Citibank Berhad V Shaharuddin Bin Ibrahim

  

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR

 

(BAHAGIAN DAGANG)

 

GUAMAN NO: D2-22-829-2005

 

ANTARA

 

CITIBANK BERHAD

 

PLAINTIF

 

DAN

 

SHAHARUDDIN BIN IBRAHIM … DEFENDAN

 

DIDENGAR BERSAMA GUAMAN NO: D2-22-830-2005

 

CITIBANK BERHAD

 

PLAINTIF

 

DAN

 

MOHD PAHMI @ MOHD FAHMI ISHAK … DEFENDAN

 

ALASAN PENGHAKIMAN OLEH YANG ARIF HAKIM DATO’ TENGKU MAIMUN BINTI TUAN MAT

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

These two civil suits were heard together. Except for the difference in the amount claimed by the plaintiff against the defendants for monies due and owing under the Temporary Overdraft Facility (TOD), both cases involved the same facts and issues. The defendants though admitted taking the TOD facility, denied liability essentially on the ground that the contract between the plaintiff and the defendant is avoided for undue influence. It is the case for the defendants in both cases that one Kenneth Chow @ Wira Tjakrawinata (KC), the Corporate Advisor of Milan Auto (M) Sdn Bhd (MASB), had exercised undue influence on them to apply for the TOD from the plaintiff which facility was not for the benefit of the defendants but for MASB and/or KC and that the plaintiff, through its officer Mr. James Lim was aware of this.

 

Suit No. D2 – 22 – 829 – 2005

 

The defendant was a President and Chief Executive Officer of Energro Berhad (Energro) and a former CEO of KUB Malaysia Berhad. Energro was a company which was part of the restructuring scheme of Omega Holdings Berhad undertaken by MASB. After the completion of the restructuring exercise and listing of Energro shares on the Main Board of Bursa Malaysia, MASB will become the single largest shareholder of Energro. The defendant was neither a shareholder nor a director of MASB but he was a good friend of KC.

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

Vide a letter dated 14.4.2004 addressed to the plaintiff, the defendant applied for a TOD of RM500,000.00 for three (3) months to meet his business needs. The defendant did not have a current account with the plaintiff but he was an existing Platinum credit card holder of the plaintiff with a credit limit of RM200,000.00. The plaintiff approved the application and the defendant was notified of the same vide a letter dated 22.4.2004. The defendant was also informed that the said TOD would expire on 23.7.2004.

 

On 29.4.2004, the defendant filled up and executed an Application for Funds Transfer Form and instructed the plaintiff to transfer RM500,000.00 from his TOD account to MASB’s Maybank account no. 04301-307535. Subsequent to the disbursement of the TOD, payments were made towards the defendant’s TOD account totaling RM143,820.00.

 

Vide a letter dated 20.7.2004 the defendant requested for an extension of the TOD for two months until 23.9.2004. The extension was granted by the plaintiff and the defendant was informed by a letter dated 14.9.2004. The TOD was subsequently further extended until 23.10.2004. Thereafter no payments were received by the plaintiff. By their solicitor’s letter dated 29.11.2004 the plaintiff demanded payment of the amounts outstanding under the TOD but the defendant has failed to pay. Vide the writ of summons dated 13.6.2005, the plaintiff is claiming against the defendant for RM374,579.00 as at 20.11.2004 with interest and costs.

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

THE EVIDENCE

 

For the plaintiff, two witnesses testified. James Lim (PW1), the approving authority for the TOD testified that the approval for the TOD was granted after taking into consideration the defendant’s professional and financial standing. The defendant had an annual income of RM410,000.00 which means he has liquid assets to repay the facility, his CCRISS report was excellent and CTOS search was negative. PW1 testified that his credit judgment says that the defendant has a very low risk of defaulting and so he approved the TOD. PW1 also testified that he did not know the purpose of the TOD and he denied having any knowledge of the close relationship between the defendant and KC.

 

PW2 is the officer who reviews the TOD application and who countersigned the approval by PW1. His testimony is consistent with that of PW1 insofar as the process for approving the TOD is concerned. It was also the evidence of PW2 that once the TOD was approved, it is up to the defendant to do anything with the money and the plaintiff would not ask why the defendant would want to transfer the monies to MASB.

 

The evidence of the defendant (DW1) is that he and KC were good friends. He said he was approached by KC to assist MASB to raise funds. Although he knew that MASB would be the beneficiary, DW1 said he applied for the TOD based on his trust and confidence in KC. DW1 further testified that in his capacity as the President and CEO of Energro, he was subordinate to KC and since Energro was

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

dependent on MASB’s goodwill and financial backing, he felt beholden to comply with the wishes of KC. He gave evidence on how KC brought him to meet PW1 at the plaintiff’s Headquarters at Jalan Ampang, Kuala Lumpur and that PW1 had knowledge of the circumstances of the application for the TOD. DW1 also said that the plaintiff had approved the TOD based on incorrect and fabricated information.

