Cimb Bank Berhad v 1. Mastus Corporation Sdn Bhd (BA-22NCC-7-04/2018)

MASTUS CORPORATION SDN BHD

LIM SIEW PHENG

LIM CHIN KIAT

DATO’ TAN PIN SOON (NO. K/P: 590517-10-5343/5687028) …DEFENDAN-DEFENDAN

The proceedings before me are in relation to the 3rd Defendant’s application [enclosure 13] to set aside the judgment in default of appearance entered against him on 26.6.2018. 2 Background facts

The salient facts which sets the context of the application are as follows.

The Plaintiff granted various financing facilities to the 1st Defendant, including a Multi Option Line Facilities (“MOL facilities”) to the 1st Defendant of RM 7,000,000.00. As consideration for the grant of these facilities, the 2nd, 3rd and 4th Defendants executed several Guarantee and Indemnity in favour of the Plaintiff. In addition, nine parcels of land were also furnished as security by way of third party charges.

The 1st Defendant having utilised the financing facilities, defaulted in its repayment obligations. As at 28.2.2018, the sum due and owing from all the Defendants amounted to RM 4,210,815.84. This sum was demanded by the Plaintiff through its solicitor’s letter of 21.3.2018. The demand met with no response from the Defendants, resulting in the instant suit being filed.

Judgment in default of appearance was entered in respect of the 1st Defendant on 21.5.2018. As against the 2nd, 3rd and 4th Defendants, judgment in default of appearance (“JID”) was entered on 26.6.2018. The application to set aside the judgment in default

The 3rd Defendant’s application is premised on two principal grounds as follows:- 3

the JID was irregularly entered; and

(ii) he has a defence on the merits as shown in his draft Defence filed as exhibit “LCK-1.” The 3rd Defendant contends that the Plaintiff is obliged to realise the security first by foreclosure proceedings before commencing the present action.

With regard to the first ground, the 3rd Defendant contends that he was never served with the Writ and Statement of Claim. The Plaintiff merely exhibited proof of posting of the letter without furnishing proof of receipt by him. The AR card evidencing proof of receipt was not exhibited in the Plaintiff’s affidavit in reply to his application.

The Plaintiff’s position to oppose the application is premised on the following grounds:-

the 3rd Defendant lacks locus to file the application to set aside the JID as he has been adjudged a bankrupt, and is therefore he was incompetent to file the application unless sanction of the Director General of Insolvency (“DGI”) is first obtained. In this case, the sanction of the DGI has not been obtained;

(ii) the JID entered was a regular judgment as the service of the Writ of Summons and Statement of Claim was in accordance with the terms of the Guarantee and Indemnity executed by the 3rd Defendant; 4

(iii) there is an inordinate delay on the part of the 3rd Defendant in applying to set aside the JID, in the absence of any application to extend time furnishing reasons for the delay. The Plaintiff has since commenced bankruptcy proceedings against the 3rd Defendant. The 3rd Defendant had been attending the proceedings in person since 8.4.2019 until the issuance of the bankruptcy order by the court on 4.2.2020. He was therefore aware of the JID from as early as April 2019 but took no steps to set it aside until the filing of this application on 9.12.2020. The bona fides of his application is therefore in question; and

(iv) the 3rd Defendant has failed to demonstrate that his proposed defence has merits. The contention that the security must be realised first has no merits as the value of the security is insufficient to satisfy the indebtedness of the 1st Defendant. Analysis and decision of this court Locus

I will deal with the locus point first. Is the 3rd Defendant incompetent to file this application to set aside the JID? This issue involves a construction of section 38 of the Insolvency Act, 1967. The provision reads, 5 Duties and disabilities of a bankrupt

38.

Where a bankrupt has not obtained his discharge —

the bankrupt shall be incompetent to maintain any action (other than an action for damages in respect of an injury to his person) without the previous sanction of the Director General of Insolvency; …..

