Zhong E Sdn Bhd v 1. ) Flowcrete Malaysia Sdn Bhd (BA-22NCvC-430-10/2019)

FLOWCRETE MALAYSIA SDN (formerly known as Flowcrete Nippon Sdn Bhd)

THEN LIAT NYAP

NG LEONG MUNG

CHAW FONG TENG

HENG FOOK CHAN (NRIC NO.: 530815-05-5511) 16/06/2025 09:55:50 BA-22NCvC-430-10/2019 Kand. 141 GROUNDS OF JUDGMENT Introduction [1] The Plaintiff suit against the 4th and 5th Defendants is premised on a guarantee executed by them to pay all sums due and owing for goods delivered to the 1st Defendant. Salient facts [2] The 1st Defendant, Flowcrete Malaysia Sdn Bhd Flowcrete is a locally incorporated company. The records maintained by the Companies Commission of Malaysia shows its business to be that of supplier, installer and trader of industrial flooring and related products and trading, import and export of general goods Flowcrete was wound up on 14.7.2021. [3] The 2nd and 3rd Defendants were both the shareholders of Flowcrete. The 2nd Defendant was also a director at the material time. Both were adjudicated bankrupts on 23.3.2022 and 27.9.2022 respectively. [4] In view of the insolvency of the 1st to 3rd Defendants, the Plaintiff has since discontinued the suit against them. [5] The 4th and 5th defendants (hereinafter referred to as D4 and D5 respectively) were former employees of Flowcrete. D4 was the finance director and D5, the credit control manager. [6] Between the years 2015 to 2017, the Plaintiff and Flowcrete were engaged in a business relationship. On 22.7.2015, the parties executed a Goods Supply and Credit Terms letter wherein the Plaintiff agreed to supply goods at the request of Flowcrete on a credit term of up to 75 days. [7] Simultaneous with the Goods Supply and Credit Terms letter, the 2nd and 3rd Defendants also signed a Guarantee and Indemnity dated 22.7.2015 in favour of the Plaintiff to guarantee payment of all sums due and owing to the Plaintiff. [8] Subsequent to the execution of the abovementioned documents, Flowcrete issued Purchase Orders to the Plaintiff for floor coating products and related materials, and in turn, tax invoices for these products were issued by the Plaintiff to Flowcrete. The receipts of the products ordered were duly acknowledged by Flowcrete as evidenced by the signature and company stamp affixed on the Delivery Orders. [9] D4 and D5 became involved only in the business arrangement when they executed a Supplemental Guarantee and Indemnity dated 8.8.2016 Supplemental Guarantee in favour of the Plaintiff. The salient terms of which are inter alia, as follows:-

D4 and D5 guarantees to pay all sums due and owing by Flowcrete to the Plaintiff together with all costs, charges and expenses incurred by the Plaintiff in claiming the outstanding debt due to the Plaintiff by Flowcrete

(ii) D4 and D5 are to be jointly and severally responsible for the Guarantee Sum as principal debtors;

(iii) The Plaintiff is given the liberty to take legal action against D4 and D5 as the principal debtors for all the outstanding sums due and owing by Flowcrete to the Plaintiff. [10] As at 10.9.2019, the balance outstanding under the account of Flowcrete with the Plaintiff stood at RM 1,191,649.66 based on 2 tax invoices, the details of which are:-

Tax Invoice (No: ZEIN0179) dated 7.7.2019 for the amount of RM 677,541.08; and

(ii) Tax Invoice (No: ZEIN0180) dated 21.7.2019 for the amount of RM 514,108.58. [11] The Plaintiff made numerous requests and demands on the said sums. It did not receive any positive response. It then instructed its solicitors to issue a formal notice of demand on 11.9.2019 to the Defendants to pay, but to no avail. [12] present suit claiming as follows:-

the outstanding sum of RM 1,191,649.66 being the

(ii) interest at the rate of 5% per annum on the said sum of RM 1,191,649.66 commencing from 18.9.2019 until date of full realization; and

