Share:

Print

CONTRACT
Assignment – Deed of assignment – Whether debtor liable to third party for debt where debtor made payment to customer – Whether debtor merely acted in accordance with debtor - customer relationship – Whether payment of monies to customer done dishonestly – Whether debtor dishonest based on ordinary standards


CIMB Bank Bhd v Sebang Gemilang Sdn Bhd & Anor

[2018] 5 CLJ 129, Federal Court

Facts This was an appeal by CIMB Bank Bhd (‘the appellant’) against the decision of the Court of Appeal in affirming the decision of the High Court allowing Sebang Gemilang Sdn Bhd’s (‘the first respondent’) claims against the appellant for general damages for negligence, breach of trust and breach of contract. The appellant part financed three government projects awarded to the second respondent, Hamidi Tech Sdn Bhd. A sinking fund was created as an additional security, where proceeds of the government contracts were deposited into the sinking fund account. The account was operated solely by the appellant. The second respondent was unable to complete the said three projects and then executed a Deed of Assignment and a Power of Attorney in favour of the first respondent so as to enable the first respondent to complete the said three projects. The first respondent then approached the appellant for the release of monies accumulated in the sinking fund after completing the projects and after the expiry of the defects liability period. The first respondent then discovered that the sinking fund account had been closed and the monies had been paid out to Hamidi Hamid’s (the owner of second respondent) current account upon the request of the second respondent. The first respondent then sued both the appellant and the second respondent and claimed for various reliefs. The High Court held that the appellant had breached its fiduciary duty as a trustee of the monies and was also negligent in doing so when it released the monies in the sinking fund to Hamidi Hamid. The Court of Appeal affirmed the High Court’s decision. Hence, this appeal.

Issue The main issue is whether the appellant was liable to the first respondent for the debt under the assignment.


Held In allowing the appeal, the Federal Court held that it is insufficient for the appellant to be held liable to the first respondent on the basis of ‘dishonesty’ based on the combined test propounded in Twinsectra
[1]. As stated by Lord Hoffman in Twinsectra, it requires more than knowledge of facts to make the conduct wrongful. It requires a dishonest state of mind that one is transgressing ordinary standards of honest behavior. The appellant merely acted in accordance with the normal banker-customer relationship when it closed the sinking fund and paid the monies to the second respondent. It was found that there was no element of ‘dishonesty’ from this act.

 

 
[1] Twinsectra v Yardley [2002] 2 All ER 377

Related content