“this Appeal”), praying that the impugned decision of the learned Sessions Court Judge be set aside in its entirety. The S/N nDbkfIn5i0eoKLfiCDVUfg Appellant submits that the LSCJ suffered from an insufficient judicial appreciation of the evidence, which clearly demonstrated the existence of an illegal ‘Ali Baba’ scheme, thereby rendering the contract void and unenforceable in law.

In determining this Appeal, the Court has carefully examined the Records of Appeal, the written submissions and replies, and the oral arguments presented by both counsels. The crux of this Appeal hinges on the following principal issues: a) Whether there was a failure of judicial appreciation of evidence by the LSCJ, warranting appellate intervention; b) Whether the sub-contract is void ab initio for being an illegal ‘Ali Baba’ scheme that contravenes public policy; and c) Whether the Respondent can rely on restitution or unjust enrichment when the contract is tainted by illegality, particularly when such remedies were never pleaded. Decision and Findings of this Court

The threshold issue before this Court is whether the LSCJ failed to properly evaluate the evidence demonstrating the existence of a "total sub" or ‘Ali Baba’ arrangement. In the court below, the LSCJ dismissed the Appellant's illegality defence. The LSCJ reasoned that the Appellant failed to provide a clear explanation of the ‘Ali S/N nDbkfIn5i0eoKLfiCDVUfg Baba’ scheme and drew an adverse inference against the Appellant for failing to call the lawyer who had purportedly advised them that the agreement was illegal. The LSCJ further concluded that if the ‘Ali Baba’ scheme truly existed, the Appellant was complicit in it.

The learned counsel for the Respondent forcefully submitted that the LSCJ's findings should not be disturbed. The Respondent relied on Section 101 of the Evidence Act 1950 and the Federal Court case of Hong Yik Trading v Liziz Plantation Sdn Bhd [2017] 4 MLRA 89 to argue that the burden of proving the existence of the ‘Ali Baba’ scheme rested entirely on the Appellant.

The Respondent submitted that the Appellant failed to affirmatively discharge this burden, primarily because they failed to adduce corroborating evidence or call their advising lawyer to the stand. Furthermore, relying on the Federal Court case of Wong Yee Boon v Gainvest Builders (M) Sdn Bhd [2020] 1 MLRA 481, the Respondent argued that the courts should not speculate on public policy, and that the doctrine of public policy should only be invoked in clear cases where the harm to the public is substantially incontestable.

In other words, the Respondent contended that the arrangement was a genuine commercial sub-contract devoid of any substantially incontestable public harm. S/N nDbkfIn5i0eoKLfiCDVUfg

Conversely, the learned counsel for the Appellant submitted that the LSCJ suffered from an insufficient judicial appreciation of the evidence, which warrants appellate intervention. The Appellant relied on the landmark Court of Appeal decision in Gan Yook Chin & Anor v Le Ing Chin & Ors [2004] 4 CLJ 309; [2005] 2 MLJ 1; [2004] 6 AMR 781, arguing that the LSCJ completely disregarded crucial oral and documentary evidence that objectively proved the ‘Ali Baba’ scheme. The Appellant highlighted the cross-examination of their sole witness, SD1 (Zolkepli Bin Ahmad), and the undisputed Progress Claims, which clearly showed a fixed 2% commission structure for the mere use of the Appellant's license.

Having carefully scrutinised the Records of Appeal and the rival submissions, this Court finds that the Appellant's arguments are structurally unassailable and compelling. The law on appellate intervention is well-settled. As established in Gan Yook Chin (supra), an appellate court is perfectly entitled to examine the trial court's process for evaluating the evidence. A decision arrived at by a trial court without a proper judicial appreciation of the evidence is inconsistent with the "plainly wrong" test and must be set aside on appeal.

Thus, an appellate court will not hesitate to intervene where the trial court’s decision occasions a manifest failure to appreciate the objective evidence judicially. With the greatest of respect, the LSCJ committed an appealable error by treating the 'Ali Baba' defence as an unproven factual assertion rather than a question of law borne out by the contemporaneous documents. S/N nDbkfIn5i0eoKLfiCDVUfg

The documentary trail is glaring. The Grand Summaries (e.g., Progress Claim No. 17) prepared by the Respondent do not depict a partial delegation of specific tasks; rather, they reveal a 'total sub-contract' masquerading as a genuine enterprise. Crucially, a distinct, structurally embedded line item denoted as 'LESS:- 2%' is applied against the total gross value of the works. This 2% deduction represents the irrefutable hallmark of an 'Ali Baba' arrangement—a fixed commission paid to the Appellant solely for the lending of its Bumiputera CIDB G5 license, denuded of any actual construction execution by the Appellant.

