The doctrine of total failure of consideration is a restitutionary principle that allows a party to recover money paid under a contract if they have received none of the promised performance in return. It is distinct from contractual remedies like rescission or termination and is grounded in the idea of preventing unjust enrichment.
In the recent Federal Court case of Lim Swee Choo & Anor v Ong Koh Hou @ Wong Kok Fong [2025] CLJU 2358, the Court clarified that the correct legal test is whether the promisor has performed any part of the contractual duties for which payment was made. If the payee has delivered even part of the agreed consideration — such as transferring rights, partial services, or partial goods — a claim for restitution based on total failure of consideration will fail. The Court was clear in stating that the right to restitution does not automatically arise just because a contract is rescinded or breached.
This marks a significant shift from the earlier position in Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2009] 3 MLRA 1, where the Federal Court appeared to treat rescission as sufficient to establish total failure of consideration. In Berjaya, the Court did not distinguish between the contractual remedy of rescission and the equitable remedy of restitution, thereby allowing recovery of money paid even though partial performance had occurred. The Federal Court in Lim Swee Choo expressly criticised this approach, stating that previous rulings, including Berjaya, had conflated the doctrine of total failure of consideration with recovery for breach of contract, which led to doctrinal confusion. It reaffirmed that restitution requires proof of a complete absence of the promised performance — the mere fact that a contract has been terminated or that the other party breached it is insufficient.
This clarification brings Malaysian law in line with English and Commonwealth authorities, particularly Stocznia Gdanska SA v Latvian Shipping Co, which maintain that the focus must be on the actual benefit or performance received by the payer, not just the legal status of the contract. The decision in Lim Swee Choo therefore restores coherence to the application of the doctrine, ensuring that parties cannot use restitution as a backdoor remedy when they have already received some value under a failed contract. It reinforces the conceptual separation between contractual and equitable remedies and ensures that restitution is not granted unless there is truly nothing of substance given in return.
FACTS OF THE CASE :
The case arose out of a commercial dispute involving a land transaction between the appellants, Lim Swee Choo and Chiam Eng Huat, and the respondent, Ong Koh Hou @ Won Kok Fong. The appellants had purchased four parcels of land in Mukim Rawang (collectively known as “Rawang 4”) from DA Land Sdn Bhd for RM23 million under a sale and purchase agreement dated 23 June 2015. Before the sale could be completed, the appellants entered into an assignment agreement on 20 October 2015 with the respondent, whereby they assigned all their rights, title, and interest in the Rawang 4 lands to him for a consideration of RM25.5 million. The respondent paid RM23 million upfront under the assignment, but the remaining RM2.5 million was left unpaid.
Unknown to the appellants, the respondent subsequently entered into a backdated sale and purchase agreement directly with DA Land (dated 24 May 2016, but stated to be effective from 1 October 2015), to purchase only three of the four land lots (referred to as “Rawang 3”) for RM84 million. The RM23 million previously paid to the appellants was used by the respondent as part payment to DA Land in this new deal. Complications arose because one of the land lots (Lot 25033) was subject to a third-party caveat and had already been sold by DA Land to another party in July 2014 a fact which was allegedly not disclosed by the appellants.
The respondent later claimed that he was misled into the assignment agreement and sought to recover the RM23 million he had paid, arguing that there had been a total failure of consideration. The appellants, on the other hand, contended that the respondent had received benefits under the assignment agreement namely, the assigned rights over the Rawang 4 lands hence there had not been a total failure of consideration.
HIGH COURT AND COURT OF APPEAL
At the High Court, the judge dismissed Ong Koh Hou’s counterclaim for the return of RM23 million. The court found that Ong was essentially acting as an unlicensed moneylender, which made the transaction illegal under the Moneylenders Act 1951. Since Ong was not licensed, the court held that he could not enforce the repayment of the money he had paid, regardless of whether the transaction had broken down.
