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Case Update: Appellate Court Rejects Refund Claim Over Illegality Concerns

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18 September 2024

CONTRACT LAW
Loan Agreement – Suspicious – Illegal Contract – Burden of Proof

Worldwide Platinum Records Sdn Bhd v Tan Sew Cheng
Civil Appeal No. B-02(NCVC)(W)-369-03/2023 | Court of Appeal
- see the grounds of judgment here

Facts Worldwide Platinum Records (the ‘Appellant’), entered into a loan agreement with an American entity, Noble Mettle LLC, for a loan of 102 million Euros (approximately RM500 million). As part of this agreement, the Appellant was required to pay a 2 million Euro processing fee, of which 1 million Euros was paid upfront. The Appellant directly wire-transferred 100,000 Euros to Noble but handed 900,000 Euros in cash to Tan Sew Cheng (the ‘Respondent’), Noble’s agent, for onward transmission. When Noble failed to disburse the promised loan, instead of actively pursuing Noble for the release of the larger pool of money, the Appellant was bent on securing a refund of the monies paid to the Respondent, relying on two undertakings she had signed. The Appellant managed to secure a summary judgement at the High Court which was overturned by the Court of Appeal and ordered a Full Trial with specific issues to be tried to scrutinise and examine the stupefying and illegal features rife within the impugned Loan Agreement. At the end of the Appellant’s case, the Appellant had failed to discharge its own legal burden to prove a legally enforceable Loan Agreement to seek for a refund. Thus, considering the Appellant’s absence of a case, the Respondent opted to submit a no case to answer. Upon full trial and the Appellant’s outright refusal to call key and material witnesses to testify on the Loan Agreement, the Learned Judicial Commissioner dismissed the Appellant’s claim. Dissatisfied, the Appellant appealed to the Court of Appeal.

Issue 1. Whether the Appellant had established a valid, enforceable loan agreement with Noble Mettle LLC that would entitle them to a refund of the 1 million Euros processing fee paid to the Respondent, Tan Sew Cheng, acting as Noble's agent.

Held In dismissing the appeal, YA Datuk Azimah Binti Omar, in delivering the majority judgement of the Court of Appeal held that the Appellant had failed to prove the legality and enforceability of the loan agreement with Noble Mettle LLC. The Court of Appeal had previously expressed doubts about the legitimacy of the agreement, suspecting it might be a smokescreen for money laundering or an illegal money-lending scheme. The Appellant did not provide sufficient evidence to address or counter these concerns. The Appellant’s decision to pay the 900,000 Euros in cash, despite having the ability to wire-transfer funds directly (as they did with the initial 100,000 Euros), raised further suspicion. The Court of Appeal considered this a red flag, and the Appellant once again failed to justify why the transaction was handled in this manner. Further, the Appellate Court emphasized that the Appellant failed to meet the legal burden of proof to demonstrate that the loan agreement and the two undertakings signed by the Respondent were legitimate and enforceable. Without proving the validity of the underlying agreement, the Appellant’s claim for the refund could not stand. In conclusion, the Court of Appeal stressed that it could not uphold a claim based on a potentially illegal agreement. The Court of Appeal was mindful of public policy considerations and refused to grant any relief that could give legitimacy to what appeared to be an illegal or suspicious transaction.

Zul Rafique & Partners
{18 September 2024}

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