Bank Kerjasama Rakyat Malaysia Berhad v 1. Kejora Pelangi Sdn Bhd (Guaman No. 76-05/2015)

KEJORA PELANGI SDN BHD (NO. SYARIKAT : 350551 – P)

SUHAIMI BIN BUSTAMIN

NOR AZLINA BINTI NORDIN (NO. K/P: 660612-10-1796) … DEFENDAN-DEFENDAN Grounds of Judgment Azizah Nawawi, J: Introduction [1] This is the defendants’ counterclaim against the plaintiff seeking the following prayers:

an injunction to stop the Bank from enforcing the foreclosure proceedings;

(ii) a declaration that amount outstanding under the facility agreement is RM978,329.57; 2

(iii) an order that the charges in respect of the lands be discharge after payment of the outstanding sum; and

(iv) damages. [2] The plaintiff’s claim against the defendants for the sum of RM1,537,208.95 was withdrawn on 13.5.2016. This trial is only in respect of the defendants’ counterclaim against the plaintiff. [3] Having considered the evidence and the submission of the parties, this court had dismissed the defendant’s counterclaim with costs. The Salient Facts [4] The plaintiff (the “Bank”) is a cooperative body registered under the Cooperative Society’s Act 1993, and is subject to the Bank Kerjasama (M) Bhd (Special Provisions) Act 1978. The Bank’s business includes the business of providing loans. [5] The 1st defendant (“Kejora”) is a company incorporated in Malaysia and the 2nd and the 3rd defendants were the directors of Kejora at the relevant times. [6] The Bank had granted a Bridging Financing–i Facility of RM2,500,000.00 (the “Financing Facility”) to Kejora via a Letter of Offer dated 7.1.2011 and 29.7.2011. The parties have signed the following agreements (the “Facility Agreement”): 3

Letter of Offer dated 7.1.2011 and Kejora Letter of Acceptance dated 10.1.2011;

(ii) The Master Agreement (Bridging Financing – i Facility) dated 15.4.2011;

(iii) The Asset Purchase Agreement dated 15.4.2011;

(iv) The Asset Sale Agreement dated 15.4.2011;

Istisna’ Purchase Agreement dated 15.4.2011;

(vi) Istisna’ Sale Agreement dated 15.4.2011; and

(vii) Guarantee and Indemnity dated 15.4.2011. [7] The Financing Facility shall be available for a period of thirty (30) months from the date of the Facility Agreement, that is from 15.4.2011 to 15.10.2013. [8] The Financing Facility was guaranteed by two persons, Suhaimi bin Bustamin and Nor Azlina binti Nordin, the 2nd and the 3rd defendants (the “Guarantors”). They were also the directors of Kejora when the Financing Facility was granted. [9] The Financing Facility consisted of two (2) tranches, namely:

Tranche 1 of RM950,000.00 to part finance the purchase of 14 pieces of Freehold Reserved land under PT No. Form 4 39936 to 39949, H.S(M) from 18949 to 18962 at Ayer Hitam, Mukim of Dengkil, District of Sepang, Selangor with a total area of 56,626 square feet (the “Project Land”); and

(ii) Tranche 2 of RM1,550,000.00 is to part finance the construction of 14 units of two (2) storey semi-detached house on the Project Land. [10] The Project Land was also charged to the Bank as a security for the Financing Facility. [11] Under Tranche 1, a sum of RM330,000.00 was disbursed on 20.10.2011 and the balance of RM620,000.00 was disbursed on 21.12.2011. [12] Kejora had sent two (2) letters dated 1.8.2013 requesting as follows:

An increase in Tranche 2 limit from RM1,550,000.00 to RM3,050,000.00;

