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MBF FINANCE BHD V. NGOI THIAM WOH
HIGH COURT MALAYA, IPOH
JAMES FOONG J
[CIVIL SUIT NO: 22-68-99]
9 AUGUST 2001
JUDGMENT
James Foong J:
Introduction
The plaintiff is a licensed finance company. It gave a loan of RM232,650 to
the defendant on 19 November 1994 to finance the purchase of a unit of 'condotel'
in Penang known as "Park Paradise of Penang" (Park Paradise). This loan was
to be repaid over 15 years at a monthly installment of RM12,555.67.
A condotel is, I am told, a word coined recently in the property market to
describe a hotel building with units of room or suite that are sold by the
developer to members of the public. A purchaser of such unit has an option
to either reside in the unit he purchased or rent it back to the developer
or a hotel management company who would operate a hotel in the building.
This unit will then be treated like a hotel room to be let out to paying
guests. The primary advantage of this scheme is that the developer needs not
bear the entire building cost for building the hotel and the purchaser of a
unit would receive the benefit of an agreed rental from the developer or
hotel management company. Certain arrangements can also be made with the
developer or management company for the owner to reside in his own unit
either occasionally or on long term basis with certain consideration.
The developer of Park Paradise condotel is a company known as MBf Properties
Services Sdn Bhd (MBf Properties). It sold a unit consisting of a
one-bedroom suite bearing no. 4 on the 5th floor (the said property) in the
said condotel to the defendant.
For this purchase, the defendant signed a sale and purchase agreement with
MBf Properties. As security for the loan taken by the defendant from the
plaintiff, this sale and purchase agreement was assigned to the plaintiff.
Besides, the defendant also executed a loan agreement (the loan agreement)
with the plaintiff on 19 November 1994.
The management company of Park Paradise was MBf Hotel Sdn Bhd (MBf hotel)
with whom the defendant signed a sub-lease agreement for his property.
The loan granted by the plaintiff was disbursed to MBf Properties. Initially
after the project was completed the defendant received his rental returns
from MBf Hotel. Though there were occasional delays in his monthly
installments, generally, the defendant kept up with his repayment
installments until August 1997. From then on he ceased to pay.
The Plaintiff's Claim
Due to this default, the plaintiff in this suit claims from the defendant:
(a) a sum of RM260,635.47 calculated up to 9 September 1998;
(b) interest of 2% above base lending rate (BLR) of 10.75% or whatever is the
prescribed rate on RM215,798.65 from 10 September 1998 till date of
settlement;
(c) interest of 1% on RM260,635.47 from 10 September 1998 till date of
settlement; and
(d) cost.
The Defence
The defendant raised 11 defences in his statement of defence. Before I set
them out in detail, it is necessary to give a short account of what
transpired after the Park Paradise was completed. As stated, initially MBf
Hotel was able to render to the defendant rental income derived from the
said property. But subsequently, it failed to deliver resulting in the
defendant bringing a suit against MBf Hotel. Judgment was obtained against
MBf Hotel but compensation proves fruitless since MBf Hotel has only a paid
up capital of RM2. Without the rental income the defendant maintains that he
is unable to meet the repayment installments.
For this, he now blames the plaintiff, MBf Properties and MBf Hotel for his
woes. He accuses these three companies of conspiring to misrepresent and
fraud him into firstly, buying the said property with an assured income
sufficient to repay the loan. Secondly, of entering into the loan agreement
based on such assurance. Relying basically on these, the following are the
defendant's defences:
1. The amount claimed by the plaintiff is not correct.
2. The interest so claimed thereon is not in compliance with what is stated
in the loan agreement.
3. There is no demand by the plaintiff for the sum claimed.
4. The plaintiff's letter dated 8 August 1998 failed to specify the breach
committed by the defendant.
5. The plaintiff had not given the defendant notices for the variation of
interest rate.
6. The defendant was compelled to pay interest on the loan prior to the
granting of a certificate of fitness to Park Paradise.
7.The plaintiff through its manager, one Siew misrepresented to the
defendant that a reputable, experienced and international company will be
appointed to manage the said property and rental of the said property,
collected by the manager will:
(i) guarantee an 8 % per annum return on the investment as well as;
(ii) providing a sufficient amount to repay for the loan installments and;
(iii) if there is a shortfall, the defendant just needs to top it up.
By these representations, a collateral agreement exists between the
plaintiff and the defendant which estopped the plaintiff from making this
claim.
The defendant was induced into the loan agreement by a conspiracy between
the plaintiff, MBf Properties, MBf Hotel on the misrepresentations stated
above.
Conspiracy by the plaintiff with MBf Properties, and MBf Hotel to defraud
the defendant into purchasing the said property and obtaining a loan from
the plaintiff.
The plaintiff had wrongly and negligently advised the defendant thereby
breaching its duty of care to the defendant.
The plaintiff had breached its fiduciary duty towards the defendant.
Analysis
I believe that many of the defences listed above could be amalgamated and
with some deleted for want of particulars and irrelevancy. This inadequacy
will be exposed in the analysis below.
