Bank Islam Malaysia Berhad v TMF Trustees Malaysia Berhad & 5 Lagi (24M-5-02/2018)

TMF TRUSTEES MALAYSIA BERHAD (Company No: 610812-W)

MALAYAN BANKING BERHAD (Company No: 3813-K)

SYARIKAT TAKAFUL MALAYSIA BERHAD (Company No: 131646-K)

AMANAHRAYA TRUSTEES BERHAD (Company No: 766894-T)

AMANAHRAYA BERHAD (Company No: 344989-T)

CIMB GROUP NOMINEES (TEMPATAN) SDN BHD (Company No: 027470-T) …DEFENDANTS BEFORE YA KHADIJAH BINTI IDRIS JUDICIAL COMMISSIONER 3 GROUNDS OF JUDGMENT INTRODUCTION [1] By the amended originating summons the Plaintiff applied for the following order – that the proportionate amount of RM16,870,000.00 stand possessed by the 1st Defendant as the trustee pursuant to the Sukuk Ijarah MTN Facility Trust Deed in the Sinking Fund Account on the maturity date as at 6.7.2017 shall be for the sole benefit of the Plaintiff as a Sukuk holder who is entitled to the payment of Face Amount of the Sukuk Ijarah MTN and therefore the Defendant is hereby ordered to release or cause the release of the said sum within seven (7) days from the date of this order, being part payment of the Face Amount of Sukuk Ijarah MTN matured on 6.7.2017, to the Plaintiff. [2] With the exception of the fourth Defendant, the second, third, fifth and sixth Defendants resisted the Plaintiff’s application. Having heard and considered the parties’ affidavit evidence and submissions, I allowed the Plaintiff’s Amended Originating Summons. Aggrieved by the 4 said decision the second, third, fifth and sixth Defendants appealed. The grounds below relate to the appeals filed by the said Defendants. PARTIES [3] The Plaintiff is a licensed financial institution. [4] The Defendants in this originating summons proceedings are as follows:

TMF Trustees Malaysia Berhad (1st Defendant), a trust company established under the Trust Companies Act 1949 (Trust Companies Act). It is TMF Trustees position to remain neutral in this originating proceedings and to be guided by the order of this court.

Malayan Banking Berhad (Company No. 3813-K) (2nd Defendant) a licensed financial institution.

Syarikat Takaful Malaysia Berhad (Company No. 131646-K) (3rd Defendant).

Amanahraya Trustees Berhad (Company No. 766894-T) (4th Defendant) also a trust company established under the Trust Companies Act. 5

Amanah Raya Berhad (Company No. 344989-T) (5th Defendant).

CIMB Group Nominees (Tempatan) Sdn Bhd (Company No. 027470-T) (6th defendant). BACKGROUND FACTS [5] A company known as Alam Maritim Resources Berhad (the Issuer) vide its Information Memorandum dated 25 June 2007 undertook a financing exercise via the issuance of Islamic Securities of up to RM 600 million comprising of –

a Maximum Aggregate Nominal Amount Sukuk Ijarah Medium Term Notes of RM 500 Million (Sukuk Ijarah MTN); and

Murabahah Commercial Papers / Murabahah Medium Term Notes of RM 100 Million. The present proceedings concern only the Sukuk Ijarah MTN. [6] The Issuer entered into various agreements, covenants and deeds collectively referred to as Issue Documents in respect of the Sukuk 6 Ijarah MTN. The Issue Documents which are pertinent and relevant for the purpose of this originating summons are as follows –

Sukuk Ijarah MTN Facility Agreement dated 18 June 2007 (Sukuk Ijarah MTN Facility Agreement) which, among others, states the purpose and utilisation of the said Facility.

Deed of Definitions dated 18 June 2007 (Deed of Definitions) which provides for the definitions and interpretations of the terms used in the Issue Documents in respect of the Sukuk Ijarah MTN Facility.

Sukuk Ijarah MTN Facility Trust Deed dated 18 June 2007 (Trust Deed) by which the Issuer had appointed and authorised the 1st Defendant as the Sukuk Ijarah MTN Trustee (the Trustee) to act on its behalf in respect of the Trust Assets including to hold the benefit of the Sukuk Ijarah MTN and the Issue Documents upon trust for each and every Sukuk holder on the terms and conditions of the Trust Deed.

Depository and Paying Agency Agreement dated 18 June 2007 (DPPA) where the Issuer appointed the Bank Negara Malaysia which is the Central Depository to act as depository and Paying Agent for the Sukuk. 7

Priority and Security Sharing Agreement dated 18 June 2007 (PSSA) which regulate the priority and security sharing of the Security Documents. [7]

Escrow Account (pursuant to clause 7.1 (dd) of the Sukuk Ijarah MTN Facility Agreement) where proceeds paid to the Issuer arising out of the Sukuk Ijarah MTN is to be credited into the Escrow Account.