(iii) costs of this action. The ase [13] The Plaintiff called 2 witnesses to establish the following facts. The Plaintiff is a trading company. Its claim is a straightforward one arising from goods sold and delivered to Flowcrete at its requests, the payments for which were guaranteed by D4 and D5. The defendants never denied executing the Supplemental Guarantee. [14] The amount owing and hence the liability of D4 and D5 is indisputable as it is substantiated by contemporaneous documentary evidence in the form of duly acknowledged invoices and delivery orders. Flowcrete had never raised any complaints or disputed the products received and the accompanying documents sent to it. [15] Between the years of 2015 and 2017, there were a total of 34 transactions between the parties; and it was only the last 2 invoices that Flowcrete failed to make payment towards the products ordered. [16] There was also an admission and acknowledgment of debt evidenced by Flowcrete issuing Maybank cheques no. 278919 and 279064 for the amounts of RM 677,541.08 and RM 514,108.59 dated 5.10.2017 and 19.10.2017 respectively in favour of the Plaintiff. However, Flowcrete subsequently instructed Maybank on 13.11.2017 to stop payment on the said cheques. [17] The admission of debt is further fortified by Flowcrete letter to the Plaintiff soon after Maybank cheque no. 278919 was issued, to request the latter to hold the cheque. Flowcrete further added that it agreed to pay late payment charges of 2.4% per month. [18] The documentary evidence therefore establishes a clear case of goods sold and delivered and the failure of Flowcrete to pay towards the invoices has been sufficiently established. The execution of the Supplemental Guarantee by D4 and D5 therefore entitles the Plaintiff to claim the Guarantee Sum against D4 and D5. The Defence case [19] 5 witnesses testified for the defence to establish that the transactions represented by documents were not genuine sale of goods transactions. There were no real or physical goods transacted, it was mere were executed to create an impression of sale of goods transactions. In actual fact, it was but a camouflage for loans advanced by the Plaintiff to Flowcrete. [20] Although the documents showed that goods were obtained by the Plaintiff Petoskey and Viacor Systems Viacor and supplied to Flowcrete, in reality neither Petoskey nor suppliers; they were in fact recommended by Flowcrete. [21] At the material time, Flowcrete, Petoskey and Viacor were related companies. The 2nd Defendant was the former director of Flowcrete. He was responsible for the incorporation of Viacor. Viacor occupied the same premises as Flowcrete. As for Petoskey, Flowcrete Both Petoskey and Viacor did not produce or trade in any goods, neither did they have any factory or warehouse to manufacture or store any goods. Both companies only had an office premise. [22] The paper transactions were in the following sequence. At he Plaintiff would issue Purchase Orders to Petoskey or Victor in respect of certain products with a specified monetary value. Thereafter Petoskey or Victor would issue a Delivery Order and tax invoice to the Plaintiff for the said products. The Plaintiff then makes payment to either Petoskey or Victor, and which in turn pays over part of the monies to Flowcrete. [23] At the same time, the Plaintiff will issue a Delivery Order and tax invoice to Flowcrete for the same products but at a higher price. The difference between the price stated in the tax invoice of Petoskey or Victor and the tax invoice of the Plaintiff constituted the interest payable by Flowcrete to the Plaintiff. [24] In short, the transactions between the Plaintiff and Flowcrete did not involve any real goods being transacted. The paper trading served as a disguise for unlawful moneylending dealings. [25] As the Plaintiff is not a licensed moneylender, the transactions with Flowcrete contravene the Moneylenders Act 1951. Consequently, the Supplemental Guarantee against D4 and D5 is rendered unenforceable. Issues to be tried [26] There is but one central issue for determination by this court. It is whether the transactions represented by the documents are genuine sale of goods transactions or sham transactions to conceal moneylending. The determination of this issue will impact on the rights and liabilities of the parties. Analysis and decision of this court [27] Faced with two such diametrically opposed contentions on the factual scenario, the court is tasked with deciding the case on the available evidence based on trite principles with regard to the burden of proof. [28] [29] If the Plaintiff succeeds in establishing a prima facie case, then the defence is obliged to rebut, by adducing evidence in order to tilt the balance in his favour. Whether the transactions are genuine or sham [30] , supported by documentary evidence which shows it to be so. In view of this, the version of the defendants which presents an entirely different story becomes critical on the issue of the genuineness of the transactions or otherwise. The court is required to weigh and evaluate the evidence of both parties to determine which of the versions is more probable. [31] I shall start by first stating the principles in decided cases which would have a