RHB Bank Berhad v Sineo Enterprise Sdn Bhd (Dalam Likuidasi) (JA-24FC-1556-10/2016)

This is a decision on an interlocutory application (encl. 5) which was filed by the proposed intervener pursuant to Order 15 rule 6(2)(b) of the Rules of Court. On 9.5.2017, this Court dismissed the proposed intervener‟s application. The reasons for this Court‟s decision are set down below.

The plaintiff took out this Originating Summons for an order for sale over a charged property secured by two charges via Presentation Nos. 10633/95 and 87141/96. The charges secured several loan facilities granted to the defendant company by a previous financial institution. The rights and liabilities of the previous financial institution were vested with the plaintiff. The plaintiff seeks to recover from the defendant company an indebted sum amounting to several hundreds of millions. This foreclosure action was filed by the plaintiff to recoup the indebted sum. The defendant company was wound-up on 9.8.2011 by another creditor BSC Elevator Sdn. Bhd.

The proposed intervener is a contributory of the defendant company as well as a guarantor of the loan facilities. The proposed intervener has indicated to this Court that he has no intention to oppose the foreclosure proceedings taken by the plaintiff. All that the proposed intervener wants from this Court is to allow him to be made a party to the foreclosure action.

The grounds for the proposed intervener‟s application are twofold. First, being a contributory of the defendant company, the proposed intervenor has a right in law of a proprietary nature to share in the surplus assets of the defendant company after the debts of the defendant company has been settled. Secondly, being a guarantor, the proposed intervenor also has a right to be heard in the subsequent applications which would naturally follow a pronouncement of an order for sale by this Court. The presence of the proposed intervener in the foreclosure proceedings would be necessary to ensure that all matters in dispute therein may be effectually and completely determined and adjudicated upon, the counsel for the proposed intervener submitted.

A third party, not being a party in a legal proceeding, can be added as a party in the proceeding. This is provided under Order 15 rule 6(2)(b) of the Rules of Court („RoC‟). Leave of the court is required to be obtained before a third party could be added as a party.

In order to obtain leave from the court, a third party has to satisfy the court that he (i) ought to have been joined as a party or whose presence before the court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or (ii) between him 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 (see O.15 r.6(2)(b)(i) and (ii) of the RoC).

It is trite that „for a third party to intervene and to be joined as party in an action, the proposed intervener must demonstrate that he or she has some interest which is directly related to or connected with the subject matter of the action.‟ Further, „if a person wishes to be joined because of a financial interest, and not legal interest, in the outcome of the case, the court is unlikely to allow the third party to intervene‟ (see Malaysian Civil Procedure 2015, vol. 1, p. 156).

Based on the above legal propositions, the question for this Court to ask is – Will the proposed intervener‟s rights against the liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the foreclosure proceeding? (see Pegang Mining Co. Ltd v Choong Sam & Ors [1969] 2 MLJ 52, p. 56)

The subject matter of this proceeding is for an order for sale of the charged property. The proposed intervener is not the chargor or registered proprietor of the charged property. He does not possess any legal interest in the charged property. A contributory of the defendant company has no direct legal interest over the assets of the defendant company (see Court of Appeal decision in Tan Choi Yu v Syarikat Tingan Lumber Sdn Bhd [1998] 4 MLJ 275). A contributory is merely liable to contribute to the assets of the company in the event the company is wound up. Hence, a contributory‟s right could not extend to a legal right over the assets of a company.

It makes no difference whether the defendant company has or has not been wound-up, the proposed intervener could not assert any legal Page 6 of 10 interest in the subject matter of the foreclosure proceeding, especially the surplus of the proceeds of the sale of the charged property which belongs to the defendant company (see Court of Appeal decision in Anafartalar Caddesi Sdn Bhd v Southern Investment Bank Bhd (formerly known as Perdana Merchant Bankers Bhd) [2003] 1 MLJ 561, at p. 565).

The learned counsel for the plaintiff has correctly submitted that in the event there is any surplus from the proceeds of the sale of the charged property, the surplus proceeds will be properly dealt with in the liquidation exercise of the defendant company by the appointed liquidator in accordance with the law. The contributory‟s interest, if any, ought to be dealt with in the liquidation exercise, not in the present foreclosure proceeding.