This documentary trail conclusively proves that the 2% deduction was not a valuation of any specific tasks, materials, or expertise supplied by the Appellant, but rather a pre-agreed, fixed "cut" or commission mandated across the entire contract sum for the mere use of the Appellant's CIDB license. This documentary evidence was heavily corroborated by the oral testimony of the Appellant's sole witness, SD1 (Zolkepli Bin Ahmad).

During his examination, SD1 provided a stark explanation of the mechanics of this arrangement, clearly distinguishing it from genuine industry subcontracting. He testified under oath that the tender documents and prices were entirely determined and filled in by the Respondent. It was the Respondent who dictated the commission rate given to the Appellant, which ranged across a systemic pattern of six different government projects. S/N nDbkfIn5i0eoKLfiCDVUfg

When pressed on the Appellant's actual role in the project, SD1 frankly admitted, 'Saya hanya melobi sahaja' and confirmed that the Respondent merely used the Appellant's license. Crucially, the evidence adduced during the trial revealed that this was not an isolated commercial misstep. This 2% deduction was part of a systemic modus operandi involving six different government projects by the same parties, with the commission fluctuating arbitrarily between 1.5% and 5% with no correlation to the actual work performed. The LSCJ's failure to appreciate this systemic pattern of license lending across multiple contracts was a fundamental error.

Crucially, the existence of this 2% commission structure was not merely a unilateral assertion by the Appellant; it was explicitly admitted by the Respondent's own director, SP1 (Loh Geay Soon). During cross-examination, when it was put to him that the deduction for the contract between the Plaintiff and Defendant was 2%, SP1 openly conceded, "Setuju, Dato’. Ini yang baru." (See NOP in the Records of Appeal, p.74)

The LSCJ's failure to judicially appreciate this overwhelming convergence of documentary evidence and direct oral admissions from both parties' witnesses, which objectively demonstrated a "total sub" or ‘Ali Baba’ scheme, was a fundamental error that warrants appellate intervention.

The LSCJ fundamentally misdirected himself in law by holding that S/N nDbkfIn5i0eoKLfiCDVUfg the Appellant needed to call the lawyer who advised them on the illegality to testify. Whether a contract is illegal or contrary to public policy under Section 24 of the Contracts Act 1950 is strictly a question of law to be deduced by the Court from the factual matrix, not a question of fact requiring a lawyer's corroborating testimony. Furthermore, the Respondent’s reliance on Wong Yee Boon (supra) is misplaced as the case dictates that public policy should only be invoked in clear cases where the harm to the public is substantially incontestable. The arrangement in the present case fits precisely into this threshold.

An ‘Ali Baba’ scheme is not a matter of mere speculation; it is a deliberate deception designed to circumvent government procurement policies and statutory frameworks meant for Bumiputera empowerment. Bypassing such national policies to secure government funds constitutes a public harm that is, without a doubt, substantially incontestable.

Premised on the foregoing, this Court finds that the LSCJ failed to properly evaluate the cross-examination of SD1 and the documentary evidence of the 2% commission structure. As succinctly illuminated by Steve Shim CJ (Sabah & Sarawak) in the Federal Court case of Gan Yook Chin (supra): "[14] In our view, the Court of Appeal in citing these cases had clearly borne in mind the central feature of appellate intervention, i.e., to determine whether or not the trial court had arrived at its decision or finding correctly on the S/N nDbkfIn5i0eoKLfiCDVUfg basis of the relevant law and/or the established evidence. In so doing, the Court of Appeal was perfectly entitled to examine the process of evaluation of the evidence by the trial court. Clearly, the phrase ‘insufficient judicial appreciation of evidence’ merely related to such a process. This is reflected in the Court of Appeal's restatement that a judge who was required to adjudicate upon a dispute must arrive at his decision on an issue of fact by assessing, weighing and, for good reasons, either accepting or rejecting the whole or any part of the evidence placed before him. The Court of Appeal further reiterated the principle central to appellate intervention, i.e., that a decision arrived at by a trial court without judicial appreciation of the evidence might be set aside on appeal. This is consistent with the established plainly wrong test.” [Emphasis added]

