Lu Gir Kuang v 1. ) LLC Development Sdn. Bhd. (BA-22NCvC-71-02/2024)

LLC DEVELOPMENT SDN BHD

LING THOR YUEN (NO. K/P: 790416-08-5597) EFENDAN-DEFENDAN GROUNDS OF JUDGMENT 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- 12-2020 ( ), a Personal Guarantee & Indemnity dated 21-12-2020 ( ) and an Investment and Shareholder Agreement dated 24-12-2020 ( ). 20/06/2025 11:29:45 BA-22NCvC-71-02/2024 Kand. 77 [3] The participants in the transactions evidenced by the said set of agreements are a property developer (the 1st LLC director (the 2nd Defendant, ), an intermediary (the Plaintiff, ) ). Ling is the Managing Director and substantial share [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 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 ( ). 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 21-12- 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 ( ), Lu was to receive a total of RM2.350 million in fees ( ) payable in 2 tranches - RM200,000 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 Agreement. LLC, Ling and Ng also signed the Investment Agreement dated 24-12-2020. This is characterised by Lu as a Definitive Agreement within the meaning of the term in the Service Agreement, entitling him to the full Service Fee. [11] Under the Investment Agreement, Ng was to subscribe for 3.5 million Class A Redeemable Preference Shares ( ) issued by LLC within 7 days of the agreement becoming unconditional at the subscription price of RM3.5 million. LLC was then obliged to redeem all RPS on maturity after 3 years (or 3 years plus a 6-month extension) at RM1.80 per RPS/RM6.3 million (or RM1.854 per RPS/ RM6.489 million in the event of a 6-month extension). Ng also had a Put Option to sell the RPS to Ling at the same price under certain defined events of default. [12] The Investment Agreement was conditional. There were numerous conditions pre of the resolutions of the Board and Shareholders of LLC agreeing to and authorizing the issuance of RPS to Ng within 2 months from the date of the Investment Agreement. [13] Although counsel for Ling cross-examined Lu and Ng regarding specific proof that LLC received RM3.5 million from Ng, evidence was not led through Ling himself that the monies were not received. As Ling did not actually deny receiving the payment, the Court concluded that RM3.5 million was in fact disbursed by Ng to LLC. Analysis and findings Whether the investment is in reality a loan [14] As a general rule, a contract should be interpreted and enforced according to its terms. Based on the common law doctrine of freedom of contract in Malaysia, it is not the function of the Court to consider the fairness or commerciality of the bargain. It is also trite that the true relationship between the parties and the type of transaction that they have entered into are not determined by the labels placed on them (Lee Kuang Appeals [2024] 2 CLJ 20). [15] The Court of Appeal in Dr Mansur bin Hussain & Ors v. Barisan Tenaga Perancang (M) Sdn Bhd & Ors [2019] CLJU 661; [2019] 1 LNS 661; [2019] MLJU 1552 explained: [44] What is a sham document? This is not entirely a novel tool of recent invention created by less than honest as well as outright dishonest minds in order to circumvent an otherwise applicable legal compliance. It has been described as a created document which does not correspond with the purported transaction or the true agreement between the parties. We said it was not novel because as early as in 1967, the English Queen's Bench in the case of Snook v. London and West Riding Investments Ltd [1967] 2 QB 786 ("the Snook case") had recognised such documents and called them out for what they were. Lord Diplock LJ [as His Lordship then was] in Snook case [supra] had occasion, at page 802, to say the following: As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a it is, I think necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the which are intended to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities... that for acts or documents to be a , with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intention of a 'shammer' affect the rights of a party against whom he deceived. " [45] Not less than three decades later, the Court of Appeal in Hitch and others v. Stone (Inspector of Taxes) [2001] STC 214 referred to the Snook case [supra] and laid down the applicable test to ascertain a sham document, which to our mind, deserves reproduction here. The steps to be taken in such determination are stated as follows: ... [65] First, in the case of a document, the court is not restricted to examining the four corners of the document. It may examine external evidence. This will include the parties' explanations and circumstantial evidence, such as evidence of the subsequent conduct of the parties. [66] Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties. [67] Third, the fact that the act or document is uncommercial, or even artificial, does not mean that it is a sham. A distinction is to be drawn between the situation where parties make an agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship [46] It had been observed that the policy considerations that underpin the concept of sham are the protection of the rule of law, to prevent abuse of fundamental legal principles and the prevention of evasion of statutes, among others.... Indeed, on the authority of the case of Sri Kelangkota-Rakan Engineering JV Sdn Bhd v. Arab Malaysian Prima Realty Sdn Bhd [2001] 1 CLJ 779; [2001] 1 MLJ 324, the courts are entitled to go behind the impugned agreement or transaction to ascertain the true nature of such agreement or transaction. In the case of Lori Malaysia Bhd v. Arab Malaysian Finance Bhd [1999] 2 CLJ 997, it was there observed by our apex court that in other common law countries, courts were slow to declare commercial contracts as void on ground of illegality, but having said that if the circumstances so warrant, the courts would not shy away, from doing what would be in accord with what the law expects to be done, as a keeper of the public conscience. The fact that the apex court had done that could be seen in the recent case of Merong Mahawangsa Sdn Bhd & Anor v. Dato' Shazryl Eskay bin Abdullah [2015] 8 CLJ 212; [2015] 5 MLJ 619 FC, among others. [Emphasis added] [16] Thus, the Court may consider extraneous evidence when confronted with what is alleged to be a sham agreement. This is also recognized as an exception to section 92 of the Evidence Act 1950:

