Quarkmed Sdn Bhd v Iou Pay (Asia) Sdn Bhd (WA-22NCC-125-03/2023)

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DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR DALAM WILAYAH PERSEKUTUAN KUALA LUMPUR, MALAYSIA (BAHAGIAN DAGANG) GUAMAN NO: WA-22NCC-125-03/2023 ANTARA QUARKMED SDN BHD (NO. SYARIKAT: 1356506-P) …PLAINTIF DAN IOU PAY (ASIA) SDN BHD (NO. SYARIKAT: 700252-W) …DEFENDAN (Melalui Tindakan Asal) ANTARA IOU PAY (ASIA) SDN BHD (NO. SYARIKAT: 700252-W) …PLAINTIF

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Schedule 1 RM2,500,000.00 RM150,000.00 RM2,650,000.00 90 days (PD Cheque) 2.2 The Company shall issue a post-dated cheque stating a total sum of RM2,650,000.00 and shall be remitted to IOU Pay within ninety (90) days from the date of receipt of disbursed funds. … 4.1 If the payment is not paid on or prior to the due date specified, a late fee will be imposed up to a S/N mZ/ftzpRtkqm4vR3Ue5n5Q minimum of RM500 or 1% whichever is higher for such late payment based on the outstanding amount.” 10. The Plaintiff and Defendant entered into a second BIA dated 14- 12-2021 on similar terms. Pursuant to this BIA, the Defendant agreed to furnish a RM5 million “investment amount” to the Plaintiff, increased the service charge to 15%, and increased the repayment period to 180 days (“BIA 2”). The payment schedule under BIA 2 was as follows: Payment Fund Requested Service Charge (15%) Disbursement Repayment Repayment

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Schedule 1 RM5,000,000.00 RM750,000.00 RM5,750,000.00 180 days (PD Cheque) 11. On 16-12-2021, after the disbursement of the RM5 million by the Defendant to the Plaintiff under BIA 2, the Plaintiff fully paid RM2.65 million to settle BIA 1. The settlement of BIA 1 was confirmed by letter dated 20-12-2021 from the Defendant. 12. By letter dated 22-6-2022, the Defendant further confirmed that the Plaintiff had paid a sum of RM2.3 million towards BIA 2 on 19-6- 2022, and that a total sum of RM3.45 million remaining due under BIA 2 was to be “rolled-over” as a further “investment amount.” The settlement of BIA 2 was thus also confirmed by the Defendant. 13. In line with the above, the Plaintiff and Defendant entered into the 3rd BIA dated 16-6-2022 on similar terms as BIA 1 and BIA 2. It characterized the RM3.45 million as an “investment amount” and S/N mZ/ftzpRtkqm4vR3Ue5n5Q imposed a service charge of 5% and a repayment period of 60 days (“BIA 3”). The payment schedule under BIA 3 was as follows: Payment Fund Requested Service Charge (5%) Disbursement Repayment Repayment

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Schedule 1 RM3,450,000.00 RM172,500.00 RM3,622,500.00 60 days (PD Cheque) 14. The Defendant acknowledged a further sum of RM150,000.00 paid by the Plaintiff that was accounted towards BIA 3 and claims that RM3,472,500.00 remained due under BIA 3, of which RM2,400,000.00 comprised the unpaid principal from the sums disbursed to the Plaintiff. 15. In respect of all 3 BIAs, the Plaintiff was required to furnish post-dated cheques for the “Disbursement Repayment” specified, as well as a letter of guarantee and indemnity. Accordingly, D5(CC) executed similarly worded letters of guarantee and indemnity irrevocably guaranteeing to make payment of all outstanding sums due and owing by the Plaintiff pursuant to the BIAs. 16. The Plaintiff did not make any further payments to the Defendant and on 11-8-2022 and 26-8-2022, wrote to the Defendant to seek proof that the Defendant was licensed under the Moneylenders Act 1951 (“MLA”). The Defendant did not respond to the query, but instead sent solicitors’ letters of demand and a statutory winding up notice against the Plaintiff for sums owed under the BIAs. S/N mZ/ftzpRtkqm4vR3Ue5n5Q Analysis and findings 17. The following issues were addressed in written submissions after the trial, which the Court will deal with here in this order: a) Whether the BIAs are genuine business investment agreements or loans; b) Whether there ought to be restitution of the unpaid principal sum under section 66 of the Contracts Act 1950; and c) Whether any illegality in the BIAs is severable from the rest of the agreements. Nature of the agreements 18. The law on unlicensed moneylending is well-established and need not be restated here. See Triple Zest Trading & Suppliers & Ors v. Applied Business Technologies Sdn Bhd [2023] 10 CLJ 187; [2023] 6 MLJ 818 (“Triple Zest”). 