CASE NO.2 Shining Crest & Ors v Onn Kien Hoe & Anor

[COMPANIES: SETTING ASIDE THE APPOINTMENT OF RECEIVER & MANAGER

CIVIL PROCEDURE: STRIKING OUT]

Companies: Specific Debenture-Whether the Receiver’s appointment is valid pursuant to Companies Act 1965-Whether the Specific Debenture that gives power to Receiver in dealing with company’s asset/property is void-Whether the Receiver had rightly exercised his power in dealing with company’s asset/property in accordance with the National Land Code 1965.

Civil Procedure: Striking Out

Nordin Hassan J:

Introduction 

[1]     Enclosure 19 and encl 14 are applications by the First Defendant and the Second Defendant respectively, to strike out the Plaintiffs' writ and statement of claim dated 3 March 2017 pursuant to  O 18 r 19(1)(b) and/or O 18 r 19(1)(d) Rules of Court 2012.

[2]    In support of the application in encl 19, the First Defendant, onn kien hoe had affirmed an affidavit dated 14 April 2017 and among others averred that the Plaintiff has no cause of action against the First Defendant, the Plaintiffs' action is an abuse of court's process and there is no triable issue in the Plaintiffs' claim.

[3]     As for the application in encl 14, one Juanita binti Johari had affirmed an affidavit dated 7 April 2017 on behalf of the Second Defendant in support of the striking out application. In her affidavit too, she averred that there is no cause of action or triable issue in the Plaintiffs' claim and an abuse of the court process.

 

Background Facts

[4]     Based on the affidavits and documents filed in this case, the background facts are as follows:-

(i) On the 28 August 2012, the First Plaintiff and the Second Defendant executed an agreement for a term loan facility in a sum of RM27,500,000.00 to the First Plaintiff. The Second and Third Plaintiff are guarantors for the said loan.

(ii) To secure the repayment of the said loan, on the same date, the following action were also taken:-

(a) The First Plaintiff created a first party legal charge on the Project Land in favour of the Second Defendant;

(b) The First Plaintif executed a Specific Debenture in favour of the Second Defendant;

(c)  The Second and Third Plaintiff executed a guarantee and indemnity agreement as guarantors for the loan.

(iii) Thereafter, the Second Defendant had disbursed the whole amount of the term loan facility to the First Plaintiff.

(iv) However, the Plaintiffs had failed to pay the loan under the said agreement which resulted the Second Defendant commenced a civil suit against the Plaintiffs to recover the amount outstanding under the said agreement.

(v)   On 27 November 2015, the Second Defendant filed an application for summary judgment against the Plaintiffs but before this application was to be decided by the court, both parties had discussed for a settlement with regards to the Second Defendants' against the Plaintiffs and the application for the summary judgment.

 

(vi) On the 14 April 2016, the Plaintiffs and the Second Defendant managed to settle the case out of court and recorded a consent judgment pertaining to the Second Defendant suit against the Plaintiffs.

(vii)  The terms of the said Consent Judgment among others .are as follows:-

(a)   The total amount outstanding and payable to the Second Defendant by the Plaintiffs as at 31 March 2016 is RM29,982,020.73.

(b)   The total amount outstanding to be paid by Plaintiffs to the Second Defendant by 31 July 2016 as requested by Plaintiffs is RM29,779,351.45.

(c)   The Second Defendant agreed that the Plaintiffs to pay the amount outstanding to the Second Defendant by 31 July 2016 subject to the initial payment of RM2,000,000.00 by the Plaintiffs to the Second Defendant before 28 April 2016. In the event the Plaintiffs failed to pay the said initial payment before the said date, it was agreed as follows

(aa)   The Plaintiffs are liable to pay the amount outstanding in the sum of RM28,982,020.73 with the interest thereon.

(bb)   the Second Defendant is entitled to enforce its rights under the security documents as specified in the term loan facility agreement dated 28 August 2012, Specific Debenture dated 28 August 2012, Guarantee and Indemnity agreement dated 28 August 2012.

(viii)  The Plaintiffs thereafter issued a cheque dated 30 April 2016 with an amount of RM2,000,000.00 vide the Plaintiffs' solicitor letter dated 28 April 2016 for the initial payment to the Second Defendant in accordance with the terms of the Consent Judgment.

(ix)    However the said cheque was a bounced cheque and was returned to the Plaintiffs. The Plaintiffs, therefore had failed to comply with the terms of the Consent Judgment dated 14 April 2016 and liable to pay the entire amount outstanding in the sum of RM28,982,020.73 as at 31 March 2016 together with the interest.