This egregious omission amounts to an "insufficient judicial appreciation of evidence" under the plainly wrong test as established in Gan Yook Chin. The LSCJ's factual findings regarding the non-existence of the ‘Ali Baba’ scheme are wholly unsafe and must be overturned, thereby justifying appellate intervention. Issue No. 2 30. Having established factually under the first issue that the arrangement was indeed a "total sub", this Court must determine the substantive legality of such an arrangement. The governing law S/N nDbkfIn5i0eoKLfiCDVUfg is Section 24 of the Contracts Act 1950, which stipulates that the consideration or object of an agreement is unlawful if it is forbidden by law, if it is of such a nature that, if permitted, it would defeat any law, or if the court regards it as opposed to public policy. Every agreement of which the object or consideration is unlawful is void.

In the court below, the LSCJ dismissed the ‘Ali Baba’ defence on the basis that there was no clear explanation of the ‘Ali Baba’ scheme, and reasoned that if the ‘Ali Baba’ scheme truly existed, the Appellant was complicit and abetted in it. To justify validating the contract, the LSCJ heavily relied on the Apex Court case of Wong Yee Boon (supra), holding that courts should not speculate on public policy and that the doctrine of public policy should be invoked only in clear cases where the harm to the public is substantially incontestable. Premised on this high threshold, the LSCJ concluded that the arrangement did not cross into the realm of illegality and thus upheld the validity of the sub-contract.

With the utmost respect to the LSCJ, the reliance on Wong Yee Boon (supra) to validate this contract is fundamentally flawed. Circumventing government procurement policies through an ‘Ali Baba’ scheme is not mere speculation; it is a direct subversion of national economic policies specifically designed for Bumiputera empowerment. The harm to the public and the integrity of the government tendering process is, without a doubt, substantially incontestable.

The Respondent's reliance on Wong Yee Boon (supra) to S/N nDbkfIn5i0eoKLfiCDVUfg downplay the public harm is entirely untenable. The circumvention of Bumiputera equity requirements in government procurement is not a harmless internal breach. This Court takes judicial notice that 'Ali Baba' schemes are a recognised scourge on national economic policies. In fact, it is a matter of public record, as exhibited in the Appellant's authorities, that the appellate courts of this country have consistently refused to enforce 'Ali Baba' contracts for directly violating public policy under the Contracts Act 1950. (See, inter alia, David Hey v New Kok Ann Realty Sdn Bhd [1984] 1 LNS 51; Bakar Ahmad v Subramaniam Kanniah [1992] 4 CLJ 1833; Tan Bing Hock v Abu Samah [1967] 1 LNS 176; Baldev Singh v Mahima Singh & Ors [1974] 1 LNS 13; and the Court of Appeal decision involving Nasiraa Bersatu Sdn Bhd as reported in Berita Harian dated 4 August 2022 entitled “Skim Ali Baba Menyalahi Akta Kontrak - Mahkamah Rayuan" relied upon by the Appellant). The harm to the public purse and the integrity of the tendering process is, without a doubt, substantially incontestable.