The divergent views which existed previously on the interpretation of section 38 has now been settled by the Federal Court’s decision in Ho Ken Seng v Progressive Insurance Sdn Bhd [2013] 2 MLJ

The Federal upheld the minority decision of the Court of Appeal in that case which followed and approved the decision of Azmi J in Khoo Kim Hock [1974] 2 MLJ 29. The relevant portion of the judgment reads, [11] Meanwhile, the minority judgment held that 'the test propounded by Azmi J when properly applied enables a bankrupt to challenge all orders made by a Bankruptcy Court in the exercise of its bankruptcy jurisdiction including appeals as in this case and even applications to set aside a judgment forming the subject matter of the bankruptcy proceedings without the need to obtain the sanction of the official assignee'. [12] Now, in Re Khoo Kim Hock Mohd Azmi J (as he then was) held that: Having considered the provisions of the Bankruptcy Act as a whole and the section itself, it is my considered opinion that the sanction requirement does not apply to cases where the bankrupt is seeking to challenge an order in bankruptcy, or where he is seeking the 6 court's discretion to review, rescind or vary any order made by it under its bankruptcy jurisdiction. The exception contained within brackets in s 38(1)(a) clearly indicates that the section is intended to apply only to actions for recovery of something — either real or personal — which can be turned into assets such as a claim for recovery of property or money due. Further, there is nothing in ss 33, 92 or 105 to indicate that it is the intention of the legislature to require prior sanction of the official assignee before a bankrupt can seek relief under those provisions. Under s 33(1), a bankrupt may at any time after being adjudged bankrupt apply to the court for an order of discharge, and there is no legal requirement that for this purposes he should first obtain the sanction of anyone. This is also the case where an application is made to the court under ss 92(1) and 105(1) of the Act.

Any attempt to argue (as did the Plaintiff in this case), that the application of the decision of Ho Ken Seng (supra) is only limited to instances of appeal against any orders made in bankruptcy was also settled by the Federal Court’s construction of the scope of section 38(1)(a) when it also held, [28] While we agree that the word 'action' therein should refer to civil action or civil proceeding in court (see Re Chua Tin Hong Ex parte Castrol (M) Sdn Bhd [1997] 3 CLJ Supp 174), it should be restricted to a new and separate action and not the same upon which the bankruptcy was secured. And we would think that the scope of s 38(1)(a), other than the saving clause therein, should be limited to a new chose in action that could affect the assets or proprietary rights of a bankrupt intended for distribution to his creditors (see: Boaler v Power [1910] 2 KB 229). [29] As such, s 38(1)(a) of the Act is not relevant when a bankrupt, an aggrieved person, invokes s 92(2) of the same Act. To that extent we 7 agree with the decision in Re Khoo Kim Hock and the minority judgment of the Court of Appeal in this case. [30] It would be most unfair and unconscionable if a person is being disabled and incapacitated, unless he obtains sanction from the DGI, to challenge the very action that caused the disability and incapacitation. It would tantamount to denying him his right of access to justice and probably his constitutional right of appeal.

As the bankruptcy order obtained against the 3rd Defendant was consequent upon the judgment in default which he is now challenging, this action is not caught by section 38. Sanction is not required and the 3rd Defendant is competent to file the application to set aside the judgment against him. Irregular or regular judgment

It is trite law that a judgment in default will be set aside as of right irrespective of the merits if it can be shown that it was obtained irregularly. (See: Evans v Bartlam [1937] AC 473, Lai Yoke Ngan & Anor v Chin Teck Kwee & Anor [1997] 3 CLJ 305 [FC], Tuan Haji Ahmed Rahman v Arab-Malaysian Finance [1996] 1 MLJ 30).

The Writ of Summons and Statement of Claim was served by A.R. Registered post. The 3rd Defendant denied receiving the Writ and Statement of Claim. In response, the Plaintiff exhibited proof of posting but failed to exhibit the A.R. Card evidencing receipt of the same by the 3rd Defendant. 8

The issue whether proof of posting suffices was recently answered by the Federal Court in Goh Teng Whoo & Anor v Ample Objectives Sdn Bhd [2021] 3 MLJ 159 when it held, [40] The appellants had asserted under oath that they did not receive the writ but the respondent chose not to contradict the assertions by producing the AR cards duly signed by the appellants or their authorised representatives. In the case of the first appellant, the AR card was signed by his brother who was not his authorised representative and in the case of the second appellant, the AR card was not even returned. On the facts therefore, it is more probable than not that the appellants did not receive the writ. [41] It would have been easy for the respondent to produce the AR cards to prove service but no explanation was given as to why this was not done except to say that it was not required by law to do so. [42] Therefore, the respondent’s failure to contradict the appellants’ assertions that they did not receive the writ must be taken as an admission of the fact so asserted: see Alloy Automotive Sdn Bhd v Perusahaan Ironfield Sdn Bhd [1986] 1 MLJ 382; [1986] CLJ Rep 45 (‘Alloy Automative’) which the Court of Appeal applied in Ng Hee

