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Case Update: Federal Court decides on the right to monies in debtor's account

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CONTRACT
Assignment — Absolute assignment — Right to monies in debtor’s account –Debtor had assigned all rights to said monies to Bank — Creditor claimed Bank held said monies on constructive trust for itself — Whether an absolute assignee under a letter/contract of assignment executed earlier in time or a creditor entitled to payment in respect of goods sold and delivered, was entitled to monies in a bank account in the name of their common debtor — Civil Law Act 1956, s 4(3)

Sabah Development Bank Berhad v Petron Oil (M) Sdn Bhd
[2020] 2 MLRA 403, Federal Court
- see the grounds of judgment here

Facts This was an appeal by the appellant, Sabah Development Bank Berhad (‘the Bank’) who was the absolute assignee of all proceeds of monies in the bank account of one Swakaya Sdn Bhd (‘Swakaya’) by reason of a sum of RM85 million loaned to Swakaya, while the respondent, Petron Oil (M) Sdn Bhd (‘Petron’) was the creditor, by reason of goods sold and delivered on behalf of Swakaya to Sabah Electricity Board (‘SESB’). The High Court allowed Petron’s claim against the Bank premised on the basis that the Bank held the monies paid by SESB in its favour as ‘trustee’ or ‘constructive trustee’ and was liable to Petron for the same. On appeal, the Court of Appeal affirmed the decision of the High Court. Hence, the present appeal.

Issues The main issue is whether an absolute assignee under a letter/contract of assignment executed earlier in time or a creditor entitled to payment in respect of goods sold and delivered, was entitled to monies in a bank account in the name of their common debtor.

Held In allowing the appeal, the Federal Court held that it was apparent from the use of the words “assigns absolutely” in the clauses specified in the contract for the assignment of proceeds in the instant case, that the assignment of the chose in action, ie the right to the proceeds paid into the project accounts, was an absolute assignment and not by way of charge only. In other words, the legal entitlement to the contract proceeds, as and when they were deposited in the project accounts was that of the Bank and not Swakaya or any other third party. The effect and consequence of the absolute assignment was therefore the ownership or entitlement to recover and receive the proceeds paid in by SESB was transferred from Swakaya to the Bank. The Court further held that Swakaya had created, in favour of the Bank, an absolute assignment not purporting to be by way of charge only, within the meaning of section 4(3)[1] of the Civil Law Act 1956. The assignment was absolute as Swakaya (assignor) intended to transfer its legal rights and beneficial interest over the SESB Contract proceeds irrevocably to the Bank (assignee).

ZUL RAFIQUE & partners
{30 April 2020}
[1]Any absolute assignment, by writing, under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action, shall be, and be deemed to have been, effectual in law, subject to all equities which would have been entitled to priority over the right of the assignee under the law as it existed in the State before the date of the coming into force of this Act, to pass and transfer the legal right to the debt or chose in action, from the date of the notice, and all legal and other  remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor.