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2024 MarsdenLR 2934
COURT OF APPEAL PUTRAJAYA
EXPORT-IMPORT BANK OF MALAYSIA BERHAD – Appellant
Versus
SUN HOLDING (SUN PARK HOTEL) CO LTD & ORS – Respondent
[Civil Appeal No: N-02(W)-579-04-2022]
A mortgagee owes a duty of care in exercising its power of sale, but the counterclaim failed due to lack of proof of applicable foreign law.
Headnote:(A) Law of Tort - Duty of Care - The Appellant, a development financial institution, was found in breach of its duty of care in selling mortgaged properties without proper valuation, as established by English common law principles. (Paras 42, 43, 101, 102)
(B) Jurisdiction - The High Court's jurisdiction to hear the counterclaim was affirmed, as the Federal Court ruled that the choice of law clause did not preclude Malaysian courts from hearing the case. (Paras 20, 30, 46)
(C) Applicable Law - The court noted that the law of Lao P.D.R. should apply, as the land was located there and the loan was governed by its laws. (Paras 28, 30, 40)
(D) Contractual Provisions - The contractual provisions in the Security Agreement were found to negate any duty of care owed by the Appellant regarding the sale of the secured property. (Paras 49, 51)
Facts of the case:
The Appellant provided a loan for a hotel development in Lao P.D.R., but after default, it sold the secured property without proper valuation, leading to a counterclaim by the Respondents for breach of duty of care.
Findings of Court:
The court held that the Appellant breached its duty of care by failing to ascertain the true market value before the sale.
Issues: Whether the Appellant had a duty of care in disposing of the land and whether contractual provisions negated this duty.
Ratio Decidendi: The court ruled that the Appellant had a duty to exercise reasonable care in selling the mortgaged property and failed to do so, justifying appellate intervention.
Result: The appeal was allowed, and the High Court's order was set aside.
JUDGMENT
Introduction
[1] This is an appeal against the decision of the High Court that found a financial institution in breach of its duty of care while exercising its power of sale of properties secured pursuant to loan facilities given to undertake property development in Lao People's Democratic Republic ("Lao P.D.R.").
[2] The Appellant is a development financial institution owned by the Minister of Finance incorporated and under the purview of the Ministry of Investment, Trade and Industry.
[3] The 1st respondent is a Laotian company and the 2nd and 3rd respondents are Malaysian individuals.
[4] We heard the appeal on 19 October 2023 and 4 January 2024 and thereafter adjourned our decision to deliberate on the submissions advanced before us.
[5] Having duly done so, we hereby give our decision below together with the supporting grounds.
Background
[6] Sometime in 2002/2003, the Government of Lao P.D.R. requested the 1st respondent associated with Rancang Timur Sdn Bhd to construct a hotel for the 10th ASEAN Summit to be held in 2004.
[7] Consequently, by a Master Agreement dated 14 July 2003 and Land Lease Agreement dated 3 June 2004, the Government of Lao P.D.R. leased to Rancang Timur Sdn Bhd a plot of land of approximately 236,420 square metres in size located alongside the Mekong River in Don Chanh, Vientiane, Lao P.D.R. ("Land"). The Land is a partly designated hotel development land comprising undeveloped land of 60,612 square metres designated for hotel development and 157,808 square metres of undeveloped land, in size respectively.
[8] The 1st respondent procured loan financing amounting to USD14,000,000.00 to develop the hotel and tourist complex from the Appellant ("Loan").
[9] Toward this end, the Appellant and the 1st respondent executed the following:
(i) Facility Agreement dated 19 January 2004;
(ii) Supplementary Agreement dated 25 February 2004;
(iii) Security Agreement dated 15 September 2004;
(iv) Additional Facility Agreement dated 15 September 2004;
(v) Cash Collateral Agreement dated 15 September 2004; and
(vi) Deed of Assignment (Project Accounts and/or Sales Proceeds) dated 15 September 2004.
There were also Third Party First Legal Charges as well as Third Party Second Legal Charges over various properties in Malaysia executed in favour of the Appellant.
[10] Moreover, the Appellant and Rancang Timur Sdn Bhd executed the following:
(i) Mortgage Agreement dated 15 September 2004;
(ii) Deed of Assignment (Rights under the Master Agreement) dated 15 September 2004; and
(iii) Deed of Assignment (Rights under the Land Lease Agreement) dated 15 September 2004.
The Government of Lao P.D.R. via its letters dated 5 October 2004 and 6 October 2004 consented to the abovementioned assignments.
[11] In addition, the Appellant and the 2nd and 3rd respondents as well Dato' Cheok Thian Sang executed the following:
(i) Irrevocable & Unconditional Joint and Several Guarantee dated 25 February 2004; and
(ii) Irrevocable & Unconditional Joint and Several Guarantee dated 20 September 2004.
[12] Subsequently, the Appellant and the 1st respondent agreed to the re-structuring of the Loan as well as the provision of an additional loan of USD29,237,359.56 ("Additional Loan") and accordingly executed the Restructuring Agreement dated 12 September 2006.
[13] The 1st Respondent in 2009 defaulted on the restructured Loan and the Appellant, as a result on 8 September 2009, terminated the Loan facilities and demanded repayment of the sum of USD35,852,060.66.
[14] Thus in 2010, the Appellant exercised its power of sale under the Mortgage Agreement as well as the Deed of Assignment (Rights under the Master Agreement) and Deed of Assignment (Rights under the Land Lease Agreement).
[15] Consequently, the Appellant and CAMCE Investment (Lao) Co Ltd ("CAMCE") executed the sale and purchase agreement of the Land dated 25 November 2010 at the consideration of USD36,000,000.00 as well as the 1st Supplementary Agreement dated 12 April 2011 and 2nd Sup
