Cimb Bank Berhad v Sebang Gemilang Sdn Bhd (02(f)-2-01/2015(C))

SEBANG GEMILANG SDN BHD (No. Syarikat: 589516-A)

HAMIDI TECH SDN BHD (No. Syarikat: 291995-U) ... RESPONDEN-RESPONDEN [Dalam perkara Mahkamah Rayuan Malaysia Bidang Kuasa Rayuan Rayuan Sivil No. C – 02 – 2067 - 09/2013 Antara CIMB BANK BERHAD (V 13491-P) (dahulu dikenali sebagai Bumiputera Commerce Bank Berhad) 10th Floor, Bangunan BCB, Jalan Bank, 25000 Kuantan Pahang Darul Makmur ...

SEBANG GEMILANG SDN BHD (No. Syarikat: 589516-A)

HAMIDI TECH SDN BHD (No. Syarikat: 291995-U) ... RESPONDEN-RESPONDEN CORAM: AHMAD HJ MAAROP, CJM HASAN LAH, FCJ ABU SAMAH NORDIN, FCJ ZAHARAH IBRAHIM, FCJ BALIA YUSOF HJ. WAHI, FCJ Page 2 of 24

In the High Court the 1st respondent sued the appellant as the 1st defendant and the 2nd respondent as the 2nd defendant for breach of contract and for breach of trust and various other causes of action.

After the full trial the High Court found for the 1st respondent and allowed the claim and ordered an inquiry to be held to determine the amount of money that was in the sinking fund in the account of the 2nd respondent in the appellant’s bank which was due to the 1st respondent based on the Deed of Assignment and a Power of Attorney granted to the 1st respondent by the 2nd respondent and awarded RM500,000.00 as general damages against the appellant and RM100,000.00 as general damages against 2nd respondent.

Dissatisfied with the decision of the High Court, the appellant appealed to Court of Appeal against the whole decision, and on 28.8.2014 the Court of Appeal dismissed the appeal with costs.

On 6.1.2015 this Court granted leave to the appellant to appeal against the decision of the Court of Appeal on the following questions of law:

Where there is no written notice of an absolute assignment pursuant to Section 4(3) of the Civil Law Act 1956, is the debtor liable to the assignee for the debt under the assignment;

Where there is no written notice of an absolute assignment pursuant of Section 4(3) of the Civil Law Act 1956, and the trial court make a finding that the debtor has knowledge of an assignment between its customer and third party, can the debtor be held liable to that third party for the debt where the debtor has made payment of the same to its customer;

Where the creditor has assigned the benefit of funds in a fixed deposit account to a third party, can mere knowledge of the identity of the signatories to a current account, constitute notice of an assignment to the debtor.

The 2nd respondent was the appellant’s customer since 5.4.1994. The appellant part financed 3 government projects awarded to the 2nd respondent.

As an additional security for the financing, a sinking fund was created, where 5% of the proceeds of the government contracts were deposited into the sinking fund account. The account was operated solely by the appellant.

The 2nd respondent was unable to complete the said 3 projects. The 2nd respondent then executed a Deed of Assignment and a Power of Attorney, both dated 19.9.2003, in favour of the 1st respondent so as to enable the 1st respondent to complete the projects.

On 6.5.2004, the 2nd respondent made an application to the appellant to add one Amiruddin bin Ahmad, a director of the 1st respondent, as another signatory to its current account with the appellant. Before that the only signatory to the said account was Mohd Hamidi bin Dato’ Haji Abd. Hamid, the owner of the 2nd respondent.

On 20.5.2004, the 2nd respondent passed a board resolution to approve a change in the authorised signatures in respect of its current account.

The 1st respondent completed the projects.

On 11.7.2005, upon the 2nd respondent’s request, the appellant closed the sinking fund account and credited the fixed deposit to the 2nd respondent’s current account upon repayment of the loan.