Sukuk Ijarah MTN FSRA (Finance Service Reserve Account) – pursuant to clause 7.1 (ee) of the Sukuk Ijarah MTN Facility Agreement). Withdrawal from this account is only for the purpose of, inter alia, payment of Periodic Distribution Income to Skukholders.

Sukuk Ijarah MTN Sinking Fund Account (Sukuk Ijarah MTN SFA) (pursuant to clause 7.1 (ff) of the Sukuk Ijarah MTN 8 Facility Agreement). Withdrawal from this account is only for the purpose of, inter alia, the Sukuk Ijarah MTN principal payment due under Sukuk Ijarah MTN. The Issuer has irrevocably and unconditionally authorised the Trustee to solely operate the Designated Accounts. [8]

Bank Islam 20.00 66.67% 87

Other Sukukholders 10.00 33.33% 43

Total 30.00 100.00% 30 [15] By way of its letter dated 27 September 2017 to the Plaintiff, the 1st Defendant stated the sum RM 25,306,872.32 in Sukuk Ijarah MTN SFA is insufficient to meet the payment demanded by the Plaintiff without compromising the payments due to other Sukukholders. The 1st Defendant disagreed with the Plaintiff’s interpretation of the terms of the Trust Deed and suggested that all Sukukholders reach an agreement as to how the sum in the Sukuk Ijarah MTN SFA ought to be distributed, failing which this issue should be determined by the court. [16] No agreement was reached among the Sukukholders. As such there is an on-going conflicts and differences amongst the Sukukholders in respect of the treatment and / or distribution of the monies in the Sukuk Ijarah MTN SFA. [17] The Plaintiff then instituted this proceedings against the 1st Defendant. The 1st Defendant then filed an Interpleader Application 12

16.87 million which represents 66.6% of the available fund in the Sukuk Ijarah MTN SFA. By saying the Plaintiff’s demand would compromise the payment due to the other Sukukholders which is not in accordance with the terms of the Trust Deed, the 1st Defendant has indirectly took a position that the other Sukukholders are entitled to be considered even though the Maturity Date for the other Sukukholders has yet to materialized. [24] The 4th Defendant did not file any written submission. At the hearing of the originating summons, this court was informed that the 4th Defendant supports the Plaintiff’s position. [25] The 2nd, 3rd, 5th and 6th Defendants’ (collectively referred to as “the Opposing Defendants”) objected to the Plaintiff’s application. In essence, it is argued that the interpretation of the Issue Documents would lead to only one conclusion, that is, the sum standing in the Sukuk Ijarah MTN SFA ought to be distributed to all the Sukukholders on a pari passu basis regardless of the Maturity Dates of each parties’ Sukuk Ijarah MTN and without preference to any specific tranche. 16 [26] The 3rd Defendant took the position that the distribution of the amount available in the Sukuk Ijarah MTN SFA must be made based on the percentage holding of the outstanding sukuk and not in a specific tranche only. Since the 3rd Defendant holds 40% of the outstanding Sukuk Ijarah MTN, therefore out of the sum RM 25,306,872.32 in the Sukuk Ijarah MTN SFA, 3rd Defendant is entitled to RM 10,122,748.32 and remaining sum to be distributed to the other Sukukholders based on their holding percentage of the outstanding sukuk of RM 75 million. [27] The Opposing Defendants’ view is primarily anchored on the basis that the Issuer had defaulted in payment to Sukukholders on 6 July

However Event of Default could not be declared as provided under clause 6.1 of the Trust Deed because of the letter from Corporate Debt Restructuring Committee (CDRC) dated 25 May 2017 (CRDC’s Letter). It is the Opposing Defendants’ views that the CDRC requires lenders of the Issuer to observe an informal standstill and withhold litigation proceedings against the Issuer. [28] Notwithstanding that, it is argued that Event of Default had occurred and the Sukuk Ijarah MTN becomes due and repayable regardless of the stated Maturity Dates of the Sukuk Ijarah MTN.

