Malayan Banking Berhad v 1. ) Q Development Sdn Bhd (WA-22NCC-810-11/2023)

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1 IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR IN THE FEDERAL TERRITORY, MALAYSIA (COMMERCIAL DIVISION) SUIT NO.: WA-22NCC-810-11/2023 BETWEEN MALAYAN BANKING BERHAD [Company No.: 196001000142 / (3813-K)] … PLAINTIFF

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Schedule 2 of the Facility Agreement, the proper and effective registration of charges was inter alia a Condition Precedent that must be fulfilled prior to the Plaintiff rendering the facility available S/N foryoYqrAUGiMJP4Mle9aw to the 1st Defendant. This, according to the Defendants, rendered the Facility Agreement void and or inoperative. The Plaintiff, as an established financial institution ought not to have released any funds without the security documents properly registered or perfected especially where the Facility Agreement mandated the perfection of the security as a Condition Precedent. [32] The Defendants further contended that the Plaintiff had breached its duty to conduct due diligence on the lands proffered by the Defendants to be charged as security and that had the Plaintiff conducted land searches, the Plaintiff would have discovered the existence of private caveats lodged against these lands. More specifically, the Defendants contended that the Plaintiff is in pari delicto when the Plaintiff failed or neglected in its responsibilities and or statutory obligations to conduct proper due diligence before entering the Facility Agreement with the 1st Defendant. [33] According to the Defendants, the Plaintiff’s failure or omission to conduct due diligence exercises is a contravention of the Financial Services Act 2013 (“FSA”), in particular paragraphs (1) and (2)(b) of

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Schedule 7 of FSA which provide for the List of Prohibited Business Conduct for financial institutions as follows: “1. Engaging in conduct that is misleading or deceptive, or is likely to mislead or deceive in relation to the nature, features, terms or price of any financial service or product. S/N foryoYqrAUGiMJP4Mle9aw … [34] Learned counsel for the Defendant contended that it is “utterly unreasonable, irresponsible and unacceptable” for the Plaintiff to have relied on the representations of the 1st Defendant and or the 1st Defendant’s solicitors prior to entering the Facility Agreement that the full purchase price or the relevant differential sums had in fact been paid in respect of the lands proffered as security for the Facility Agreement. [35] In fact, the Defendants contended that the Plaintiff did have actual knowledge that private caveats were lodged against some of the lands and that residential houses were erected on some of these lands. This ought to have alerted the Plaintiff to the possibility that there were or would be issues with the Land Charges on these lands. [36] Based on the aforesaid, the Defendants contended that the Plaintiff had chosen to proceed to enter the Facility Agreement with the 1st Defendant which the Defendants submitted meant that the Plaintiff had engaged in conduct amounting to “inducing or attempting to induce the 1st Defendant, as a financial consumer, to accept the facility granted by the Plaintiff” and or “dishonestly concealing material facts” which directly violated Schedule 7 of FSA. [37] Based on the same failure to exercise due diligence, the Defendants also contended that the Plaintiff had also breached its undertaking S/N foryoYqrAUGiMJP4Mle9aw as provided in Clause 21.2(e) of the Facility Agreement which stipulates: It will obtain all necessary licences and approvals and comply with all regulations relating to the carrying on of its business and will carry on its business with due diligence and efficiency and in accordance with sound financial and business standards and practices and will furnish to the Lender all information which the Lender may reasonably request in connection with such business; [38] Other than the issues relating to the Disputed Titles, the Defendants contended that the Supplementary Letter of Offer dated 14.6.2022, i.e. the SLO-2, that changed the original terms and conditions of the Facility Agreement has never been agreed and or signed by the Defendants. By this, the Defendants contended that the 1st Defendant had not categorically accepted the variation of the terms and conditions therein, in particular, the change to the interest rates stated. Court’s Considerations [39] At the outset, it must be highlighted that the Defendants have never disputed that they had enjoyed the loans extended to the 1st Defendant under the Facility Agreement and had in fact admitted to their indebtedness and liabilities towards the Plaintiff. This is evidenced by the fact that the 1st Defendant has made part-payments to the Plaintiff, which were accepted by the Plaintiff without