With regard to the fact that the proposed intervener is a guarantor of the loan facilities, his rights, if any, are against the plaintiff, not in a foreclosure proceeding. A guarantor of a loan facility has no right to be heard in a foreclosure proceeding. The lender has distinct rights under two separate contracts. The guarantor‟s right against the lender is distinct from the chargor. The lender could exercise either one or both rights together. The lender has a right on one hand, against the chargor in relation to the charged property under the charge; on the other hand, the lender has a right against the guarantor under the guarantee.

The two grounds submitted by the learned counsel for the proposed intervener ultimately converge to one objective which is the financial interest of the proposed intervener. The proposed intervener wanted to ensure the charged property could be auctioned at the highest Page 7 of 10 price in order to repay the debt owing to the plaintiff by the defendant company. The higher the sale price, the better the financial benefit for the proposed intervener. If the sale price could cover the debt, the proposed intervener would be released from the liability as a guarantor. It is the considered view of this Court that the underlining object of the proposed intervener is very much driven by his financial interest.

As stated earlier, if a person wishes to be joined as a party in the proceeding because of a financial interest, not legal interest, in the outcome of the case, the court is unlikely to allow the third party to intervene (see Lee Meow Lim v Lee Meow Nyin [1990] 3 MLJ 123 at p. 125; Soo Hong & Leong Kew Moi & Ors v UMBC Bhd & Anor [1997] 2 CLJ 548, CA).

This court is of the considered view that the process of fixing the reserve price for the auctioned property, i.e. the charged property if an order for sale is granted subsequently, is well governed by the existing rules and regulations and provisions under the National Land Code. There is no need for the proposed intervener to participate in the process, as the law does not permit such participation by the proposed intervener in such proceedings. In fact, it is the legal duty of the liquidator to ensure the process is carried out fairly and justly without compromising the defendant company‟s interest. The submission of the learned counsel for the proposed intervener that the charged property could be sold at the auction below the market value is unfounded.

Based on the above reasoning, this Court finds the grounds relied on by the proposed intervener to join as a party in this OS action have failed to satisfy the tacit test as laid down in Pegang Mining Co. Ltd Page 8 of 10 (supra) (see also the decision of the Federal Court in Hong Leong Bank Bhd (formerly known as Hong Leong Finance Bhd) v Staghorn Sdn Bhd and other appeals [2008] 2 MLJ 622).

The learned counsel for the proposed intervener relied on a decision by the then Supreme Court in Arab Malaysian Merchant Bank Berhad v Jamaludin bin Dato Mohd Jarjis [1991] 1 MLJ 27 as his crowning blow of the application. The learned counsel cited the following passage in the judgment at p. 28: One of the class of cases covered by the said rules [referring to O.15 r.6(2)(ii) of the High Court Rules 1980 which is pari materia with the present O.15 r.6(2)(b)(ii) of the RoC], 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, 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.

The learned counsel for the proposed intervener placed great emphasis on the fact that what will be the reserved price fixed for the charged property and how much the successful auctioned price is will directly affect the proposed intervener‟s pocket.

This Court is of the considered view that the learned counsel for the proposed intervener has overemphasized the phrase “is directly affected not only in his legal rights but in his pocket”. That phrase has to be understood within the peculiar facts of the case.

The proposed intervener (respondent) in that case had given a letter of undertaking to pay a judgment debt on behalf of the judgment debtor. The proposed intervener (respondent) could not keep up with the payment. He then challenged the excessive chargeable interest ordered in the judgment. The proposed intervener contended that the chargeable interest in the said judgment far exceeded that was allowed under the then Rules of the High Court 1980. The proposed intervener in that case had a direct nexus with the judgment debt. The outstanding amount in the judgment sum directly affected the proposed intervener‟s pocket.

The proposed intervener had stepped into the shoes of the judgment debtor. His right to intervene, or in other words, his right to be heard, sprung from his letter of undertaking accepting liability in the judgment. His challenge was against the extent of his liability. The proposed intervener had a direct legal interest in the subject matter, i.e. the judgment itself.

In the present facts, the proposed intervener has no direct nexus with the charged property in the foreclosure proceeding. The foreclosure 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, Page 10 of 10 is against the judgment entered against him as a guarantor, not in this foreclosure proceeding.

Based on the above reasoning, this Court dismissed the proposed intervener‟s application and ordered costs of RM2,000.00 to be paid to the plaintiff by the proposed intervener. -Signed- ……………………………………. (CHOO KAH SING) Judicial Commissioner High Court Johor Bahru Proposed intervener‟s counsel : M Rajenthirakumar Messrs Kumar Associates Plaintiff‟s counsel : Chia Oh Sheng Messrs Lee Hishammuddin Allen & Gledhill