(x)     As the Plaintiffs had failed to pay the judgment sum as agreed in the Consent Judgment, the Second Defendant then executed its right under the Specific Defenture by appointing the First Defendant as the Receiver andManager of the First Plaintiff. This appointment was made vide a Deed of Appointment dated 21 June 2016.

(xi)    On 23 January 2017, the Plaintiff filed an Originating Summon to set aside the said Consent Judgment dated 14 April 2016 which is yet to be heard and decided by the court.

(xii)   Subsequently, on 3 March 2017, the Plaintiffs filed this present suit No WA-22NCVC-112-03/2017 among others, to challenge the validity of the appointment of the First Defendant as the Receiver and Manager of the First Plaintiff and the validity of the Specific Debenture dated 28 August 2012.

[5]     The application in encl 19 and encl 14 are to strike out the Plaintiffs' Writ and the statement of claim against the Defendants in the said suit No WA-22NCVC-112-03/2017.

The Law On Striking Out Application

[6]     The principle of law with regard to striking out pleading under O 18 r 19 are well settled. It is the discretionary power of the court which is to be exercised in an obvious and unsustainable case. 

[7]     The Federal Court in the case of Serac Asia Sdn Bhd v. Sepakat Insurance Brokers Sdn Bhd [2013] 5 MLRA 175; [2013] 5 MLJ 1; [2013] 6 CLJ 673; [2013] 4 AMR 385 explained on the power to strike out pleading as follows:-

"We also make this observation on the application of the court's summary power to strike out a pleading under O 18 r 19 of the Rules of Court 2012 (successor to RHC 1980). Although the power to strike out is a wide discretion, it should be exercised with care and only when the threshold requirement of an obvious and unsustainable case can a pleading be struck out In exercising it, and especially under r 10(1)(a), the court must have regard to the quality of an ail the circumstances surrounding the plea (see Lembaga Kumpulan Wang Simpanan Pekerja v. Kesatuan Kakitangan Lembaga Kumpulan Wang Simpanan Pekerja [2000] 1 MELR 1[2000] 1 MLRA 522; [2000] 3 MLJ 65; [2000] 3 CLJ 81; [2000] 2 AMR 2119 (RC). The court should also bear in mind that the effect of striking out a pleading is to completely deprive a plaintiff from having his day in court."

(see also Bandar Builder Sdn Bhd v. United Malayan Banking Corporation Bhd [1993] 1 MLRA 611; [1993] 3 MLJ 36; [1993] 4 CLJ 7; [1993] 2 AMR 1969).

[8]     On the other hand, if there is any triable issue in .the pleading, the proper course is for the case to be tried fully in open court as explained by the Federal Court in Lee Nyan Choi v. Voon Noon [1978] 1 MLRA 611; [1979] 2 MLJ 128 where Lee Hun Hoe CJ (Borneo) (as he then was) said this:-

"As there are triable issues the proper course would be for the issues to be tried in the usual matter in open court. The power to dismiss an action summarily without permitting a party to proceed to trial is a drastic power and should be exercised with utmost caution. The power of summary procedure should only be resorted to in plain and obvious cases."

[9]     Triable issue' has also been explained by the Federal Court in the case of Voo Min En & Ors v. Leong Chung Fatt [1982] 1 MLRA 548; [1982] 2 MLJ 241 as follows:-

"....That being the case, it is not enough for the respondent in answer to the appellants' application to sign final judgment to raise an issue, or any issue. He must, however, raise such issue as would require a trial in order to determine it In other words, the issue raised must be an arguable issue. But when the issue raised is irrelevant and inspective, or to use the words of Lord Greece, MR in Cow v. Casey 'when the point is understood and the court satisfied that it is really unarguable' the appellant should be entitled to what they prayed for in the summon-in-chambers.

In out view the point raised by the respondent as to the existence of an oral agreement to renew the lease of the ground floor of the demised premises in this case is really not an arguable issue as it is neither effective, nor admissible and therefore does not constitute a triable issue."

 

The Plaintiffs' Contention On Issues To Be Tried

[10]   The Plaintiffs submitted that the issues to be determined by this court are as follows:-

(i)      Whether the Receiver's appointment is valid pursuant to Companies Act 1965.

(ii)     Whether the Specific Debenture that gives power to Receiver in dealing with company's asset/property is void. 

(iii)    Whether the Receiver had rightly exercised his power in dealing with company's asset/property in accordance with the National Land Code 1965.

