Sarwan Singh A/L Kundan Singh v Aminah Binti Faudzar (W-02(IM)(NCC)-998-05/2019)

(a) that the deposits that were made on the terms stated in the said 4 Agreements were prohibited by s.137 read with s.136 of the Financial Services Act 2013 ('the FSA') and the investments under the said 4 Agreements were illegal transactions and the impugned Judgment in Suit 381 was made in contravention of the FSA;

(b) the impugned Judgment was made without jurisdiction; and

(c) further, or in the alternative, the Defendant obtained the impugned Judgment by fraud. Decision of the High Court [9] Summarily, the learned Judge struck out the Plaintiff's claim against the Defendant on 3 grounds-

(a) the learned Judge was of the view that the Plaintiff was the principal actor of the fraud and that the jurisdiction of the Court ought not to be exercised in his aid based on the doctrine of ex turpis causa oritur non actio i.e, no person can claim any right or remedy under an illegal transaction which he has participated (para 10-19 of Grounds of the Judgment) ('Grounds');

(b) that the Plaintiff's case was doomed to failure as the Plaintiff's obligations under the Letter of Guarantee would not be affected by any illegality of the said 4 Agreements as the Letter of Guarantee was in fact also a letter of indemnity (para 20-23 of Grounds); and

(c) that the Plaintiff's case was obviously unsustainable upon a proper application of the UK Supreme Court case of Patel v Mirza [2016] UKSC 42 and the reception of those principles in Malaysia by the Federal Court in Liputan Simfoni v Pembangunan Orkid Desa Sdn. Bhd. [2019] 1 CLJ 183 (para 24-31 of Grounds). Our Decision Res judicata / issue estoppel [10] Learned Counsel for the Defendant argued that the Plaintiff is estopped by the doctrine of res judicata and / or issue estoppel from challenging the impugned Judgment. Learned Counsel for Defendant in submission stated the following: "The High Court in the 381 Suit had ruled on the issue of liability, i.e. that Harven Ventures and the Appellant are liable to the Respondent under the Profit Guarantee Agreements and the Guarantee respectively. The principles of res judicata / issue estoppel operate to preclude the Appellant from relitigating the issues concerning the validity of the Profit Guarantee Agreements, especially so as (i) the Appellant did not at any material time file an appeal against the SJ; and (ii) the Court of Appeal had dismissed the Appellant's appeal against the Judgment for Fixed Profits on 19.4.2019." The following cases were cited: Asia Commercial Finance (M) Bhd v. Kawal Teliti Sdn Bhd [1995] 3 MLJ 189 (SC) at pp. 198 to 200, Hartecon JV Sdn Bhd. & Anor v. Hartela Contractors Ltd [1996] 2 MLJ 57 (CA) at p. 58 and 66, Joseph Paulus Lantip & Ors v. Unilever PLC [2012] 7 CLJ 693 (FC) at p. 707 and Tenaga Nasional Bhd v. Irham Niaga Sdn Bhd & Anor [2011] 1 MLJ 752 (CA) at pp. 773 and 774. [11] With respect we were unable to agree with the Defendant's submission. The reason being that the Plaintiff did not raise s.137 of the FSA in Suit 381 and is therefore not estopped from raising this ground now in Suit 76. Further the equitable doctrine of estoppel does not apply when illegality and breach of statute is invoked. We find support in the case of Badiaddin bin Mohd Mahidin & Anor v. Arab Malaysian Finance Bhd [1998] 1 MLJ 393, where briefly, the appellants commenced proceedings afresh to have the $ 2^{\mathrm{nd}} $ order, i.e where the High Court declared that the appellants had received an advantage or benefit directly from the respondent-bank which advanced a loan to the appellants' business associate, one Ismail. The appellants being registered co-owners of a piece of Malay reservation land assisted Ismail and charged the land to the respondent. Ismail committed a breach of the loan agreement and the respondent foreclosed the $ ^{3 rd} $ party security and obtained an order of sale of the land. The appellants applied to the High Court for a declaration that the charge and the order of sale were invalid as being in contravention of the Malay Reservations Enactment (FMS Cap 142). The High Court granted the order and also made an order directing the appellants to repay all monies lent to Ismail (first order). Hence the fresh proceedings by the appellants. The judge held that it would be unjust to estop the appellants from challenging the $ ^{2 rd} $ order by reason of res judicata because the $ ^{2 rd} $ order was invalid having been made in contravention of an express provision of written law $ ^{3 rd} $ order. The respondent's appeal to the Court of Appeal was allowed on the sole ground that the High Court was functus officio and had no jurisdiction to set aside the $ ^{2 rd} $ order irrespective of any illegality in the order. The appellants appealed to the Federal Court. The position held by the Plaintiff that he was not estopped by res judicata in this appeal before us found expression in the judgment of the Federal Court at p. 409 H, where the Federal Court opined (per Mohd Azmi FCJ (as he then was) as follows: "For my part, I must hasten to add that apart from breach of rules of natural justice, in any attempt to widen the door of the inherent and discretionary jurisdiction of the superior courts to set aside an order of court ex debito justitiae to a category of cases involving orders which contravened 'any written law', the contravention should be one which defies a substantive statutory prohibition so as to render the defective order null and void on ground of illegality or lack of jurisdiction." At p. 429 G, in a similar vein, the Federal Court further opined (per Gopal Sri Ram JCA (as he then was) as follows: "It is therefore clear, in light of the principles established by high authority that a court of unlimited jurisdiction, even in the absence of an express enabling provision, has inherent power to set aside its orders made in breach of written law. The ends of justice will not be met if such a power did not exist. And the procedural branch of the broad and flexible doctrine of estoppel known as res judicata finds no place in such a circumstance. Neither has the functus officio theory, which, upon close examination is merely part and parcel of the doctrine of res judicata, any role to play in the case." The maxim ex turpis causa oritur non actio [12] S.137 of the FSA provides as follows: "137. Restriction on accepting deposits.