On 20.12.2006, the 2nd respondent passed another resolution to remove Amiruddin bin Ahmad as the signatory to its current account. On 22.12.2006 a copy of the resolution was given to the appellant.

After the expiry of the defects liability period, the 1st respondent approached the appellant for the release of the monies accumulated in the sinking fund. The 1st respondent then discovered that the sinking fund account had been closed and the monies had been paid out to Mohd Hamidi.

The 1st respondent then sued both the appellant and the 2nd respondent and claimed for various reliefs.

The High Court inter alia held that based on the evidence, the appellant had knowledge of the Deed of Assignment, the Power of Attorney and the 2nd respondent’s resolution dated 20.5.2004 and PW1 (the 1st respondent’s director) had personally handed over a copy of the Deed of Assignment and the Power of Attorney to DW1 (the appellant’s manager). Pursuant to the two documents, the 1st respondent had a right to the monies in the sinking fund when the projects were completed and the defects liability period was over. When the appellant released the monies in the sinking fund to Hamidi without informing the 1st respondent, the appellant had breached its fiduciary duty as a trustee of the monies and was also negligent in doing so.

The High Court also held that the appellant owed a duty of care towards the 1st respondent who was its customer and the 1st respondent suffered damage as a result of the appellant’s action.

The Court of Appeal, in affirming the High Court’s decision, held as follows:

The Deed of Assignment was capable of constituting a valid assignment under Section 4(3) of the Civil Law Act 1956 notwithstanding the requirement of written notice was not met. It would be an equitable assignment and the assignor, the 2nd respondent, was made a party to the proceedings.

The appellant had knowledge of the assignment. The 1st respondent’s witness oral testimony and the 2nd respondent’s resolution adding a signatory, Amiruddin bin Ahmad to the 2nd respondent’s current account as well as the appellant’s internal office memorandum, purportedly addressed to ‘Amiruddin’ were sufficient to make the appellant aware of the assignment.

The appellant had knowledge of the assignment and therefore committed a breach of trust. The case of CIMB Bank Bhd v Maybank Trustees Bhd & Other Appeals [2014] 3 CLJ 1 was Page 7 of 24 not applicable as in that case the Federal Court found no cogent evidence to prove dishonesty on the part of CIMB.

Under section 4(3) of the Civil Law Act 1956, one of the pre-conditions to a valid assignment is that an express notice in writing must be given to the debtor. It was the contention of learned counsel for the appellant that by reason of its banker – customer relationship with the 2nd respondent, the appellant was obliged to pay the 2nd respondent, the original debtor, until and unless the written notice under section 4(3) of the Civil Law Act 1956 was given.

As regards the finding of the Court of Appeal that there was an equitable assignment which was based on the decision in Public Finance Bhd v Scotch Leasing Sdn Bhd (In Receivership) (Perwira Habib Bank Malaysia, Intervener) [1996] 2 MLJ 369 it was submitted that that was not the position at common law. Learned counsel submitted that the Scotch Leasing case did not support the proposition as suggested by the Court of Appeal that the 1st respondent could proceed with an action against the appellant after the appellant had paid the debt to the 2nd respondent.

As regards the case of UMW Industries Sdn Bhd v Ah Fook [1996] 1 MLJ 365, which was also referred to by the Court of Appeal, learned counsel for the appellant submitted that in that case there was a Page 8 of 24 written notice of assignment given. The Federal Court, by way of obiter, held that the assignee may proceed with its action on the basis that it was an equitable assignee in which case the court may require the assignee to be made a party to the proceedings. However in the instant case the debt had already been paid to the assignee at the time the suit was commenced.

On the issue of knowledge of the assignment where both the courts below held that there was knowledge of the assignment on the part of the appellant, learned counsel submitted that knowledge was irrelevant because without a written notice pursuant to section 4(3) of the Civil Law Act 1956, the appellant was entitled and even legally obliged to release the money to the 2nd respondent.

