Chin Kon Meng (N0. K/P: 530922-10-5465) v RHB Bank Sdn. Bhd.(No Syarikat: 6171-M) (J-02(IM)-1175-06/2017)

DALAM MAHKAMAH RAYUAN (BIDANG KUASA RAYAUN) RAYUAN SIVIL NO: J-02(IM)-1175-06/2017 ANTARA Chin Kon Meng (N0. K/P: 530922-10-5465) Perayu DAN

1. RHB Bank Sdn. Bhd. (No Syarikat: 6171-M) Responden Pertama

2. Sineo Enterprise Sdn Bhd (Dalam Likuidasi) (No. Syarikat : 35559 -M Responden Kedua (DALAM MAHKAMAH TINGGI MALAYA DI JOHOR BAHRU SAMAN PEMULA NO; JA-24FC-1556-10/2016) Dalam perkara Seksyen 256, Kanun Tanah Negara Akta Tahun 1965; Dan Dalam Perkara Aturan-aturan 28 dan 83, Kaedah-kaedah Mahkamah 2012; Dan Dalam Perkara mengenai-

(ii) Gadaian Perserahan 87141/1996; berhubung dengan hartanah yang dipegang dibawah GRN 530153, Lot 59592 (dahulunya CT 210, Lot 1100), Mukim Pulai, Daerah Johor Bahru. ANTARA RHB Bank Sdn. Bhd. (No Syarikat: 6171-M) Plaintif DAN

1. Sineo Enterprise Sdn Bhd (Dalam Likuidasi) (No. Syarikat : 35559 -M) Defendan

2. Chin Kon Meng (No K/P:530922-10-5465 CORAM: DAVID WONG DAK WAH, HMR HAMID SULTAN BIN ABU BACKER, HMR HASNAH BINTI DATO' MOHAMMED HASHIM, HMR JUDGMENT OF THE COURT Introduction:

1. This appeal relates to an application by the Appellant to intervene in a foreclosure proceeding initiated by the $ 1^{\mathrm{st}} $ Respondent in respect of a piece of land belonging to the $ 2^{\mathrm{nd}} $ Respondent (in liquidation). That application was rejected by the High Court resulting in this appeal by the Appellant.

2. We heard the appeal and reserved our decision. We have since reconsidered the submissions from respective counsel and now give our decision and grounds. Background facts:

3. The factual matrix is undisputed and it is as set out by respective counsel which we adopt with the appropriate amendments.

4. The $ 2^{\mathrm{nd}} $ Respondent had between 1994 till 1996 obtained banking facilities amounting to RM65,000,000.00 from United Malayan Banking Corporation Berhad (UMBC)

5. As security for repayment of the Banking Facilities, the $ 2^{\mathrm{nd}} $ Respondent charged its property, namely GRN 530153, Lot 59592, Mukim Pulai, District of Johor Bahru to UMBC. Two charges were created on 22.2.1995 and 4.12.1996.

6. RM5,000,000.00 of the aforesaid banking facilities were taken over by UMBC Finance Berhad (UMBC Finance) on 9.1.1995 and this was done through a Supplemental Agreement dated 1.11.1995.

7. The assets and liabilities of UMBC were eventually vested in the $ 2 ^{n d} $ Respondent while those of UMBC Finance were eventually vested in Malayan Banking Berhad (Maybank).

8. The $ 2^{\mathrm{nd}} $ Respondent was wound-up on 9.8.2011 by the Court on the petition of its creditor, BSC Elevators Sdn Bhd and liquidators were appointed.

9. As at 9.8.2011, the total amount due and owing by the $ 2 ^{n d} $ Respondent to the $ 1^{s} $ Respondent and Maybank under the banking facilities is RM123,917,065.93.

10. The $ 2^{\mathrm{nd}} $ Respondent failed to pay the sum due and owing under the banking facilities, which is secured by the Charges despite demands from the $ 2^{\mathrm{nd}} $ Respondent.