First, towards payment of taxes and government charges;

Second, towards costs and expenses as defined therein;

Third, towards payment of the Secured Amount, provided that if such moneys are insufficient to pay all such Secured Amounts, the proceeds shall be applied pro-rate based on the respective entitlements of the Sukukholders. [29] As the monies in the Sukuk Ijarah MTN SFA is insufficient to pay the Secured Amount (which includes, inter alia, the aggregate Face Amount of the Notes and the Sukuk Ijarah MTN) whatever monies in the Sukuk Ijarah MTN SFA is to be shared by all Sukukholders on a pari passu basis without any preference or priority among the Sukukholders. [30] Furthermore clause 6.5 of the DPAA provides if there is insufficient funds to pay the Profit and/or Redemption Proceeds due and payable on the due date to Sukukholders, the Paying Agent, i.e. Bank Negara Malaysia shall refrain from making any payment. The Paying Agent will only release payment if the Lead Arranger or Facility Agent makes up the shortfall in funds on behalf of the Issuer. 18 [31] Under clause 2.2 of the Trust Deed the Trustees holds the benefit of the Trust Deed and the Issue Documents upon trust for each and every Sukukholder and not only for the protection of one Sukukholder. The Plaintiff, in insisting that the Trustee pays over all the monies in Sukuk Ijarah MTN SFA to the Plaintiff, would directly result in the Trustee being in breach of trust vis-a-vis the other Sukukholders. [32] The Plaintiff’s position does not make sense from the common business approach. Bowing to the Plaintiff’s demand for the sum of RM16.87 million when there is insufficient funds and when event of default had materialised no doubt compromise the interest of the other Sukukholders. This defeat the objective and spirit of the entire Sukuk exercise. It would also be contrary to the interpretation of the documents and instruments especially the Trust Deed in relation to the Facility. ISSUE [33] The pertinent issue which requires the court determination concerns the treatment of funds within the Sukuk Ijarah MTN SFA which is the dedicated account from which payments of the Face 19 Amount (principal payment for the Sukuk Ijarah MTN) to the Sukukholders are effected upon maturity of the Sukuk Ijarah MTN. THE LAW [34] The competing claims amongst the Sukukholders obviously relate to the interpretation of the various contractual documents which are the Issue Documents which governs the issuance of the Sukuk Ijarah MTN. In SPM Membrane Switch Sdn Bhd v Kerajaan Negeri Selangor [2016] 1 CLJ 177 the Federal Court has, inter alia, laid down the principles of construction of contract as follows – [27] … the restatement of principles in the landmark case of Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896,16 912-913 “(ICS)” provides a starting point for the consideration of the relevant principles. The judgment of Lord Hoffmann is reproduced below, where His Lordship stated that:- “... I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 WLR 1381, 1384-1386 and Reardon Smith Line Ltd v. Yngvar Hansen-Tangen[1976] 1 WLR 989, is always sufficiently appreciated.” The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be 20 interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded. The principles may be summarised as follows:-

Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the 17 requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: 21 see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd[1995] 1 WLR 1 508.

The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201: “If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to conclusion that flouts business commonsense, it must be made to yield to business common sense.” … [34] Where the natural meaning of the contract is not clear and in the particular absence of words to the effect mentioned above, the principles in ICS in their qualified form remain applicable and relevant to the construction of the construct such as to enable the court to objectively determine “the meaning which the contract would convey to a reasonable person having all the background knowledge ... available to the parties.” [35] The principles of Lord Hoffmann were summarised in Berjaya Times Square Sdn Bhd v. M-Concept Sdn Bhd [2010] 1 CLJ 269; [2010] 1 MLJ 597 at p. 296 CLJ; [42] 620G (MLJ). Gopal Sri Ram FCJ, who delivered the leading judgment of the court stated: Here it is important to bear in mind that a contract is to be interpreted in accordance with the following guidelines. First, a 22 court interpreting a private contract is not confined to the four corners of the document. It is entitled to look at the factual matrix which forms the background to the transaction. Second, the factual matrix which forms the background to the transaction includes all material that was reasonably available to the parties. Third, the interpreting court must disregard any part of the background that is declaratory of subjective intent only. Lastly, the court should adopt an objective approach when interpreting a private contract. … [36] This objective approach to interpretation is the "ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation which they were at the time of the contract." (K. Lewison, The Interpretation of Contracts (5th edn, 2011), Sweet and Maxwell, at 1.03). … [40] Consistent with this analysis is the case of Berjaya Times Square (supra) where at p. 297 CLJ; [43] 621E, Gopal Sri Ram, FCJ (as His Lordship then was) adopting the British authorities, states: The most recent statement of the guideline to interpretation of contract statutes and other instruments is to be found in Attorney General of Belize v. Belize Telecom [2009] UKPC 10, where delivering the advice of the board, Lord Hoffman said: The Court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms or make it fairer or more reasonable. If it is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to 23 the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed... It is this objective meaning which is conventionally called the intention of the parties or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument. [41] Thus in addition to the above in interpreting the contract, the court must approach it holistically. No term is to be taken or interpreted in isolation. This canon of construction is so long established, it is almost banal. See for instance Chamber Colliery Ltd v. Twyerould [1893] [1915] 1 Ch 268 (Note): ... the application of the well-known (sic) rule that a deed ought to be read as a whole, in order to ascertain the true meaning of its several clauses; and that the words of each clause should be so interpreted as to bring them into harmony with the other provisions of the deed, if that interpretation does no violence to the meaning of which they are naturally susceptible. [35] The relevant Issue Documents are as stated above. Based on the case SPN Membrane Switch, the various agreements will have to be read as a whole and not in isolation. Thus in interpreting the relevant Issue Documents, the words used must be read in the context of the circumstances which led to the execution of the said documents. In doing so this court is required to consider, among others, the following factors – 24

