While All Illegal Agreements Are Void, Not All Void Agreements Are Illegal

The Court of Appeal in Golden Wheel Credit Sdn Bhd v Dato Siah Teong Din [2025] MLJU 2245 recently considered whether a moneylending agreement that failed to comply with the Moneylenders Act 1951 (“MLA”) was merely void or also illegal. The decision clarifies whether restitution can still be claimed when an agreement is void.

Case Background:

• Golden Wheel Credit Sdn Bhd (“Golden Wheel”), a licensed moneylender, granted secured loans to Instant Bonus Sdn Bhd (“Instant Bonus”) through agreements with Dato’ Siah, its director (“Moneylending Agreements”).
• The Moneylending Agreements did not comply with the requirements of the MLA specifically:

1. the Moneylending Agreements used the wrong statutory form prescribed under the Moneylenders (Control and Licensing) Regulations 2003;
2. the Moneylending Agreements charged 18% interest per annum instead of the 12% limit for secured loans under Section 17A (1) of the MLA;
3. Golden Wheel failed to provide stamped copies of the Moneylending Agreements before disbursing the loan sums, as required under Section 16 of the MLA; and
4. the transaction costs charged by Golden Wheel and deducted from the total loan sums were contrary to Section 23 of the MLA which prohibits charging expenses on loans between licensees and the borrowers.

• Instant Bonus was later wound up, and Golden Wheel filed a proof of debt to the liquidators of Instant Bonus.
• Golden Wheel then sued Dato’ Siah in the High Court for the unpaid principle amounting to RM3,383,500.00. Its cause of action was for restitution of the unpaid principal under Sections 66 of the Contracts Act 1950 (“CA 1950”) as well as the equitable principles of money had and received and unjust enrichment.
• Section 66 of the CA 1950 provides that when an agreement is discovered to be void, or when a contract becomes void, any person who 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.

High Court:

• The High Court dismissed the claim and found that the Moneylending Agreements and moneylending transactions were illegal due to non-compliance with the MLA. Golden Wheel could not recover the unpaid principal under Section 66 of the CA 1950 because the Moneylending Agreements were illegal and, therefore, void ab initio.

Issues Before the Court of Appeal:

1. Whether the Moneylending Agreements which were void and unenforceable under the MLA, were also illegal?
2. Whether Golden Wheel was entitled to restitution of the unpaid principal?

Findings of the Court of Appeal:

Issue (a)

• The agreements were void ab initio and unenforceable for not complying with the MLA. However, such non-compliance with the MLA did not render the Moneylending Agreements illegal.
• While all illegal agreements are void, not all void agreements are illegal. The MLA prohibited unlicensed moneylenders from entering into moneylending agreements. These agreements were entered into by a licensed moneylender, did not impose extortionate interest rates on the borrower (it was 18% per annum, the limit for unsecured loans under the MLA), and neither their consideration nor object was immoral or against public policy. The object of the loans was for the payment of the sums owed by Instant Bonus to its main contractor for the project. For these reasons, the Moneylending Agreements are not illegal either under the MLA or Section 24 of the CA 1950.

Issue (b)

• As the Moneylending Agreements were void ab initio and unenforceable, Golden Wheel was not entitled to contractually enforce the Moneylending Agreements.
• The guidelines in Detik Ria Sdn Bhd v. Prudential Corporation Holdings Limited & Anor [2025] 3 MLRA 544 were applied in determining whether restitution under Section 66 of the CA 1950 ought to be granted. The guidelines established a two-stage assessment:

1. evaluating the centrality of the illegality within the context of the statute breached; and

2. assessing the proportionality of denying a Section 66 remedy in light of the illegality.

• With regard to (1), the court found that the Moneylending Agreements were not illegal in answering issue (a).
• With regard to (2), the terms in the Moneylending Agreements accurately represented their intended purpose, with no attempt to conceal the nature or object of the transactions. Dato’ Siah had received an advantage under the Moneylending Agreements by Golden Wheel acting on his written instructions in the Letters of Instruction to disburse the loan amounts to Instant Bonus. Accordingly, the application of proportionality to the matrix of facts supported the grant of a Section 66 remedy.
• Refusing a Section 66 remedy would not constitute a proportionate response, particularly given that the Moneylending Agreements, though void, were not illegal. Golden Wheel was entitled to restitution of the principal sum.

Implication for Businesses:

The decision from this case clarifies a key principle in contract law, namely that a void agreement is not necessarily illegal.

Although this case concerns an agreement governed under the Moneylenders Act 1951, businesses should also be aware that other legislation such as the Sale of Goods Act 1957 and the Franchise Act 1998 prescribe specific requirements for certain types of contracts. Non-compliance with these statutory requirements may render a contract unenforceable. To avoid this risk, businesses should ensure that any agreement they enter into complies with all applicable legislative requirements.

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This article was written by Low Rui Thong (Associate) with assistance from Wendy Chan (Intern) from Donovan & Ho’s corporate practice. 

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