JUDGMENT

Gopal Sri Ram JCA:

There are two appeals before us. In the first, Fusing Construction Sdn Bhd ("Fusing") is the appellant. Eon Finance Bhd ("Eon Finance"), Sia Kie Sung ("Sia") and Eon Bank Bhd ("Eon Bank") are the respondents in the first appeal. In the second appeal, Eon Bank is the appellant and Fusing is the respondent. Both appeals arise out of a trial of two suits that were jointly tried at Kota Kinnabalu. One of these was filed in the High Court at Tawau and the other at the High Court at Limbang, Sarawak.

The facts and background relating to these appeals are sufficiently set out in the judgment of the learned judge and we find it unnecessary to regurgitate them here. In a nutshell, the dispute between the parties centres around two pieces of property of which Fusing is the registered proprietor. Eon Finance occupies the property in Tawau (the subject matter of the Tawau suit) and Eon Bank occupies the property in Limbang (the subject matter of the Limbang action).

According to the facts as found by the learned judge, which we accept without hesitation, these two properties were acquired through the assistance of Sia for the purpose of portraying to Bank Negara an impression that Eon Finance and Eon Bank were engaged in a genuine loan transaction. The true picture was that they were buying the respective properties: the one in Limbang and the other in Tawau. The learned judge summed up what actually happened in the following words:

The 1st Defendant, formerly known as Kong Ming Finance, was sometime in May 1983 given approval by the Central Bank to set up a branch in Tawau while the 3rd Defendant, formerly known as Kong Ming Bank Berhad and the holding company of the 1st Defendant, was also allowed to set up a branch in Limbang. The evidence coming out of the defence shows that there was then in existence a directive of the Central Bank that a financial institution must maintain a certain capital adequacy ratio.

Though the details of this requirement are not available, it can be assumed that any deployment of the capital of the 1st Defendant or the 3rd Defendant for purchase of the two properties would adversely affect the said capital adequacy ratio.

It appears that sometime in 1982, the 3rd Defendant employed a scheme to get around this requirement. The scheme involved purchasing property needed to set up a branch of the 1st Defendant or of the 3rd Defendant with funds provided by the 3rd Defendant but making the transaction appear as if the fund was a loan by the 1st Defendant and thus no depletion of capital was apparent. It was sometime in May 1983 that a decision was made to employ the said scheme to purchase properties in Tawau and Limbang in order to set up the branches for the 1st Defendant and for the 3rd Defendant. It was in pursuance of this scheme that money was given to the 2nd Defendant who paid for the purchase of the two properties and had them registered in the name of the Plaintiff. The Plaintiff was then supposed to charge them to the 1st Defendant for a loan to repay the 3rd Defendant through the conduit of the 2nd Defendant. The Plaintiff was also supposed to lease the properties to the 1st Defendant and the 3rd Defendant respectively and then to use the rentals to repay the loan secured by the charges over the two properties.

As events turned out, the charges over the two properties were not executed through the properties were purchased and registered in the name of the Plaintiff and the leases created.

The learned judge found no difficulty in appreciating the true nature of the transaction. For this is what he said about it:

In my view it is not difficult to see why.

One reason was to disguise the scheme by employing as circuitous a path as possible to channel the fund for the purchase of the properties so as to give it some semblance that the fund was a loan to the 2nd Defendant rather than for buying the properties.

Despite this finding the learned judge came to the conclusi