I begin with item number four of the defence. This refers to a letter dated
8 August 1998 which the defendant claims that the contents fail to specify
the breach committed by the defendant. But no such letter is ever mentioned
in the statement of claim and neither is such a letter ever referred to
throughout the trial. My guess is that the defendant has the date mixed up
with, probably, another letter from the plaintiff. The defendant at trial
must have detected such error. But if so, why was no application made by the
defendant to amend the pleadings to correct this? Since it remains I have no
alternative except to dismiss it on the ground that it is unsupported by
evidence.
Next is item six of the defence. This relates to payment of interest on the
loan before certificate of fitness was issued for the condotel. Again there
is absolutely no evidence advanced by the defendant to support this
contention. Similarly this has to be rejected. On similar vein, this also
applies to item two of the defence where the defendant forwarded no evidence
that interest claimed by the plaintiff in this suit is not in compliance
with the terms of the loan agreement.
Regarding the accusation of the plaintiff for not informing the defendant on
the increase of interest rate in item five of the defence, this is
demolished by the various letters sent to the defendant informing of changes
made to the BLR which in turn affected the amount of interest charged on the
defendant's loan though not all such letters were produced by the plaintiff
but those tendered are sufficient to imply a probability that all such
letters were sent to the defendant whenever necessary.
On the claim of negligence in item 11 of the defence, I find no particulars
of negligence elaborated. It is not enough for the defendant to merely
allege that the plaintiff was negligent. He must set out facts to show the
alleged negligence was due to a breach of duty of care owed by the plaintiff
to the defendant. In short, it ought to state the facts upon which the
supposed duty was founded and the breach which the plaintiff is charged -
see the case of West Rand Central Mining Co v. R[1905] 2 KB 391 at 400. This
means that sufficient particulars must always be given in the pleadings to
show precisely in what respect the plaintiff is negligent and the detail of
the damage sustained - see Bullen & Leake & Jacob's, 'Precedent of
Pleadings', 13th edn at 679. Likewise, this applies to the claim for breach
of fiduciary duty. There is no divulgence in what capacity was the plaintiff
to the defendant to justify the creation of such a duty and what was the
nature of this duty breached.
I shall now deal with item seven of the defence. This involves allegation of
misrepresentations made by the plaintiff's manager, Siew, to the defendant.
There is no necessity to restate these representations since they are
disclosed in the earlier part of this judgment under defences. Towards these
assertions, Siew has categorically denied them. He maintains that he has not
even met the defendant until the commencement of the trial of this case. The
defendant's application for the loan to finance the purchase of the said
property was processed by his staff and approved by the regional manager. I
tend to believe him on this point. The plaintiff is a finance company.
Though it was asked to lend support to this project it was not the
developer. In fact the plaintiff was not even exclusive end-financier. There
were other financial institutions providing loans to other purchasers of
units in Park Paradise. Under these circumstances, why then should Siew hold
himself out to make such representations. Such representations were more
likely to be made by the developer rather than the financier. I think the
defendant was attracted and convinced to purchase the said property by a
brochure given to him at the time of purchase rather than by any oral
representation made by anyone. This brochure contains all the
representations he alleged. This includes: a reputable and internationally
connected management company would be appointed, and the 8% annual net
rental yield. But this brochure was not prepared or printed by the plaintiff
and neither was there evidence to implicate the plaintiff was the one who
gave this booklet to the defendant.
I shall now turn to defences number eight and nine. To succeed in a claim of
conspiracy, the defendant must prove that there was an "agreement of two or
more to do an unlawful act or to do a lawful act by unlawful means" - see
the case of Mulcahy v. R[1868] LR 3 HL 306 at 317. The unlawful act accused
of must be in reference to the misrepresentation and fraud alleged to be
perpetuated on the defendant by the three parties accused of: plaintiff, MBf
Properties and MBf Hotel. But there is no evidence to support this element
of an agreement between these parties to do such unlawful acts. Though these
three companies bear similar initials - "MBf' before their names but this
does not naturally mean that they were all manned by the same officers whose
thoughts and actions in one would be said to be similar in the other
company. The defendant had claimed that each of these companies held shares
in the other. MBf Properties was a wholly owned subsidiary of MBf Holdings
Bhd and this public limited company in turn held 10,651,216 shares in MBf
Capital Bhd which possessed 1,266,029,100 shares in the plaintiff. But such
information proves very little except, at most, to show cross shareholdings.
Without knowing what percentage these shares amount to in the total paid-up
capital in each entity, it is difficult to infer that one unit is in control
of the other to imply common intention. Further, except for the RM2 paid up
capital of MBf Hotel there is no information as to who owned these shares,
let alone who were the officers in charge. Thus when there is a failure to
establish an agreement of the three parties to do an unlawful act, the
defences number eight and nine must fail.