(a) His Lordship's decision on the issue of illegality was based on the Plaintiff's purported claim as pleaded in the Amended Statement of Claim.

(b) Whilst it is the Defendant's position that there were no illegal transactions, the Plaintiff's contention is that the transactions under the said 4 Agreements are deposit-taking transactions and are illegal under s.137 of the FSA. Counsel submitted these transactions arose directly from the alleged "illegal acts" of the Plaintiff who is thus not entitled to any relief sought.

(c) Any person who contravenes s.137 of the FSA shall be guilty of an offence, a criminal liability. Premised on s.249 (1) of the FSA, the Plaintiff as a director and shareholder of Harven Ventures was in pari delicto in the alleged illegal transactions and the legal maxim of ex turpis causa oritur non actio would apply to preclude the Plaintiff from seeking relief in Suit 76. The cases of Merong Mahawangsa Sdn Bhd & Anor v. Dato' Shazryl Eskay bin Abdullah [2015] 5 MLJ 619 (FC), Singma Sawmill Co Sdn Bhd v. Asian Holdings (Industrialised Buildings) Sdn Bhd [1980] 1 MLJ 21 (FC) at pp.24 and 25 and Lee Nyan Hon & Bros Sdn Bhd v. Metro Charm Sdn Bhd [2009] 6 MLJ 1 (CA) at pp.9 and 10 were cited. [14] With respect we were unable to agree with the submission of the Defendant. We agreed with the learned Counsel for the Plaintiff that s. 136 has to be read with s.137 of the FSA which provides- "For the purposes of sections 137 and 138, "deposit" means a sum of money or any precious metal precious stone, or any article of thing as may be prescribed by the Minister, on the recommendation of the Bank, accepted, paid or delivered on terms under which it will be repaid or returned in full..." [15] It is the Plaintiff's case that the Defendant had obtained the impugned Judgment by fraud in disguising the said deposits as investment transactions in order to avoid the prohibition under s.137 of the FSA. This is borne out by the full particulars of fraud pleaded in the Amended Statement of Claim at para 21 (a) to (d) as follows: "Particulars of Fraud

(a) The Defendant was well aware that the said Company was not a bank or a financial institution and failed to disclose to the honourable Judge that material fact in the previous Suit.