 

Findings Of The Court

 

[11]   Having analysed the three main issues raised by the Plaintiffs which was submitted as triable issues, I find that those issues relates purely to questions of law or application of law which can be determined by applying the undisputed facts from the affidavits filed in this application.

[12]   The first issue is whether the appointment of the First Defendant as Receiver and Manager of the First Plaintiff is valid pursuant to the Companies Act 1965.

[13]   On this issue, subsection 186(1) of the Companies Act 1965 provides:-

"186. Notification of Appointment of Receiver

(1)     if any person obtains an order for the appointment of a receiver or manager of the property of a company or of the property within Malaysia of any other corporation, or appoints such a receiver or manager under any powers contained in any instrument, he shall within seven days thereafter, lodge with the Registrar notice to the effect."

[14]   The wordings of this subsection 186(1) is clear that the appointment of a receiver and manager can be made by a court order or pursuant to powers contained in an instrument such as in this case a Specific Debenture.

[15]   In the present case, the First Defendant was appointed as Receiver and Manager pursuant to subsection 8.01(c) of the Specific Debenture dated 28 August 2012 which provides as follows:-

"Section 8.01. Appointment of Receiver and Manager

At any time after any one or more of the Events of Default under s 7.01 herein shall have occurred and the moneys hereby secured shall have become immediately repayable.

(a) ....

(b) ....

(c)     MBSB may at any time after the moneys hereby secured shall have become payable appoint in writing under the hand of its lawful Attorney or its Manager or Accountant of any other officer; any person or persons not being a person or entitle precluded by s 182 of the Compaies Act, 1965 to be Receiver and or Manager or Receivers and or Managers of the properties and assets hereby charged and may in like manner from time to time remove any Receiver and/or Manager or Receivers and or Managers so appointed and appoint another or others in his or their stead."

 

[16]   Based on the affidavit's evidence, it was clear that the Plaintiffs has defaulted in paying the amout outstanding pertaining to the term loan facility and as such this empowers the Second Defendant to appoint the First Defendant as the Receiver and Manager pursuant to the Specific Debenture which is a contractual document signed by the Plaintiffs and the Second Defendant.

[17]   On this issue, in Shencourt Sdn Bhd v. Aseambankers Malaysia Berhad & Ors[2014] 2 MLRH 259; [2014] 10 CLJ 672 the Judge said this:-

"[42] I have considered the full sequence of events giving rise to this claim for a declaration. It appears to this court that:-

(i)      The appointment of an R&M by the banks and Zurich. The 5th defendant, on 20 November 2013 was clearly made pursuant to their rights and entitlements under the debentures. The power to appoint an R&M is clearly stipulated in these contractual documents and as such the banks are at liberty to exercise such rights

[18]   The appointment of Receiver and Manager pursuant to a debenture was also discussed in the case of Wee Ping Trading Co Sdn Bhd & Anor v. Tan Kim Hin & Ors & Another case [2010] 16 MLRH 602 and it was decided among others as follows:-

"I could not fault the Bank's decision to appoint the Receiver and Manager as there was clear evidence on the default of the facilities agreement and Wee Ping Trading Co Sdn Bhd's refusal to accede to the Bank's insistence on the personal guarantee by Mr Jamesherd Wee had scuttled the restructuring exercise. Wee Ping Trading Co Sdn Bhd, being the party in default should not and was not in the position to dictate terms for the restructuring exercise. Having failed to get their own way in the negotiation, the Bank dearly has the right to appoint the Receiver and Manager pursuant to cl 12.1 of the Debenture

[19]   Therefore, the appointment of the First Defendant as Receiver and Manager of the First Plaintiff in this case is valid and in accordance with the provision in the Companies Act 1965.

[20]   The next issue raised by the Plaintiffs is whether the Specific Debenture that gives power to the Receiver in dealing with the company's asset is void.

[21]   Here, it was the Plaintiffs' submission that subsection 8.02(d) of the Specific Debenture is contrary to subsection 183(1) of the Companies Act 1965. Subsection 8.02(d) provides that the Receiver and Manager is not accountable for any losses and damages made in executing his discretion to dispose the Company's assets whereas subsection 183(1) of the Companies Act provides otherwise. As such by virtue of s 24 of the Contract Act 1950, the Specific Debenture is illegal and void.