(ii) To pay the FSRA account in exchange with the disbursement of Tranche 2; and

(iii) To reduce the minimum sales from seven (7) units to four

units. [13] The Bank had replied in a letter dated 26.8.2013 that the Bank was not agreeable to the above requests. 5 [14] Vide a letter dated 17.6.2014, the Bank had informed Kejora that the Availability Period of the Financing Facility had lapsed on 15.10.2013 and that the Bank has decided not to extend the availability period. [15] When Kejora defaulted in the payments of the Financing Facility, the Bank issued a letter of demand and a Notice of Termination dated 30.5.2016. [16] The Bank commence legal proceedings against Kejora and the directors premised on the Facility Agreement. [17] A judgment in default was entered but was later set aside. An application for summary judgment was also dismissed. Subsequently, the Bank withdrew its claim against the defendants with liberty to file afresh and costs of RM5,000.00. [18] This trial is in respect of Kejora’s counterclaim against the Bank. Findings of the Court [19] Kejora’s causes of action in its counterclaim against the Bank are a breach of contract and a breach of duty of care.

breach of contract [20] The claim premised on contract is pleaded in paragraph [17] of the Counterclaim, where Kejora pleads that “Plaintif telah memungkiri perjanjian/Garis Panduan tersebut dengan 6 menuntut jumlah yang melampau daripada defendan-defendan. Butir-butir:

Jumlah tuntutan adalah melampau dan melebihi keuntungan sebenar yang dipersetujui;

(ii) Plaintif telah memasukkan keuntungan yang tidak genap (‘unearned profit’) ke dalam Jumlah Tuntutan;

(iii) Plaintif telah gagal memberi ibra’ bulanan mengikut terma perjanjian; dan/atau

(iv) Plaintif telah mengabaikan Garis Panduan Bank Negara Malaysia yang mandatori” [21] The above paragraph 17 of the Counterclaim is consistent with the defence of Kejora in paragraph 10 and 11 of the Statement of Defence, that the Bank’s claim in this action is in breach of the Facility Agreement between the parties. In other words, Kejora takes the position that by filing of this claim, the Bank is in breach of the FacilityAgreement because of the four (4) reasons, that is,

to (iv) given above. [22] The issue here is whether the Bank’s claim/suit against Kejora can be said to be in breach of the Facility Agreement. Kejora did not specify which provisions in the Facility Agreement have been breached by the Bank. Kejora did not specify which provisions in the Facility Agreement that stipulates that the Bank cannot file this suit as the claim is in excess of the real amount due and 7 owing, that the claim includes unearned profit, that the claim fail to give the ibra’ and that the claim failed to comply with the Garis Panduan of Bank Negara Malaysia. Therefore, since Kejora did not specify which provisions of the Facility Agreement has been breached by the Bank, I am of the considered opinion that the act of the Bank in filing this suit cannot be said to be in breach of the Facility Agreement. [23] I am of the considered opinion that if there is something wrong or irregular with the Bank’s claim, then Kejora can take an application to strike out the Bank’s Statement of Claim. This is done in most cases. In this case, Kejora did not take such an action, and the Bank has since withdrawn its claim. But a bad claim by itself, cannot form a basis for this counterclaim unless it is premised on the tort of malicious prosecution or an abuse of the process of the court. [24] In Semesta Insurance Underwriting Agency Sdn Bhd v Koperasi Insurance (Malaysia) Berhad [2010] 1 LNS 381, the plaintiff sued the defendant for damages premised on the tort of negligent by obtaining a judgment in default and/or instituting winding up petition against the defendant. Justice Ramly Ali said this: “Duty of care owed to litigants in a Court Proceeding

Is there any duty of care owed by one litigant to another in a court proceeding? This court is of the view that no such duty of care exists. There is no duty of care owed by one litigant to another as to the manner in which 8 the litigation was conducted, whether in regard to service of process or any other step in the proceedings, since the safeguards against impropriety in the conduct of litigation are to be found in the rules and procedures that controlled litigation rather than tortious remedies. Damages suffered by litigants cause by legal process instituted by another litigant (including winding-up petition) are nor remediable in an action based on negligence. ….