The anatomy of this illicit arrangement is vividly illustrated in the testimony of the Appellant's sole witness, SD1 (Zolkepli Bin Ahmad). Under cross-examination, SD1 succinctly demarcated the chasm separating a legitimate commercial subcontracting arrangement from the illegality of the instant proxy transaction (see Notes of Proceedings, Records of Appeal, pp. 123–124): [See NOP in the Records of Appeal, pp.123 & 124] Apa beza dengan subkontrak pula? S/N nDbkfIn5i0eoKLfiCDVUfg Kalau subkontrak, selalunya kita ada dua. Subkontrak pertama, kita dapat projek dan kita melantik kepada subkontrak hal-hal yang kita sendiri taka da kepakaran. Contohnya, segi wiring dan piping. Sekiranya kerja-kerja sivil, kita buat sendiri lah. Plaster, ikat bata, kita ada pekerja sendiri. So, untuk melibatkan kerja-kerja mekanikal, elektrikal, kita terpaksa melantik orang lain. Itu subkontrak dan subkontrak kedua. Kalau kita ada kerja yang berlebihan dan kita tak mampu buat, kita total sub. Dan total sub, harga itu kita yang letakkan. Kita mesti ambil percentage yang lebih. Sebab kita yang tentukan untuk mendapatkan percentange. Skeurang-kurangnya 10%. MVR Sekurang-kurang? 10%. Yang beza dengan ’Ali Baba’ ni, macam mana pula? Beza Alibaba ini sebab dokumen tender, harga tender, semua ditentukan oleh pihak Plaintif dan dia yang tentukan bagi kita komisyen, daripada 4% ke 3% ke, sehinggalah dapat 1.5%. Tetap pada Plaintiff yang menentukan. Bukan saya yang menentukan. Dia guna lessen sajalah? Dia guna lessen. [Emphasis added]

This testimony perfectly encapsulates the mischief that Section 24 S/N nDbkfIn5i0eoKLfiCDVUfg of the Contracts Act 1950 seeks to prevent. It is not a delegation of specialised work, but a wholesale hijacking of a Bumiputera license by a non-Bumiputera entity. This position is firmly entrenched in Malaysian jurisprudence. I find the decision in Norman Disney & Young v Afifi Hj Hassan [2011] 1 CLJ 210 to be highly instructive. In Norman Disney, the court struck down a proxy arrangement, explicitly holding that the establishment of ‘Ali Baba’ companies is illegal as it is against Malaysian public policy. The court ruled that any attempt to circumvent statutory requirements or national policies falls foul of Section 24 of the Contracts Act 1950.

In their written submissions and Reply Submission, the Respondent argued that this was merely a standard commercial sub-contract. They attempted to distinguish the Appellant's authorities, arguing that Norman Disney involved foreigners (whereas this case involves locals) and that Amman Singh v Vasudevan [1973] 1 MLJ 210 involved an element of fraud against creditors, which is allegedly absent here. Furthermore, the Respondent argued that the difference in value between the main contract awarded by the government and the sub-contract proves they were merely a sub-contractor carrying out a portion of the works.

With respect, the Respondent's attempts to distinguish these cases are entirely misconceived and collapse under the weight of the objective evidence. S/N nDbkfIn5i0eoKLfiCDVUfg

First, the core legal principle in Norman Disney (supra) is not strictly about the nationality of the parties, but the use of a proxy to circumvent statutory requirements and national policies. The mischief is identical: just as the foreign entity in Norman Disney (supra) used a local proxy, the non-Bumiputera Respondent here used the Appellant's CIDB G5 Bumiputera license as a proxy to deceive the government and the project owner. Similarly, the "fraud" that attracts the principles of Amman Singh (supra) is factually present; it was perpetrated against the government and the project owner, who awarded the tender on the strict premise that a genuine Bumiputera company would execute it.

Second, the argument that the price difference proves a genuine sub-contract is a fallacy. That price difference is the exact manifestation of the illicit ‘Ali Baba’ commission. The Respondent cannot mask this arrangement as a genuine commercial sub-contract when the objective evidence exposes a systematic, multi-project pattern of license-lending for a fixed, naked percentage fee.

As established by the Court of Appeal in Bon Chong Hing & Anor v Gama Trading Company (Hong Kong) Ltd [2011] 6 CLJ 493, the interpretation of a commercial contract must objectively conform to business logic. It defies all commercial sense and business logic for a main contractor to retain a minuscule 2% margin while delegating 100% of the financial risk, preliminaries, and physical execution to a sub-contractor. The only logical and objective conclusion is that this 2% 'discount' was not a genuine valuation of sub-contracted works, but a sham designed purely to facilitate a S/N nDbkfIn5i0eoKLfiCDVUfg license-lending commission.

In evaluating issues of illegality and public policy, the Court is duty-bound to look past superficial nomenclatures and examine the stark economic reality of the transaction. Equity and law alike look to the intent and substance, not merely the form. Labelling a document a 'Letter of Award' or a 'Sub-Contract' cannot sanitise an arrangement whose underlying math and systemic operation point exclusively to an illicit proxy enterprise.