 

DW1 further said that he did not benefit at all from the monies in the TOD as on 29.4.2004 all the facilities in the TOD amounting to RM500,000.00 were transferred directly to MASB’s account at the Malayan Banking Berhad. It was also his evidence that KC has given an express undertaking that he (KC) and/or MASB would undertake full responsibility to repay any sums due under the TOD.

 

DW1 also testified that payments into the TOD account totaling RM143,820.00 were not made by him. The plaintiff, said DW1, had not furnished him with an independent legal advice, which they should, as he was not clear on the repercussions of taking a loan on behalf of a third party. It was further the evidence of DW1 that based on the guarantee that KC had given him in respect of the TOD, he had filed a Writ of Summons against KC on 27.10.2005 and judgment in default was obtained against KC dated 14.4.2006 for several relief which includes the amount of RM374,579.00 with interest and costs claimed by the plaintiff in the instant suit against him.

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

CIVIL SUIT NO. D2 – 22 – 830 – 2005

 

Vide the statement of claim, the plaintiff is claiming for the sum of RM476,388.95 as at 30.11.2004 with interest and costs. The same evidence was led by the plaintiff’s witnesses as in the case of D2 – 22 – 829 – 2005. The defendant herein (DW2) was a Senior Vice President of Energro. He was also the former Human Resource director at UMW Holdings Bhd. He was a Platinum Visa credit card holder of the plaintiff since 1999 with a credit limit of RM50,000.00. He was neither a shareholder nor a director of MASB.

 

DW2 testified that DW1 who was his close friend had introduced him to KC and that he was subordinate to KC in KC’s capacity as the Senior Corporate Advisor of MASB. The testimony of DW2 on the circumstances surrounding the application of the TOD facility was similar to the evidence of DW1. DW2 said he felt that he had to take the TOD as his continued employment with Energro depended on it but he contends that he is not liable for the loan as it was not for his benefit and that he should have been informed of the consequences of taking a loan on behalf of a third party. DW2 had also filed a suit and obtained judgment on 30.1.2007 against KC pursuant to the guarantee given by KC for the TOD.

 

FINDINGS

 

I will take both civil suits together. Parties formulated several issues but to my mind what needs to be decided basically is

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

whether the defendants are liable to the plaintiff for the amounts owing under the TOD. Before deciding this issue, a question to be answered for both the civil suits is whether there was an undue influence exercised by KC on the defendants and whether the transaction between the plaintiff and the defendants procured thereby is liable to be set aside.

 

For the defendants it was argued that a transaction between two parties in a relationship of trust and confidence may be set aside if the transaction is a result of an abuse of the relationship. Learned counsel cited section 16 of the Contracts Act 1950 and the case of Tengku Abdullah Ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah & Ors [1996] 2 MLJ 265 in support thereof.

 

Section 16 of the Contracts Act 1950 provides:-

 

“16. (1) A contract is said to be induced by “undue influence” where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

 

(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another –

 

(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

(b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

 

(3) (a) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that the contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.”

 

Learned counsel for the plaintiff submitted that section 16 of the Contracts Act 1950 envisages undue influence to only be applied within the context of the parties to the contract. In this case the defendants have themselves stated that the alleged pressure arose from KC who is not a party to the contract.

 

In Tengku Abdullah ibni Sultan Abu Bakar, Gopal Sri Ram JCA (as he then was) said at pg 310:-

 

“Undue influence, like all other equitable doctrines, is an extremely flexible concept. Subject to policy considerations, the categories in which it may operate are therefore not closed. For this reason, it is important to apply the doctrine, as housed in s 16 of the Contracts Act 1950 to varying fact patterns in a flexible manner. This is to be done by interpreting s 16 in a broad and liberal fashion. Being a remedial provision – in the sense it is designed to relieve obligations – it should, in our judgment, be

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

given a liberal interpretation. Even in cases which are not stricto sensu contractual in nature, this section may be resorted to by analogy.”

 

At pg 294, the learned judge had also said:-

 

“Flexibility of approach is the hallmark of equity, for when we deal with the principles governing equitable intervention, we enter into a domain comprising not rigid rules but broad and liberal doctrines that are aimed at achieving a just result according to the facts of a particular case.”

 

It was the evidence of both the defendants that they regarded KC as their superior; that the application for the TOD of RM500,000 each was handed in by KC to PW1; that KC introduced both the defendants to PW1 on 19.4.2004 and on 29.4.2004 PW1 met with the defendants and KC and escorted them to the counter to fill up the application form to transfer the sum of RM500,000.00 directly to the MASB’s account. It was also the evidence of the defendants that PW1 was personally behind the counter and instructed the counter girl to initiate the inter bank transfer from the defendants’ TOD account to MASB’s account. The evidence, submitted learned counsel for the defendant, has established a relationship of mutual trust and confidence between KC and the defendants giving rise to presumed undue influence exercised by KC on the defendants.