prejudice. S/N foryoYqrAUGiMJP4Mle9aw [40] In fact, learned counsel for the Defendants candidly conceded that the Defendants are not disputing that the outstanding sums are due but claimed that by reasons of the issues relating to the Disputed Titles arising from the Suits to Nullify the Land Charges, they have raised triable issues that merit the matter going for trial. [41] With respect, I completely disagree. [42] To begin, it is not in dispute that the provision of the Land Charges was indeed a Condition Precedent to the Facility Agreement. However, it is also expressly stipulated in the Facility Agreement that the Condition Precedent are inserted for the sole benefit of the Plaintiff and that the Plaintiff may waive in whole or in part the Condition Precedent. Further, the effect of any non-fulfilment of the Condition Precedent only means that the Plaintiff may choose to terminate or suspend the Facility. This is clear from Clause 3 of the Facility Agreement which is reproduced below: 3. 3. AVAILABILITY 1 Conditions Precedent The Facility shall become available to the Borrower on the date the Lender has received the documents and evidence listed in Schedule 2 in each case in form and content satisfactory to the Lender and upon fulfilment of the conditions set out in Clause 4.1 and the Letter of Offer. 3.2 Non-fulfilment of Conditions Precedent Pending fulfilment in the manner satisfactory to the Lender of the conditions precedent referred to in Clause 3.1, the Lender may at its absolute discretion, terminate the Facility or suspend the utilisation of the Facility S/N foryoYqrAUGiMJP4Mle9aw 3.3 Waiver of Conditions Precedent The terms and conditions set out in Schedule 2 hereof are inserted for the sole benefit of the Lender and may be waived by the Lender in whole or in part with or without terms or conditions without prejudicing the right of the Lender to assert such terms and conditions in whole or in part in respect of subsequent utilisation of the Facility. [43] More importantly, by Enclosure 11 which is the Plaintiff’s affidavit in reply, the Plaintiff has exhibited documents evidencing that all the Land Charges had been duly and validly created and registered in favour of the Plaintiff before the release of any loan sum to the 1st Defendant. The fact that subsequent to the Legal Charges, legal actions have been initiated by third parties challenging the same does not negate the fact that the Condition Precedent had been satisfied prior to the disbursement of the loan sums under the Facility Agreement. [44] Thus, the premise of the Defendants’ contention that the Condition Precedent had not been satisfied simply does not pass muster. [45] In any case, with respect to learned counsel for the Defendants, I find that the contentions of the Defendants that it is “utterly unreasonable, irresponsible and unacceptable” for the Plaintiff to have relied on the representations of the 1st Defendant and or the 1st Defendant’s solicitors that the full purchase price or the relevant differential sums had been paid in respect of the lands proffered as security for the Facility Agreement prior to entering the Facility Agreement with the 1st Defendant to be incredulous. S/N foryoYqrAUGiMJP4Mle9aw [46] To be sure, the fact that the Plaintiff had relied on the representations of the 1st Defendant and or the 1st Defendant’s solicitors, does not mean that the Plaintiff did not conduct its own due diligence exercise. This aside, it seems to me incredulous that counsel for the Defendants is contending that the 1st Defendant and or the 1st Defendant’s solicitors could not be relied upon as regards the representations that they made to the Plaintiff regarding the Land Charges. More incredible is the fact that the Defendants are seeking to rely on their misrepresentations as a ground to refuse paying the Plaintiff the outstanding sums under the Facility Agreement. [47] The 1st Defendant had expressly represented that it is the lawful owner or purchaser of the Charged Lands and had paid the relevant purchase prices or differential sums for the purchase of the lands concerned. The Defendants’ representations that the Land Charges can be validly created can be found in Clause 5 of the Charge Annexures which can be seen in Exhibit “A-5” of the Plaintiff’s Additional Affidavit (Encl.11 to 17). 5. 