Applying this standard to the appeal before me, the financial skeleton of the parties' agreement completely betrays its formal designation as a commercial 'Sub-Contract'. When the Respondent’s own director openly admitted that they orchestrated the entire tender, determined the pricing, and bore all execution risks while allocating a structured, passive commission for the mere use of a license, the court cannot shield its eyes from the underlying reality. This was a textbook proxy arrangement, not a legitimate enterprise.

It is against this glaring evidential backdrop that the Respondent's heavy reliance on Hong Yik Trading (supra) and Section 101 of the Evidence Act 1950 must be tested. The Respondent, relying heavily on Hong Yik Trading (supra) and Section 101 of the Evidence Act 1950, argued that the Appellant failed to discharge the evidential burden of proving illegality, faulting the Appellant for failing to call the solicitor who advised on the contract's invalidity. This argument is legally flawed. The illegality of a contract under Section 24 is a matter of law to be deduced from the objective facts, S/N nDbkfIn5i0eoKLfiCDVUfg not from the oral testimony of a solicitor. The Appellant successfully discharged its evidential burden the moment the fixed 2% license-lending structure was established via documentary evidence and corroborated by SD1 during cross-examination.

Further, the Respondent’s reliance on Wong Yee Boon (supra) and Spring Max Capital Sdn Bhd v Johari Hassan & ors & another case [2021] 2 MLRH 466 to suggest that this arrangement does not reach the threshold of harming public policy is entirely misplaced. Those authorities dealt with private influence peddling and internal breaches. Conversely, the arrangement herein perpetrated a direct deception against the owner of a government-linked project. Permitting a non-Bumiputera entity to wholly hijack a Bumiputera CIDB license for a 2% cut actively defeats the overarching public policy and statutory framework governing government procurement in Malaysia, fitting squarely within the mischief prohibited by Section 24(a), (b), and (e) of the Contracts Act 1950.

To further dismantle the illusion of a genuine sub-contract, the Respondent's own witness (SP1, Loh Geay Soon) openly admitted to the fixed 2% deduction structure during cross-examination, confirming the parasitic nature of the arrangement at p.74 of the Records of Appeal: Ok seterusnya projek ini sendiri. Muka surat 125 Yang Arif. Minta maaf. 121. Kontrak antara Plaintif dan Defendan. Potongan dia 2%. Setuju, Dato’. Ini yang baru. S/N nDbkfIn5i0eoKLfiCDVUfg

When a non-Bumiputera company entirely funds, executes, and deducts a mere 2% "fee" to use a Bumiputera company's license, the object of the agreement is undeniably to defeat the law.

Furthermore, the illicit nature of this arrangement is compounded by its blatant contravention of the main contract. Clause 17 of the PAM Contract 2006 (marked as Exhibit D20 during the trial) strictly prohibited the Appellant from sub-contracting the works without the written consent of the Employer. Clause 17.3 of the PAM Contract explicitly mandates the following prohibition: "Except where otherwise provided by the Contract, the Contractor shall not wholly or substantially sub-contract the Works".

An arrangement structured entirely to bypass both the Employer's prohibition and the government's Bumiputera procurement policy cannot be recognised by this Court as a valid commercial sub-contract.

SP1 explicitly admitted this deliberate circumvention during cross-examination, where he conceded that no consent was ever obtained from the project owner. [See NOP in the Records of Appeal, pp.77 & 78] Setuju dengan saya, Plaintif tidak ada apa-apa surat ataupun dokumen nak ditunjukkan kepada S/N nDbkfIn5i0eoKLfiCDVUfg Mahkamah yang pemilik projek, sekolah tahfiz ini, ada memberikan persetujuan pelantikan Plaintif sebagai subkontraktor. Saya tidak setuju. Ada dokumen... Letter from the company. Bukan nak surat award. Consent daripada sekolah tahfiz. Tidak ada. [Emphasis added]

This fatal admission shatters the Respondent's narrative that this was a standard, lawful commercial sub-contract. Finally, I must address the LSCJ's reasoning that the Appellant was complicit in the ‘Ali Baba’ scheme and therefore cannot rely on the illegality defence. This approach is legally erroneous. When a contract contravenes public policy, the defendant's culpability or complicity does not validate the contract.