[22]   For easy reference, the relevant provisions regarding this issue are as follows:-

"(i)     Subsection 8.02(d) of the Specific Debenture:-

Section 8.02 Power of Receiver and Manager

A Receiver and or Manager or Receivers and or Managers so appointed shall be the agent of the Borrower and shall exercise all powers conferred on a Receiver by the Companies Act, 1965 and by way of addition to and without limiting those powers shall .have power in relation to the Property, the Project and the Project Land (as may be applicable):-

(a) 

(b) 

(c) 

(d)     To sell or concur in selling any of the assets hereby charged, or lease or otherwise deal therewith and on such terms in, the interests of MBSB as he or they shall think fit for such purposes to execute such assurances, transfers, lease and any other documents in the name and on behalf of the Borrower or otherwise as he or they may consider necessary or desirable. In exercising the Power of Sale hereby conferred the Receiver and or Manager or Receivers and or Managers may sell at such times and in such manner and at such price as he or they may in his or their absolute discretion think fit and in exercising such discretion he or they may have regard to the views and desires of MBSB. The Receiver and/or Manager shall not be accountable for any loss or damage which may be suffered by the Borrower by reason of the exercise of such discretion;

 

(ii)     Subsection 183(1) of the Companies Act 1965:-

(1)     Any receiver or other authorised person entering into possession of any assets of a company for the purpose of enforcing any charge shall, notwithstanding any agreement to the contrary, but without prejudice to his rights against the company or any other person, be liable for debts incurred by him in the course of the receivership or possession, for services rendered goods purchased or property. hired, leased, used or occupied.

(2)     Subsection (1) shall not be so construed as to constitute the person entitled to the charge a mortgagee in possession.

(iii)     Section 24 of the Contract Act 1950:-

  1.            What considerations and objects are lawful, and what not.

    The consideration or object of an agreement is lawful, unless-

(a)     It is forbidden by a law;

(b)     It is of such a nature that, if permitted, it would defeat any law;

(c)     It is fraudulent;

(d)     It involves or implies injury to the person or property of another; or

(e)     The court regards it as immoral, or opposed to public policy.

In each of the above cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void."

[23]   Having considered both provisions of subsection 8.02(d) of the Specific Debenture and subsection 183(1) of the Companies Act, I find that in subsection 8.02(d) it only says that the Receiver and Manager shall not be accountable for any loss or damage in exercising his discretion to sell the company's assets.

Whereas, under subsection 183(1) of the Companies Act it provides among others, that a Receiver is to be held liable for debts incurred by him in the course of the receivership or possession, for services rendered, goods purchased or property hired, leased, used or occupied.

[24]   Therefore, in my view, subsection 8.02(d) of the Specific Debenture does not contravene subsection 183(1) of the Companies Act 1965. As such, s 24 of the Contract Act 1950 is not applicable in the present case. 

[25]   The other issue raised by the Plaintiffs is whether the Receiver had rightly exercise his power in dealing with the Company's assets in accordance with the National Land Code 1965 (NLC 1965).

[26]   It was submitted by the Plaintiffs' counsel that the First Defendant as Receiver had intended to sell the charged property by way of private tender without conforming with subsection 254(c) of the NLC 1965 which provides as follows:-

  1.  Service of default notice, and effect thereof.

(1)     Where, in the case of any charge, any such breach of agreement as is mentioned in sub-section (1) of s 253 has been continued for a period of at least one month or such alternative period as may be specified in the charge, the charge may serve on the charger a notice in Form 16D-

(a) ...

(b) ...

(c)     Warning the chargor that, if the notice is not complied with, he will take proceedings to obtain an order for sale."

Here, the Plaintiffs argued that they did not receive any Statutory Notice pursuant to this s 254.

[27]   It was further argued that the First Defendant acted under the direction of the Second Defendant and had not obtained and serve any court order to the Plaintiffs to execute a public auction of the Plaintiffs' charged property in accordance with subsection 256(2) of the NLC which provides:-

"256. Application to Court for order for sale.

(1) ...

(2)     Any application for an order for sale under this Chapter by a chargee of any such land or lease shall be made to the Court in accordance with the provisions in that behalf of any law for the time being in force relating to civil procedure."

[28]   As such, it was submitted that the Specific Debenture in the present case contravenes the provisions of the National Land Code 1965 and therefore null and void.

[29]   On this issue, firstly, s 8.02 of the Specific Debenture clearly provides that a Receiver and Manager shall be the agent for the borrower. Therefore in this case, the First Defendant is the agent of the First Plaintiff and not for the Second Defendant. Therefore, the Plaintiffs' contention that the First Defendant acted under the direction of the Second Defendant is untenable.

[30]   Beside this, the First Defendant has the power to sell the Project Land pursuant to the Power of Attorney clause in s 8.03 of the Specific Debenture.