19. During the trial, DW1 conceded that the Defendant did not hold a licence under the MLA to carry on a moneylending business, that the BIAs were not true investment agreements and that the terms provided for a loan of money with an additional charge, labelled as a ‘service charge’ because the Defendant lacked a moneylending licence. Cross examination of DW1 S/N mZ/ftzpRtkqm4vR3Ue5n5Q … … Re-examination of DW1 S/N mZ/ftzpRtkqm4vR3Ue5n5Q 20. As DW1 was the Defendant’s only witness, both the Defendant’s pleaded case (that the BIAs were part of a legitimate financing and/or factoring arrangement) and its post-trial submissions (that they reflected a genuine business investment with pre-calculated profit) were directly contradicted by his evidence. 21. In any case, this Court finds that the terms of the BIAs reflect none of the features of a genuine investment by the Defendant in the business of the Plaintiff, and had all the features of a loan with an interest element, payable over a compressed time frame: a) There is no reference in the BIAs to what the “investment amounts” were for, the Plaintiff’s performance obligations other than to repay the “investment amount” with “service charges” nor any provision reflecting a sharing of risk or participation in the success or failure of the Plaintiff’s business. b) Instead, the BIAs only documented the provision of credit for profit, the derivation of profit through fixed “service charges” regardless of business success and the Defendant’s right of enforcement upon the Plaintiff’s default in repayment. 22. The circumstances under which the BIAs were entered into were also consistent with pure moneylending arrangements. According to the unchallenged evidence of D2(CC), he met D3(CC) through a master at a temple with whom he discussed his difficulties in obtaining funding for this project. They did not otherwise know each other. S/N mZ/ftzpRtkqm4vR3Ue5n5Q 23. Accordingly, this Court makes the following findings: a) The BIAs specify service charges and late payment interest as additional sums payable beyond the “investment amount” disbursed, which fall within the definition of “interest” in section 2 of the MLA; and b) The Defendant did not deny that it entered into the 3 BIAs as a business arrangement or make any attempt to discharge its burden of proof as required under section 10OA of the MLA, to disprove the presumption that it was carrying on the business of moneylending. The BIAs are therefore moneylending agreements caught by the MLA. As the Defendant is not a licensed moneylender, it follows that the Plaintiff is entitled to the declarations sought to that effect. Restitution 24. At the trial, the Defendant abandoned the Counterclaim for any service charges or late payment interest under the BIAs and in post-trial submissions, argued that, notwithstanding the illegality and unenforceability of the BIAs under section 15 of the MLA, this Court should nevertheless allow restitution of the funds advanced to the Plaintiff as a proportional response based on section 66 of the Contracts Act 1950 (“CA”). Section 66 of the CA provides that: “When an agreement is discovered to be void, or when a contract becomes void, any person who S/N mZ/ftzpRtkqm4vR3Ue5n5Q has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.” 25. Having regard to the facts pleaded in the Counterclaim, notwithstanding that it was ultimately not pursued, this Court entertains serious doubts as to the Defendant’s professed ignorance of the illegality of the BIAs. In any case, no evidence was led on this point. This factual concern aside, this Court is unable to agree with the legal contention made by the Defendant based on section 66 of the Contracts Act 1950 and in reliance on the decision of the Court of Appeal in KBH Marine Industry Sdn Bhd v Ace Credit (M) Sdn Bhd [2026] 1 CLJ 881 (“KBH Marine”). 26. In KBH Marine, the lender, Ace Credit (M) Sdn Bhd was a licensed moneylender. The case therefore did not concern unlicensed moneylending, but rather a failure to comply with mandatory provisions of the MLA governing the prescribed statutory form of the loan agreement and interest rate charged. The moneylending agreement was thus found to be void and security documents deriving their existence and purpose from the loan agreement also could not survive independently. 27. However, the Court of Appeal in KBH Marine held the statutory non-compliance did not amount to illegality under section 24 of the CA as there was no unlawful object, no attempt to conceal the transaction, and no substantive illegality affecting the consideration or purpose of the agreement. The contravention was therefore not S/N mZ/ftzpRtkqm4vR3Ue5n5Q of the type that would engage section 24 of the CA, with the result that restitution under section 66 of the CA remained available. 