During oral submissions, the Respondent's counsel attempted to deflect this breach by arguing that it was solely the Appellant's duty to obtain the Employer's consent. This argument is thoroughly misconceived. The Respondent actively drafted the tender documents, priced the bills of quantities, and executed the entire works, fully aware that the main contract prohibited wholesale subcontracting and that the Employer had been kept in the dark. This mutual concealment further strips away the facade of a lawful commercial sub-contract and cements the arrangement as a covert 'Ali Baba' scheme. S/N nDbkfIn5i0eoKLfiCDVUfg

The legal effect of such an arrangement is best summed up by the Court of Appeal in Thong Foo Ching & Ors v Shigenori Ono [1998] 4 CLJ 674; [1998] 4 MLJ 585, where Her Ladyship Siti Norma Yaakob JCA adopted the firm pronouncement of the Federal Court in Datuk Ong Kee Hui v Sinyium Anak Mutit [1983] 1 MLJ 36 at p.41: “As the arrangement between the parties is illegal and the illegality is not only with regard to its performance but in its very inception, such arrangement is void ab initio and the parties were outside the pale of the law. The law is clear that the court will not lend its aid to enforce an unlawful agreement based on the maxim ex dolo malo non oritur actio (out of a fraud no action arises). The law gives no allowance for innocence or complicity so far as the consequences of a void contract are concerned.” [Emphasis added]

Premised on this binding Federal Court principle, the law is clear that the court will not lend its aid to enforce an unlawful agreement based on the maxim ex dolo malo non oritur actio (out of a fraud no action arises). The law gives no allowance for innocence or complicity so far as the consequences of a void contract are concerned. Therefore, the LSCJ's finding that the Appellant was 'complicit' is legally irrelevant to the contract's enforceability. When a contract is tainted by illegality, the Court’s duty is to strike it down, regardless of whether both parties were in pari delicto (equally at fault). Applying the above to our case, the Respondent is attempting to use the court's machinery to enforce an outstanding payment of S/N nDbkfIn5i0eoKLfiCDVUfg RM538,000.00 arising from a fraudulent ‘Ali Baba’ scheme. By applying this maxim, this Court must refuse to assist the Respondent in claiming their unpleaded equitable remedies or unjust enrichment. The parties are entirely outside the pale of the law, and the strict consequence is that the loss must lie where it falls.

Therefore, this Court concludes that the arrangement between the Appellant and the Respondent is an illegal ‘Ali Baba’ scheme. The LSCJ erred in law by failing to recognise the substantially incontestable public harm caused by such schemes. The agreement is strictly void ab initio pursuant to Section 24 of the Contracts Act

Consequently, the contract is wholly unenforceable in law, and no claim or recovery pursuant thereto can be allowed by this Court. Issue No. 3 55. Having found under Issue No. 2 that the sub-contract is an illegal ‘Ali Baba’ scheme and therefore strictly void ab initio under Section 24 of the Contracts Act 1950, this Court must address the legal consequences of such a finding. During oral submissions, this Court enquired of counsel and raised the question of restitution sua sponte. Specifically, this Court questioned counsel on how the Court should deal with the completed works and the funds in light of the restitutionary principles established in the landmark UK Supreme Court decision of Patel v Mirza [2016] UKSC 42; [2017] AC 467.

Patel v Mirza provides a flexible framework to determine whether a party can claim restitution or unjust enrichment to recover funds S/N nDbkfIn5i0eoKLfiCDVUfg transferred under an illegal agreement, essentially asking whether allowing restitution would harm the integrity of the legal system.

The modern triad approach enunciated by Lord Toulson in Patel v Mirza requires a tripartite balancing exercise:

considering the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim;

considering any other relevant public policy on which the denial of the claim may have an impact; and

considering whether the denial of the claim would be a proportionate response to the illegality.

It is imperative to observe that while the common law world has pivoted toward the flexible, policy-based approach in Patel v Mirza, such flexibility cannot bypass or dilute the clear statutory mandates of our Contracts Act 1950. Unlike jurisdictions that operate purely under common-law illegality, Section 24 of our Act codifies a strict statutory threshold. Where the object of an agreement is of such a nature that it actively defeats a national policy framework or constitutes an incontestable public harm, the statutory declaration that such an agreement is void curtails the judicial drift toward equitable rescue.