It was also submitted that the knowledge of the assignment was imputed on the appellant by the High Court from PWI’s testimony, the change of signatory of the 2nd respondent’s current account with the appellant on 20.5.2004 and the appellant’s memoranda dated 25.6.2003, 15.8.2003 and 19.8.2003 addressed to one Aminuddin. It was contended that none of these events imputed the appellant with notice sufficient to render its release of the money in the sinking fund to the 2nd respondent open to challenge.

Finally, it was submitted that following the Federal Court case of CIMB Bank Bhd, it is insufficient for the appellant to be imputed with “constructive knowledge” of assignment and therefore be liable to the Page 9 of 24 1st respondent under the assignment. Case law requires “dishonesty” according to the test in Twinsectra v Yardley [2002] 2 A11 ER 377 in order for the appellant to be liable for the debt under the assignment. Submissions of the 1st Respondent

With regard to the issue of the written notice under section 4(3) of the Civil Law Act 1956 learned counsel for the 1st respondent submitted that the issue was not pleaded by the appellant in its defence. The issue was only raised at the Court of Appeal stage. As such the appellant cannot raise the issue before this court. In support of that learned counsel cited the cases of Ambank (M) Bhd (formerly known as Arab-Malaysia Bank Bhd) v Luqman Kamil bin Mohd Don [2012] 3 MLJ 1 and Veronica Lee Ha Ling & Ors V Maxisegar Sdn Bhd [2011) 2 MLJ 141.

As regards the issue of the equitable assignment learned counsel for the 1st respondent submitted that based on the decision of this Court in Scotch Leasing the Court of Appeal’s decision was right. In Scotch Leasing it was held that the validity of an equitable assignment was not affected by any failure to comply with requirements under section 4(3) of the Civil Law Act 1956.

On the issue of whether the appellant had knowledge of the Deed of Assignment and the Power of Attorney granted to the 1st respondent by the 2nd respondent learned counsel submitted that this was a Page 10 of 24 question of fact already decided by both the High Court and the Court of Appeal.

On the facts of this case it was submitted that both the High Court and the Court of Appeal are correct in their findings that there was a breach of trust by the appellant and there arose the issue of trust because of the knowledge on the part of the appellant of the Deed of Assignment and the Power of Attorney. It was also submitted that the Court of Appeal was right in distinguishing the facts of this case from those in the CIMB Bank Berhad case. The Non-Giving of the notice in writing under section 4(3) of the Civil

I shall deal first with the 1st respondent’s submission that the issue was not pleaded by the appellant in its defence. The answer to this is that under the rules of pleading, only the facts and not the law are to be pleaded unless the matter must be specifically pleaded pursuant to 0.18 r. 8 of the Rules of the High Courts 1980.

I find that the observations made by the court in the following two cases relating to the issue whether effect should be given to a point not raised at the trial but was raised for the first time in the appellate court are relevant. In Luggage Distributors (M) Sdn. Bhd. V Tan Hor Teng @ Tan Tien Chi & Anor [1995] 3 CLJ 520 at p 534 the Court of Appeal made the following observation: Page 11 of 24 “…In my judgment, the categories of cases in which an appellate Court will admit a new point are not closed. The governing principle is this: an appellate Court will permit a new point to be raised for the first time before it where the interests of justice so require. The question whether the interests of justice are met in a particular case depends on the peculiar facts of that case. The factors for and against the admission of the new point must be weighed on a balance to see where the justice of the case lies. Viewed from this standpoint, the justice of a case will ordinarily lie in favour of permitting a plea of illegality to be taken for the first time on appeal because it is unjust that a party who has broken the law should succeed. Similarly, justice would, in the usual way, favour the admission of a point that goes to the jurisdiction of the trial Court because neither consent nor waiver may confer jurisdiction where none exists: and it is not in the interests of justice that a judgment of a Court lacking jurisdiction should be permitted to stand. In the present appeal, weighing all the relevant considerations on a scale, it was the unanimous decision of this Court that the balance of justice favoured the respondents”. In S. Mariappan v. Government of Malaysia [1983] 2 MLJ 340, the Federal Court said: “ In Gulwant Singh v. Abdul Khalik (7) Thomson L.P. delivering the judgment of the court referred to The “Tasmania” and went on to say that “The question of whether effect should be given to a point not raised at the trial and which is raised for the first time in the appellate Court is one for discretion and the principles on which that discretion will be exercised have been set out by Lord Watson in his judgment in Connecticut Fire Insurance v. Kavanagh (8) as follows – Page 12 of 24 “When a question of law is raised for the first time in a court of last resort, upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is not only competent but expedient, in the interests of justice, to entertain the plea. The expediency of adopting that course may be doubted, when the plea cannot be disposed of without deciding nice questions of fact, in considering which the court of ultimate review is placed in a much less advantageous position than the courts below. But their Lordships have no hesitation in holding that the course ought not, in any case, to be followed, unless the court is satisfied that the evidence upon which they are asked to decide established beyond doubt that the facts, if fully investigated, would have supported the new plea.”

