LSC & Anor v OKH @ WKF and another appeal [2025] 6 MLJ 327

 Federal Court (Putrajaya)

 Total failure of consideration

1. The Appellants purchased four parcels of land known collectively as Rawang 4 from DA Land for RM23 million pursuant to a sale and purchase agreement dated 23 June 2015.
2. Subsequently, the Appellants entered into two assignment agreements with the Respondent, whereby they assigned all their rights, title and interest in Rawang 4 to the Respondent for a total consideration of RM25.5 million. Under the assignment arrangements, RM20 million was set off against the first Appellant’s indebtedness to the Respondent, RM3 million was payable to the Appellants, and RM2.5 million represented the Appellants’ retained investment interest in the Rawang 4 development. DA Land acknowledged and consented to the assignments.
3. Without the Appellants’ knowledge, the Respondent later entered into a separate sale and purchase agreement with DA Land, purportedly dated 1 October 2015, to purchase three of the four parcels (Rawang 3) for RM84 million. In that agreement, the Respondent represented that he had paid RM23 million as a deposit, although the sum consisted entirely of the monies originally paid by the Appellants to DA Land.
4. The Rawang 3 transaction subsequently collapsed and became the subject of two High Court suits. In those proceedings, the court found that the Respondent had not paid any monies of his own, had engaged in illegal moneylending, and that the Rawang 3 sale and purchase agreement was illegal and unenforceable. DA Land was held entitled to forfeit the RM23 million.
5. The Appellants commenced the present action claiming RM2.5 million under the assignment agreements. The Respondent counterclaimed RM23 million on the ground of total failure of consideration.
6. The High Court dismissed both the Appellants’ claim and the Respondent’s counterclaim. On appeal, the Court of Appeal dismissed the Appellants’ claim but allowed the Respondent’s counterclaim. The Appellants appealed to the Federal Court against both decisions of the Court of Appeal.

1. Whether, under the assignment agreements, there had been a total failure of consideration such that the Respondent was entitled to recover RM23 million from the Appellants?
2. Whether the plaintiffs were entitled to recover RM2.5 million as their investment under the assignment agreements?

(1)  whether, under the assignment agreements, there had been a total failure of consideration such that the Respondent was entitled to recover RM23 million from the Appellants?

(2)  Whether the Appellants were entitled to recover RM2.5 million as their investment under the assignment agreements?

(a) The Federal Court answered Issues 1 and 2 together.

(b) The Federal Court held that there was no total failure of consideration.

(c)  First, the Court took into account the factual findings relating to the Respondent’s conduct and illegality. The Court noted that the RM23 million relied upon by the Respondent did not originate from him, but from the Appellants, and that the sum had been forfeited following the failure of the Rawang 3 transaction. The Respondent’s dealings were found to be tainted by illegal moneylending (paras 127–132). These findings undermined the factual basis of the Respondent’s restitutionary claim.

(d) Secondly, the Federal Court restated the applicable legal test for total failure of consideration, namely whether the party alleging failure had received any part of the contractual benefit. Applying this test, the Court held that the Appellants had fully performed their obligations under the assignment agreements by assigning all rights and interests in Rawang 4 to the Respondent. The Respondent had obtained control over the land and derived benefit from the assignment. Accordingly, the factual matrix did not disclose a total failure of consideration (paras 146–151).

(e)  Thirdly, the Federal Court held that the Court of Appeal had erred in relying on Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010] 1 MLJ 597. That decision was said to have conflated breach of contract with restitution and should not be followed in determining whether there had been a total failure of consideration. The proper inquiry remained whether any contractual benefit had been received, not whether the wider transaction ultimately failed (paras 156, 164–166).

(f)   Having found that there was no total failure of consideration and that the assignment agreements were not tainted by illegality, the Federal Court held that the Appellants were entitled to enforce their contractual entitlement to the RM2.5 million investment sum. The Court further stated that the Appellants’ inability to realise that investment arose from the Respondent’s unilateral conduct in diverting the transaction, and that the resulting loss was attributable to the Respondent.

1. The Federal Court allowed both of Appellants’ appeals. The Appellants succeeded in their RM2.5 million claim, and the Respondent’s RM23 million counterclaim was dismissed. The Court held that there was no total failure of consideration, the Respondent caused his own loss through illegal moneylending and unilateral actions, and the case of Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010] 1 MLJ 597  is no longer good law on total failure of consideration.

1. Total failure of consideration occurs only if the promisor receives no part of the contractual benefit and not merely because the transaction later collapses.
2. The case of Berjaya Times Square is overruled on the law of total failure of consideration.
3. A party involved in illegal moneylending cannot invoke restitution to recover forfeited funds.
4. Courts will not assist a party who is responsible for his own loss through unlawful or unilateral conduct.