11. On 2.6.2016, the $ 1^{\mathrm{st}} $ Respondent commenced foreclosure proceedings to sell to the charged property to recover the amount owing by the $ 2^{\mathrm{nd}} $ Respondent.

12. The Appellant then made an application to intervene in the foreclosure proceedings premised on the fact that he is a contributory to the $ 2^{\mathrm{nd}} $ Respondent and a guarantor to the banking facilities granted to the $ 2^{\mathrm{nd}} $ Respondent. The outcome of the foreclosure proceedings will, as contended by the Appellant have an impact on his liability as a guarantor and as contributory. High Court decision:

13. On 9.5.2017, the learned Judge dismissed the Appellant's application to intervene and his rationale is encapsulated in paragraph 22 of his well-constructed and reasoned grounds: "In the present facts, the proposed intervener has no direct nexus with the charged property in the foreclosure proceeding. The forfeiture proceeding relating to the charged property and the Court proceeding in which a judgment was obtained against the proposed intervener as a guarantor are distinct in nature. The proposed intervener's right, if any, is against the judgment entered against as a guarantor, not in this foreclosure proceeding." Our grounds of decision:

14. The application of the Appellant to intervene is made pursuant to Order rule 6(2)(b) of the Rules of Court 2012 which reads as follows:

6. Misjoinder and non-joinder of parties (O.15 r.6)

(1) ...

(2) Subject to this rule, at any stage of the proceedings in any cause or matter, the Court may on such terms as it thinks just and either of its own motion or on application-

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which, in the opinion of the Court, would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter. Appellant's contentions:

15. To recap, the Appellant premised his application to intervene on two grounds, namely his status as a contributory to the $ 2 ^{n d} $ Respondent (in liquidation) and a guarantor to the banking facilities granted to the $ 2 ^{n d} $ Respondent. Contributory status:

16. As a contributory, it is submitted, the Appellant has "a right in law of a proprietary nature" to share in any excess assets of the $ 2 ^{n d} $ Respondent (in liquidation) after due payments to the creditors of the same. Learned counsel in support of his stand refers us to the case of Equiticorp Holdings Ltd (In Statutory Management) v. United Securities Sdn Bhd [2007] 6 AMR 310 at page 317 where this Court cited with approval a principle of law expounded by of Megarry J in Re Calgary & Edmonton Land Co Ltd in respect of a stay of a winding up: "...Each member has a right of a proprietary nature to share in the surplus assets, and each should be protected against the destruction of that right without good cause".

17. It is undisputed that the Appellant's only reason to intervene is to ensure that the charged property is sold at the best possible price so that the debt due to the $ ^{1^{\mathrm{st}}} $ Respondent by the $ ^{2^{\mathrm{nd}}} $ Respondent would be accordingly reduced. The more the debt is reduced, the Appellant's debt as a guarantor would also be reduced. Basically, the Appellant wants to protect his financial interest and the Appellant is clear about that.

18. It is settled law that a contributory has no legal interest directly related to the subject matter which in this case is the charged property. This Court had in the case of Tai Choi Yu v Syarikat Tingan Lumber Sdn Bhd [1998] 4 CLJ 293 opined as follows: It is settled law that before the court grants leave to intervene, the applicant must show that he has an interest directly related to the subject matter of the action. Interest here means a legal interest not a mere commercial interest. Therefore, a mere commercial interest in the outcome of the action is not sufficient. In Sanders Lead Co. Inc. v. Entores Metal Brokers Ltd. [1984] 1 WLR 452, Kerr LJ in the Court of Appeal held at p. 460 as follows: In my view the rule requires some interest in the would be intervene which is in some way directly related to the subject matter of the action. A mere commercial interest in its outcome, divorced from the subject matter of the action, is not enough. This principle was applied in a number of Malaysian cases namely; Tohtonku Sdn. Bhd. V. Superace (m) Sdn. Bhd. [1989] 2 CLJ 575 and Lee Meow Lim v. Lee Meow Nyin [1989] 1 LNS 163;[1990] 3 MLJ 123 and the Federal Court case of Eh Riyid V. Eh Tek [1976] 1 LNS 25. Under these circumstances has the appellant shown that he has a legal interest to interfere in the proceedings? Here the NTT themselves had admitted the debt and at a board meeting called for by the appellant himself, it was resolved by a majority that the company admit the debt and take no further step to either defend the action or oppose the winding up proceedings as they were insolvent. The appellant in his affidavit avers that he was merely a minority shareholder of NTT. The law is clear that a mere shareholder, a fortiori, a minority shareholder has no interest, legal or equitable in the property of a company. (See Macaura v. Northern Assurance Company Limited, and Others [1925] AC 619 at 626).