bearing on the case before me, in the context of the factual scenario. [32] Regardless of the description given to a document, it is incumbent on the court to investigate and determine the actual relationship between the parties,. In Lee Kuang Gen v Tan Sri Seri Dr M Mahadevan a/l Mahalingam and other appeals [2024] 1 MLJ 825 the Court of Appeal held that, It is trite law that the court does not look at labels attached to a document but will examine the contents of the same in its particular circumstances to determine the true relationship between the parties and the type of transaction that they have entered into. [33] In Global Globe Property(Melawati) Sdn Bhd v Jangka Prestasi Sdn Bhd [2020] 6 MLJ 333, the Court of Appeal dealt with the meaning of sham agreements as follows, [101] AG Securities v Vaughan & Ors [1990] 1 AC 417 Lord Justice Bingham explained A written agreement is a sham where it incorporates clauses by which neither party intends to be bound and which is obviously a smoke screen to cover the real intentions of both contracting parties: Hadjiloucas v Crean [1987] 3 All ER 1008 at p 1014, per Purchas LJ. The accepted definition of a sham is that given by Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at p 802: As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the 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 by them 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 (see Yorkshire Railway Wagon Co v Maclure (1882) 21 Ch D 309, CA and Stoneleigh Finance Ltd v Phillips [1965] 2 QB 537), that for acts or documents 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. [34] Finally, in Mahmood bin Ayoob v Li Chee Long [2020] 1 LNS 660 the Court of Appeal had the occasion to determine if the transaction the parties entered into was in fact a moneylending transaction disguised as a sale and purchase of property. It held, [211] It therefore behoves the trial Court, when there is an allegation that the agreement is a sham and a fabrication with the object of circumventing the law, to examine the external evidence to see if the pieces in the puzzle would fit to form a coherent whole. The Court must probe further to see if there are unusual features in the agreement as in here, a sale and purchase agreement and examine the circumstantial evidence such as the conduct of the parties that may arouse suspicion if not setting off the alarm bell. [35] Having evaluated the evidence before me, I find the transactions in the instant case to be highly suggestive of a moneylending transaction. In so finding I have considered the evidence of the defence witnesses who referred to documentary evidence as proof of their allegation that there was no actual sale of goods. [36] The defence called four witnesses. In order of chronology, they were D5 himself (DW1), the 2nd Defendant who was also the former director of Flowcrete (DW2), the sales manager of Flowcrete (DW3) and D4 herself (DW4). [37] DW1 (D5) in his evidence explained how the documents were utilized as paper trading and the money trail of monies which were in fact loan sums, moving from the Plaintiff to companies and then subsequently channeled to Flowcrete. There were no physical goods involved in these transactions. [38] In his Witness Statement he gave evidence detailing the money trail. As a finance director, he was required to prepare the prepare the working statements on the loan amounts lent by the Plaintiff to Flowcrete and the repayment amounts made by the latter. These working statements were adduced in the Agreed Bundle of Documents marked as B5 at the trial. [39] To further substantiate his assertion of moneylending, he referred to the bank statements of both Petoskey and Viacor showing the amounts which were paid to them by the Plaintiff. These amounts were then transferred out to Flowcrete and other recipients. A comparison of these amounts would show that the figures tallied. [40] His evidence as to the money trail for all the 34 transactions with the Plaintiff was reproduced by counsel in Annexure II to the defence Written Submission. Having scrutinized the contents of the Annexure II, I find it to constitute cogent evidence of the defence version of moneylending transactions. The amount of money paid out by the Plaintiff to Viacor and Petoskey almost matched the monies transferred out from these companies to Flowcrete. The fact that it did not match to the last ringgit did not in any way diminish the strength of the defence case. [41] The Plaintiff attempted to discredit the contents of Annexure II by providing a list of evidential deficiencies in the defendant analysis. Having scrutinized the rebuttal evidence, I do not find the alleged deficiencies sufficient to disprove the defence case. [42] (D5) evidence is also significant in another aspect. He said that after signing all the trade documents on behalf of Flowcrete, payable to the suppliers, i.e either Petoskey or Viacor as per their tax invoices to the Plaintiff. He even testified as to the circumstances in which these cheques were given. I find it surprising that the cheques were not handed directly to the suppliers, if they were in fact suppliers of goods ordered, as alleged by the Plaintiff. [43] also material. He was the managing director of Flowcrete