the Issue Documents are to be construed in the manner a reasonable commercial person would construe them as to give commercial sense. Words should be given their natural and ordinary meaning

the factual matrix which forms the background to the execution of the Issue Documents

it is the imputed intention of the parties that this court is required to ascertain and not what the parties thought they intend it to be. The court is not to improve the instrument which it is called upon to construe or introduce terms or make it fairer or more reasonable. DECISION OF THE COURT [36] The Sukuk Ijarah MTN Facility has a tenure of 15 years whereas each of the Sukuk Ijarah MTN issued has a maturity of more than 1 year up to 10 years. Details of the Plaintiff and Defendants subscription of the Sukuk Ijarah MTN is tabulated at paragraph 11 above. The Issuer is obliged to redeem the Sukuk Ijarah MTN on the relevant Maturity Date. Clause 3.1 of the Trust Deed provides as follows – 25

3.1 The Issuer covenants that unless previously redeemed, purchased or cancelled or otherwise satisfied by the Issuer, the Issuer shall redeem the Sukuk Ijarah MTN on the relevant Maturity Date or any other date on which the Sukuk Ijarah MTN are due and payable. [37] Under the Deed of Definition, Maturity Date is defined as the date for payment of the Face Amount of any Sukuk Ijarah MTN and Face Amount is in turn defined as the principal amount which becomes due on the Maturity Date. With regards to the obligation of the Issuer in respect of redemption of the Sukuk Ijarah MTN, clause 4.3 of the Trust Deed provide as follows –

4.3 Unless the Sukuk Ijarah MTN Trustee has declared an Event of Default, the Issuer shall redeem the Sukuk Ijarah MTN at their respective Face Amounts or any amount stated to be due on the Sukuk Ijarah MTN on their relevant Maturity Dates. The Issuer hereby covenants to redeem in full the said Face Amounts of the Sukuk Ijarah MTN on the relevant due dates. [38] Event of Default is defined under the Deed of Definition as any of the events mentioned in clause 10 of the Sukuk Ijarah MTN Facility Agreement or clause 6 of the Trust Deed. It is noted that the events stated in clause 10.1 (a) – (w) and clause 6 (a) to (w) are identical. Under the Sukuk Ijarah MTN Facility Agreement it is the Facility Agent who may, by notice to the Issuer, declare the Sukuk Ijarah MTN Facility be cancelled and all amounts payable by the Issuer under the MTN 26 Facility Agreement become immediately due and payable. Whereas under the Trust Deed, it is the Trustee who is required to declare the occurrence of an Event of Default. Clause 6.1 of the Trust Deed reads as follows –

6.1 The Sukuk Ijarah MTN Trustee may, and if so requested in writing by the Sukukholders of not less than fifty per centum (50%) of the Sukuk Ijarah MTN then outstanding, or if so directed by an Extraordinary Resolution shall, declare (by giving written notice thereof to the Issuer) that an Event of Default has occurred and that, notwithstanding the stated maturity of the Sukuk Ijarah MTN, the Sukuk Ijarah MTN are immediately due and repayable, and the Sukuk Ijarah MTN will thereupon become due and repayable, if –

… [39] Thus, the immediate consequences of the declaration of an Event of Default by the Trustee is drastic in that the Sukuk Ijarah MTN becomes immediately due and payable regardless of the Maturity Dates of any of the Sukuk Ijarah MTN. [40] It is pertinent to note that under the said clause 6.1 the Trustee is obliged, at the request of the Sukukholders of not less than fifty per centum (50%) of the Sukuk Ijarah MTN then outstanding to declare an Event of Default. As the facts stated above, it is undisputed that there is 27 no declaration of Event of Default in accordance with clause 6.1 of the Trust Deed even though as early as 5 June 2017 the Trustee and the Sukukholders were aware that the monies available in the Sukuk Ijarah was insufficient to pay the Face Amount of the Sukuk Ijarah MTN which was due and payable on 6 July 2017. [41] It is without doubt, had there been a declaration made pursuant to clause 6.1 of the Trust Deed by the Trustee or the Facility Agent under clause 10 of the MTN Facility Agreement, all monies payable by the Issuer becomes due and payable and the Trustee would be bound to enforce the provisions of the Issue Documents against the Issuer. Since Event of Default was not declared by the Trustee, is clause 6 of the Trust Deed triggered, in the sense that all monies under the Sukuk Ijarah MTN becomes due and payable regardless of the Maturity Date of each Sukuk Ijarah MTN?. Having considered the provisions of the relevant agreements in the Issue Documents and the surrounding facts, I am of the view clause 6 is not so triggered. My reasons are stated below. [42] The provisions which requires for an Event of Default, should it occurred, to be declared is very clear. There is no ambiguity in clause 10 of the Sukuk Ijarah MTN Facility Agreement and clause 6 of the Trust Deed in respect of the requirement for an Event of Default to be 28 declared. Such declaration is to be effected by the giving of a written notice from the Trustee to the Issuer. [43] The significance of an Event of Default to be declared in accordance with clause 6.1 of the Trust Deed can be deduced from the consequences of such declaration which is as follows –