Thoong & Anor v Public Bank Berhad [1995] 1 MLJ 281; [1995] 1 CLJ In Alloy Automative, this is what Lee Hun Hoe CJ (Borneo) delivering the judgment of the Supreme Court said: In his affidavit dated 30 April 1984 Choo Chak Low did not answer the matters raised in the above affidavit of Liew Mook. There is force in the appellant’s contention that an affidavit must reply specifically to the allegations, and if it does not, then those allegations not replied must be taken to have been accepted. In Dawkins v Prince Edward of Saxe Weimar [1875-76] 1 QBD 499 Blackburn J stated: 9 … Now, upon that, if that is the true state of the case, we are of opinion that no cause of action can be shewn. Colonel Dawkins does not meet that in the affidavit in reply … [43] For all the reasons aforementioned, our answer to the leave question is in the negative, that is to say, where service of a writ is alleged to have been effected by way of sending the same to a defendant by AR Registered post pursuant to O 10 r 1(1) of the Rules of Court 2012, the court cannot seal a judgment in default of appearance where the affidavit of service does not exhibit the AR Registered card containing an endorsement as to receipt by the defendant himself or someone authorised to accept service of the same on his behalf.

The Plaintiff however contends that service was duly made under O.10 r. 3 (1)(b) of the Rules of Court 2012 providing for service of the writ in pursuance of contract. Section 13.02 of the General Facility Agreement provide for service of legal process by way of prepaid registered or ordinary post. The section is reproduced as follows:- The parties hereto agree that this Agreement shall be governed by the laws of Malaysia and agree to submit to the jurisdiction of the respective Courts of the States of Malaysia and further agree that service of any Legal Process may be effected in the manner set out below…

The 3rd Defendant however argues that the terms of the General Facility Agreement only bind the 1st Defendant. I agree with this contention. The 3rd Defendant was not party to this agreement. The terms of the General Facility Agreement cannot be enforced on a third party. (See: Woolley Development Sdn Bhd v. Tiara 10 Contours Construction Sdn Bhd [2016] 2 CLJ 610, Bacom Enterprises Sdn Bhd v Jong Chuk & Ors [2011] 5 MLJ 820).

If the Plaintiff had intended to rely on service of writ in pursuant of contract, it would have served by way of registered post or ordinary post, and not prepaid A.R. Registered post. The affidavit of service of the process server specifically mentioned A.R Registered post. The fact of service having been denied by the 3rd Defendant in his affidavit, it falls upon the Plaintiff to now conclusively show otherwise in order that this court can be satisfied that the 3rd Defendant was well aware he had a suit to answer to and defend. That is the whole objective of service of process.

I therefore find that the judgment was not regularly entered, and the Defendant ought to be allowed to have it set aside ex debitio justitiae. Nonetheless, for the sake of completeness, I shall deal with the merits of the defence. Defence on the merits

Where a judgment is regularly entered, then it is an inflexible rule that there must be an affidavit of merits, that is, an affidavit stating facts showing a defence on the merits. (See: Bank Bumiputra Malaysia Bhd v Majlis Amanah Ra’ayat [1979] 1 MLJ 23).

The affidavits filed by the 3rd Defendant and the Proposed Defence exhibited to the affidavit in support contends that the suit by the Plaintiff has been pre-maturely brought for the following reasons:- 11

the cause of action has yet to accrue as the alleged indebtedness has yet to crystallise;

(ii) no notice of demand has been sent to the 3rd Defendant to demand for payment;

(iii) the value of the lands held as security was sufficient to satisfy the amount owning and ought to be have been realised first before commencing an action against the 3rd Defendant;

(iv) the Plaintiff has failed to act as agreed by the parties, in that the Fixed Deposit Monies were to be utilised to repay the loan. However the balance after repayment was to be converted to a term loan. In addition, the Fixed Deposit monies were utilised without the consent of the 1st Defendant and/or the company’s resolution; and

the actual amount claimed by the Plaintiff is not substantiated by evidence led, and is disputed.

I am mindful of the fact that at this stage, I am only required to determine if there is a defence that warrants further investigation into, by allowing the 3rd Defendant to have his day in court.

Having considered the proposed defence, I am of the view that the defence discloses merits. The 3rd Defendant’s position is that of a guarantor guaranteeing the payment of the indebtedness of the 1st Defendant. The requirements of the Guarantee and Indemnity 12 executed by the 3rd Defendant must be proven to be satisfied first before his liability can arise. Otherwise the claim against him is pre-mature and has not crystallised. The determination of his liability would turn on a construction of the terms of the General Facility Agreement as well as the Guarantee and Indemnity executed by the parties, and the factual evidence to be led.

