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2021 MarsdenLR 3614
COURT OF APPEAL PUTRAJAYA
PUBLIC BANK BERHAD – Appellant
Versus
RIA REALITI SDN BHD & ORS – Respondent
[Civil Appeal No: S-02(IM)(NCVC)-529-03-2019]
Loan agreements for financing the purchase of native land were found not tainted by illegality; guarantees by directors were enforceable despite claims of unlawful purpose.
Headnote:(A) Sabah Land Ordinance (Cap 68) – Sections 17 and 64 – Appeal by bank against dismissal of claim against guarantors for loan to purchase native lands contravening statutory provisions – Court determined loan agreements not tainted by illegality despite claims, relying on previous judgments. (Paras 9, 28, 41, 67)
Facts of the case: The appellant bank claimed RM5,676,996.72 from respondents who guaranteed loans for purchasing native lands, later deemed illegal in corporate winding-up proceedings. (Paras 1, 4, 6)
Findings of Court: The financing arrangement did not violate statutory provisions; therefore, guarantees were enforceable. (Paras 42, 67)
Issues: Legality of loan agreements in context of native land acquisition by non-natives and enforceability of guarantees executed. (Paras 11, 38)
Ratio Decidendi: Court ruled that bank’s knowledge of illegality not established, allowing appeals against responses of illegality claimed by guarantors. (Paras 41, 42)
Result: Appeal allowed, judgment for appellant, counterclaims dismissed.
JUDGMENT
Introduction
[1] This is an appeal by the bank against the dismissal of its claim against four guarantors who were shareholders and directors of a company that borrowed money to purchase property. The case was summarily determined under O 14A of the Rules of 2012. The action originally included a claim against the borrower and a corporate guarantor. By the time of the hearing, both the borrower and the corporate guarantor had been wound up. The matter proceeded against the four guarantors only. The High Court dismissed the claim of the bank against the four guarantors on the principal ground that the loan was for the purpose of financing the purchase of native lands by a non- native in contravention of s 17 of the Sabah Land Ordinance (Cap 68). We shall first set out the relevant underlying facts of the claim and defence before discussing the legal issues that arise in this appeal.
Appellants' Claim
[2] The first respondent executed a Sale and Purchase agreement dated 2 March 2005 and a Supplementary Agreement dated 5 May 2005 to purchase the remaining term of the subleases of 224 parcels of land held under native title. The vendor in the said sale and purchase agreements was Foo Choo (Sabah) Sdn Bhd which was the original sub-lessee of the said native lands. One of the recitals in the sale and purchase agreements also envisaged the registration of the title of the native lands from the owner (Lian Kee Chu who is a native) to the first respondent's nominee, ie the second respondent who is also a native. The first respondent paid part of the purchase price. The remaining balance of the purchase price was RM2,000,000.00. The first respondent approached the appellant which is a bank for credit facility in the sum of RM2,000,000.00. In June of 2005, the appellant granted credit facilities in the sum of RM2,000,000.00 to part finance the purchase under said Sale and Purchase Agreement and the Supplementary Agreement. The second to fifth respondents who were shareholders and directors of the first respondent executed guarantee agreements referred as "Guarantee and Indemnity" in favour of the appellant to secure the loan. The appellant also procured third party charges on the said native lands and charges on the said sub-leases as well as charges on several non-native lands as security for the loan.
[3] Apart from granting credit facility to finance the purchase under the said sale and purchase agreements, the appellant also provided additional loans in the form of fixed loan and overdraft in the sum of RM5,200,000.00 as working capital between July 2007 and June 2008 for the purpose of development of the land. Again, the second to fifth respondents acted as guarantors for the said loan facility. The appellant procured further third party charges on the titles to the native lands and charges on the sub-leases in question and other non-native lands.
[4] The first respondent utilized the credit facilities granted by the appellant and started repaying the same. However, the repayments came to a halt when the first respondent was wound up on 15 April 2016 pursuant to a dispute between shareholders. The winding up petition was initiated by the fourth and fifth respondents herein (first and third petitioners in the winding up action) and one Khoo Seng Peng on the ground of irretrievable breakdown of relationship between the shareholders. However, the ground that was pursued seriously at the hearing and taken up by the winding up Court was that the sale and purchase agreements in respect of the native lands were illegal as they contravened ss 17 and 64 of the Sabah Land Ordinance (Cap 68). It was argued that the substratum of the first respondent (Ria Realiti Sdn Bhd) failed as its core asset were sub-leases of the native lands purchased through sale and purchase agreements that also provided for sale of native land to a non- native. The respondents in the winding petition (which includes second and third respon
