Export-Import Bank of Malaysia Bhd v Sun Holding (Sun Park Hotel) Co Ltd & Ors [2024] 6 MLJ 931

Court of Appeal (Putrajaya)

Duty of Care of a Banking Institution in the Disposal of Overseas Mortgaged Land

1. The Appellant, granted loan facilities amounting to USD14 million to Rancang Timur Sdn Bhd for the development of a hotel and tourist complex in Donh Chanh, Vientiane, Lao People’s Democratic Republic (PDR).  The financing was secured by, inter alia, a mortgage over the leased land, deeds of assignment over rights under the master agreement and land lease agreement, various security documents, and joint and several guarantees executed by the Respondents.  The Government of Lao PDR consented to the relevant assignments.
2. The loan was subsequently restructured, and an additional facility of USD29,237,359.56 was granted pursuant to a restructuring agreement dated 12 September 2006.  In 2009, the borrower defaulted. The Appellant terminated the facilities and demanded repayment of USD35,852,060.66.  Thereafter, the Appellant exercised its power of sale under the mortgage and related security documents.  The secured property, including the Donn Chanh Palace Hotel, was sold to CAMCE Investment (Lao) Co Ltd for USD36 million and subsequently transferred to a special purpose vehicle partly owned by the Appellant.
3. The Appellant commenced proceedings in the High Court to recover the outstanding sums pursuant to the facility agreement and guarantees.  The Respondents counterclaimed, alleging that the Appellant had breached its duty of care as mortgagee in the disposal of the secured property.
4. Although the Appellant’s claim was initially allowed and the counterclaim dismissed, the Federal Court later remitted the counterclaim for retrial.  Upon retrial, the High Court allowed the counterclaim.
5. The learned High Court Judge held that a mortgagee exercising its power of sale owes a duty of care to the mortgagor, not only to act in good faith, but also to take reasonable care to obtain the true market value of the mortgaged property at the time of sale.  The High Court found that the Appellant had failed to conduct a proper valuation prior to the sale and that the sale price of USD36 million did not reflect the true market value of the secured property.
6. The High Court concluded that the Appellant had breached its duty of care by failing to take reasonable steps to ascertain the true value of the property and by acting without proper regard to the mortgagor’s interests.  The High Court ordered, inter alia, a fresh valuation to determine any loss arising from undervaluation, the release of third-party legal charges, and the assessment of general, aggravated, and exemplary damages, together with interest.
7. The Appellant, being dissatisfied with the decision, appealed to the Court of Appeal.

1. Whether the Appellant has the duty of care in law to ensure the best possible price is obtained whilst disposing the land.
2. Whether, if so, the duty of care has been negated by the contractual provisions entered into by the parties in connection with the loan.

Whether the Appellant has the duty of care in law to ensure the best possible price is obtained whilst disposing the land.