19. We see no reason to depart from the opinion of the aforesaid case as the law is crystal clear in that a contributory has no interest, legal or otherwise, in the assets of the company. In the instant case, the subject matter is the charged property which is the asset of the $ 2 ^{n d} $ Respondent. The Appellant's remedy can only be in the liquidation exercise as the liquidator is duty bound under law to act in the best interest of the $ 2 ^{n d} $ Respondent and account for his actions. Director Status:

20. As a guarantor of the banking facilities of the $ 2 ^{n d} $ Respondent, a Judgment had been obtained against the Appellant by the $ 1 ^{s t} $ Respondent. Premised on that, it is submitted that he has a "legitimate interest" in ensuring that the provision in the National Land Code relating to foreclosure action is complied with especially with the fixing of the reserved price for the auction of the charged land.

21. Learned counsel also refers us to section 94 of the Contract Act 1950 which reads as follows: A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses or, without the consent of the surety, parts with the security, the surety is discharged to the extent of the value of the security.

22. Learned counsel placed much reliance on the case of Arab Malaysian Merchant Bank Bhd v Jamaludin b Dato Mohd Jarjis [1991] 2 MLJ 27 at 28, where the Supreme Court observed that: "It was held by the Privy Council in the Pegang Mining Co Ltd case [1969] 2 MLJ 52 that one of the principal objects of O 16 r 11 of the former Rules of the Supreme Court 1957, is to enable the court to prevent injustice being done to a person whose rights will be affected by its judgment by proceeding to adjudicate upon the matter in dispute in the action without his being given an opportunity of being heard. It must be noted that the Privy Council in that case added that to achieve that object calls for a flexibility of approach which made it undesirable in that case, in which the facts are unique, to attempt to lay down any proposition which could be applicable to all cases. Our present O 15 r 6 of the Rules of the High Court 1980, which replaced the former O 16 r 11 of the Rules of the Supreme Court 1957, is in pari materia with O 15 r 6 of the UK Rules of the Supreme Court. The scope of the present rule, so far as concerns the joinder of persons not parties, has been significantly extended by the addition of para 2(b)(ii) which is as follows... One of the class of cases covered by the said rule, which allows intervention by persons not parties, is where the proprietary or pecuniary rights of the intervener are directly affected by the proceedings or where the intervener may be rendered liable to satisfy any judgment either directly or indirectly. The ambit of this class has been materially widened by the decision of the UK Court of Appeal in Gurtner v Circuit [1968] 1 All ER 328, the effect of which is to include any case in which the intervener is directly affected not only in his legal rights but in his pocket. In this connection, we would refer to and respectfully adopt the following dictum of Lord Denning MR, in that case, in which his Lordship said as follows: It seems to me that, when two parties are in dispute in an action at law and the determination of that dispute will directly affect a third person in his legal rights or in his pocket, in that he will be bound to foot the bill, then the court in its discretion may allow him to be added as a party on such terms as it thinks fit. By so doing, the court achieves the object of the rule. It enables all matters in dispute to be effectually and completely, determined and adjudicated upon between all those directly concerned in the outcome..”