28. In so deciding, the Court of Appeal applied the guidelines of the Federal Court in Detik Ria Sdn Bhd v Prudential Corp Holdings Ltd & Anor [2025] 3 MLJ 22 (“Detik Ria”) to consider the nature and gravity of the statutory contravention as well as proportionality. According to Detik Ria, illegality is no longer an automatic bar to civil claims, and the Court must consider (i) the centrality of the illegality in the context of the particular statute breached; and (ii) proportionality, including culpability, performance of the contract, and whether denial of relief is a proportionate response. 29. However, this Court does not agree that KBH Marine applies on the facts. Insofar as the present case concerns unlicensed moneylending, this Court is bound by the decision of the Federal Court in Triple Zest. The Federal Court in Detik Ria also discussed Triple Zest as the paradigm case where relief under section 66 of the CA should be refused because the illegality was central to the transaction and denial of relief was a proportionate response. As observed: “[177] However, the application of the guidelines above may well result in a refusal of the remedy. This is borne out by Triple Zest (above), where relief was refused. In that case, the centrality of the illegality to the contract is clear, namely the prohibition against the lending of money without being licensed under the Moneylenders Act 1951 S/N mZ/ftzpRtkqm4vR3Ue5n5Q (s. 5(2) of the Moneylenders Act 1951). The prohibition in the statute is important because it forbids the levying of extortionate rates of interest levied on borrowers who are constrained to resort to borrowing from such unlicensed lenders. It carries with it great socio-economic ramifications. The object and purpose of the Moneylenders Act 1951 is to deter and disable illegal moneylending agreements. The parties to the illegal contract in Triple Zest knew, or ought to have known, that such moneylending is prohibited. Perhaps most importantly the transaction was executed in full. In Triple Zest, it was the lender who had deliberately transgressed the law and who sought to recover both the principal and the interest due on this illegal loan. Therefore, proportionality when applied to this matrix of facts justifies the refusal of the remedy. To that end, a denial of the s. 66 relief was indeed a proportionate response to the illegality.” 30. The Federal Court in Triple Zest has made it amply clear that moneylending without a licence is not a trivial criminal offence under the MLA, and that section 24 of the CA is engaged to void such agreements since the consideration of the agreement is unlawful. It would thus make a mockery of the law to assist an unlicensed moneylender recover its principal from a public policy point of view. The Federal Court thus overturned the Court of Appeal decision that allowed recovery of the principal with judgment interest with these further remarks: S/N mZ/ftzpRtkqm4vR3Ue5n5Q “[23] We agree with learned counsel for the appellants that if the court were to lend a helping hand to a person who charges exorbitant interest to claim back the principal amount lent, it would create a fertile breeding ground for illegal moneylenders also known as “Ah Long” because in the event the borrower does not repay, the principal loan amount is guaranteed to be recoverable through the court process. Ah Longs would have nothing to lose. Their only loss, if at all it can be called a loss, is that they will not be able to enjoy the fruits of the exorbitant interest rates that they charged their borrowers, but that should matter little to them as they will get back their money in full. [24] In the present case, not only was the respondent not punished for contravening s. 5(2) of the MA51 but it was in some way given a helping hand by the court, albeit unwittingly. Without being derogatory, the decision of the courts below can be likened to allowing a robber to claim back his cost and expenses in a botched robbery attempt. [25] It makes a mockery of the MA51 and the Financial Services Act 2013. While banks and licenced moneylending companies need to obtain licences and abide by strict monetary regulations, S/N mZ/ftzpRtkqm4vR3Ue5n5Q unlicensed moneylenders need only to use the term “agreed profit” in place of “interest” as “consideration” in carrying on their illegal moneylending activities.” 