such declaration triggers the obligations of the Issuer to pay all monies due and payable under the Sukuk Ijarah MTN Facility (clause 6.1 of the Trust Deed) regardless of the Maturity Date of each Sukuk Ijarah MTN.

simultaneously, such declaration triggers the rights of the Sukukholders to be paid the Redemption Value (defined in the Deed of Definition to include Face Amount) regardless of the Maturity Date of the Sukuk Ijarah MTN held by the Sukukholders.

Trustee is bound to take steps to enforce the provisions of the Trust Deed and its rights under the PSSA provided it is requested to do so by the Sukukholders holding or representing not less than fifty per centum (50%) of the Face 29 Amount of the Sukuk Ijarah MTN for the time being outstanding (clauses 6.2 and 6.7 of the Trust Deed).

the Sukukholders may only proceed directly against the Issuer in the event the Trustee, having become bound to proceed against the Issuer, fails to do so within 14 days of it becoming so bound (clause 6.5 of the Trust Deed).

under the PSSA, upon the occurrence of an Event of Default and upon being notified in writing that an Event of Default has been declared, the Trustee is obliged to enforce the Security Documents which includes the Designated Accounts Charge and the PSSA (clause 2 of PSSA).

where the default relate to the Issuer’s failure to observe or perform any of its obligations under the Issue Documents and such failure in the opinion of the Trustee is capable of being remedied, an Event of Default is only declared after the failure has not been remedied within 14 Business Days after being notified by the Trustee (clause 6.1 (b) of the Trust Deed). In this respect the Issuer is to be given time to remedy the default before an Event of Default is declared. 30 [44] Thus declaration of an Event of Default is intended to protect the interest of the Sukukholders in relation to its rights to the Sukuk Ijarah MTN. Even though the Trustee and the Sukukholders were aware (on 5 June 2017) that the monies available in the Sukuk Ijarah was insufficient to pay the Face Amount of the Sukuk Ijarah MTN which was due and payable on 6 July 2017, there was no request made by the Sukukholders to the Trustee for an Event of Default be declared on 6 Juky 2017. Neither was there any proposed resolution moved by the Trustee for the Sukukholders’ consent to declare an Event of Default on 6 July 2017. [45] It is argued by the Opposing Defendants that an Event of Default could not be declared because they are required by CDRC to withhold litigation against the Issuer. It appears the Opposing Defendants took the position that the CDRC’s Letter requiring them to withhold litigation against the Issuer is legally bound on them and must be complied. [46] In the CDRC Participant’s Code of Conduct (Code of Conduct) issued by Bank Negara Malaysia (BNM) on 29 July 2009 and updated on 29 April 2013, it is stated that the CDRC was formed by BNM to provide a platform for both eligible debtors and participating institutions (creditors) to work out feasible debt restructuring schemes without 31 having to resort to legal proceedings. It is also stated even though any breach or non-compliance of the Code of Conduct by any participant shall be regarded with serious concern by the CDRC, the said Code is not intended to be legally binding on the participants. The Code of Conduct requires the participating financial institutions to execute a standstill agreement in the forma and substance set out thereto. In the case where participating institutions are holders of securities issued by the eligible debtor, such participating institutions shall instruct and authorise any trustee appointed to represent the interests of the holders of such securities to enter into the standstill agreement for and on behalf of the holders of the said securities. The terms of the standstill agreement is non-negotiable and binding on the participants and it provides, inter alia, as follows –

3.