any fact may be proved which would invalidate any document or which would entitle any person to any decree or order relating thereto, such as fraud, intimidation, illegality, want of due execution, want of capacity in any contracting party, the fact that it is wrongly dated, want or failure of consideration, or mistake in fact or law [17] The Courts have dealt with various types of sham documents and whether some other arrangement is intended must be assessed against all the circumstances including the subsequent conduct of the parties in execution thereof, to determine if there are suspicious and unusual features that point to a probable sham (Mahmood bin Ooyub v Li Chee Loong and another appeal [2020] 6 MLJ 755). [18] On its face, the Investment Agreement checks all the boxes of a valid agreement with enforceable terms. It was prepared by a law firm, Messrs Jeff Leong Poon & Wong ( ) and signed by the parties at n furtherance thereof, the articles of association of LLC was amended to incorporate the new class of RPS to be issued to subscribers and lodged with the Companies Commission of Malaysia on 31-12-2020. [19] However, this is where the semblance of legitimacy ends. This Court finds on a balance of probabilities that the Investment Agreement is a thinly veiled cloak for what is in reality, a high-interest RM3.5 million loan. This Court did not believe that Ng was a genuine investor for the following reasons:

No due diligence Ng gave evidence on how the transaction went down. He said that he visited the development site in Ipoh and was introduced to Ling who informed him that the project would complete in 3 years with 80% returns for him, that he would get redeemable preference shares in LLC and that LLC would buy back the shares, failing which Ling would personally buy back the shares from him. Other than what appeared to be oral representations by Ling, there was no evidence of any other due diligence by Ng.

Legal representation JLPW prepared the Investment Agreement, sat the parties down at its office on the day of signing, explained the terms and they signed it. JLPW was introduced by Lu and represented Ng, as Ng admitted. It follows that Lu and/or Ng instructed JLPW on the terms of the Investment Agreement as there was no evidence of any term sheet or communication from Ling to JLPW. That JLPW never represented the interests of Ling or LLC in connection with the Investment Agreement is confirmed by the fact that it saw no conflict of interest in representing Ng in his suit against Ling and LLC on the said agreement.

Source of the deal structure Ling testified that he was introduced to Ng as a moneylender by Lu loan. Ng and Lu insisted that they had provided Ling with a service and an investment, respectively. Lu testified that he left Ling and Ng to negotiate the deal structure for the investment. However, the evidence of Ling and Ng conveyed the impression that they both learned about the deal structure for the first time when it was This Court finds it believable that Ling was desperate for money and had signed the documents without giving any rational commercial consideration to its terms.

Non-fulfilment of Conditions Precedent The Investment Agreement was conditional upon the formalities necessary for LLC to issue the 3.5 million RPS within 2 months of 24-12-2020. There is evidence of the lodgment of amendments to the Articles of Association of LLC by the company secretary on 31- 12-2020, but none of the requisite resolutions were adduced in evidence at the trial. Based on the terms of the Investment Agreement, it ceased to be effective when the conditions precedent were not fulfilled by 24-2-2021. There was accordingly no reason for Ng to have paid RM3.5 million to LLC at all, or for Ng to have taken no action for 4 years when consideration for the payment had, by his account, wholly failed at the outset.

Suspicious mode of payment Between 2-1-2021 and 6-1-2021, Ng issued 8 cheques totaling RM3 million to LLC drawn on various accounts (Pusat Tuisyen Seri Wawasan Bestari Cemerlang Sdn Bhd, Yeo Beng Guek and a joint account with Ngan Xiao Joo). According to Ng, he ran an education business, Ngan Xiao Joo is his wife and Yeo Beng Guek is his friend. He handed the cheques to Ling. As evidence of his payment of the balance RM500,000 of the subscription price, an undated photograph was produced to show what is said to be RM500,000 in cash in what is assumed to be 50 bundles of RM100 bills stacked These modes of payment by Ng raised red flags.