It is not disputed that nine pieces of land were also provided as security for the loan taken. The contention of the 3rd Defendant that these lands ought to be realised first to satisfy the indebtedness raises a credible defence. The issue whether there is an obligation on the Plaintiff to first realise the security does deserve further consideration. A determination of this issue would depend on the specific provisions of the Guarantee executed. If the 3rd Defendant’s assertion is found to be correct, then the sale would reduce the amounts said to be owing by the 1st Defendant and consequently, that guaranteed by the 3rd Defendant.

The Plaintiff contends that the market value of the charged lands is insufficient to settle the amount under the MOL facilities. A valuation report was tendered in evidence. However such contention is to be proven at the trial and it is not for the court at this stage to embark on an detailed evaluation of the evidence adduced.

To reiterate, I am satisfied that the issues raised by the 3rd Defendant amounts to a prima facie defence. 13 Delay in the application

Finally, the Plaintiff contends that the 3rd Defendant had delayed in making the present application. A sealed copy of the judgment in default was served by way of A.R. Registered post on 2.7.2018. Subsequent to the judgment being obtained, bankruptcy proceedings were commenced on 5.11.2018 vide Shah Alam High Court Bankruptcy No:.29NCC-6182-11/2018. The 3rd Defendant cannot feign ignorance about the judgment in default entered against him as he was aware of the bankruptcy proceedings since he had personally attended the bankruptcy proceedings from 8.4.2019 until he was adjudged a bankrupt on 4.2.2020. Notwithstanding this knowledge he only filed the present application as late as 9.12.2020. His application is suggestive of lack of mala fides and he is guilty of laches.

Order 42 rule 13 prescribes the period in which an application to set aside the judgment in default must be made. Setting aside or varying judgment and orders (O. 42, r. 13)

Save as otherwise provided in these Rules, where provisions are made in these Rules for the setting aside or varying of any order or judgment, a party intending to set aside or to vary such order or judgment shall make an application to the Court and serve it on the party who has obtained the order or judgment within thirty days after the receipt of the order or judgment by him.

The provision prescribes a thirty day time limit for the 3rd Defendant to set aside the judgment in default. He must do so within that time 14 after receipt of the judgment by him. However, he claimed that he was never served with the judgment. Having asserted that specific fact in his affidavit, the Plaintiff did not controvert the assertion by furnishing proof to the contrary. Since the judgment was alleged to have been served by A.R. Registered, the fact of receipt could have been easily proven by merely adducing the A.R card showing when it was received by the 3rd Defendant. However, the A.R. card which was exhibited was not acknowledged receipt by the 3rd Defendant.

There is therefore no proof of receipt of the judgment. Since the judgment was not shown to have been served, it is not open to the Plaintiff to raise the non-observance of O.42 r.13. The Plaintiff’s complaint of delay is not justified. The time for the 3rd Defendant to file the application has not even begun to run.

The Plaintiff is also not entitled to say that the 3rd Defendant was at all times aware of the judgment in default as he had been personally attending the bankruptcy proceedings since April 2019. This would allow the Plaintiff to circumvent the provisions of O.42 r.13.

A similar situation arose in the case of Development & Commercial Bank Ltd v Dinesh Kumar A/L Jashbhai Nagjibhai & Ors [2002] 7 MLJ 430. Abdul Aziz J held, I think the actual meaning of the rule is not incompatible with the fact that the judgment need not be served, because the judgment may still be served, and if a plaintiff intends to use the rule to shut out a defendant, then he must serve the judgment, otherwise the rule will not even begin 15 to operate because time will not even have begun to run against the defendant. There is no justification to read 'within 30 days after the receipt of the judgment or order by him' as meaning within 30 days after he becomes aware of the judgment or order.

In view of this, I find that the objection as to delay is without basis. Consequently, it is not necessary for the 3rd Defendant to apply for extension of time to file the application.

For the foregoing reasons, the application of the 3rd Defendant to set aside the judgment in default of appearance is allowed. I also order that appearance be entered within 14 days. Lastly, costs of RM 2,000 is ordered to be paid by the Plaintiff. Parties are to appear before the Registrar for further case management with a view to fixing an early hearing date for trial. Dated: 7th June 2021 ……….…sgd…………. Alice Loke Yee Ching Judicial Commissioner High Court of Malaya at Shah Alam 16 Counsel for the Plaintiff : Cik Yunis Arliza (Tetuan Shaikh David & Co) Counsel for the 3rd Defendant : Ms. Lim Soo Zee (Wayne Ng, Yong & Lim)