3.1 Each of the Participating Institutions agrees with each other and the Eligible Debtor that during the Standstill Period:-

continue to make available and maintain the outstanding balance on all Facilities granted to the eligible debtor as at the commencement of the Standstill Period;

not take or commence or continue any recovery action or legal proceedings against the Eligible Debtor or any of its assets, whether held as security or not in respect of any of the Facilities 32 or any other liability of the Eligible Debtor or permit any recovery action or proceedings to be taken on its behalf;

not accelerate or require payment of any liability of the Eligible Debtor in respect of any of the Facilities;

not take any action to enforce or make any demand under any security or guarantee or similar support given in connection with the Facilities by the Eligible Debtor … [47] In the guideline titled Enhancement of the Policy and Guidleines of the Small Debt Resolution Scheme (SDRS) (BNM/RH/GL 028-8) issued by Bank Negara Malaysia on 11 July 2014, participating financial institutions are advised to halt all legal proceedings from the date SDRC received application for rescheduling and restructuring of financing facilities. [48] This court was not informed of any standstill agreement executed between the Issuer and the Trustee. Had there been one, the Plaintiff cannot institute this proceedings seeking for the prayers as stated in the originating summons. At the same time the 1st Defendant would not be in the position to suggest to the Plaintiff and the Defendants to, inter alia, have the issue of the competing claims between the Sukukholders be determined by the court. Thus to say that an Event of Default could not be declared because of the CDRC’s Letter is misconceived and 33 misplaced. This is especially so in light of the latest guideline issued by BNM in 2014. [49] As there was no Event of Default declared, I am of the view that the available but insufficient fund in the Sukuk Ijarah MTN SFA is to be distributed among the Sukukholders whose Maturity Date falls on 6 July

Such a situation is contemplated in light of clause 4.3 of the Trust Deed. In the said clause, it is stated that the amount to be redeemed by the Issuer on the Maturity Date is the Face Amount or any amount stated to be due on the Sukuk Ijarah MTN. The question – what does “any amount stated to be due on the Sukuk Ijarah MTN" means?. [50] In so far as the Issuer is concerned, its obligations under the Sukuk Ijarah MTN is stated as follows –

4.4 So long as any of the Sukuk Ijarah MTN remains outstanding the Issuer hereby covenants and undertakes with the Sukuk Ijarah MTN Trustee that the Sukuk Ijarah MTN are direct, unconditional, unsubordinated and secured obligations of the Issuer ranking pari passu without preference or priority among themselves along with the MCP/MMTN and rank at least parri passu to all other unsecured and unsubordinated obligations of the Issuer from time to time outstanding except:- 34

liabilities which benefit from liens or rights of set off arising in the normal course of business and the aggregate amount of which is not material; and

liabilities which are preferred solely by the laws of Malaysia and not by reason of any Security Interest. By the said provision it is expressly provided that the Issuer’s obligations and liabilities towards the Sukukholders of the outstanding Sukuk Ijarah MTN is direct and unconditional and that among the Sukukholders they shall rank pari passu without any preference or priority among themselves. [51] Thus among the Sukukholders whose Maturity Date falls on 6 July 2017, they are all on equal footing and that no preference and priority is to be given among themselves. Based on that, it is my considered opinion that the phrase “any amount stated to be due…” in clause 4.3 must necessarily refers to a situation like in the instant case where there is insufficient fund to redeem the Face Amount on the Maturity Date. As the Sukukholders are to be treated equally, therefore the available fund on 6 July 2017 ought to be equally or proportionately distributed for the redemption of the outstanding Sukuk Ijarah MTN on 6 July 2017. 35 [52] The Plaintiff refers to clause 7.1 (c) of the Trust Deed to support their views that the available fund in the Sukuk Ijarah MTN is to be paid proportionately among the Sukukholders whose Maturity Date of the Sukuk Ijarah MTN falls on 6 July 2017. It is to be noted that the provisions in clause 7.1 deals with application of proceeds pursuant to enforcement of the Sukuk Ijarah. As such it is to be read together with clause 6 of the Trust Deed in relation to declaration of Event of Default by the Trustee. Pursuant to such declaration the Trustee is bound under clause 6.2 to enforce the provisions of the Trust Deed and the PSSA provided the Sukukuholders had requested so in accordance with the said clause 6.2. As there is no Event of Default declared I am in agreement with the 6th Defendant that clause 7.1 of the Trust Deed would not be applicable as the Trustee has yet to pursue enforcement of the Trust Deed against the Issuer and the money available in the Sukuk Ijarah MTN SFA is not moneys received pursuant to enforcement of the Sukuk Ijarah MTN against the Issuer. [53] However I am of the view that the said clause 7.1 is relevant in that it illustrates the applicability of the principle of pari passu among the Sukukholders in relation to utilisation and distribution of insufficient proceeds, received from the enforcement action against the Issuer, for redemption of the Sukuk Ijarah MTN. Hence in the instant case where 36 the money available for redemption purposes is insufficient to pay the full amount of the Face Amount of the Sukuk Ijarah MTN, it is only reasonable to apply the same manner of payment, that is to be proportionately distributed among the Sukukholders in accordance with the percentage held by each Sukukholders on the Maturity Date on 6 July 2017. [54] It is argued that to adopt the Plaintiff’s approach would mean giving the Sukukholders whose Sukuk Ijarah MTN Maturity Dates falls on 6 July 2017 priority and preference over other Sukukholders whose Maturity Date is in the future. Having considered the relevant Issue Documents I am of the view the issue of priority and / or preference does not arise. The Sukukholders were aware, when they subscribed to the Sukuk Ijarah MTN that the return of their investment is to be expected on the Maturity Date which is between 1 year up to 10 years. As such the Sukukholders knew from day one that the Maturity Dates is either 6 July 2017 or 25 January 2018 as long as the Sukuk Ijarah MTN is not previously redeemed, purchased or cancelled or otherwise satisfied by the Issuer. [55] Clause 3.1 of the Trust Deed provides, besides the Maturity Date, the Issuer is to redeem the Sukuk Ijarah MTN on any other date on 37 which the Sukuk Ijarah MTN are due and payable. A situation where the payment of the principal amount of the Sukuk Ijarah MTN becomes due and payable on a date other than the Maturity Date is when an Event of Default occur and there is a declaration to that effect by the Trustee. As stated above, such declaration will, inter alia, trigger enforcement action against the Issuer. Since no Event of Default was declared in the instant case, the redemption of the principal amount of the Sukuk Ijarah MTN is to be done on the relevant Maturity Dates as stated in the Sukuk. [56] It is also argued that the moneys ought to be distributed equally among the Plaintiff and all the Defendants by virtue of clause 2.2 of the Trust Deed which provides as follows –

