3rd Issue: "unjust enrichment" where the contract is illegal (e.g.

can a Vendor forfeit all monies

paid by the Purchaser in respect of the SPA if the SPA is illegal)
What is UNJUST ENRICHMENT?
Unjust enrichment is a restitutionary remedy which originally also called the law of restitution. Unjust
enrichment is a concept which is not a claim for compensation in pursuance of loss but a claim
because of the benefit wrongfully gained by a defendant. Therefore, the law grants the Claimant to
claim for restoration of benefits against the Defendant at the expense of the Claimant.

 Restitution is a remedy aimed at restoring an injured innocent party to the position he was at
if not for the conduct of another. The injury if unaddressed, would unjustly enrich the guilty
party.

Sections 66 and 71 of the Contracts Act;

66. Obligation of person who has received advantage under void agreement, or contract that
becomes void
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.’
there are 2 conditions for the availability of the remedy of restitution under S.66 :
1) the agreement is discovered to be void; and
2) the other party has received an advantage

71. Obligation of person enjoying benefit of non-gratuitous act

Where a person lawfully does anything for another person, or delivers anything to him, not intending
to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make
compensation to the former in respect of, or to restore, the thing so done or delivered.’

AHMAD BIN UDOH V NG AIK CHONG [1970] 1 MLJ 82

[Defendant - the lessor of padi land, Plaintiff - lessee]
This is an appeal against the judgment of the High Court at Alor Star dismissing the defendants'
appeal against the judgement of the Sessions Court at Alor Star under which the defendants were
ordered to return to the plaintiff $1,500 being rent for the cultivation of padi land.
Defendants entered into agreement to lease out their padi land for the years 1965 to 1970 at an annual
rent of $250 and on the execution of the agreement received the six years' rent in advance amounting
to $1,500. The agreement was drafted by a layman and in the colloquial Malay language. It is
provided inter alia things that if the plaintiff should be prevented from cultivating the land the
defendants must return the advance.
Section 3 of the Padi Cultivators (Control of Rent and Security of Tenure) Ordinance 1955 provides
that no tenancy agreement for the cultivation of padi shall be for a term of less than one season or
more than one year and s. 16 provides that any contravention of any provisions of the Ordinance is an
offence.
Defendants argued that the agreement was void and unenforceable because it contravened the
provisions of the Padi Cultivators (Control of Rent and Security of Tenure) Ordinance 1955 and that
the plaintiff was in pari delicto (in equal fault) with the defendants on the ground that the plaintiff
based his claim on the said agreement.
Issue: whether the money paid by the plaintiff to the defendants under the agreement may or may not
be recovered back by the plaintiff under s. 66 of the Contracts (Malay States) Ordinance by reasons of
the provisions of ss. 24 and 25 of the said Ordinance.
Court’s observation:
An agreement discovered to be void is one discovered to be not enforceable by law, and, on the
language of the section, would include an agreement that was void in that sense from its inception as
distinct from a contract that becomes void. There may be cases where parties enter into an agreement
honestly thinking that it is a perfectly legal agreement and where one of them sues the other or wants
the other to act on it, it is then that he may discover it to be void.
Held: Since the facts and circumstances of the case proved that the parties were ignorant that they
were executing an illegal agreement, s. 66 of the Contracts (Malay States) Ordinance would apply
hence the plaintiff was entitled to the return of his advance.
The court will examine the facts of each case to determine whether the party was aware of the
illegality at the time of entering into the agreement. To obtain the remedy of restitution under S.66, the
party must not be aware of the illegality. A guilty party to an illegal agreement will not receive any
remedy under S.66.

THONG FOO CHING AND ORS V SHIGENORI ONO [1998] 4 MLJ 585

Both the respondent and appellants had testified that the parties had entered into the two agreements
separately in order to circumvent the FIC requirement and that this intention was present throughout
the transaction.

As the arrangement between the parties is illegal and the illegality is not only with regard to its
performance but in its very inception, such arrangement is void ab initio.

The respondent, being a party thereto, cannot claim any remedy under this arrangement.
 it is not open to the respondent to revert to his status quo under s. 66 of Act 136.