This Court is of the view that no cause of action has in law for a mistake or negligent act done in court proceedings and that the only recognizable causes of action in law are malicious prosecution and abuse of process. It is a well establish principle both with regards to civil and criminal matters that a person is not liable in damages for putting the law in motion unless he is actuated by malice…” (emphasis added) [25] In the present case, since Kejora has not pleaded malicious prosecution and abuse of process, then there is no legal basis in respect of Kejora’s Counterclaim as described in paragraph [17] of the Counterclaim. [26] In any event, even if we take that the Bank’s claim against Kejora and it directors amount to a breach of the Facility Agreement, the onus is on Kejora to identify the terms of the Facility Agreement, whether they are conditions of warranties, which have been breached by the Bank. 9 [27] In Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd & Anor Appeal [1992] 2 MLJ 500, the Court of Appeal referred to the distinction between the breach of conditions and warranties: “The traditional method of classifying the terms of contract is according to the degree of their importance. Stipulations that are essential are called conditions, while those of a secondary nature are referred to as ‘warranties’. The breach of a condition entitles the innocent party to repudiate the contract, that is, to treat it as an end as to the future obligations and to sue for damages. On the other hand, the breach of a warranty sounds only in damages. Whether a particular term is a condition or a warranty is a matter of judicial impression, i.e, is a question of law.” [28] Since Kejora is not seeking to nullify the Facility Agreement, but is only seeking for damages, then Kejora’s Counterclaim can only be premised on a breach of the warranties. But then again, Kejora has not identified the warranties which form the basis of the counterclaim. [29] Kejora did not specify which provisions of the Facility Agreement that have been breached by the Bank, but in paragraph 38 of the Written Submission, Kejora relied on the ‘very foundation of Islamic banking is justice, to overcome the injustice and harshness of conventional banking in imposing interest, including late payment interest, which may be arbitrary and unjust.’ 10 However, bearing in mind that Kejora’s claim is premised on contract, the onus is on Kejora to identify the terms of the Facility Agreement that have been breached. In the Counterclaim, Kejora did not identify the warranties in the Facility Agreement that have been breached. [30] In the premise, I am of the considered opinion that Kejora has failed to prove on the balance of probability of its claim against the Bank premised on a breach of contract under paragraph [17] of the Counterclaim.

(ii) Breach of duty of care [31] Next we deal with paragraph 18 of the Counterclaim, which reads: “Defendan-defendan menegaskan bahawa kemungkiran/ kegagalan Plaintiff tersebut juga adalah melanggari kewajipan berhati-hati Plaintif yang harus diambil oleh Plaintif yang berada dalam perhubungan fiduciary/bank pelanggan dengan Plaintif.” [32] With regards to the pleaded case of a breach of duty of care, the relationship between the Bank and Kejora in this case is contractual, premised on the Facility Agreement. In such a relationship, the fiduciary duty does not arise and therefore there is no breach of such duty. This can be seen from the judgment of Justice Ramly Ali (as His Lordship then was) in the case of Kian Lup Construction v. Hong Kong Bank Malaysia Bhd [2002] 7 MLJ 283: 11 “Generally, banking institution provides a number of basic financial and advisory services to customers, namely:

traditional banking facility where customers deposit their moneys with the bank and the bank is liable to repay the money when demanded or instructed by the customer (as in the present case). These services are provided by operating a current account or savings account with the bank;

financial and advisory services where the bank is appointed by the customer to be the customer's advisor on matters relating to financial and advisory services. Usually these services are in addition to the first traditional services stated above;

financial facility where the bank provides loan or other financial facilities to customers such as overdraft facilities. In this category, the bank is a lender and the customer is a borrower. In the first instance, the relationship between the bank and the customer is one of a debtor and a creditor. The bank is the debtor and the customer is the creditor. For the second instance, the relationship between the bank and the customer is a fiduciary relationship. This was decided in Hedley Byrne & Co. Ltd. v. Heller & Partner Ltd. [1964] AC 165 where Lord Devlin has stated that, "there should be a special relationship between parties 12 which imposed a duty to give careful advice." In that case, the court went on to say that the special relationship is recognised as having four characteristics, namely:

the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the advisor at the time when the advice is given;

the advisor knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertained class, in order that it should be used by the advisee for that purpose;

it is known, either actually or inferentially, that the advice so communicated is likely to be acted by the advisee for that purpose without independent inquiry; and