When pressed on this critical issue of law, the submissions from both counsels were remarkably shallow. The Respondent's counsel erroneously attempted to argue that the illegality only rendered the contract "voidable" because the works had been completed, and S/N nDbkfIn5i0eoKLfiCDVUfg relied on unjust enrichment to demand payment. This is evident from the oral submissions before this Court.

Before this Court can even consider exercising any equitable flexibility under Patel v Mirza to prevent unjust enrichment, the Respondent's claim collapses on a fundamental procedural flaw. More fatally, the Respondent remains bound by the strict four corners of its pleadings. Pursuant to Order 18 Rule 7 of the Rules of Court 2012, a party must plead all material facts upon which they rely. A meticulous perusal of the Records of Appeal reveals that the Respondent’s Statement of Claim was anchored entirely upon the enforcement of a supposedly valid and lawful sub-contract. The Respondent utterly failed to plead unjust enrichment or quantum meruit as the alternative causes of action.

A party cannot suddenly introduce a new equitable remedy like unjust enrichment from the Bar during oral submissions if it was never pleaded from day one. This is not a matter of mere procedural purism; it is a fundamental pillar of natural justice and substantive law. It is trite and foundational law that the court cannot decide a case on a point not raised in the pleadings, for to do so would take the opposing party by surprise and completely subvert the adversarial system. (See, Samuel Naik Siang Ting v Public Bank Bhd [2015] 6 MLJ 1) The Court’s jurisdiction is strictly bounded by the case the parties have chosen to put forward on the record. Since the Respondent failed to plead alternative restitutionary remedies properly, this Court is procedurally barred from granting an unpleaded equitable remedy under Patel v Mirza to save the S/N nDbkfIn5i0eoKLfiCDVUfg Respondent from the harsh consequences of their illegal arrangement.

Even if this Court were to overlook the fatal flaw in the pleadings, which it cannot, and apply the substantive test in Patel v Mirza, the Respondent’s claim would still inevitably fail. The framework in Patel v Mirza dictates that restitution should not be granted if doing so would undermine the integrity of the legal system or contravene a fundamental public policy. In Malaysia, the prevention of ‘Ali Baba’ schemes is not a mere administrative guideline; it is a strict national economic policy designed to ensure genuine Bumiputera empowerment in government procurement (See also Kondapuram Raghuram v Soo Peng & Ors [2006] 7 MLJ 510).

The Respondent's oral argument that the contract is merely "voidable" is a fundamental error of contract law. It is trite law that an agreement contravening public policy under Section 24 is void ab initio, not voidable. Consequently, absent properly pleaded alternative remedies, this Court is bound to apply the strict traditional maxim of ex turpi causa non oritur actio. The Court will not lend its aid to a man who founds his cause of action upon an immoral or illegal act. The loss must lie where it falls.

Allowing the Respondent to recover the RM 538,000.00 through unjust enrichment would effectively mean this Court is validating the fraud perpetrated against the Government and actively rewarding the circumvention of national policies. It would signal to the construction industry that non-Bumiputera companies can hijack S/N nDbkfIn5i0eoKLfiCDVUfg Bumiputera licenses with impunity, knowing the courts will eventually order payment under the guise of preventing unjust enrichment. The flexible framework in Patel v Mirza was never intended to serve as an equitable life jacket for commercial actors who deliberately engage in statutory deception. Restitutionary recovery under the modern approach is anchored on the preservation of systemic integrity; it cannot be weaponised to structurally underwrite the financial risks of an illegal proxy scheme.

Therefore, the strict traditional rule of illegality must apply to deter such practices. The position of the law in Malaysia remains crystal clear. As established earlier in Thong Foo Ching (supra), when an arrangement is illegal from its inception, it is void ab initio and the parties are placed "outside the pale of the law". No court will lend its aid to a person who founds their cause of action upon an illegal act.

Furthermore, as decided by Ramly Ali J (as he then was) in Kondapuram (supra), a scheme designed to deceive the government into according a company an untrue "Bumiputera status" is illegal and unenforceable, and no claim or recovery pursuant to the illegal agreement will be allowed by the courts.