The High Court also accepted that Ong had received some benefit under the contract, specifically, the assignment of rights over the Rawang 4 land and therefore there was no total failure of consideration. The judge found that even if the project was not completed or profitable, Ong had entered into a commercial transaction with knowledge of the risks and received some performance in return for his payment.
The Court of Appeal took a different view. It held that the appellants had failed to deliver what they promised namely, valid and unencumbered rights to the four parcels of land. One of the land lots (Lot 25033) was subject to a third-party caveat and had actually been sold to someone else before the assignment agreement. The court viewed this as a fundamental breach that defeated the purpose of the agreement.
Relying on this, the Court of Appeal concluded that there had been a total failure of consideration and that Ong was entitled to recover the RM23 million he had paid. It appears the Court of Appeal treated rescission of the agreement (or its failure) as being equivalent to a total failure of consideration.
FEDERAL COURT
In its judgment dated 2 October 2025, the Federal Court allowed the appeals by Lim Swee Choo and Chiam Eng Huat and dismissed the counterclaims of Ong Koh Hou @ Won Kok Fong. The central issue was whether Ong could recover RM23 million paid under an assignment agreement on the ground of total failure of consideration.
The Court firmly held that Ong’s claim failed because he had received part-performance under the agreement, namely, the assignment of rights and interests in the Rawang 4 land parcels. The Federal Court clarified that the doctrine of total failure of consideration only applies where no part of the contractual performance has been rendered in exchange for the payment.
Crucially, the Court rejected the approach taken in Berjaya Times Square v M-Concept, where rescission was treated as giving rise to a total failure of consideration by default. The Federal Court found that previous rulings had “…conflated the doctrine of total failure of consideration with recovery for breach of contract based upon termination or rescission.” and this had “…left the application of the doctrine in a state of uncertainty.[1]” The Court explained that rescission and restitution are distinct: rescission ends a contract, but restitution requires proof that the other party was unjustly enriched by receiving payment without giving anything in return.
The Court further emphasised that the correct test is “whether the promisor has performed any part of the contractual duties in respect of which payment is due and not the test of ‘whether the party in default has failed to perform his promise in its entirety’ as stated by this Court in Berjaya Times Square.[2]”
Additionally, the Court clarified that section 40 of the Contracts Act 1950 which allows for termination upon repudiation is not to be confused with restitutionary claims. As the judges noted, “…the right to terminate a contract for repudiation under section 40 does not depend on the question whether there is a total failure of consideration.” Applying these principles, the Court found that Ong’s counterclaim for restitution failed because he had derived benefit from the agreement and because total failure had not occurred. Accordingly, the Court set aside the Court of Appeal’s ruling and reinstated the High Court’s decision, firmly establishing a more principled and precise framework for the application of restitution in Malaysian contract law.
CONCLUSION
In conclusion, the Federal Court’s decision in Lim Swee Choo marks a pivotal clarification in Malaysian contract and restitution law, particularly on the doctrine of total failure of consideration. The Court held that a party cannot claim restitution simply because a contract was rescinded or breached; instead, they must prove that they received no part of the promised performance. Since the respondent, Ong, had received assigned rights under the agreement, the Court found that there was partial performance and therefore no total failure of consideration. This judgment overturned the earlier Court of Appeal ruling and reinstated the High Court’s decision in favour of the appellants. Importantly, the Federal Court also corrected the position taken in Berjaya Times Square, emphasising that restitution and rescission are distinct legal concepts and should not be conflated. The case now stands as a leading authority in Malaysia on the proper application of restitutionary claims and the limits of unjust enrichment, reinforcing legal certainty in commercial transactions
[1] Lim Swee Choo & Anor v Ong Koh Hou @ Won Kok Fong & Another Appeal [2025] CLJU 2358 (FC), at para 164
[2] Lim Swee Choo & Anor v Ong Koh Hou @ Won Kok Fong & Another Appeal [2025] CLJU 2358 (FC), at para 159