What is more important in this case is that the parties have argued the issue before the Court of Appeal and the Court of Appeal had decided on the issue. In fact, two of the three questions of law granted by this Court for this appeal are specifically on the written notice pursuant to section 4(3) of the Civil Law Act 1956.

I therefore find no merit on the respondent’s contention on this issue.

Section 4(3) of the Civil Law Act 1956 reads as follows: “(3) Any absolute assignment, by writing, under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action, shall be, and be deemed to have been, effectual in law, subject to all equities which would have been entitled to priority over the right of the assignee under Page 13 of 24 the law as it existed in the State before the date of the coming into force of this Act, to pass and transfer the legal right to the debt or chose in action, from the date of the notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor.” That provision had been considered by this Court in UMW Industries Sdn Bhd where the following observation was made at pp 370 and 371: “ We have considered s 4(3) of the Civil Law Act 1956 referred to by counsel for both sides. The subsection lays down conditions for effecting absolute legal assignments. It is clear that the conditions are:

that the assignment must be in writing under the hand of the assignor;

that the assignment must be absolute and not by way of charge only; and

that express notice in writing must have been given to the person liable to the assignor under the assigned chose in action. If the assignment fulfills all the above conditions, it would transfer absolutely the chose in action and the right to sue upon it in the assignee’s own name. As to the assignment in writing, no particular form is necessary but it must be absolute, ie one that purports to pass the entire interest of the assignor in the chose in action. Thus in Curran v. Newpark Cinemas Ltd [1951] 1 All ER 295 (CA), Jenkins LJ dealing with s 136(1) of the Page 14 of 24 Law of Property Act 1925 (English) the equivalent of which in our law is s 4(3) of the Civil Law Act 1956, said: (at p 299 F-H) It is, no doubt, true that s 136(1) does not require any particular form of assignment, or that the notice given to the debtor should necessarily have been given by the assignee. The subsection does, however, clearly postulate that, whatever its form, there should be a document amounting to an absolute assignment by writing under the hand of the assignor. Given such an assignment, and given the requisite notice to the debtor, the assignment (to put it shortly) is to operate as a legal assignment of the debt in question.”