31. The Defendant’s submission that moneylending activity is not intrinsically illegal or against public policy, presumably because it is an activity that can be licensed, is unpersuasive in this case because the Defendant attempted to carry on a moneylending business without first obtaining the requisite licence, precisely what the object of the MLA requires. Based on binding case law precedents, no court has permitted recovery of principal sums advanced by unlicensed moneylenders under section 66 of the CA or any other legal theory. Severability 32. The Defendant also argued that if the interest element in the BIAs renders the BIAs illegal and unenforceable pursuant to section 15 of the MLA, it can be severed so that the rest of the BIAs can be enforced to allow for the recovery of the unpaid principal sum of RM2.4 million. It was highlighted that there is an express boilerplate severance clause in the BIAs: “11. SEVERABILITY In the event any provision of this Agreement is deemed invalid or unenforceable, in whole or in part, that part shall be severed from the remainder S/N mZ/ftzpRtkqm4vR3Ue5n5Q of the Agreement and all other provisions shall continue in full force and effect as valid and enforceable.” 33. Following the Privy Council in Carney v Herbert [1985] 1 All ER 438 (“Carney”), the Supreme Court in Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd & Anor [1990] 1 MLJ 356 observed that each case on severability depends on its own facts, the nature of the illegality and public policy. Per Lord Brightman in Carney: “There are therefore two matters to be considered where a contract contains an illegal term: first, whether as a matter of construction the lawful part of the contract can be severed from the unlawful part, thus enabling the plaintiff to sue on a promise unaffected by any illegality; second, whether, despite severability, there is a bar to enforceability arising out of the nature of the illegality.” 34. In considering severability as a matter of construction, guidance may be drawn from the threefold test summarized in the Supreme Court in Tillman v Egon Zehnder Ltd [2019] UKSC 32 (“Tillman”), which refined the principles in Carney in that regard. Although Tillman was decided in the context of restraint of trade, the test requires the Court to consider whether: S/N mZ/ftzpRtkqm4vR3Ue5n5Q a) the unenforceable provision is capable of being removed without the necessity of adding to or modifying the wording of what remains (the so-called ‘blue pencil’ test); b) the remaining terms continue to be supported by adequate consideration; and c) the removal of the unenforceable provision does not so change the character of the contract that it becomes “not the sort of contract that the parties entered into at all.’’ 35. Per Carney and Tillman, severability is subject to the overriding bar to relief on public policy grounds. If the blue pencil test can be applied to sever the interest element in an unlicensed moneylending agreement, effectively transforming the transaction into an interest-free loan, then such agreements would be easily salvaged with just basic contract drafting skills. This Court is of the view that there is no need to consider the question of severability as a matter of construction since the essential commercial foundation of such agreements are illegal and public policy will not allow it to be saved. 36. According to Detik Ria, the Court must undertake a policy and proportionality assessment to determine whether denying a claim on grounds of illegality would serve the public interest. The same considerations would apply whether severability is considered in the context of an express severance clause or otherwise. In the context of a moneylending agreement with an unlicensed moneylender, the charging of interest as consideration is central to transaction and the resulting illegality, and a severance clause S/N mZ/ftzpRtkqm4vR3Ue5n5Q cannot operate as a device to circumvent public policy and the object of the MLA. Guarantee 37. As there is no primary obligation to secure, guarantees executed by D5(CC) are likewise unenforceable. Conclusion 38. For all of the above reasons, the Plaintiff’s claim for declaratory orders in prayers (a) to (f) is allowed and the Defendant’s counterclaim is dismissed. As both parties participated in the illegal moneylending, this Court makes no further orders and no order as to costs. Bertarikh: 18 Jun 2026 ELAINE YAP CHIN GAIK PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA KUALA LUMPUR S/N mZ/ftzpRtkqm4vR3Ue5n5Q Peguam Untuk Plaintif (dalam Tuntutan Asal) dan Defendan Pertama, Kedua dan Kelima (dalam Tuntutan Balas): Aw Shi Qin Tetuan Foo Hiap Siong & Co. Untuk Defendan (dalam Tuntutan Asal) dan Plaintif (dalam Tuntutan Balas): Shamsher Singh Thind (Gunamalar a/p Joorindanjn dan Thian Yee Chin bersamanya) Tetuan Gunamalar Law Chambers S/N mZ/ftzpRtkqm4vR3Ue5n5Q