DREAM PROPERTY SDN BHD V ATLAS HOUSING SDN BHD [2015] 2 MLJ 441

“In our view, the time has come for this court to recognise the law of unjust enrichment by which
justice is done in a range of factual circumstances and that the restitutionary remedy is at all times so
applied to attain justice”

This is a case where the defendant entered into a sale and purchase agreement (“SPA”) to buy the
plaintiff’s land and to build a commercial complex. Upon execution, the SPA allowed the defendant to
commence construction works to build a mall. The mall became a thriving business centre. The
defendant failed to pay the balance purchase price within the time frame but the construction of the
mall went on unhindered. The plaintiff sued to the defendant for vacant possession and the defendant
counterclaimed to be restituted for the prevailing market price of the mall arguing that the plaintiff
would be unjustly enriched at the defendant’s expense. The case went up to the Federal Court which
for the first time resolved the questions of unjust enrichment as follows:-
“Question 1: Whether as a matter of law if the defendant was in breach of contract for the purchase
of the land dated 19 November 2004, whether it precludes the defendant from being awarded
restitution pursuant to the doctrine of unjust enrichment in respect of the defendant’s improvement
and enhancement of the land, namely by obtaining planning permission, building plan approval and
constructing at the defendant’s own cost, effort and experience, upon the land and a shopping mall
which subsequently was tenanted with an ongoing business, goodwill and brand name thereupon
without the plaintiff (compensating the defendant for having improved the ultimate market value of
the land and is the defendant’s remedy merely confined to compensating the defendant merely for the
cost of construction of the said shopping mall?”

“Question 2: What is the measure of restitution for unjust enrichment, in particular, is the measure of
restitution calculated merely restricted to the cost of construction of a building, without reference to
the enhancement of the market value of the said land’

For Question 1, the Federal Court answered that the defendant is not excluded from being awarded
restitution pursuant to the law of unjust enrichment in respect of the defendant’s improvement and
enhancement of the land at the defendant’s own costs, effort and experience.

For Question 2, the Federal Court answered that the measure of for unjust enrichment is the market
value of the mall and it is not restricted to the costs of its construction.

Federal Court held; “We allow the appeal in part by setting aside the orders of the High Court and
the majority of the Court of Appeal that there be an assessment by the registrar of the High Court of
the costs of the construction of the mall on the land incurred by the defendant and it is to be paid by
the plaintiff to the defendant. We substitute it with an order that there be an assessment by the judge
of the High Court of the current market value of the mall, that is to say the value of mall on the date
of this judgment, excluding the market value of the land without the mall on the said date, and that the
monetary sums of the market value of the mall are to be paid by the plaintiff to the defendant.”

In another part of the judgment in Dream Property Sdn Bhd v Atlas Housing Sdn Bhd (supra), this
Court discussed the requirements that must be fulfilled to make out a cause of action in unjust
enrichment as follows:

“The principle underlying the cases of Banque Financiere de la Cite Appellants v. Parc (Battersea)
Ltd. And Others Respondents (supra) and Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v.
Inland Revenue Commissioners and Another (supra) is that, in the context of the present case, a
cause of action in unjust enrichment can give rise to a right to restitution it can be established that:

(a) the Plaintiff must have been enriched;

(b) the enrichment must be gained at the Defendant’s expense;
(c) that the retention of the benefit by the Plaintiff was unjust; and
(d) there must be no defence available to extinguish or reduce the Plaintiff’s liability to make
restitution.”