Premised on the Respondent's fatal failure to plead unjust enrichment or quantum meruit, coupled with the fact that granting restitution under Patel v Mirza would severely undermine Malaysian public policy regarding government procurement, equitable relief cannot be invoked in this present case. The traditional rule embodied in the maxim ex turpi causa non oritur actio must strictly S/N nDbkfIn5i0eoKLfiCDVUfg apply. This Court refuses to assist either party to an illegal agreement. The loss must lie where it falls, and consequently, the Appellant has no legal obligation to pay the outstanding balance of RM 538,000.00 to the Respondent.

For the sake of completeness, having found that the purported sub-contract is an illegal 'Ali Baba' scheme/ enterprise and strictly void ab initio under Section 24 of the Contracts Act 1950, the Appellant's alternative defence—namely, the purported conversion of the outstanding balance into a 'Pinjaman Modal' (Capital Loan)—is rendered entirely moot and academic. It is an immutable axiom of contract law that an agreement tainted by illegality at its inception cannot serve as the lawful consideration or substratum for a subsequent collateral agreement. Illegality infects the entire transaction root and branch; a void contract cannot give rise to a valid loan. Consequently, this issue warrants no further judicial deliberation. Conclusion 69. Premised on the foregoing reasons, this Court finds that the LSCJ had fundamentally erred in fact and in law. The objective evidence plainly demonstrates that the sub-contract arrangement was an illegal ‘Ali Baba’ scheme designed to circumvent government procurement policies.

Consequently, the agreement is strictly void ab initio under Section 24 of the Contracts Act 1950 for being unlawful and opposed to S/N nDbkfIn5i0eoKLfiCDVUfg public policy. Furthermore, as the Respondent failed to plead unjust enrichment or quantum meruit as alternative causes of action, this Court is bound by the strict rule of pleadings.

In the absence of such pleadings, the traditional strict rule of illegality embodied in the maxim ex turpi causa non oritur actio must apply. The Court will not lend its aid to enforce an illegal contract, and the loss must lie where it falls.

Accordingly, the Appellant's appeal is allowed with costs. The decision of the trial court is hereby set aside. Dated: 3rd June, 2026 -------------------------------------------------------------------- YA. Dr. Hj. JOHN LEE KIEN HOW @ MOHD JOHAN LEE JUDGE HIGH COURT OF MALAYA ALOR SETAR Solicitor for the Appellant : Muhammad Faiz Bin Dato' Fadzil and Mohd Faizal Bin Abdullah Messrs. Faiz Fadzil & Co. Advocates & Solicitors S/N nDbkfIn5i0eoKLfiCDVUfg Table of Authorities Cases Amman Singh v Vasudevan [1973] 1 MLJ 210 Bakar Ahmad v Subramaniam Kanniah [1992] 4 CLJ 1833 Baldev Singh v Mahima Singh & Ors [1974] 1 LNS 13 Bon Chong Hing & Anor v Gama Trading Company (Hong Kong) Ltd [2011] 6 CLJ 493 Datuk Ong Kee Hui v Sinyium Anak Mutit [1983] 1 MLJ 36 David Hey v New Kok Ann Realty Sdn Bhd [1984] 1 LNS 51 Gan Yook Chin & Anor v Le Ing Chin & Ors [2004] 4 CLJ 309; [2005] 2 MLJ 1; [2004] 6 AMR 781 Hong Yik Trading v Liziz Plantation Sdn Bhd [2017] 4 MLRA 89 Kondapuram Raghuram v Soo Peng & Ors [2006] 7 MLJ 510 Norman Disney & Young v Afifi Hj Hassan [2011] 1 CLJ 210 Patel v Mirza [2016] UKSC 42; [2017] AC 467 Samuel Naik Siang Ting v Public Bank Bhd [2015] 6 MLJ 1 Spring Max Capital Sdn Bhd v Johari Hassan & ors & another case [2021] 2 MLRH 466 Tan Bing Hock v Abu Samah [1967] 1 LNS 176 Thong Foo Ching & Ors v Shigenori Ono [1998] 4 CLJ 674; [1998] 4 MLJ 585 Wong Yee Boon v Gainvest Builders (M) Sdn Bhd [2020] 1 MLRA 481 Statutes Contracts Act 1950 Solicitors for the Respondent : Megalai V Raman Messrs. Meg Nacha Zahir & Co. Advocates & Solicitors S/N nDbkfIn5i0eoKLfiCDVUfg