for more than 20 years until it was wound up. [44] In his evidence he explained the working relationship between Flowcrete, Petovsky and Viacor. He stated that Petovsky was a bumiputera company and a contractor for some of the government projects. For these projects Petovsky would appoint Flowcrete as its sub-contractor. Petovsky assisted by charging its property as security for financing facilities granted to Flowcrete. DW2 stood as guarantor for the facilities granted. Petovsky was not in the business of manufacturing goods as it had no factory. It did not supply any goods to the Plaintiff. [45] DW2 also said that he incorporated Viacor for the purpose of submitting tender for projects. He then appointed D4 as a director and majority shareholder as he trusted her. The shares were however held by her as his nominee. Like Petovsky, Viacor also did not have a factory to manufacture goods and did not supply goods to the Plaintiff. [46] DW2 further stated that that Flowcrete was required to confirm in the Purchase Order issued by the Plaintiff that the goods were in order. My attention was drawn to the contents of the Purchase Order. On it is stated as follows:- Notes: 1) factory/warehouse. 2) We confirm all the above goods are legal and legitimate and the quality, quantity, description and specification of the above goods upon our acceptance of this Purchase Order conditions. [47] Defence submitted that this is unusual as the confirmation is usually given by a purchaser in a Delivery Order at the time goods are delivered. I find merit in the submission. [48] DW2 explained that the loans were obtained from the Plaintiff as Flowcrete required financing for its business. Notwithstanding the earlier Guarantee and Indemnity dated 22.7.2015 in which he signed favour of the Plaintiff, he was required by the Plaintiff to look for further guarantors in view of the continued financing Flowcrete required. He then requested D4 and D5 to sign the Supplementary Guarantee as they were good and supportive staff. To obtain their agreement to executed, he informed them that it was a temporary arrangement. [49] DW4 (D4) in her evidence testified that she was merely an employee of Flowcrete at the material time. She substantiated the evidence of the other defence witnesses that no physical goods were sourced, inspected or delivered to Flowcrete. [50] The cumulative evidence of both the oral and documentary evidence of the defence witnesses establish credible evidence of moneylending transactions. It is difficult to ignore the unusual features of the transactions entered into. The allegation of paper trading is supported by cogent evidence as the documentary evidence referred to substantiates and is consistent with their oral assertion. I find the evidence of the defence witnesses unassailable during cross-examination. [51] I agree with the defence submission there was overwhelming evidence on the unusual features of the alleged sale and purchase of goods which indicate they were but sham transactions. [52] On the other hand, t evidence is not capable of belief in so far as it attempts to present a case of physical goods sold and delivered. [53] PW1, the Chief Executive Officer of the Plaintiff testified. He said that the goods were sourced by Flowcrete. Flowcrete will then inform the Plaintiff the supplier identified, which will either be Petoskey or Viacor. Following the information given, the Plaintiff will issue Purchase Orders to either of these 2 companies. PW1 admitted that he had no knowledge of the location of their warehouse. [54] PW1 also admitted that Plaintiff did not deliver the goods to Flowcrete. Instead it was sent directly by the supplier to Flowcrete. He confirmed in cross examination that the Plaintiff did not arrange for the goods to be delivered to Flowcrete. It is undisputed evidence and I should add inexplicable, that there was no inspection of the goods by the Plaintiff. [55] As I was intrigued by this unusual way of conducting a sale and purchase of goods, I questioned PW1 as to why Flowcrete having sourced for and identified the suppliers, did not purchase directly from them. To my mind, it did not make business sense as buying directly from the supplier would have avoided the extra cost involved. The documents referred to showed that the Flowcrete paid a higher price than what the Plaintiff had to pay Viacor or Petovsky. PW1 candidly replied that he did not know as it was Flo He did not even attempt to proffer an explanation or reason for this unusual modus operandi. [56] The suggestion of a loan transaction is also fortified by covering letter attached to the Supplemental Guarantee. The covering letter AND OPTION AGREEMENT. Whilst I would be cautious to attach undue significance to a mere title to a document, nonetheless considered with other available evidence, it fortifies the defence case that parties entered into a loan transaction. [57] In short, I did not find any evidence from the Plaintiff which could credibly rebut the evidence of the defence witnesses. [58] Finally, there is the evidence pertaining to the interest charged which again defies common business practice. The Letter of Goods Supply and Credit Terms contains paragraph 1 (a) providing for service charge as follows:-