1. The central issue concerned the applicable law governing the alleged tortious duty of care in the disposal of the mortgaged land situated in Lao PDR.  While it was settled by the Federal Court that the Malaysian Courts had jurisdiction to entertain the counterclaim, the question of jurisdiction was distinct from the issue of the proper choice of law.
2. The Court of Appeal held that the High Court erred in applying English common law principles on mortgagee’s duty of care without first determining and applying the correct applicable law.  The secured land was located in Lao PDR and had been mortgaged under Lao PDR law.  Accordingly, the tort, if any, arose in Lao PDR.  The proper approach therefore required application of the double actionability rule embodied in Rule 203 of Dicey & Morris on The Conflict of Laws (12th Ed, 1993), which reflects the principle laid down in Phillips v Eyre (1870) LR 6 QB 1.
3. Under the double actionability rule, a foreign tort is actionable only if: (i) it is actionable as a tort under Malaysian law (lex fori); and (ii) it is actionable under the law of the place where it was committed (lex loci delicti).  This principle was affirmed in Chaplin v Boys [1971] AC 356, though subject to a limited exception where another law has the most significant relationship to the occurrence.
4. The continued applicability of this rule in Malaysia was confirmed in Chan Kwon Fong & Anor v Chan Wah [1977] 1 MLJ 232 (FC), where Raja Azlan Shah FJ (later Lord President) held that a plaintiff seeking to establish liability for a foreign tort must satisfy both limbs of the rule. Similarly, in Attorney General of Hong Kong v Zauyah Wan Chik & Ors and another appeal [1995] 2 MLJ 620 (CA), the Court of Appeal reiterated the binding effect of Chan Kwon Fong.
5. The Court of Appeal further emphasised that the burden of proof lies on the party asserting the foreign tort pursuant to section 101 of the Evidence Act 1950.  This principle was reaffirmed in Hong Yik Trading v Liziz Plantation Sdn Bhd [2017] 5 MLJ 39 (FC) where it was held that the legal burden remains on the party asserting the claim throughout the trial.
6. Crucially, foreign law is a question of fact and must be proved by expert evidence under subsection 45(1) of the Evidence Act 1950.  This was clearly established in The “Lung Yung” & “Thai Yung” Owners & Ors v Sadit Timber Sdn Bhd & Ors [1984] 1 MLJ 29 (FC), where the Federal Court held that Courts cannot take judicial notice of foreign law and that failure to adduce expert evidence on foreign law is fatal to the claim.
7. In the present case, the Respondents adduced no expert evidence whatsoever on the law of tort in Lao PDR.  Consequently, they failed to satisfy the second limb of the double actionability rule.  The limited exception recognised in Chaplin v Boys was also inapplicable, as the Respondents failed to demonstrate any cogent reason to displace the general rule.  In any event, Lao PDR law clearly had the most significant relationship to the alleged tort, given that the land was situated in Lao PDR, the mortgage was governed by Lao PDR law, and the first Respondent was a Lao PDR company.
8. The Court of Appeal rejected the Respondents’ argument that Malaysian law should be presumed to be identical to Lao PDR law. Presumptions in Malaysian law are exhaustively codified in sections 114 and 114A of the Evidence Act 1950.  The Court of Appeal declined to import common law presumptions regarding foreign law as suggested in English authorities such as Ertel Bieber & Co v Rio Tinto Co; Dynamit Act v Rio Tinto Co; Vereinigte Koenigs and Laurahuette Act v Rio Tinto Co [1918] AC 260 and The Parchim [1918] AC 157. As explained in Looi Wooi Saik v Public Prosecutor [1962] 1 MLJ 337, the Evidence Act 1950 is a codifying statute which comprehensively defines the law of evidence in Malaysia.
9. The Court of Appeal also held that the Appellant was not estopped from raising the issue of applicable law on appeal. While generally a new point cannot be raised on appeal, exceptions exist where the issue concerns jurisdiction or the correction of an erroneous order.  This principle was recognised in Chong Thian Fook & Ors v Sarawak Shell Bhd & Ors [2009] 5 MLJ 322 (FC) and Lim Geak Liang v East West Umi Insurance Bhd [1997] 3 MLJ 517 (FC).  The failure to apply the proper applicable law constituted a fundamental error warranting appellate intervention.
10. Accordingly, the High Court committed a material error of law in applying English common law principles without first requiring proof of Lao PDR law and without applying the double actionability rule.  As the Respondents failed to establish that the alleged duty of care was actionable under Lao PDR law, their counterclaim could not succeed.
11. The appeal was therefore allowed on this ground alone.

Whether if so, the duty of care has been negated by the contractual provisions entered into by the parties in connection with the loan.

1. The Appellant contended that, upon the occurrence of an event of default, it was contractually entitled to exercise its powers of sale under various security documents, including the mortgage agreement, deeds of assignment, and the security agreement.  In particular, clause 7(a) of the security agreement conferred wide powers upon the Appellant to realise and dispose of the secured property “at such prices it may deem best” without prior demand or notice (save for notice of sale) and expressly waived rights of redemption to the maximum extent permitted by law.
2. The Appellant argued that this provision effectively negated any duty of care to obtain the true market value prior to disposal of the secured property.  In support of this contention, reliance was placed on CIMB Islamic Bank Bhd v Khairuddin bin Abu Hassan [2021] 2 MLJ 155; [2021] 4 CLJ 375 (CA), where the Court of Appeal held that where contractual documents conferred absolute discretion upon the bank to deal with assigned property, and no contractual requirement of notification was stipulated, no tortious duty of care arose.  The borrower, having willingly agreed to the terms, was bound by them.
3. However, the Court of Appeal declined to accept that this authority conclusively determined the matter.  First, the Appellant’s argument was premised on the assumption that Malaysian law governed the interpretation and effect of the contractual provisions. Such an assumption was untenable.  Clause 7(a) of the security agreement itself referred to “the law of Malaysia and/or Lao PDR … or any other law acceptable to EXIM BANK” thereby rendering the applicable governing law uncertain.
4. Secondly, no expert evidence was adduced on the interpretation of the relevant contractual provisions under Lao PDR law.  As foreign law is a question of fact which must be proved by expert evidence, the absence of such proof was fatal to any definitive conclusion on the contractual effect of the clause.
5. In the circumstances, the Court of Appeal declined to make any finding on whether the contractual provisions operated to exclude or negate a duty of care.  The issue could not be properly determined in the absence of proof of the applicable foreign law governing the contract.

Jurisdiction and choice of law are distinct legal questions.  Although the Malaysian Courts had jurisdiction to hear the counterclaim, that did not automatically mean Malaysian law governed the alleged tort. The proper applicable law had to be determined separately.