(b) The Defendant being a practising lawyer was well aware that the said deposits paid to the said Company were illegal and yet hid that fact by calling the purported transaction an investment.

(c) The Defendant misled the honourable Judge into believing that the said Profit Guarantee Agreements were in respect of legal investments by pleading at paragraph 4 of the Statement of Claim in the Suit as follows:- "4. Sometime towards the end of 2013, the Plaintiff was approached by the 2 $ ^{nd} $ Defendant at a restaurant and was introduced to an investment scheme, the details of which are as follows:-

(a) Investment of RM5 million where the $ 1^{\mathrm{st}} $ Defendant proposed to purchase lands in Melaka with the intention to develop and continue with the ongoing sand businesses and that the Plaintiff would receive fixed profits from such investments from the $ 1^{\mathrm{st}} $ Defendant;

(b) Investment of RM1 million where the $ 1^{\mathrm{st}} $ Defendant proposed to venture and expand the ongoing restaurant business and that the Plaintiff would receive fixed profits from such investments from the $ 1^{\mathrm{st}} $ Defendant;

(c) Investment of RM3 million where the $ 1^{\mathrm{st}} $ Defendant proposed to purchase shares in a Singapore company which in turn is the majority shareholder of a developer Company that owns Medini Square land in Johor and that the Plaintiff would receive fixed profits from such investments from the $ 1^{\mathrm{st}} $ Defendant." By the aforesaid pleadings the Defendant made it appear that the monies she was depositing with the said Company, were being deposited as investments into the various business ventures as stated in paragraph 4 of the Statement of Claim in the Suit.

(d) The truth of the matter is that the said deposits were made to the said Company independent of the said business ventures, as evidenced in the terms of the said Profit Guarantee Agreements."

(a) His Lordship relied on the Letter of Guarantee executed by the Plaintiff and referred to clause 15 (1) therein which stated that the Plaintiff could be sued on the guarantee as the principal debtor;

(b) clause 7(iv) of the Letter of Guarantee stated "The Guarantee shall be without prejudice to and shall not be affected nor shall the Guarantor be released or exonerated by the illegality, irregularity, unenforceability, invalidity or defect in any obligations of the Company or any person to you due to any reasons whatsoever.";

(c) the liability of the Plaintiff as guarantor is primary and independent of the liability of Harven Ventures premised on s. 77 of the Contracts Act. The following cases of Andrew Lee Siew Ling v. United Overseas Bank (M) Bhd [2013] 1 MLJ 449 (FC) at pp.459-460, Chung Khiaw Bank Ltd v. Soi Huan & Ors [1986] 1 MLJ 188 (HC) at p.190, Heng Cheng Swee v. Bangkok Bank Ltd [1976] 1 MLJ 267 at p.274 (FC) and AEH Capital Sdn Bhd v. AM-EL Holdings Sdn Bhd And Another Appeal [2008] 4 MLJ 487 at p.516 (CA) were cited. [22] With respect we are of the view that the aforesaid submission of the Defendant to be untenable. We find the learned Judge has erred when His Lordship failed to appreciate that the consideration for the Letter of Guarantee were the impugned transactions i.e, the RM 9,000,000.00 deposited, as submitted by Counsel for the Plaintiff. Since the Plaintiff's Suit 76 seeks to set aside the impugned Judgment on the ground that the said Judgment validated transactions prohibited by statute alluded to earlier, it is incumbent for the Plaintiff to prove at a trial that the said transactions were prohibited by law and ought to be set aside. If the Plaintiff succeeds in proving that the deposits are illegal, then the consideration for the Letter of Guarantee would be void as the said consideration is the Defendant depositing RM 9,000,000.00 as per the Letter of Guarantee- "In consideration of you, the Investor at my / our request making advances or having made advances or having granted and made available or otherwise giving Investment and / or Loan Sum or other accommodation and / or entering into the following agreements with the Company (denied herein below):" S.24 of the Contracts Act states that the consideration of an agreement is unlawful if it is forbidden by law. Hence we are of the view that the Plaintiff ought not to be shut out but rather be afforded the opportunity to argue on the effect of s.24 of the Contracts Act and the terms of the Letter of Guarantee relied on by the Defendant and the learned Judge. The principles in Patel v. Mirza [23] Having examined the principles propounded in Patel v. Mirza (supra) and the application of the principles therein in Liputan Simfoni (supra), the learned Judge held- "30. Returning to the facts of the present case: assuming for the moment that Dato' Manokaran for the plaintiff is correct that the transactions under the Profit Guarantee Agreements had contravened section 137 of the FSA, it does not necessarily follow that the agreements are void as a consequence and that Pn Aminah would be precluded from recovering the amounts (or the principal amounts, at any rate) from him. I am of the view that the converse position holds true, which is that she would nonetheless be permitted to claim for the return of the RM9 million despite the taint of illegality." The learned Judge justified his finding above by detailing 4 reasons (para 30 of Grounds) which entailed the application of s.270 of the FSA and s.25 (sic) of the Contracts Act. [24] S.270 of the FSA provides- "270. Breach or contravention not to affect contract, agreement or arrangement. Except as otherwise provided in this Act, or in pursuance of any provision of this Act, no contract, agreement or arrangement, entered into in breach or contravention of any provision of this Act shall be void solely by reason of such breach or contravention. Provided that nothing contained in this section shall affect any liability of any person for any administrative, civil or criminal actions under this Act in respect of such breach or contravention. [25] Counsel for the Defendant submitted that the learned Judge did not err as there are no novel points of law to evaluate on the law of illegality as the principles enunciated in Patel v. Mirza have been adopted and applied in Liputan Simfoni and there are no "serious points of law "on ss.137 and 270 of the FSA and s.77 of the Contracts Act as the law is trite on the application and effect of these provisions. [26] Counsel for the Plaintiff on the other hand argued-

