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InsiderTAPS (15 September 2006)

Insider TAPS Issue 006 - A contract although illegal can still be the basis for a successful law suit in Malaysia

The Malaysian Federal Court (the final court) recently decided that notwithstanding a contract may be illegal, it may still have effect so as to allow property / title to pass under the contract in certain circumstances so as to found a successful law suit.


This was a case where A had obtained rights under a statute by licence to do certain works upon and thereafter sell a subject matter. A contracted B to execute those works by way of a sale of the subject matter in consideration for monies paid in advance. B then sub-contracted those works in a similar fashion to C. Having fully paid the purchase price, C subsequently found that the subject matter had already been appropriated by B and sold to D. C sued D for the subject matter. C and B settled amicably. D argued that the contract between A and B was in fact illegal under the relevant statute and therefore no title could have passed from A to B much less to C. The Court found that title to the subject-matter can nonetheless pass under the illegal contract for the purpose of a suit in the tort of conversion of the subject matter as such was a claim on property rights and not contractual rights and particularly so where C has fully executed its part of the contract by having fully paid for the subject matter to B but could not now obtain it. Accordingly, D was found liable to C for conversion of property.