Monday, September 24, 2007

How a Fairuz decision in favour of a Berjaya Group man affected the entire Malaysian banking and finance industry

From the Asian Wall Street Journal,30 September 1992.Story by Stephen Duthie :

Malaysia's Supreme Court is grappling with an unusual, and potentially precedent-setting loan-default suit that threatens to revamp lending procedures of the country's financial institutions and to jeopardize their legal efforts to recover nonperforming loans.
The suit involves Bank Bumiputra Malaysia Bhd. and a little-known property developer, MAE Perkayuan Sdn. Bhd. Bank Bumiputra, the country's second-largest bank, filed suit in 1985 against the developer and its chief executive for failing to service interest payments on a M$4.5 million (US$1.8 million) overdraft facility. Bankers and their legal advisers had assumed the legal action was a straightforward case of a borrower defaulting on a loan.

That scenario quickly changed, however, when MAE Perkayuan and its chief executive, Datuk Mohamed Anuar Embong, countersued, claiming breach of contract. Few lawyers took the claim seriously, until the High Court Judge Ahmad Fairuz Sheikh Abdul Halim in the city of Kuala Trengganu ruled in favor of MAE Perkayuan and Datuk Anuar.
At stake for Bank Bumiputra is a M$36 million loss, including M$3.9 million in funds withdrawn from the overdraft facility, nonpayment of interest since mid-1983, and nearly M$20 million in damages awarded by the High Court to MAE Perkayuan for loss of future profit and damages to the reputation of the company's shareholders. Besides Datuk Anuar, MAE Perkayuan's other shareholder was identified in court as the Sultan of the east coast state of Trengganu, who wasn't named in the suit.

But the potential stakes are higher for Malaysia's entire financial system. Kuala Lumpur-based lawyers say that an increasing number of counterclaims -- at least a dozen are believed to be pending -- are being filed by borrowers facing suits from banks seeking repayment. And most are citing Judge Fairuz's ruling as the basis of their claims, the lawyers add.

MAE Perkayuan was represented by Gopal Sri Ram.

And who is Datuk Mohamed Anuar Embong:

Environmentalists criticizing the development of a Malaysian island resort plan to challenge a proposal to sell the project to Malaysia's Berjaya Group Bhd. by raising the potential financial burden of environmental complaints at a shareholder meeting.
But Berjaya's Tan Sri Tan, one of Malaysia's more active entrepreneurs, has cultivated robust political connections, and the resort project enjoys the support of the royal family of Trengganu, the state that incorporates Pulau Redang. The executive chairman of Redang Island Resort, Datuk Mohamed Anuar Embong, is associated with the Trengganu royalty.

(Source:Berjaya Faces Environmental Challenge
AP-Dow Jones News Service,17 June 1992
The Asian Wall Street Journal)

According to lawyers involved in the case, the Supreme Court yesterday largely upheld a lower court decision which ruled in favour of an alleged loan defaulter, after it had countersued Bank Bumiputra Malaysia Bhd on grounds of breach of contract.

The Supreme Court, comprised Lord President Tun Abdul Hamid Omar, Datuk Edgar Joseph Jr and Tan Sri Eusoff Chin.

"It does set a dangerous precedent," said Tommy Thomas, a senior Kuala Lumpur lawyer representing state-owned Bank Bumiputra, the country's second largest commercial bank.

Echoing a widely-held view by local bankers and corporate lawyers, Mr Thomas said the judgment could open the floodgates to more counter claims against financial institutions.

Mr Thomas said the Supreme Court's three-member panel of judges unanimously upheld the lower court's decision that Bank Bumiputra had breached its contract with the developer. But several aspects of the High Court's ruling were overturned by the Supreme Court.

The Supreme Court cut down damages awarded by the High Court to M$5.3 million. Mr Thomas said MAE Perkayuan was also ordered to pay Bank Bumiputra a total of M$4.3 million, made up largely of the amount drawn down from the overdraft facility, including interest charges.

This, he said, leaves the bank with an outstanding liability of about M$1 million in the case.

The Supreme Court also threw out an award of M$5 million granted by the lower court to the Sultan of Trengganu, which MAE Perkayuan identified as a shareholder of the company.

"It wasn't a total victory, but a substantial victory for Bank Bumiputra in this case," said Mr Thomas when commenting on the judgement read to lawyers from both parties by the Supreme Court's Registrar in chambers.

By Leslie Lopez,8 April 1993,Business Times Singapore); NO GROUND IN LAW TO EXEMPT LOAN REPAYMENT',By S. Sivaselvam,13 April 1993,Business Times)

1 comment:

yok hoong said...

being ax ex-banker, when the decision was given in favour of the Borrower, my jaw almost dropped off. come on, if a borrower defaults, the right of the banks to recall the facility is alienable. else, borrowers can at will default with no consequence and all hell will break loose.