GOLDEN WHEEL CREDIT SDN BHD V DATO’ SIAH TEONG DIN [2023] MLJU 915
In this action, the Plaintiff is seeking to recover the money lent out in the course of its business based
on the doctrine of unjust enrichment instead of claiming in contract. This is because in carrying out
the moneylending transactions in this case, the Plaintiff had failed to comply and in fact had
contravened certain material provisions of the Moneylenders Act 1951 which had the effect of
rendering the moneylending transactions void and unenforceable. The main issue is whether a claim
based on unjust enrichment or money had and received is permitted to get around the contraventions
stipulated in the Moneylenders Act 1951.
[12] In this action, the Plaintiff is seeking only the sum of RM 3,383,500.00 from the Defendant. The
Plaintiffs cause of action as pleaded is for money had and received and or unjust enrichment and not
based on the Moneylending Agreements.
[13] It is the Plaintiff’s pleaded case that the Defendant has been unjustly enriched by the loan sums
which the Defendant had received from the Plaintiff. The Plaintiff contends that it was never the
intention for the Defendant to retain the loan sums without the obligation to repay the same and that it
is unjust and or unconscionable for the Defendant to continue to keep the loan sums without repaying
the Plaintiff.
 The Plaintiff argues that the Defendant has benefited unfairly from the loan sums received from the
Plaintiff. The Plaintiff believes that the Defendant was not supposed to keep the loan sums without an
obligation to return them and that it is unjust/unreasonable and unethical for the Defendant to continue
to hold onto the loan sums without repaying the Plaintiff.

[14] The reason for the Plaintiffs reliance on money had and received or unjust enrichment as its
causes of action instead of its contractual rights under the Moneylending Agreements is
understandable given that the Plaintiff had acknowledged that the Moneylending Agreements had not
complied with many of the mandatory provisions of the Moneylenders Act 1951 which means that the
said agreements are void and unenforceable.
[24] At the end of the trial, to my mind, there is only 1 legal issue for consideration the determination
of which will dispose of the entire claim, namely, whether a licensed moneylender can recover the
balance principal sum that was advanced under an illegal moneylending transaction based on a
cause of action for unjust enrichment or money had and received.
[86] As alluded to above, Section 66 of the Contracts Act 1951 was dealt with by Lee Swee Seng JCA
in Mahmood bin Ooyub v Li Chee Loong and another appeal (supra). The said section is applicable
only in cases where the agreement becomes void or is discovered to be void and has no relevance
where the moneylending agreement is void ab initio as in the present case.
[87] As regards section 71, it is my judgment that this section does not apply to acts which are
unlawful and expressly prohibited by statute. If the Plaintiff is permitted to recover the unpaid
principal sum under the illegal Moneylending Agreements, this will also effectively stultify the policy
under the Moneylenders Act, 1951.
[88] By reason of the aforesaid, it is unnecessary for this Court to consider if the Plaintiff has satisfied
the prerequisites for establishing a cause of action for unjust enrichment and or for money had and
received given my conclusions above.

PUBLIC BANK BHD V RIA REALITI SDN BHD & ORS

Briefly, this was a claim for the repayment of a loan by the plaintiff/appellant (‘the Bank’) against
four guarantors/respondent which was dismissed by the High Court on the principal ground that the
loan was to finance the purchase of native lands by non-natives in contravention of Section 17 of the
Sabah Land Ordinance. The guarantors were shareholders and directors of a corporate borrower who
had obtained a loan for the purpose of financing the purchase of said native lands as well as for its
working capital. The winding up of the corporate borrower was in fact initiated by the two of the said
guarantors and one Koh Seng Peng on the basis of the breakdown of relationship between the
shareholders and was eventually allowed on the ground of illegality due to the aforesaid sale and
purchase of native lands by non-natives.
Whether any relief would be available to the Bank in the event the loan agreements themselves
were held to be tainted with illegality. The issues before the Court of Appeal were as follows:
 Whether the loan agreements are void being tainted with illegality by virtue of the related sale
and purchase agreement for the purchase of native lands being held to be in contravention of
Sections 17(1), (3), (5), and 64 of the Sabah Land Ordinance in relation to the sale and
purchase of native lands.
 Whether even if the loan documents can be said to be tarred with the broad brush of illegality,
the plaintiff could be granted relief by virtue of the new approach taken by the Supreme Court
in the United Kingdom (UKSC) in the case of Patel v Mirza that was endorsed by our Federal
Court recently.
 Whether relief under Section 66 of the Contracts Act could be granted if both parties to the
contract had knowledge of the illegality from the beginning.
The learned judge Ravinthran JCA in delivering the Court of Appeal judgement held that even if the
loan agreements and related documents were tainted by illegality upon the application of the ratio in
the Malayan Banking Bhd v Neway Development Sdn Bhd & Ors case from which His Lordship had
earlier distinguished on the facts, the Court of Appeal had no hesitation in holding that the Bank could
still seek relief. His Lordship was satisfied that this case falls within the ambit of said trio of
considerations as set out in the case of Patel v Mirza.