 

Pursuant to section 16 of the Contracts Act, if at all the defendants have established undue influence, the person who bears the burden to rebut that is KC. KC is not a party to this

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

proceeding. PW1, the person who is alleged to have notice of the undue influence, remains unshaken in cross-examination. He maintained that he did not know the purpose of the TOD and that he would not approve a TOD just because a person is personally acquainted with him. His approval was based on the internal memo raised by one Encik Azlan bin Mansol. Further, there is a check and balance at the bank and PW2 the credit signer who reviews the approval had also testified on the regularity of the approval of the TOD. I do not find any evidence which establishes the fact that PW1 knew that KC had exerted undue influence on the defendants. The transaction, on the face of it and on the evidence adduced, does not appear to me to be unconscionable.

 

Learned counsel for the defendants submitted that the approval and extension of the TOD was inexplicable. Learned counsel also highlighted the speed at which the approval for the TOD was given and several inaccuracies in the documentation prepared by the plaintiff for the approval of the TOD. In my view these points would be material if the defendants’ case is that they never applied for the TOD facility, which is not so. Given that the approval for the TOD was made pursuant to the defendant’s application, the speed, the inaccuracies of the documentation and the circumstances surrounding the application would not render the transaction void. I find on the evidence that the application was properly approved.

 

Apart from the fact that KC brought the defendants to see PW1, there was no other evidence led to show that KC exploited the

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

trust to get the defendants to apply for the TOD. In fact KC had acknowledged his responsibility for the TOD by executing the letter of guarantee in favour of the defendants. In the circumstances it cannot be said that KC had used his position to obtain an unfair advantage over the defendants or that the application by the defendants for the TOD was a result of an abuse of the relationship.

 

In support of the defendants’ case, learned counsel had cited inter alia, the case of Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144. In Burch, one Mr. Pelosi was the alter ego of his company. The company ran a small business and had an overdraft facility with its bank. The overdraft was operating within an agreed limit of £250,000. Mr. Pelosi asked the bank to increase the limit of the facility to £270,000. The bank agreed but required additional security. Mr. Pelosi requested Miss Burch, a junior employee of the company with a modest wage to give an unlimited moneys guarantee. Miss Burch was neither a director nor a shareholder in the company. Her guarantee was supported by a second charge on her home, a small flat of suitably modest value. The guarantee was unlimited in time and amount and she has not taken independent legal advice.

 

The situation is different in the instant case. Both the defendants are professionals of high standing. Both held high offices in a public listed company. The application was made by the defendants personally. They requested for the extension of the facility and they knew the purpose of the loan. And KC had given them a letter of guarantee. The defendants’ contention that they

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

understood the repercussions of taking a loan for themselves but they needed independent legal advice to inform them of the consequences of taking a loan for a third party is untenable given their standing. It is too simplistic an approach to say that because it was not for their benefit, they will not be liable. This is not a case where the defendants are ignorant of the consequences of their act. The defendants certainly knew their responsibilities towards the bank and understood their rights against KC. This is proven by the fact that even before this matter proceeded to trial, the defendants had filed a suit and had obtained judgment against KC in respect of the guarantee.

 

Besides, it is not totally correct to say that the TOD was not for the benefit of the defendants. DW1 had said that the purpose of the TOD was to assist MASB in acquiring monetary funds and that Energro was dependent on MASB’s financial backing. DW2 said that he felt that he had to take on the financial burden of taking the TOD as his continued employment with Energro depended on it. Hence the monetary funds taken for the benefit of MASB would also be for the benefit of Energro and the financial stability (or instability) of Energro would have some repercussion on the employment of the defendants.

 

The fact that part payments were made towards the defendants’ TOD account by third parties and not by the defendants themselves does not, in any way, affect the liability of the defendants as the borrower.

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

Looking at the evidence in totality, it is my view that the defendants have not proved their assertion that KC had exercised undue influence on them. On the facts, there is no manifest disadvantage to the defendants. The defendants had enforced the guarantee and had obtained judgment against KC. A just result could only be achieved if the defendants pay the plaintiff the amount owing under the TOD facility that they have applied for. The plaintiff’s claim against the defendant in suit No. D2 – 22 – 829 -2005 and D2 – 22 – 830 – 2005 respectively is allowed as prayed with costs.

 

(DATO’ TENGKU MAIMUN BINTI TUAN MAT)

 

HAKIM

 

MAHKAMAH TINGGI MALAYA BAHAGIAN DAGANG KUALA LUMPUR

 

Dated 31st May 2010

 

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Alasan Penghakiman No: D2-22-829 Didengar Bersama D2-22-830-2005

 

Encik Alvin Julian bagi pihak Plaintif Tetuan Shearn Delamore & Co. Peguambela dan Peguamcara 7th Floor, Wisma Hamzah-Kwong Hing Leboh Ampang 50100 Kuala Lumpur.

 

Encik Kevin Danker bagi pihak Defendan Tetuan Danker & Co.

 

Peguambela dan Peguamcara Suite 602, Tingkat 6 Wisma Lim Foo Yong No. 86, Jalan Raja Chulan 50200 Kuala Lumpur.

 

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