Disregard of contractual rights At the trial, Ng did not appear to be across all the terms and conditions of the Investment Agreement such as what a Class A RPS is and how many he would get. Neither Ng nor Ling, behaved as ordinary businessmen in a commercial transaction would have, in that neither appeared to treat the Investment Agreement as consequential. Despite the time that elapsed since the date of the agreement, there was no evidence of any communication from Ng to LLC, or to Lu as the broker and friend, regarding the issuance and allotment of the RPS, signing of the Accession Agreement or directors of LLC under the Investment Agreement. [20] The totality of circumstances demonstrates to this Court that the Investment Agreement was in fact a loan on a principal amount of RM3.5 million with exorbitant interest. Whether the Investment Agreement is illegal [21] The Moneylenders Act 1951 ( ML does not prohibit any moneylending transaction with interest unless the lender has carried on an unlicensed moneylending business. In Ngui Mui Khin & Anor v. Gillespie Bros & Co Ltd [1980] 2 MLJ 9, the Federal Court held as follows: Ordinance, 1951 does not apply to moneylending but only to Moneylenders. It does not make every moneylending transaction illegal and unenforceable. It is only a moneylending transaction of a moneylender which is the subject-matter of the Ordinance and must comply with its provisions on pain of being declared illegal and unenforceable by the court. We make this simple and obvious observation because it was canvassed very strongly before us by counsel for the appellants that since the transactions between the respondents and the client are moneylending transactions, the respondents must be a moneylender and the guarantee which the appellants signed is therefore unenforceable. This submission overlooks the fact that the party to a transaction who thereby becomes the creditor may or may not be a moneylender. He is a moneylender if within the meaning of section 2 of the Ordinance he can be said to be a person "whose business is that of moneylending". To prove business requires some sort of continuity or system or repetition of similar transactions. (Chow Yoong Hong v. Choong Fah Rubber Manufactory [1960] CLJU 1; [1960] 1 LNS 17; [22] However, there is a rebuttable presumption under section 10OA of the MLA that even if a single loan with interest is given out, then such a person giving out the loan is carrying on a business of moneylending. The said provision reads: "Where in any proceedings against any person, it is alleged that such person is a moneylender, the proof of a single loan at interest made by such person shall raise a presumption that such person is carrying on the business of moneylending, until the contrary is proved." [23] The Federal Court in Triple Zest Trading Suppliers & Ors v. Applied Business Technologies Sdn Bhd [2023] 10 CLJ 187; [2023] 6 MLJ 818 discussed the statutory presumption of Section 10OA of the MLA and held that the burden is on the party alleged to be a moneylender to show that he is not carrying on a business of moneylending. If not addressed or no evidence is given, then the respondent fails to discharge this burden. [24] Ng conscientiously reasons, made no attempt to justify the transaction as a one-off loan. As this Court has found that the true bargain was a loan with high interest, Ng is therefore caught by the presumption under section 10OA of the MLA i.e. he is presumed to be an unlicensed moneylender and the Investment Agreement is void for illegality. Whether the Service Agreement is tainted by illegality [25] It has not been overlooked that this suit concerns a claim by Lu on the Service Agreement and related Guarantee. Although the Service Agreement was presented by Lu as independent of the Investment Agreement, the terms of the Service Agreement are completely aligned with the deal structure set out in the Investment Agreement and were executed almost contemporaneously. There was no attempt to disguise the fact that both deals were struck together with Lu as a common intermediary. [26] Lu introduced JLPW who represented Ng in the preparation of the Investment Agreement and evidently, it was not Ng who instructed JLPW on its terms. Lu also engaged Roy Chambers to draft the Service Agreement. As alluded to before, this Court has the impression that Lu was the source of the deal structure in the Investment Agreement even though he testified that he left the negotiation of the deal structure to Ng and Ling. When the Service Agreement was prepared, the execution of the Investment Agreement was already contemplated. [27] Ling testified as follows: [28] I this was consistent with-out familiarity and confidence in the terms of the Investment Agreement that both Ling and Ng appeared rather more tentative on. by Ng, Lu explained: [29] Further, Ling admitted paying RM200,000 in cash to Lu on 3-1- paid in cash by Ling to Lu coincided in circumstance, and probably timing, with the RM500,000 received in cash by Ling from Ng. This Court infers that the RM200,000 cash payment was probably an upfront re-payment for the loan which effectively and immediately reduces the actual loan amount disbursed, which is typical in unlicensed moneylending arrangements. [30] As it was with the Investment Agreement, the stated consideration for the Service Agreement was inconsequential. At the trial, Lu testified that he introduced the Moolan Project to Ng as a hotel project: although the description of the project in the Service Agreement was that of a mixed office and retail business development. [31] For the above reasons, this Court believes that the set of 3 documents were crafted by Lu and was intended to operate together. [32] Even if the RM2.350 million Service Fee was not part of the interest repayable by Ling for the RM3.5 million loan he received from Ng, this Court has found that the Investment Agreement is an illegal moneylending transaction. Section 24 of the Contracts Act 1950 reads: "The consideration or object of an agreement is lawful, unless -

it is forbidden by a law;

it is of such a nature that, if permitted, it would defeat any law;

it is fraudulent;

it involves or implies injury to the person or property of another; or

the court regards it as immoral, or opposed to public policy. In each of the above cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void [33] Thus, the consideration for the Service Fee under the Service Agreement, was otherwise the brokering of an illegal moneylending arrangement which this Court regards as opposed to public policy. As such, this Court will not assist in the enforcement of the Service Agreement. Conclusions [34] For the above reasons, the Plaintiffs claim is dismissed. Considering the participation in the illegality, this Court makes no order as to costs. Bertarikh : 20 Jun 2025 SGD ELAINE YAP CHIN GAIK PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA SHAH ALAM Peguam Untuk Plaintif: Ooi She Yi, Messrs Ooi's Chambers Untuk Defendan-Defendan: Tang Kim Choong, Messrs K C Tang & Co.