5. REPRESENTATIONS AND WARRANTIES 1 Representations and Warranties The Chargor acknowledges that the Lender has entered into the Facility Agreement and agreed to accept this Charge as security on the basis of and in full reliance on representations by the Chargor in the following terms and the Chargor now represents and warrants to the Lender that:- S/N foryoYqrAUGiMJP4Mle9aw Malaysia; Charge and this Charge constitutes valid and binding obligations of the Chargor enforceable in accordance with its terms; (c) where applicable, the execution and delivery of this Charge, the exercise of any of its rights or the performance of any of its obligations under this Charge does not or will not contravene or constitute a default under, or cause to be exceeded any limitation on the Chargor or the powers of its directors imposed by or contained in Constitution, or (iii) any agreement to which it is a party or by which the Land or any of its assets is bound: S/N foryoYqrAUGiMJP4Mle9aw the liabilities and obligations of the Chargor and the rights of Lender under this Charge; (f) no event has occurred which constitutes, or which with the giving of notice and/or the lapse of time would constitute, a contravention of, or default under, any agreement or instrument by which the Chargor or the Land or any of its assets is bound or affected, being a contravention or default which might either have an adverse effect on the Land, its business, assets or condition or which will adversely affect its ability to observe or perform its obligations under this Charge. Chargor, the Land or any of its assets; (i) all necessary returns have been delivered by or on behalf of the Chargor to the relevant taxation authorities and the Chargor is not in default in the S/N foryoYqrAUGiMJP4Mle9aw payment of any taxes and no claim is being asserted with respect to taxes which as not disclosed in the Chargor's financial statements; (j) no bankruptcy or winding-up or insolvency proceedings have been commenced against the Chargor, and [48] At all material times, the Plaintiff had no reasons to suspect that the 1st Defendant’s titles to the Charged Lands would be subject to challenge. In fact, the 1st Defendant’s own position in the Suits to Nullify the Land Charges has consistently been that the Plaintiff is in law a bona fide subsequent purchaser. The 1st Defendant also contended that no legal action should be taken against the Plaintiff as the lawful chargee of the lands concerned. This can be seen in the defences filed by the 1st Defendant in those suits. [49] In truth, the actions taken by third parties in the High Court at Johor Bahru to challenge the Land Charges, as rightly pointed out by learned counsel for the Plaintiff, are irrelevant to the Plaintiff’s claims in this action. The Defendants have benefitted from the Banking Facilities extended by the Plaintiff but have since defaulted in making the necessary repayment. This default constitutes a clear breach of the terms governing the Banking Facilities, [50] The fact that the Land Charges are now being contested in the High Court at Johor Bahru to nullify the Land Charges, if at all, suggests that it was the 1st Defendant who had concealed or omitted material facts to the Plaintiff when presenting the said lands for the creation of the Land Charges in favour of the Plaintiff. S/N foryoYqrAUGiMJP4Mle9aw [51] The Defendants cannot be permitted to claim that the Plaintiff is in pari delicto when in truth it is the Defendants who had concealed or omitted material facts to the Plaintiff in respect of the Land Charges. [52] I also did not find any merits to the Defendants’ contention that by reason of the challenge to the Land Charges, their security has been impaired, thereby prejudicing their rights as guarantors. This is because, if indeed the security is found to be impaired, the reasons are caused by the Defendants themselves in failing to provide the Plaintiff with a valid and unencumbered security. [53] As regards the contention relating to the breach of undertaking on the Plaintiff’s part, Clause 21.1(e) of the Facility Agreement in fact referred to the the Borrowers’ undertaking (in this case, the Defendants) and not the Plaintiff’s undertaking. This is an example of the frivolity of the Defendants’ contention. [54] As regards the Defendants’ contention that the 1st Defendant never signed the SLO-2 and as such the terms and conditions of the SLO- 2 do not bind the 1st Defendant, this is also clearly devoid of any merits. Clause 30.14 of the Facility Agreement provides that the Plaintiff is entitled to review and vary the terms of the Banking Facilities and that the consent of the 1st Defendant is unnecessary. Clause 30.14 of the Facility Agreement is produced below: 30.14 Variation of Terms It is hereby expressly agreed and declared by the parties hereto that notwithstanding any of the provisions of this Agreement to the contrary, the provisions and terms of this Agreement may at any time and from time to time be varied S/N foryoYqrAUGiMJP4Mle9aw or amended by means of letters or such other means as the parties may agree from time to time and thereupon such amendments and variations shall be deemed to have been amended or varied accordingly and shall be read and construed as if such amendments and variations have been incorporated into and had formed part of this Agreement at the time of execution hereof. [55] Accordingly, it is clear that the Banking Facilities granted by the Plaintiff to the 1st Defendant remain valid even though the 1st