In UMW Industries Sdn Bhd, the notice was given more than two years after the execution of the deed of assignment. At pp 371 and 372 of the judgment this Court held that – “ Section 4(3) of the Civil Law Act 1956 does not, and, for that matter, there is, as we understand, no law prescribing any limit of time within which notice must be given to the debtor, trustee or other person from whom the assignor would have been entitled to claim the debt or chose in action, eg a guarantor. All that the said s 4(3) requires is that ‘express notice in writing’ be given. Hence, notice may be given after the death of the assignor (Re Westerton, Public Trustee v Gray [1919] 2 Ch 104), or after the death of the assignee (Bateman v Hunt [1904] 2 KB 530 (CA). Notice, however, must be given before the assignee takes out its writ (Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 at pp 127 – 129); but even then, failure to do so will not prevent the assignee from proceeding with its action on the basis that it is an equitable assignee in which case the court may require the assignor to be made a party to the Page 15 of 24 proceedings. In our case presently under appeal, notice was given before the action was commenced. … There remains the question whether the late notice of assignment given by the assignee has in any way affected the rights of the assignee to remedies against the guarantor. Express notice in writing under the said s 4(3) is required to be given so as: (i) a legal title to the property assigned may be acquired; (ii) to establish the priority of competing assignments if any (see eg Marchant v Morton, Down & Co [1901] 2 KB 829); and (iii) to prevent the debtor or guarantor in our present case paying and thereby getting a good discharge for the payment from his original creditor. It must be noted that payment to the creditor will be a good satisfaction of the debt or claim, notwithstanding it may have been assigned, if the debtor or guarantor has no notice of the assignment (Stocks v Dobson (1853) 4 De GM & G 11; Lord Southampton’s Estate, Allen v Lord Southampton, Banfather’s Claim (1880) 16 Ch D 178).” [Emphasis Added].

In the instant case the Court of Appeal held that the failure of the 1st respondent to give express notice pursuant to section 4(3) of the Civil Law Act 1956 did not prevent the 1st respondent from proceeding with its action on the basis that the 1st respondent was an equitable assignee and the 2nd respondent had been made a party to the proceedings.

In Public Finance Bhd, the Federal Court opined at p 381 as follows: “ At common law (in the special sense now of its being distinguished from rules in equity) contractual rights, eg as to debts, were not assignable, ie transferable to another person without the consent of both parties to the contract conferring such contractual rights. Equity stepped in and has long allowed such assignment of such debts to another person who is not privy to the contract in respect of such debts, without at all the consent of the debtor: see eg Brice v Bannister (1878) 3 QB 569; and even without notice to the debtor, see Kelly v Selwyn [1905] 2 Ch 117 and Ward v Duncombe [1893] AC 369. Such assignments as so allowed by equity are called `equitable assignments’. The validity of such equitable assignments is not affected by any failure to comply with requirements as laid down in s 4(3) of the Civil Law Act 1956, for an assignment that so complies has been described as a statutory assignment; being so statutory for such an assignment has the sole intended effect of facilitating an assignee to sue in his own name directly, irrespective of whether the chose in action is an equitable chose in action or a legal chose in action (not, be it noted, whether an assignment is equitable or statutory). By being a statutory assignment itself, the `statutoriness’ of such an assignment, ipso facto, does not prevail over an earlier equitable assignment, and this is so even with the added factor that the assignee involved in a statutory assignment took the assignment for value without notice of an earlier equitable assignment: eg see E Pfeiffer Weikellerei-Weinenkauf GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150. We need to say a few words more about the great desirability of giving notice of assignment of a Page 17 of 24 debt by an assignee to the debtor, even though absence of such notice does not affect the validity of the equitable assignment as between the assignor and the assignee. If notice is not given, the assignee must give credit for any payment made to the assignor by the debtor. This rule means that, by extension, even if the assignor assigns once more the debt to another person in fraud or otherwise on the earlier assignee, and that other person gives notice to the debtor; and if the debtor pays that other person or the second assignee, then the earlier assignee must still give credit to the debtor for his payment thus, for the debtor cannot be blamed for doing lawfully in ignorance of the title of the earlier assignee who has failed to give notice of the assignment to the debtor. Notice to debtor is for the protection of the assignee himself. It is this effect of what the debtor does lawfully as described that dims the view of the true role of the nemo dat rule in the resolution of disputed claims to a same debt. The money paid to the `second assignee’ can, of course, be recovered by the earlier assignee on the nemo dat principle.” [Emphasis

It is clear from the decisions in the two cases cited above that a failure to give a notice in writing pursuant to section 4(3) of the Civil Law Act 1956 will not prevent an assignee from proceeding with its action on the basis that it is an equitable assignee.