The next defence to be dealt with is number three. This concerns the notice
of demand. The only notice relied on by the plaintiff to make this claim is
a letter dated 2 June 1998 - exh. P7. But this is only for a demand for
RM37,991.18 which is made up mainly of an aggregate of outstanding
installments for the months of July 1997 to April 1998. It is not a demand
for the full outstanding principle sum and interest due thereon by default
under cl. 6.01(b) of the loan agreement which says: "The whole of the said
loan and other moneys hereby secured shall become immediately repayable ...
if the Borrower shall default in the payment to the lender of any money
payable under the provisions hereof". In an attempt to overcome this short
coming, Davidason, counsel for the plaintiff, argues that it is not
necessary to specify the actual amount due in such a notice of demand. To
support this contention he cited the judgment of Jeffery Tan J in Bank
Pembangunan (M) Bhd v. Limpo Sdn Bhd[1997] 1 LNS 435; [1998] 4 MLJ 433 where
at p. 438 the learned judge, after careful consideration of all authorities,
expounds as follows:
Hence, the essential principle, with regard to a debtor or guarantor, is the
debtor or guarantor be given reasonable opportunity to comply with the
demand before the creditor can enforce or realise the security rather than
that demand must specify the precise amount of the debt. In determining
whether the debtor/guarantor has had such opportunity, it would be relevant
to take into account the debtor's knowledge, lack of knowledge or means of
knowledge of the amount due and the information which the creditor has
provided in this respect, including the respond which he made to any inquiry
by the debtor. A demand is still a proper demand, even if it does not
specify the precise amount of the debt. (emphasis added).
I do not disagree with this proposition provided the claim in the
proceedings and that of the letter of demand is of a similar nature and
character. But here, the claim of the plaintiff in this proceeding is of a
different nature and character from that of a letter of demand. In this
proceeding the claim is for the entire outstanding sum due under the loan.
It is no longer for installments as the letter of demand in exh. P7
requested. As Justice Walton in Esso Petroleum Co Ltd v. Alstonbridge
Properties Ltd & Ors[1975] 3 All ER 358 says at 367:
(this) changes the nature of liability: it turns a liability to pay by
installments into a liability to pay the whole at once. Under these
circumstances, in my judgment, even as against the principal debtor, a
demand antecedent to the issue of the proceedings is a necessary
prerequisite of the whole cause of action. I would put it this way: that
where there is a pre-existing obligation to pay the debt by installments,
the demand that it be paid in one lump sum is an act which radically changes
the nature of the debtor's obligation, and so is an essential ingredient of
any cause of action to recover the lump sum.
I subscribe to this approach. The demand of 2 June 1998 is never for the
full balance sum due under the loan as is permitted under cl. 6.01(b) of the
loan agreement. It was only for a number of outstanding installments due at
that material time. This is definitely different in nature and character to
the former. And when the nature of the liability is of a different form,
like in this case, where it is a claim for the full balance sum rather than
just for outstanding installments, then the prerequisite under cl. 2.09 of
the loan agreement needs to be complied with. This is a notice of demand to
be sent to the defendant requiring him to make satisfaction within seven
days from date of such notice. Such notice of demand is a sine qua nonand
failure to comply, and failure to comply, as is the situation here, is fatal
to this plaintiff's claim.
I shall now deal with the last of the defendant's defences - item 1. This
disputes the correctness of the amount claimed. Regarding this, it is
relevant to firstly refer to the first prayer in the statement of claim.
There the plaintiff has inserted a sum of RM260,635.47 as the principal
amount due by the defendant as at 9 September 1998. This is similar to the
grand total as set out in the particulars contained in para. 6 of the
statement of claim. But there is an item in this particulars showing:
"interest for late payment". It amounts to RM4,732.79. This contradicts the
amount for this same category in para. 8 of the statement of claim. There it
is printed: "RM5,328.62". This is very curious when the plaintiff offered no
explanation for this discrepancy. Secondly, after intensive cross
examination on the accuracy of the accounts, Siew, the plaintiff's former
manager suddenly in re-examination announced that a sum of RM59,726.64 has
been written off by the plaintiff from the outstanding sum due by the
defendant under the loan agreement. This is exceedingly strange when no
prior disclosure was made and reasons given for this deduction. This
immediately attracts adverse inference to the genuiness and correctness of
the amount claimed. Question is raised as to whether such write off was
tailored to suit the amount claimed in this action. Undoubtedly such
deduction is generosity but rather uncommon in a licensed finance company
when no request was made by the defendant. Further, there is also no
indication from the plaintiff towards which provision of the debt was this
reduction made. Was it towards writing off interest or the principal debt?
This is pertinent since the plaintiff is challenging the accuracy of the
amount due by him under the loan agreement. To these, the plaintiff's reply
is that such windfall should not be questioned; the defendant should be
grateful that such a substantial sum had been reduced from his outstanding
account.
I disagree with this approach that if such a bonanza happens to leap onto
the lap of the defendant he should remain silent. This is not only arrogant
but cast grave doubt on the accuracy of the amount due on the entire sum as
claimed. For this, I am not convinced that the amount as claimed by the
plaintiff is the correct sum due under the said loan.
Findings
Based on my reasons expressed above, I hereby dismiss the plaintiff's claim
with cost. |