The trio of considerations was formulated by Lord Toulson to judge whether allowing a claim which
is in some way tainted by illegality would be contrary to public interest because it would be harmful
to the integrity of the legal system are as follows:

 considering the underlying purpose of the prohibition which has been transgressed;

 considering conversely any other relevant public policies which may be rendered
ineffective or less effective by the denial of the claim; and

 keeping in mind the possibility of overkill unless the law is applied with some due sense
of proportionality.

Applying the first policy consideration by looking at the underlying purpose of the prohibition that
was transgressed and whether the purpose will be enhanced by denial of the claim, His Lordship
opined as follows:

‘…The appellant is only seeking to enforce remedies under the loan and guarantee
agreements which will not have any impact on native ownership of land. Neither can seeking
remedies under the loan and guarantee agreements amount to recognition of the first
respondent as the actual owner or recognition of the second respondent as a native nominee.
 Thus, the purpose of prohibition in question in ss 17 and 64 of the Sabah Land Ordinance
(Cap 68) that rendered the sale and purchase agreements illegal will not be enhanced if the
appellant is denied relief.’

In discussing the second policy consideration of whether any other public policy would be affected
by denial of the claim, the learned Court of Appeal judge held that if the Bank is denied relief merely
because the actual buyer, seller, and nominee had participated in illegality in view of the native status
of the land title, banks would be burdened with the onerous duty to investigate the purpose of loans
and details of transactions involving nominees and actual purchasers.

His Lordship cited the Federal Court decision of Chang Yun Tai & Ors v HSBC Bank (M) Bhd &
other appeals, where one of the issues that arose was whether the loan agreement was valid regardless
of the alleged illegality of the sale and purchase agreement — during which Zulkefli Makinudin FCJ
cautioned that the courts should not impose onerous duties that will render banking business
impractical and burdensome. Accordingly, Ravinthran JCA was of the view that the second policy
consideration also favours the granting of relief to the Bank in respect of the loans given out to the
corporate borrower.

The third policy consideration deliberated by the Court of Appeal was whether denial of the claim
would be a proportionate response to the illegality. Ravinthran JCA referred to Lord Toulson’s
suggestion of the following non-exhaustive factors to be considered in determining whether denying
relief would be disproportionate — ‘the seriousness of the conduct, its centrality to the contract,
whether it was intentional and whether there was marked disparity in the parties’ respective
culpability’. The learned Court of Appeal judge held that:
‘…the culpability of the appellant is minuscule compared to that of the respondents whose
blatant and unmitigated illegality runs like a thread throughout the transaction in question.
Now, it must be appreciated that under ss 17 and 64 of the Sabah Land Ordinance (Cap 68),
the prohibition against dealings in native land by non-natives is directed at the actions of
direct parties to a sale transaction. The said provisions do not expressly outlaw a bank from
financing such a transaction.’

The Court of Appeal then concluded that it is plain that the guarantors were unjustly using their own
illegal actions to reap a multimillion dollar windfall from a financial institution, and were of the
opinion that even if the loan agreements were tainted with illegality, to deny the Bank relief would be
an unconscionable and a totally disproportionate response.

 the guarantors were unfairly benefitting from their own illegal actions by profiting millions from a
financial institution. They also believed that it would be unjust and disproportionate to deny the Bank
relief, even if the loan agreements were illegal.
The learned judge then considered the issue of restitution under Section 66 of the Contracts Act, that
is, the question of whether relief can be granted when both parties have knowledge of the
illegality from the beginning, and the contract in question was found to be void and
unenforceable. While the learned judge was of the view that knowledge of illegality cannot be
imputed to the Bank, His Lordship had made a passing yet significant observation that Section 66 of
the Contracts Act, being based on a claim for restitution for an advantage received under a contract
found to be void, does not require the absence of knowledge of illegality or lack of intention to
contravene the law as a precondition for its invocation.