I agree with the Court of Appeal that based on the facts and circumstances of the instant case there was a valid equitable assignment of the monies in the sinking fund to the 1st respondent. The other issue for determination is whether the payment out of the monies by the appellant from the sinking fund to the 2nd respondent Page 18 of 24 was a good satisfaction of the claim of the 1st respondent. This issue will be dealt with later.

The issue of knowledge of the equitable assignment is entirely a question of facts. Both the courts below concluded that the appellant had knowledge of the equitable assignment based on the facts and circumstances of the case. It is trite law that an appellate court will not, generally speaking, intervene unless the trial court is shown to be plainly wrong in arriving at its judicial decision or there has been no or insufficient judicial appreciation of evidence (see Gan Yook Chin (P) & Anor v Lee Ing Chin @ Lee Teck Seng & Ors [2005] 2 MLJ 1).

The learned trial judge made a finding that the appellant was in possession of the Deed of Assignment, the Power of Attorney and the directors’ resolution dated 20.5.2005. The Deed of Assignment and the Power of Attorney dated 19.9.2003 were made by the 2nd respondent for the purpose of assigning the 3 projects to the 1st respondent. The company’s resolution dated 20.5.2004 was for the purpose of adding another signatory to 2nd respondent’s account in the appellant’s bank. In coming to that decision the learned trial judge accepted the evidence of PW1, the director of the 1st respondent and rejected the evidence of DW1, the officer of the appellant.

In affirming that finding, the Court of Appeal had this to say: “[15] We have scrutinized the evidence on record. In our view, SP1’s oral evidence is sufficient to show that the 1st defendant was aware of the assignment. SP1 testified that he had personally delivered both the deed of assignment and the power of attorney to SD1. SD1 had informed SP1 that there was no necessity for the bank to issue an acknowledgment receipt. The learned trial judge preferred the evidence of SP1’s to that of SD1. Her Ladyship found that it was improbable for SD1 to claim ignorance of the documents when SD1 was the personnel responsible for the loan facilities and all related matter since 10.6.2002. [16] We have no doubt that the change of signatory in 2004 was clearly based on the deed of assignment. The 2nd defendant had instructed the 1st defendant by letter dated 20.5.2004 to add one Amiruddin bin Ahmad as second signatory for the current account. The 1st defendant’s office memorandums dated 25.6.2003,

15.8.2003 and 19.8.2003 respectively were addressed to Amiruddin. All these documents and the circumstances were sufficient to refute the 1st defendant’s allegation that the bank/1st defendant was never aware of the deed of assignment. The 1st defendant, at all material times, had Page 20 of 24 constructive knowledge that the monies in the sinking fund had been assigned to the plaintiff and the money belonged to the plaintiff.”

In his submission, learned counsel for the 1st respondent referred to exhibits P10, P11 and P12 (being the internal office memoranda of the appellant and addressed to its Manager in Kuantan) which referred to the assignment of the contract in its heading, which meant that the appellant was clearly aware of the assignment of the contract.

Based on the evidence available I cannot find any reason to disagree with the findings of the High Court and the Court of Appeal that the appellant had knowledge of the assignment of the contracts by the 2nd respondent to the 1st respondent. The finding was supported by credible evidence. Whether the Appellant was liable to 1st Respondent

The other issue to be dealt with is the appellant’s contention that based on the decision of this court in CIMB Bank Bhd, it is insufficient for the appellant to be held liable to the 1st respondent based on the imputed constructive knowledge of the assignment because case law requires “dishonesty” on the appellant’s part according to the test laid down in Twinsectra v Yardley [2002] 2 A11 ER 377 in order for the appellant to be liable for the debt under the assignment.

