KUALA LUMPUR (Nov 21): The High Court on Friday asserted that pre-factoring-i facilities — typically under a Murabahah set-up, where a financier provides a cash advance directly to suppliers before invoices are issued — still constitutes as moneylending.

Therefore, financiers are required to possess legitimate licences under the Moneylenders Act 1951.

Judicial Commissioner (JC) Yusrin Faidz Yusoff (Muamalat Court) said this while ruling on a financing agreement dispute linked to the Kasawari Gas Development Project off the coast of Sarawak.

The plaintiff, KL Petrogas Sdn Bhd, sued SA Puncak Management Sdn Bhd and five other individuals, among others, claiming that the factoring facility was never used, and the alleged monies 'owed' (to the first defendant) is essentially moneylending "disguised as Islamic funding".

The defendant, SA Puncak, a factoring company that offers shariah-compliant financial products, countered that the agreements were in accordance with valid shariah-compliant Tawarruq financing, and is thus exempt from conditions under the Moneylenders Act 1951.

SA Puncak claimed that KL Petrogas defaulted on its obligation, and must therefore pay it back.

"The substance of this transaction was a general cash advance to the plaintiff, repayable from the plaintiff's future cash flows. [SA Puncak]'s risk was the plaintiff's ability to generate future invoices, not the credit risk of the end-debtor on a specific assigned debt. This aligns with the classic definition of a loan, not the purchase of receivables," Yusrin Faidz said.

He added that SA Puncak was exempt because of its legitimate factoring business, but did not hold a licence under the Moneylenders Act.

"As the pre-factoring-i facility has been characterised as moneylending, the first defendant was engaged in this activity without the requisite licence," he said.

Therefore, the JC ruled that the factoring-i agreement and the facilities agreement in October 2023 were partially void and unenforceable.

KL Petrogas has a Standardised Work and Equipment Categories (“SWEC”) licence. It was awarded a subcontract in 2023 by Technip MMHE JV, a joint venture between Technip Energies (M) Sdn Bhd and Malaysia Marine and Heavy Engineering Holdings Sdn Bhd (KL:MHB).

The award was for a "baseline survey project” worth around RM17 million for the Kasawari Gas Development project, expected to last about 13 months.

By May 2024, the subcontract was about 84% completed, and, among others, SA Puncak had disbursed RM22.19 million to suppliers. The joint venture company had paid RM11.03 million to SA Puncak based on KL Petrogas' invoices.

However, SA Puncak's statements show that KL Petrogas allegedly owed it RM13.9 million (May 2024) and RM19.5 million (November 2024), mainly due to profit charges.

On Friday, the JC noted that the Murabahah structure chosen may have been "flawed", but the core debt remained in existence.

Citing case law, the JC noted that a contract can be void for "non-compliance with statute", without being illegal.

“The first defendant was a legitimate commercial financer, not a loan shark. Allowing the plaintiff to retain the principal sum advance under the void pre-factoring facility would result in an unjust enrichment.

"The remedy for such a situation is found in Section 66 of the Contract Act, which obligates a person who has received an advantage under the void agreement to restore it.

"The common law actions for money had and received an unjust enrichment provide a concurrent basis for this claim. This common law principle of restitution aligns with the Islamic principles, which is the structure adopted by the parties to these factoring facilities,” the JC said.

Friday's ruling disposes of part of the judgement within the larger suit involving the parties.

The court has set Nov 27 to determine the principal quantum KL Petrogas has to pay SA Puncak.

Lawyer Layyin Hassan from Messrs Mak LK & Co appeared for KL Petrogas, while Yudistra Darma Dorai of Messrs Raj, Ong & Yudistra appeared for SA Puncak.