Defendant did not sign the SLO-2, which contained the review and variation of terms of the Banking Facilities. [56] In fact, it is undisputed that the Plaintiff had issued two Letters of Notification dated 22.7.2022 and 27.7.2022, notifying the 1st Defendant that the Plaintiff would deem the 1st Defendant to have accepted the terms and conditions stated in the SLO-2 if the Plaintiff did not receive the 1st Defendant’s reply within the stipulated timeline. The 1st Defendant had not replied objecting to the terms at all. [57] On the variation to the rate of interest charged, the mutually agreed terms in the Letter of Offer and Facility Agreement which were duly accepted and signed by the 1st Defendant expressly stipulated that the Plaintiff has an absolute discretion to review the Banking Facilities including the variation of interest rate and repayment period. The said review or variation can be done by the Plaintiff by way of the agreed method of communications which includes the issuance of the Supplementary Letter of Offer and Letter of Notification. S/N foryoYqrAUGiMJP4Mle9aw [58] On this point, the Court of Appeal in OCBC Bank (M) Bhd v Prolink Marketing Sdn Bhd and another appeal [2023] 2 MLJ 851 has held thus: “[48] Given this context, we do not think that the appellant’s conduct in performing a review of the facilities granted to the respondent borrower was in any manner irregular or unwarranted. In any event, and again as is standard, the relevant facilities agreement and security documentation would invariably give the right to review on the lender. There is no exception here. This position is so well-embedded in banking practice that we need only mention that this right to review is spelt out among others in the letter of offer dated 30 July 2015 and the facilities agreement dated 28 January 2014. [49] For example, cl 3(3) of the facilities agreement reads as follows: (3) No obligation to advance … the Borrower agrees that the Facilities may be reviewed from time to time and at any time by the Bank irrespective whether or not an Event of Default has occurred. Upon such review, the Bank may impose such terms and conditions as it deems fit including without limitation, reducing the principal limits of the credit facilities, or require settlement of the Indebtedness. The Bank is under no obligation either at law or in equity to make or to continue to make available the Facilities or any part thereof to the Borrower. S/N foryoYqrAUGiMJP4Mle9aw [50] Similarly in cl(m) of the RP4 letter of offer dated 8 April 2015 it is stated thus: Review and Termination Notwithstanding anything herein stated, the Facility may be recalled at the Bank’s discretion at any time and payable on demand (without assigning any reason therefor) irrespective of whether or not any Repurchased Event has occurred and shall be reviewed annually or at such times as may be decided by the bank at its sole and absolute discretion. Upon review the Bank may impose any further conditions at the Bank’s sole discretion. [51] It goes without saying that these are contractual terms which are plainly binding on the parties given that it is so well-established that upon execution of an agreement, parties are bound by the entire document, in the absence of fraud or misrepresentation, and even regardless of whether a party has read the document or not (see Serangoon Garden Estate Ltd v Marian Chye [1959] 1 MLJ 113).” Certificate of Indebtedness [59] In the present case, Clause 30.1 of the Facility Agreement and Clause 11 of the Letters of Guarantee provide that such a certificate of indebtedness is conclusive evidence for the amount due and owing by the Defendants, including for legal proceedings. [60] The Plaintiff has issued such Certificate of Indebtedness and the same is binding on the Defendants and has conclusively proven the amounts due and owing by the Defendants to the Plaintiff. S/N foryoYqrAUGiMJP4Mle9aw Conclusions [61] Accordingly, it is my judgment that the Defendants have not demonstrated to this Court that there are bona fide triable issues in this present case to merit the Plaintiff’s claims to be determined at a trial. [62] For the reasons given above, I allowed the Plaintiff’s claims for summary judgment under Enclosure 8 with costs fixed at RM 10,000.00 subject to allocator. Dated the 4th day of July 2024 ONG CHEE KWAN Judge of the High Court of Malaya High Court of Kuala Lumpur, NCC2 & Admiralty Counsel: 1. Ms. Aufa Radzi together with Anson Liow and Ms. Natasha Neena Yau Hwee Lynn (PDK) for Plaintiff Messrs. Skrine (Kuala Lumpur) 2. Mr. S. K. Liow together with Jennifer Lai and Sim Qi Wei (PDK) for Defendants Messrs. Liow & Co (Petaling Jaya) S/N foryoYqrAUGiMJP4Mle9aw Case Reference: 1. OCBC Bank (M) Bhd v Prolink Marketing Sdn Bhd and another appeal [2023] 2 MLJ 851 Legislation Reference: 1. Paragraphs (1) and (2)(b) of Schedule 7 of Financial Services Act 2013 S/N foryoYqrAUGiMJP4Mle9aw