2.2 The parties hereto agree that the Sukuk Ijarah MTN Trustee shall hold the benefit of the Trust Deed and the Issue Documents and shall stand possessed of all amounts received by it from the Issuer or from the realisation of the Security Documents UPON TRUST for each and every Sukukholder on the terms and conditions herein contained. By the above provision the Opposing Defendants took the position that Trustee holds the benefit of the Trust Deed and the Issue Documents upon trust for each and every Sukukholder and not for any specific Sukukholder in a specific tranche. Thus the available monies in the Sukuk Ijarah MTN SFA as at 6 July 2017 ought to be distributed 38 proportionately according to the percentage holding of all the Sukukholders. [57] While it is not disputed that clause 2.2 of the Trust Deed provides that the Trustee holds the benefit of the Trust Deed and the Issue Documents upon trust for each and every Sukukholder, I am of the view the said provision must be read with other relevant provisions when it comes to operationalising such declaratory statement. This is especially so in relation to the Issuer’s fundamental obligation (clause 3.1 of the Trust Deed) under the Sukuk Ijarah MTN Facility Agreement and the Trust Deed to redeem the principal amount on the Maturity Date of the Sukuk Ijarah MTN. Thus, come 6 July 2017 the Plaintiff, 3rd and 4th Defendant are to be paid the principal amount of the Sukuk Ijarah MTN held by them out of the funds standing to the credit of the Sukuk Ijarah MTN SFA as at 6 July 2017 on a pari passu basis. [58] Such is the express and clear arrangement as agreed by all the Sukukholders and the Trustee. It is argued that such arrangement does not make commercial sense as it compromise the interest of the 2nd, 3rd, 5th and 6th Defendants as the Sukukholders. However this court is not in the position to improve the terms agreed earlier by the parties or make it fairer or more reasonable. To do so would amount to rewrite the terms 39 of the Issue Documents. The intention of the parties is to be construed from the terms of the Issue Documents which was agreed upon at the time when the Issue Documents were executed and not in the light of what happened years or even days later (National Coal Board v WmNeill & Son (St Helens) Ltd [1984] 1 All ER 555, at 560]. Even though it may turned out not to be in favour of the Opposing Defendants, the Issue Documents remains valid. [59] It is argued by the Opposing Defendants that the Plaintiff’s reliance on clause 9.1 (gg) (iii) of the Trust Deed is misplaced as the said clause 9.1 only relate to the specific utilisation of monies in the Sukuk Ijarah MTN SFA and that it is the Issuer who has the right to withdraw the monies standing to the credit of the said sinking fund and not the Trustee. It is further contended that the said provision does not provide that the monies in the Sukuk Ijarah MTN SFA must be used towards payment of Sukuk Ijarah principal payment. [60] While I agree with such contention in respect of what is provided in the said clause 9.1 (gg) (iii), it is to be borne in mind that clause 9 of the Trust Deed relates to the undertakings and covenants given by the Issuer to the Trustee who was appointed by the Issuer to act on behalf of the Issuer. This includes, exercising on behalf of the Sukukholders all 40 of the Issuer’s right under the various agreements relating to the Trusts Assets which includes the Issue Documents (clause 2.1 (d) of the Trust Deed). As such the said clause must be read together with other relevant provisions in the Issue Documents in particular the operational provisions in relation to the obligations of the Issuer and the Trustee. [61] Among the undertaking and covenants given by the Issuer was that it irrevocably and unconditionally authorises the Trustee to solely operate the Designated Accounts which was opened by the Issuer. Thus the Trustee is obliged to solely operate and manage the Sukuk Ijarah MTN SFA in accordance with, among others, the Trust Deed without reference to the Issuer. This would naturally includes