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2024 MarsdenLR 1470
FEDERAL COURT PUTRAJAYA
NALLINI PATHMANATHAN, J, HASNAH MOHAMMED HASHIM, J, RHODZARIAH BUJANG, FCJJ
BANK KERJASAMA RAKYAT MALAYSIA BERHAD – Appellant
Versus
GM HEALTHCARE SDN BHD & ORS – Respondent
[Civil Appeal No: 02(f)-62-10-2023 (W)]
A breach of a facility agreement by a bank does not exonerate the principal borrower or guarantors from repayment obligations; such breach results in a claim for damages, not discharge from debt.
Headnote:(A) Contracts Act 1950 - Breach of Facility Agreement - Bank's obligations - The bank's failure to disburse payments to GMH's contractors despite notice of a Mareva injunction was deemed prudent; however, the breach of contract does not exonerate GMH from repayment obligations. (Paras 29, 30, 40)
(B) Counterclaims - Validity - The bank's counterclaim against GMH and guarantors was upheld, as the High Court's conclusions on breach and cause of action were flawed. (Paras 18, 50)
Facts of the case:
The appeal arose from a financing dispute involving a bank's counterclaim against GMH and its guarantors following the termination of a hospital construction project. The bank sought RM24,003,368.53 plus interest after GMH's failure to repay.
Findings of Court:
The court held that the bank did not breach its financing obligations, and thus GMH and its guarantors remained liable for repayment.
Issues: The main issues included whether a bank's breach of contract exonerates the borrower and guarantors, and the validity of the bank's counterclaim against the guarantors.
Ratio Decidendi: The court found that a breach by the bank does not absolve the borrower of repayment obligations, and the bank's counterclaim was valid as it was a separate action.
Result: The appeal was allowed, and the bank's counterclaim was upheld.
(Ex-Tempore)
[1] We are of the unanimous view that the appeal should be and is hereby allowed with costs.
[2] This appeal relates to the relatively standard provision for financing facilities by Bank Kerjasama Rakyat Malaysia Berhad, the appellant, a bank ('bank') to its customer for the purpose of a hospital construction project which subsequently failed. Jabatan Kerja Raya ('JKR') awarded the project to Sunshine Fleet, the main contractor ('SF'), who in turn appointed GM Healthcare Sdn Bhd ('GMH') as its subcontractor for the construction of the remaining and remedial parts of the construction. The earlier subcontractor's contract had been terminated, so GMH was appointed specifically to complete the project.
[3] The current claim in this appeal relates to a counterclaim brought by the bank against, inter alia, GMH and its guarantors for the remaining outstanding balance of RM24,003,368.53 together with 'ta'wid' or compensation at the rate of 1% and interest at 8% from the date of termination or cessation of the hospital project by JKR. The dispute centres on the bank's treatment of contract proceeds paid by JKR via interim payments which were assigned by Sunshine Fleet, the main contractor to the bank.
Salient Facts
[4] GMH is the bank's client to whom a financing facility in the total sum of RM64,130.00 was granted to finance its works in conjunction with the subcontract. Apart from the primary financing facility agreement dated 22 May 2009, several other agreements, namely several asset sale and purchase agreements and joint and several guarantees from the fourth, fifth and sixth respondents as well as a corporate guarantee from the third respondent were also executed on the same date.
[5] As additional security, the bank obtained a third party assignment, namely an assignment of the monies that Sunshine Fleet, the main contractor, was to pay GMH. This meant that once a claim by GMH was certified and the contract proceeds paid by JKR to Sunshine Fleet, the latter would pay such monies into a designated account with the bank known as the project account. The bank would then deduct an amount agreed to by GMH towards repayment of the financing facility and release the balance proceeds to GMH. The amount deductible by the bank from these contract proceeds towards repayment of the banking facilities was 10% (being payment of sale price and 5% for the sinking fund).
[6] To secure these payments, deeds of assignment were executed, namely:
(i) a third party deed of assignment (project account) dated 22 May 2009 ('the May DOA') pursuant to which Sunshine Fleet agreed to absolutely assign the project account monies being sums due to them from JKR, as well as all rights, benefits, title and interests of SF in the project account to the bank. This was in consideration of the bank providing financing facilities to GMH;
(ii) a surat ikatan penyerahan hak (dengan cara sekuriti pembayaran kontrak) dated 16 July 2009 ('the July DOA') pursuant to which Sunshine Fleet similarly assigned to the bank all monies, including rights, benefits, profits and interests paid to SF from JKR.
[7] The project proceeded. As the pattern of events bear out, surplus amounts from the project account were paid, with the agreement of SF and GMH to GMH's account with Asian Finance Bank Bhd or SF's account with Maybank Islamic. Instructions were given to the bank and neither party took issue.
[8] However disputes arose from the 18th to the 24th interim payments. Interim payments for certificates numbers 18, 19, 22 and 23 were paid into GMH's AF account while the proceeds for interim certificates 20 and 21 were paid into Sunshine Fleet's instructions premised on instructions from GMH vide letters.
[9] In 2010, disputes arose between GMH and SF as to the entitlement of surplus amounts for interim certificates number 24 onwards. The bank was not privy to this dispute. The bank duly notified the parties