it is so acted upon the advisee to his detriment. As for the third instance, ie, where the bank provides loan or financial facility to the customer, the relationship is also one of a debtor and a creditor. In this case, the bank is a creditor (lender) and the customer is a debtor (borrower). From the above three scenarios, only the second instances involve a fiduciary relationship between the bank and the customer, while 13 the first and third instances, the relationship between them is merely contractual, ie, only as debtor and creditor, not fiduciary. The fact of the present case does not warrant the relationship as fiduciary. The plaintiff operated a current account with the defendant. Therefore, the relationship is merely contractual ie, that of a debtor and creditor, not fiduciary. The defendant issued the letter dated 22 March 1996 to the plaintiff based on the information obtained from Bank Negara Malaysia under the BNM BMC for the Global Closure on CUA Customers Report. The defendant is duty bound to issue such letter under the circumstances. As required by Bank Negara Malaysia, the defendant was to instruct the plaintiff to close the account with the defendant. The letter was sent to the plaintiff directly. It is not a case where the defendant is giving, some form of "advice" as stated in Hedley Byrne's case. Therefore, the question of fiduciary relationship does not arise. The plaintiff's alternative claim on this issue can be dismissed.” (emphasis added) [33] The relationship of a bank as a creditor (lender) and the customer as a debtor (borrower) was also considered by the Court of Appeal in Aseambankers Malaysia Bhd & Ors v. Shencourt Sdn Bhd & Anor [2014] 4 MLJ 619, where the court held that the parties’ relationship as banker/customer does not give rise to any breach of duty of care. The Court of Appeal held as follows: 14 “[92] … It was a banker customer relationship between the appellants and the first respondent while the second respondent stood as a guarantor in his capacity as the main director and shareholder of the first respondent. None of these facts alluded to by the High Court Judge created a fiduciary relationship. These facts were matters which are quite common and they usually arose in negotiations between the borrower and the lender and when the borrower was already in default. … [94] James Foong FCJ writing for the Federal Court in RHB Bank Bhd (substituting Kwong Yik Bank Bhd) v Kuan Chew Holding Sdn Bhd recognised that a banker-customer relationship is purely contractual..” … [101] The nature of the banker customer relationship is entirely contractual. There is nothing fiduciary about it. The sole intention of the bank is to make a profit. There is no special relationship between the bank and the customer...” (emphasis added) [34] Therefore premised on the cases of Kian Lup Construction and Aseambankers Malaysia Bhd, there is no duty of care between the Bank and Kejora in a banker-customer relationship. [35] Kejora took the position in paragraph [18] of the Counterclaim that the claim based on duty of care in a banker-customer relationship. In this case, Kejora did not plead what are the duties involved. In their submission in paragraph 41, Kejora submits that 15 the Bank owed Kejora, as its customer, a duty of care to carry out their duties carefully to safeguard the interest of their customers. Therefore, Kejora submits that by making this claim and initiating the foreclosure actions, the Bank has breached its duty of care against its customer, Kejora. [36] Again, based on the Semesta Insurance case, the Court held that a mere negligence in the use of a legal process, in this case the present claim and the foreclosure action, cannot found an action in law. The Court held that the “only recognized actions in law would be that of malicious prosecution and the tort of abuse of the process of the court”, which are not the pleaded case of Kejora in this case. [37] As such, I find that Kejora has failed to establish the existence of a duty of case in the factual matrix of Kejora pleaded case. In the circumstances of this case where the relationship between the Bank and its customer, Kejora is premised on the Facility Agreement, then the fiduciary duty does not arise and therefore there is no cause of action premised on a breach of such duty. [38] In the premise, I find that Kejora has failed to establish its case premised on a breach of contract or a breach of duty of care against the Bank. 16