23. Premised on the above, learned counsel submits that not only the legal interest is affected but also his pocket. Further it is submitted that the Courts should adopt a flexible approach in an application to intervene in as the Courts have a primary duty to prevent injustice being done to a person whose rights will be affected by its judgment by proceeding to adjudicate without his being not given an opportunity to be heard.

24. The crux of Appellant's position is simply again his financial interest. This can be seen in paragraph 21 of learned counsel submission which states that the ultimate sale of the charged property by auction will have a direct bearing on the quantum of the indebtedness of the Appellant and in addition, will also determine whether the Appellant would be entitled to any surplus after paying creditor of the $ 2 ^{n d} $ Respondent.

25. What we have here is a foreclosure proceeding initiated by the $ 1^{\mathrm{st}} $ Respondent in respect of a charged property by the $ 2^{\mathrm{nd}} $ Respondent for its banking facility. This action by the $ 1^{\mathrm{st}} $ Respondent is an action in rem of which it has no direct connection with the Appellant. The subject matter is undoubtedly the charged property and we are not able to comprehend as to how the Appellant as a guarantor has any interest, legal or equitable, in the same. There may be a Judgment against the Appellant by the $ 1^{\mathrm{st}} $ Respondent under the guarantee agreement, but that is a separate action premised on a different cause of action which is an action in personam as opposed to action in rem.

26. The law is clear in this area of law. For any third party intervention in a proceeding, it must be shown that the proposed intervener has a legal interest in the subject matter of the proceeding. Financial or commercial interest is not enough to allow a third party to intervene. Applying that principle of law, we cannot see how the Appellant has a legal interest in the subject matter. The Appellant himself openly admits that he is looking only after his commercial interest. Hence it is quite clear to us that he does not satisfy the legal requirement to intervene in the foreclosure proceeding.

27. As rightly pointed out by the learned Judge, the sale of the charged property is a judicial sale and whatever reserved price fixed by an officer of the Court is nothing but an indication of the market price which will be determined by prospective buyers at the auction. Further the 2nd Respondent is in liquidation and there is added protection in that the liquidator as mentioned earlier is duty bound under the law to act in the best interest of the 2 $ ^{n d} $ Respondent. Hence it is our view that the Appellant's fear is plainly unfounded.

28. The reliance on the English case of Gurtner v Circuit [1968] 1 All ER 328, which appears to allow intervention when the proposed intervener is "directly affected not only in his legal rights but in his pocket" is with respect is misconceived as pointed out by the learned Judge. The proposed intervener in that case had actually stepped into the shoe of the Judgment debtor when he had undertaken to pay the Judgment debt. The Court there allowed the proposed intervener there to intervene to challenge the excessive interest and in our rightly so as the subject matter is the judgment entered against the judgment debtor. Hence, we say that the aforesaid English case had not changed the local legal position on intervention. Conclusion:

29. Reliance on section 94 of the Contract Act 1950 is also misconceived as the Appellant here will not be deprived of the benefit from the sale of the charged property.

30. To allow this appeal, as pointed out by learned counsel for the $ 2 ^{n d} $ Respondent, would open the floodgates to parties to intervene where they have no legal interest in the subject matter of the proceeding and that would be unhealthy in that creditors of the $ 2 ^{n d} $ Respondent would have rights to intervene in this foreclosure proceeding as their pockets would be affected. The "legal interest" in the "subject matter" is the established test in this country and we see no reason to depart from that sound principle of law.

31. Accordingly, we dismiss the appeal with agreed costs RM10,000.00 to the $ ^{1st} $ Respondent and order that the deposit be refunded to the Appellant. Dated: 28 November 2017 (DAVID WONG DAK WAH) Judge Court of Appeal Malaysia For the Appellant: M. Rajenthirankumar Messrs. Kumar AssociatesFor the Respondent: Mong Chung Seng With him Chia Oh Sheng Messrs. Lee Hishammuddin Allen & Gledhill Notice: This copy of the Court's Reasons for Judgment is subject to formal revision.