[31]   Having read subsection 256(2) of the NLC, it clearly refers to application for order for sale by a chargee and not a chargor. This also has been decided by the Federal Court in the case of Melantrans Sdn Bhd v. Carah Enterprise Sdn Bhd & Anor [2003] 1 MLRA 218; [2003] 2 CLJ 86; [2000] 3 AMR 2743 where it was held at pp 91 and 95 as follows:-

"Section 256(2) NLC provides ;

Any application for an order for sale under this Chapter by a chargee of any land or lease shall be made to the Court in accordance (emphasis added).

Clearly, the section provides a prescribed method of sale to be undertaken by a chargee not a chargor. In the instant appeal, however, the sale was undertaken by the R & M on behalf of the first respondent, the chargor of the said lease. In our view, the provisions of NLC prescribing for judicial sate couid not apply to the facts in the instant appeal because the R & M was acting as agent of the chargor.

Encik Ng Chew Hor, for the appellant also submitted that the power of attorney given to R & M under the debenture was an attempt to avoid the effect of and was but a means to contract out of the .provisions of NLC and was therefore void. Looking at the debenture in the Appeal Record, we are satisfied the said power of attorney complied with ss 3(2) and 4(1) of the Powers of Attorney Act 1949. In our view, the R & M could act and exercise the power under the debenture. We therefore find no merit in counsel's contention that the power of attorney was a means to contract out of the provision of NLC"

[32]   Likewise in the instant case, the First Defendant acted for the First Plaintiff, the chargor, and as such the provision of subsection 256(2) of the NLC is not applicable. The power for the sale of the project land by the First Defendant in this case was made by the power conferred under the Specific Debenture.

[33]   On this issue too, the Plaintiffs relied heavily on the Supreme Court case of Kimlin Housing Development Sdn Bhd v. Bank Bumiputra Malaysia Bhd & Ors [1997] 1 MLRA 267; [1997] 2 MLJ 805; [1997] 3 CLJ 274; [1997] 3 AMR 2361. However, the case can be distinguished on its facts as the Debenture in the said case did not contain provision for appointing Receiver and Manager.

[34]   Melantrans case (supra) which distinguished Kimlin's case held as follows:-

"[1]    In Kimlin, it was abundantly clear that the debenture created by the borrower company in favour of the bank did not contain an express provision appointing the receivers and managers as the attorney of the borrower company. Secondly, the borrower company went into liquidation and it was the liquidator who opposed the application for sale under the debenture. Further, s 256(2) NLC provides a prescribed method of sale to be undertaken by a charge and nor a charger. In this case, R & M undertook the sale on behalf of the charger of the lease, ie, the first respondent The provisions of the NLC prescribing judicial sale did not appliy because R & M was acting as agent for the chargor and not the chargee. The power of attorney was also valid as it complied with ss 3(2) and 4(1) of the Powers of Attorney Act 1949. Therefore, R & M could act and exercise the power under the debenture. The case of Kimlin was distinguished, (pp 94 e-h & 95 a-d)."

[35]   The facts in this case also shows that on the 24 May 2016, the Second Defendant had served on the First Plaintiff a Statutory Notice pursuant to s 254 of the NLC.

[36]   Thus, I find the First Defendant as Receiver and Manager of the First Plaintiff had rightly exercise his power to sell the project land conferred under the Specific Debenture dated 28 August 2012.

[37]   The Plaintiffs had also raised the issue that the Plaintiffs was promised a Bridging Loan by the Second Defendant but the Second Defendant had failed to provide the said loan. To my mind, this is not relevant to the present applications and was not supported by any document. In any event, this issue was brought up by the Plaintiffs in the Counterclaim in the original suit but was withdrew by the Plaintiffs with no liberty to file afresh.

Conclusion

[38]   In the circumstances, I find that there is no triable issue in the Plaintiffs' claim and the Plaintiffs' case is an obvious and unsustainable case. 

[39]   Therefore, the First Defendant's application in encl 19 and the Second Defendant's application in encl 14 to strike out the Plaintiffs' writ and Statement of Claim are allowed.

[40]   The Plaintiffs is to pay costs of RM3,000.00 to the First Defendant and RM3,000.00 to the Second Defendant.

 

Counsel:

 

For the plaintiff: Ooi She Yi (together with Najihah Baharom); M/s Jahaberdeen & Co

For the 1st respondent: Thomas Wong; M/s Thomas Wong & Co For the 2nd respondent: Helmi Hamzah (Muhamad Rusydan Mohd Basir with him); M/s Hisham, Sobri & Kadir

 

NOTE:

  •            For full report, please refer to Shining Crest & Ors v Onn Kien Hoe & Anor [2017] MLRHU 1

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