(iii) Damages [39] In view of my findings above, there is no basis to award damages in this case as Kejora has failed to establish, on the balance of probabilities, that there was a breach of the Facility Agreement or a breach of the Bank’s duty of care. [40] However, if I am wrong in respect of the above findings, I am of the considered opinion that Kejora bears the burden of proving its damages. In order for Kejora to be able to claim damages, Kejora must prove the damage and it is not enough to merely write down the particulars and rely on the same. In Tan Sri Khoo Teck Puat & Anor. v. Plenitude Holdings Sdn. Bhd. [1995] 1 CLJ 15, the Federal Court held as follows: “Before we embark upon a detailed consideration of the specific issues which arise for decision, there are three preliminary matters which, at the outset, require emphasis. Firstly, that part of the judgment which provides that the vendor shall pay to the purchaser damages to be assessed for wrongful termination of the agreement with costs and that Tan Sri Khoo and the vendor shall pay to the purchaser damages to be assessed for breaches of the undertakings, even though affirmed on appeal, can in no way relieve the purchaser of satisfying the fundamental requirement of having to prove its loss (if any) arising from those breaches. To hold otherwise would amount to dispensing with proof of quantum altogether, and that 17 cannot be the law. In so saying, we reminded of the words of Lord Goddard in Bonham – Carter v. Hyde Park Hotel Ltd 64 TLR 177 at p. 178: Plaintiffs must understand that if they bring actions for damages it is for them to prove their damages; it is not enough to write down the particulars, so to speak, throw them at the head of the court, saying: ‘this is what I have lost, I ask you to give me these damages’ They have to prove it”. (emphasis added) [41] In Popular Industries Ltd v. Eastern Garment Manufacturing Sdn Bhd [1990] 1 CLJ 133; [1989] 3 MLJ 360, the Court held at p. 367: “It is axiomatic that a plaintiff seeking substantial damages has the burden of proving both the fact and the amount of damages before he can recover. If he proves neither, the action will fail or he may be awarded only nominal damages upon of the contravention of a right. Thus nominal damages may be awarded in all cases of breach of contract (see Marzetti v. Williams 109 ER 842). And, where damage is shown but its amount is not proved sufficiently or at all, the court will usually decree nominal damages. See, for example Dixon v Deveridge (1825) 2 C & P 109; 172 ER 50 and Twyman v. Knowles 138 ER 1183”. (emphasis added) 18 [42] Kejora’s claim for damages is based on a breach of the Facility Agreement under section 74 of the Contracts Act 1950. With regards to section 74 of the Contracts Act 1950, in Malaysian Rubber Development Corp Bhd v Glove Seal Sdn Bhd [1994] 3 MLJ 569 SC, it was held by Mohamed Dzaiddin SCJ at page 575/b-e: “In considering the above question, it is important to bear in mind that the normal measure of damages for breach of contract in this country is prescribed by s 74(1) of the Contracts Act 1950, which is the statutory enunciation of Hadley v Baxendale (1854) 9 Ex 341 (Teoh Kee Keong v Tambun Mining Co Ltd [1968] 1 MLJ 39 ; Bank Bumiputra Malaysia Bhd Kuala Terengganu v Mae Perkayuan Sdn Bhd & Ors [1993] 2 MLJ 76 , SC). In essence, the section states that the party may recover any loss or damage for any breach which: (a) naturally arose in the usual course of things; or (b) which the parties knew, when they made the contract, to be likely to result from the breach of it. For the sake of completeness, it should be mentioned that our courts have treated the position under the second limb of the section to be similar to the second limb of Hadley v Baxendale, which is, the party may recover damages which may ‘reasonably be supposed to have been in contemplation of both the parties, at the time they made the contract’ (emphasis added) 19 [43] In Voo Nyuk Fah & Anor v Lam Yat Kheong & Anor [2012] 5 CLJ 229, the Court held as follows: “It is trite law that the task of accounts and assessment of damages is an exercise of judicial discretion. Such discretion is based is a judicial one, as it is not exercised based on whims and fancies, but be reference, guidance and application of established judicial principles and of course having regard to all the facts and evidence adduced before the officer or the judge who undertakes the assessment.” [44] Premised on the settled principles above, I will now deal with the pleaded issues on damages. [45] In paragraph [24] (e) of the Counterclaim, Kejora is claiming for “gantirugi am/keterlaluan/teladan” [46] On the issue of exemplary and aggravated damages, I find that Kejora has failed to prove the same. Kejora has also failed to establish general damages for loss of reputation, which is not a pleaded issue. [47] The next issue is general damages, if any, arising from the breach of contract or breach of duty. In its submission, Kejora is claiming for ‘extra cost of development’ of RM3,510,592.17 (based on the difference in the revised contract sum) or alternatively a sum of RM2,941,950.75 based on estimated rise in costs. 20 [48] Bearing in mind of my finding that Kejora has failed to establish a breach of the Facilitiy Agreement or a breach of duty, there is no basis for the claim for damages. [49] In any event, from the submission of learned counsel for Kejora, the claim for damages is that the actions of the Bank had caused Kejora not able to complete the project due to the foreclosure proceedings. Again, this is not a pleaded case of Kejora as the pleaded case is limited to the breach of the Facility Agreement and a breach of the duty of care. [50] However, the facts disclosed that the Financial Facility was granted by the Bank in 2011 and was available for thirty (30) months from the date of the Facility Agreement, which expires on 15.10.2013. Yet, Kejora only obtained their Developer’s licence on 23.4.2013, about 6 months before the Availability Period of the Facility Period lapse. There was no project launch by Kojara either. There was also no show unit. There was no sale and purchase agreement signed. [51] In fact, Kejora’s witnesses had admitted that the failure of the said project was due to insufficient cash flow, not the purported breach of contract or duty of care by the Bank: “DC: Dan saya cadangkan lagi bahawa kegagalan Kejora Pelangi untuk meneruskan projek tersebut adalah kerana Kejora Pelangi tidak mempunyai aliran tunai yang baik dan hanya bergantung harap kepada tranche 2 21 semat-mata? Cashflow. Salah cashflow. Boleh setuju dengan saya? PW2: Pada ketika itu, yes lebih kepada cashflow.” (see pg 122 NOP/dd 15.8.2016) [52] Kejora also submits that the failure of the Bank to disburse Tranche 2 of the Financing Facility resulted in Kejora’s failure to complete the project. However, this is not a pleaded issue. It is trite law that the parties are bound by their pleadings. In Aseambankers Malaysia Bhd (supra), the Court of Appeal held: “(3) The parties are bound by their pleadings. The court is not entitled to decide a suit on a matter that is not pleaded. When the trial court decides on an issue that is not pleaded, the judgment can be set aside. (para 67)” [53] In any event, before Tranche 2 can be disbursed to Kejora, Kejora must first satisfy these conditions, namely:

all approvals from the authorities in respect of layout plan, development plan, building plan, advertising permit and developers’ license;

(ii) disbursement shall be against 80% of the Architect’s/Quantity Surveyor’s/Engineer’s certification on the value of works done; and

(iii) the achievement of seven (7) units of the 2 storey Semi-Detached houses. 22 [54] On the evidence before this Court, Kejora has failed to establish that these conditions have been met/complied with. In fact, Kejora only obtained their Developer’s Licence on 23.4.2013, about 6 months before the Availability Period lapsed. [55] In the premise, I am of the considered opinion that Kejora has failed to prove general damages. As such, Kejora’s Counterclaim is dismissed with costs. (AZIZAH BINTI HAJI NAWAWI) JUDGE HIGH COURT MALAYA (Appellate and Special Powers Division 2) KUALA LUMPUR Dated: 15 May 2018 For the Defendant/Plaintiff in Counterclaim : Dato’ Jason Chan Messrs S. Mathew & Associates Subang Jaya, Selangor D. E. For the Plaintiff/Defendant in Counterclaim : Yusfarizal Yussof/Mohd Zaid Daud Merssrs Yusfarizal Aziz & Zaid Kuala Lumpur. Cases referred:

Semesta Insurance Underwriting Agency Sdn Bhd v Koperasi Insurance (Malaysia) Berhad [2010] 1 LNS 381. 23

Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd & Anor Appeal [1992] 2 MLJ 500.

Kian Lup Construction v. Hong Kong Bank Malaysia Bhd [2002] 7

Aseambankers Malaysia Bhd & Ors v. Shencourt Sdn Bhd & Anor [2014] 4 MLJ 619.

Tan Sri Khoo Teck Puat & Anor. v. Plenitude Holdings Sdn. Bhd. [1995] 1 CLJ 15.

Popular Industries Ltd v. Eastern Garment Manufacturing Sdn Bhd [1990] 1 CLJ 133; [1989] 3 MLJ 360.

Malaysian Rubber Development Corp Bhd v Glove Seal Sdn Bhd [1994] 3 MLJ 569 SC.

Voo Nyuk Fah & Anor v Lam Yat Kheong & Anor [2012] 5 CLJ229.