In CIMB Bank Bhd, the Federal Court held that CIMB Bank was not liable to Maybank Trustee as a constructive trustee even when CIMB Bank knew of the assignment of the proceeds to Maybank Trustee because CIMB Bank was not dishonest in allowing Pesaka Astana (M) Sdn Bhd, its customer, to withdraw monies from its account.

It is therefore useful to reproduce paragraphs 146 to 148 of the judgment of the Federal Court in CIMB Bank Bhd for the purpose of this judgment. “[146] In a gist, a new test was introduced by Twinsectra, in that the concept of subjective dishonesty became a requirement in a breach of trust situation. Lord Hoffman at p 382 in this case opined: I do not think that it is fairly open to your Lordships to take this view of the law without departing from the principles laid down by the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378. For the reasons given by my noble and learned friend, Lord Hutton, I consider that those principles require more than knowledge of the facts which make the conduct wrongful. They require a dishonest state of mind, that is to say, consciousness that one is transgressing ordinary standards of honest behavior. I also agree with Lord Hutton that the judge correctly applied this test and that the Court of Appeal was not entitled, on the basis of the written transcript, to make a finding of dishonesty which the judge who saw and heard Mr Leach did not. Page 22 of 24 [147] Lord Hutton at p 384 had added: Thirdly, there is a standard which combines an objective test and a subjective test, and which requires that before there can be a finding of dishonesty it must be established that the defendant’s conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest. I will term this `the combined test’. [148] Having scrutinized the evidence, we are satisfied that what was adduced before the court was merely evidence pointing to CIMB complying with the instructions given by the banker-customer relationship. In light of the peculiar position of CIMB, and with no cogent evidence having been adduced to say otherwise, it is our view that CIMB could not be construed as being dishonest in the ordinary standards of reasonable and honest people, with itself knowing, based on the subjective dishonest test, that what it did was dishonest when transferring the monies to other accounts. This finding and conclusion therefore would be in line with the combined tests of an objective and subjective test as propounded by Twinsectra”.

The Court of Appeal just brushed aside the issue by saying that CIMB Bank Bhd was decided “in the parameters of its own set facts” and then the Court of Appeal said: “[21] In this instant appeal, the 1st defendant’s conscience could not be said to be clear. To begin with, the 1st defendant had all prior knowledge about the assignment. By closing the sinking fund account, the 1st defendant had deprived plaintiff of its interest and was liable for breach of trust.”

With respect, I do not think that the Court of Appeal was correct in arriving at its decision on the issue of dishonesty based on the combined test as profounded by Twinsectra. As stated by Lord Hoffman in Twinsectra, it requires more than knowledge of facts to make the conduct wrongful. It requires a dishonest state of mind, that is to say, consciousness that one is transgressing ordinary standards of honest behavior. The appellant merely acted in accordance with the normal banker – customer relationship when it closed the sinking fund and paid the monies to the 2nd respondent. Without other evidence I am unable to say that the appellant was dishonest based on the ordinary standards of reasonable and honest people, with itself knowing, based on the subjective dishonest test, that what it did was dishonest when closing the sinking fund and paid the monies to the 2nd respondent.

For the reasons given above my answer to the first question of law posed is in the affirmative. For the second question, my answer is in the negative as it has not been shown that the payment of the monies to its customer was done dishonestly. With regard to the third question, I find it unnecessary to answer.

In the result, the appeal is allowed with costs. The decisions of the courts below against the appellant are set aside.

The learned Chief Judge of Malaya, and my learned sister and brother Zaharah Ibrahim and Balia Yusof Haji Wahi FCJJ have seen this judgment in draft and have expressed their agreement with it. Dated this 8th day of February 2018 t.t Hasan Bin Lah Federal Court Judge Malaysia Counsel for the Appellant : K. Shanti Mogan Hee Hui Ting Solicitor for the Appellant : Messrs. Shearn Delamore & Co. Counsel for the 1st Respondent : Dato’ R. Kamalanathan Vinod R. Kamalanathan Solicitor for 1st Respondent :