(a) The principles in Patel v. Mirza would not assist the Defendant basically for these reasons- "45. In Patel v. Mirza, the Supreme Court held that there must be a consideration of the "underlying purpose of the prohibition that has been transgressed and whether that purpose will be enhanced by a denial of the claim" and "to consider any other relevant public policy of which the denial of the claim will have an impact". "48. It would be obvious that if such fixed deposit taking by private companies not regulated by the financial system is allowed, then it would be against public policy as the entire financial and banking system of the country would be undermined." (Plaintiff's emphasis)

(b) The case of Liputan Simfoni "followed a number of decisions which emphasised that for the purpose of illegality, there must be an express or implied prohibition linking (nexus) the statute to the transaction" and " [i]n the present case there is a prohibition under section 137 read with section 136 of the Act to prevent deposit taking and therefore, there is a direct nexus between the illegality and the transaction [and] is therefore not obviously unsustainable."

(c) S.270 of the FSA would not apply as the Plaintiff's case is not based solely on the breach whereas in the appeal before us, it was submitted that the contract ought to be void on 2 grounds-

(i) there is a breach of the express provision of the FSA; and

(a) it is only in plain and obvious cases that recourse should be had to the summary process under the rule;

(b) this summary procedure can only be adopted when it can be clearly seen that a claim or answer is on the face of it 'obviously unsustainable' (Emphasis added);

(c) it cannot be exercised by a minute examination of the documents and facts of the case in order to see whether the party has a cause of action or a defence; and

(d) if there is a point of law which requires serious discussion, an objection should be taken on the pleadings and the point set down for argument under O 33 r 3 of the ROC; and

(e) the court must be satisfied that there is no reasonable cause of action or that the claims are frivolous or vexatious or that the defences raised are not arguable." [28] As to what is "obviously unsustainable", it was held by the Federal Court in Seruan Gemilang Makmur (supra) at 16 [28] that "the degree of unsustainability must appear on the face of the claim without having to go into lengthy and mature consideration in detail. If one has to go into lengthy and mature consideration in detail of the issues of law and/or fact, then the matter is not appropriate to be struck out summarily. It must be determined at trial." [29] The following issues for trial has been identified by learned Counsel for the Plaintiff to show that the Plaintiff's claim is sustainable:

(i) whether the sum of RM9,000,000.00 that was deposited on terms that the said sum can be withdrawn in full at any time was clearly a deposit within the meaning of s.136 of the FSA and prohibited under s.137 of the same.