1.(a) the service charge based on credit term as follows:-

Up to seventy-five (75) days only, service charge is 6% of the total amount of the goods order [59] PW1 in his cross examination admitted that in line with the provision, the Plaintiff has started charging the 6% as their profit margin even within the 75 days credit terms. There is no plausible reason to impose a charge if a credit period is allowed. [60] D5 stated that if Flowcrete failed to repay the loan sum within the 75 days repayment period, then Flowcrete was obliged to continue paying the loan interest at the rate of 2.4% per month which is equivalent to 6% for 75 days to the Plaintiff until the loan sum was fully repaid, in addition to the principal loan amount. The documentary evidence at the trial showed that the Plaintiff had on occasions, issued Sales Debit Notes to Flowcrete to demand for such loan interest. For this reason, I am inclined to agree with the defence submission that the 6% imposed was loan interest. [61] To reiterate, the transactions were not genuine transactions and did not represent a valid sale and purchase of goods. The documentary evidence relied on by the Plaintiff to show its existence, has been rebutted by the defence evidence. There were features which was contrary to sensible business practice. The Plaintiff has therefore failed to discharge the burden of proving its case of sale and purchase of actual goods. [62] Consequently, there is only one conclusion to be made, that the parties had engaged in moneylending transactions. Effect of moneylending transactions in violation of the Moneylending Act 1951 [63] The next issue to resolve is the effect of my finding that the Plaintiff and Flowcrete were involved in moneylending transactions. [64] The Plaintiff denies being a moneylender at the material time. Having found it to be so, the Plaintiff must be considered to be an unlicensed moneylender, and had acted contrary to section 5 of MLA [65] This fact attracts the application of the provisions of the MLA, in particular section 15 which provides, Contract by unlicensed moneylender unenforceable

No moneylending agreement in respect of money lent after the coming into force of this Act by an unlicensed moneylender shall be enforceable. [66] The effect of such agreements falls within the ambit of section 24 of the Contracts Act 1950 which provides as follows, What considerations and objects are lawful, and what not