ensuring the monies standing to the credit of the Sukuk Ijarah MTN SFA is to be utilised for the purpose of payment of the principal amount of the Sukuk Ijarah MTN. As the Issuer undertook not to withdraw monies in the Sukuk Ijarah MTN SFA for other purpose other than for payment of principal amount of the Sukuk Ijarah MTN and Permitted Investment, it follows that such monies must be utilised, first and foremost, for the payment of the Face Amount of the Sukuk Ijarah MTN. The Permitted Investment as provided in clause 9.1 (gg) (iii) (2) is only to be carried out in the event there is monies in excess of the Sukuk Ijarah MTN SFA Minimum Required Balance after principal payment due under the Sukuk 41 Ijarah MTN Facility for each Sukuk Ijarah MTN is made. Since the Trustee is authorised by the Issuer to solely operate the Sukuk Ijarah MTN SFA, any withdrawal or payment must necessarily be made by the Trustee on behalf of the Issuer in accordance with the terms of the Issue Documents. [62] Another point raised by the Opposing Defendants relate to clause 6.5 of the DPPA which refrain the Paying Agent (BNM) from making any payment of Profit and / or Redemption Proceeds (which includes the principal amount) on the due date if there is insufficient funds to effect such payment. Therefore no payment as claimed by the Plaintiff can be made until the Lead Arranger or the Facility Agent makes up the shortfall in funds on behalf of the Issuer. [63] Under the DPAA, the Issuer appointed the Central Depository (BNM) to act as depository and the Paying Agent for the purpose of paying the Profit and / or Redemption Proceeds. To make such payment the Issuer is obliged under clause 4.2 (a) of the DPPA to unconditionally make available to the Lead Arranger or Facility Agent Cash Account sufficient monies for such payment. The Facility Agent will then make available to the Paying Agent, in accordance with RENTAS system, the monies for purpose of paying the Redemption 42 Proceed. It is agreed in the absence of sufficient monies made available to the Paying Agent to effect such payment, the Paying Agent is not obliged to make such payment. Thus the DPAA is a mechanism to regulate the depository of securities and transfer of fund to effect payment of the Profit and / or Redemption Sum to the Sukukholders through the RENTAS system. There is no evidence to show that the Issuer has caused sufficient money to be transferred to the Facility Agent Cash Account for onward transmission to the account of the Paying Agent for the payment of the Redemption Sum. Thus the role of the Paying Agent under the DPAA is merely to effect payment through the RENTAS system. For all intent and purposes, the Sukuk Ijarah MTN is to be determined in the manner and subject to the Sukuk Ijarah MTN Facility Agreement and the Trust Deed. In this respect it is the fund available in the Sukuk Ijarah MTN SFA which is to be utilised for payment of the principal amount of the Sukuk Ijarah MTN. CONCLUSION [64] Based on the aforesaid reasons it is my considered opinion that the sum RM 25,306,872.32 standing to the credit of the Sukuk Ijarah MTN SFA as at 6 July 2017 is to be distributed proportionately, among the Sukukholders holding the Sukuk Ijarah MTN with Maturity Date on 6 43 July 2017, according to the percentage of their holding. I therefore allowed the Plaintiff’s originating summons. ( KHADIJAH BINTI IDRIS ) JUDICIAL COMMISSIONER HIGH COURT (COMMERCIAL DIVISION) DATED 31 JANUARY 2019 Counsel: Plaintiff : K. Ganesan and together with R. Subashini of Messrs Ganesan & Irmohizam Defendants : Lim Jia Wing of Messrs Mohanadass Partnership (for the 1st Defendant) : K.K. Chan and together with Bryan Chen of Messrs Shook Lin & Bok (for the 2nd Defendant) : Harikannan Ragavan and together with Bovina Ponnusamy of Messrs Jayadeep Hari & Jamil (for the 3rd Defendant) : Pavitra Shankar of Messrs Shaikh David & Co. (for the 4th Defendant) : Ng Hooi Huang and together with Tai Yong Fung of Messrs Shook Lin & Bok (for the 5th Defendant) : Christopher K.K. Foo of Messrs Raja, Darryl & Loh (for the 6th Defendant)