TAN CHEE HOE & SDN BHD V CODE FOCUS SDN BHD [2014] 3 MLJ 301
The appellant/defendant (as vendor) had entered into a sale and purchase agreement ('the SPA') with
the respondent/plaintiff (as purchaser) for the purchase of the total issued and paid-up shares of Choo
Hoe Sdn Bhd ('CHSB') for a purchase price of RM16m. The plaintiff had agreed to purchase the said
shares because it was interested in a piece of land owned by CHSB. The said land was the only asset
of CHSB. Pursuant to the SPA the plaintiff paid the defendant 10% deposit of RM1.6m.

Here, the Federal Court allowed recovery under Section 66 of the Contracts Act, although both parties
had consciously and knowingly agreed to waive the requirement for shareholders’ approval under
Section 132C of the Companies Act 1965 by a side letter of the same date as the sale and purchase of
shares agreement. Without much elaboration or reference to earlier decisions to the contrary, Ramly
Ali FCJ held that:

‘The SPA in this case became void when the mandatory statutory requirement of shareholders’
approval was not obtained and was consciously waived by the parties at the time when it was
executed. Therefore, s 66 of the Contracts Act 1950 came into play ie that defendant (vendor)
who had received an advantage (in the form of the 10% deposit of RM1.6m) under the void
agreement or contract (the SPA) is bound to restore it to the plaintiff (purchaser) from whom
he received it.

PARAGON UNION BHD V PRESTAMEWAH DEVELOPMENT SDN BHD & ANOR AND
ANOTHER APPEAL [2018] MLJU 711

Zabariah Yusof JCA (as she then was) agreed with the trial judge that the agreements were illegal and
that the parties were in pari delicto or ‘in equal fault’. The learned Court of Appeal judge discussed
the case of Tan Chee Hoe at length and followed said Federal Court decision in holding that:
 ‘…In ordering the RM18m to be restored to Paragon Union Bhd, we are not enforcing the
DPSB agreement (which has become a void contract) but we are instead enforcing the
restitutionary principle as encapsulated in s 66 of the Contracts Act 1950.’

Her Ladyship expressed her concern that ‘it is unjust to let the plaintiffs gain from such illegality’ and
that ‘to refuse the refund would be to condone a windfall to the plaintiffs out of the illegality’. She
was of the opinion that refusing the claim for refund by the plaintiffs ‘would result in a
disproportionate consequence between the plaintiffs and the defendants, bearing in mind that both are
equally at fault’.

 The first statement means that it would be unfair or improper to allow the plaintiffs to benefit or profit
from an illegal action. The second statement suggests that if the refund is not given, it would allow the
plaintiffs to gain an unexpected, unintended benefit from the illegal action, thus implicitly agreeing
with or accepting the wrongfulness of the act.

MENAKA v LUM KUM CHUM [1977] 1 MLJ 91

The appellant was a registered moneylender carrying on business under the name of AR. PR. M Firm.
Through her attorney she lent some money to the respondent on the security of a charge of certain
lands belonging to the respondent. The loan was made by the attorney on behalf of the appellant
personally. The appellant applied for an order for the sale of the lands to satisfy the principal sum and
interest. The respondent objected to the application on the ground inter alia that, as the loan was not
made in the registered name of the moneylender, the moneylender had contravened the provisions of
section 8(b) and (c) of the Moneylenders Ordinance. The Federal Court by a majority held that the
agreement in this case was forbidden by section 8(b) of the Moneylenders Ordinance and was
therefore void.

The majority held that the learned trial judge was right in the circumstances of the case in finding that
neither the appellant nor her attorney was aware of the illegality of the transaction at the time
of the execution of the documents and therefore section 66 of the Contracts (Malay States)
Ordinance was applicable and the learned trial judge was right in ordering the return of the $19,400,
the balance of the principal sum, to the appellant. The appellant appealed against the dismissal of her
claim and before the Privy Council the respondent was given leave to cross-appeal against the
decision of the Federal Court that he was liable for interest at 6% from the date of the raising the
action.