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2012 MarsdenLR 2271
FEDERAL COURT PUTRAJAYA
AMBANK (M) BERHAD – Appellant
Versus
KT STEEL SDN BHD & ORS – Respondent
[Civil Appeal No: 02( )-18-2010 (J)]
The court asserted that the equipment lease agreement was genuine and valid, not disguised as a loan, thereby not violating the Bills of Sale Act.
Headnote:(A) Bills of Sale Act, 1950 - Sections 3 and 4 - Banking and Financial Institutions Act, 1989 - Section 60 - Nature of a lease agreement - Determination of whether an equipment lease agreement is a valid lease or a disguised loan requiring compliance with registration under the Bills of Sale Act - The court found the lease agreement was genuine, and not a sham or a loan disguised as a lease. (Paras 1, 15, 24, 51)
(B) The ruling states that ownership of equipment under a lease agreement remains with the lessor, and proper compliance with legal provisions distinguishes a valid lease from a concealed loan - The trial court's dismissal of the claim for payment based on incorrect premise regarding the nature of lease is erroneous and unjustified. (Paras 19, 51)
Facts of the case:
The appellant, a licensed finance company, contended that a leasing arrangement for a piece of machinery was a valid lease, while the respondents claimed it was a loan disguised as a leasing agreement violating the Bills of Sale Act. (Paras 2-12)
Findings of Court:
The court overturned prior judgments, determining the lease was valid and did not constitute a disguised loan, thus setting aside previous rulings and allowing the appellant's claim. (Paras 51-52)
Issues: Court addressed whether the lease agreement was a genuine lease or a disguised loan, the requisite ownership by the lessor, and implications of the Bills of Sale Act regarding registration. (Paras 14, 48)
Ratio Decidendi: The court emphasized the differentiation between lease and loan transactions and ruled that the lease agreement adhered to the legal principles without being categorized as a sham transaction. (Paras 20, 51)
Result: Appeal allowed; judgment and orders of lower courts set aside, granting appellant's claims and dismissing the respondents' counterclaim. (Paras 51-52)
| Table of Content |
|---|
| 1. scope of legal questions for appeal approval. (Para 1) |
| 2. background details of the parties and contract history. (Para 2 , 3 , 4 , 5 , 8 , 9 , 10) |
| 3. specific contractual obligations and conditions. (Para 6 , 7) |
| 4. defendants' contestation of claims and validity of agreements. (Para 11 , 12 , 13) |
| 5. trial court's findings and rationale for dismissing claims. (Para 14 , 15 , 16 , 17 , 18 , 19) |
| 6. court of appeal's dismissal rationale. (Para 20) |
| 7. appellant's legal arguments submitted for appeal. (Para 21 , 22 , 23) |
| 8. nature and implications of an equipment lease agreement. (Para 24 , 25) |
| 9. legal definition and characteristics of leasing versus hire purchase. (Para 26 , 27 , 28 , 29 , 30 , 31) |
| 10. analysis of court rulings, failures in evidence handling and legal interpretations. (Para 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50) |
| 11. final judgment and its grounds. (Para 51) |
[1] On 13 October 2010 this court granted the appellant leave to appeal on the following questions of law:
(a) Whether a lease agreement for business equipment declared to be a money lending transaction/loan agreement is a bill of sale under s 3 of the Bills of Sale Act, 1950;
(b) Whether a lease agreement for business equipment declared to be a money lending transaction/loan agreement is illegal and void under s 4 of the Bills of Sale Act, 1950;
(c) Whether a lessee who has executed a document titled a Lease Agreement and thereafter expressly referred to the document as a lease agreement in its subsequent correspondences is estopped from denying that the agreement is a lease agreement when it does satisfy the requirement of a lease agreement; and
(d) Whether a lessor must be seized with ownership of the equipment leased at all material times; and
(e) Whether a lessee (borrower) has to repay the monies advanced by the lessor (lender) pursuant to a lease agreement that had been declared illegal and void.
[2] The appellant (the plaintiff in the originating action) is a licensed finance company. The first respondent (the first defendant in the originating action) is a locally incorporated company and was incorporated on 21 September 1993. The second, third and fourth respondents (the second, third and fourth defendants in the originating action) were the directors of the first respondent.
The Facts
[3] By a "Contract of Sale Agreement" dated 1 September 1996, the first respondent ('the buyer') purchased a used piece of machinery, described therein as "the mill equipment" (hereafter referred to as "the said mill equipment") from M&M Greaves ('the seller'), a business enterprise based in Sheffield, England for the sum of £750,000.
[4] As a consequence of the said "Contract of Sale Agreement", the first respondent made an application for a leasing loan on 27 September 1996 in the sum of RM2. 5 million from the appellant for a proposed period of 60 months to finance the purchase of the said mill equipment. It was stated in the application that the cost of the said mill equipment was RM2,925,000-00 and that the deposit paid was RM425,000-00.
[5] By letter dated 12 October 1996 ("the letter of offer") the appellant approved in principle the application for the leasing loan, referred to therein as an "Equipment Lease Facility" and informed the first respondent that "under this facilities, we shall purchase the equipment ... and thereafter, we will lease/ hire it to you based on the following terms and conditions" which, inter alia, included the following:
(i) A monthly rental of RM50,792-00 for 59 months and a final rental of RM50,772-00 for the 60th month;
(ii) "At the end of the lease period you will undertake to indemnity (sic) us that the resale value of the equipment should realise not less than RM234,000-00";
(iii) "Security/Guarantee - (a) Equipment purchase by us and thereafter leased to you will be covered by our Standard Equipment Lease Agreement. The terms and conditions of which