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. [67] Since the moneylending transactions between Plaintiff and Flowcrete are void and unenforceable, the Supplemental Guarantee the Plaintiff is attempting to enforce against D4 and D5 by this suit, is ipso facto also void and unenforceable. [68] In Jupiters Ltd. (Trading As Conrad International Treasury Casino) v Gan Kok Beng & Anor [2008] 7 CLJ 715, the casino sued in respect of six cheques issued to pay gambling debts. The cheques were later countermanded and dishonoured. The casino sued for the amounts stated on the cheques. The court held that a cause of action cannot be maintained in respect of these cheques by virtue of s. 26 of the Civil Law Act 1956 which provides for agreement by way of gaming or wagering to be null and void. It further held as follows, We must be mindful that both ss 26 of the Civil Law Act and 31 of the Contracts Act debars any contracts which involves the generic activity of gambling. It follows that the plaintiff having in the statement of agreed facts admitted that it was indeed a gambling activity herein, it is simply void and becomes a nudum pactum, devoid of any consideration. Thus, on the first issue, it is clear to me that the plaintiff cannot found its action on the six cheques in Malaysian courts since it is the law that consideration must be lawful at all times, and any illegality of the consideration cannot be ignored. [30] In Star Cruise GP Selvam J. had occasion to deal with s 6 of the Singapore provision which is similar to our s 26 of the Civil Law Act 1956. On the principle of nudum pactum (which means an empty contract) His Lordship spelt out the essence of its concept (at p 439) in the following succinct terms: The meaning and effect of the matrix concept void contract or nudum pactum are multifaceted and multidirectional. The following propositions flow from the concept of nudum pactum.

When a contract is made void by a statute, no right or obligation can arise from it. It is deprived of all legal force. It is a nudum factum. It cannot be sued upon. The pretended contract is no contract at all. No subsequent right can be founded on it. Something cannot spring from nothing. See Swan v Bank of Scotland (a case on the Stamp Act) (1836) 10 Blight NS 627; 6 ER 231, Cowern v Nield [1912] 2 KB 419 (contract void under Infants Relief Act), and John Edwards & Co v Motor Union Insurance Co Ltd [1922] 2 KB 249. The following statement by Gillard J in Sharp v Ellis; Re Edward Love & Co Pty Ltd (1971) 20 FLR 199 at p.205 embodies the first principle on a void contract. If the original agreement were rendered null and void by the existing law and one party performed his part of the illusory bargain, such performance would be without any contractual significance whatever and no right or remedy, either expressly or impliedly, would arise from that performance in his favour.

(ii) Accordingly, any security such as bill or note given in respect of a void contract is itself void. See Richardson v Moncrieffe (1926) 43 TLR 32, Levene v Brougham (1909) 25 TLR 265, Re Soltykoff, ex p Margrett [1891] 1 QB 413 (CA) and Kong Yee Lone & Co v Lowjee Nanjee (1901) 28 Ind App 239 (PC). In England a security given in respect of a gaming transaction is illegal and not void because the Gaming Act 1835 says it is so, even though logically it is not so.

(iii) So, a guarantee of a void contract is itself void. See Courts & Co v Browne-Lecky [1947] KB 104. See also Swan v Bank of Scotland (1836) 10 Bligh NS 627; 6 ER 231, a case on the Stamp Act. By the same logic, therefore, a mortgage given by a mother to secure the gambling debt of her prodigal son could be void. [69] The net result is that security given for an illegal transaction is also void. [70] For the above reasons, the claim of the Plaintiff against D4 and D5 a guarantee based on a genuine sale of goods transaction. [71] Consequently, I make the following orders:-

(i)

(ii) costs of RM 40,000.00 is to be paid by the Plaintiff to the 4th and 5th Defendants. Dated: 10th day of June 2025 -sgd- .... Alice Loke Yee Ching Judge High Court in Malaya at Shah Alam Counsel for the Plaintiff: Mr. Clement Chong Chyi (Messrs. EZ Pang & Co.) Counsel for the 4th and 5th Defendants: Mr. Tan Leng (Ms. Manisah binti Muhammad with him) (Messrs. TJ Chin & Co.)