Malaysia - Sabah Development Bank Berhad v Petron Oil (M) Sdn Bhd.

Legal News & Analysis - Asia Pacific - Malaysia - Dispute Resolution

2 April, 2020

 

Sabah Development Bank Berhad v Petron Oil (M) Sdn Bhd1

 

The Federal Court has pronounced clearly in favour of banks in respect of assignments in the recent decision of Sabah Development Bank Berhad v Petron Oil (M) Sdn Bhd.

 

The case involved Sabah Development Bank Berhad ("the Bank") an absolute assignee of proceeds of money in the bank account of one Swakaya Sdn Bhd ("Swakaya") to secure the grant of facilities. The respondent was Petron Oil (M) Sdn Bhd ("Petron"), a creditor of Swakaya by reason of services rendered to Sabah Electricity Board on behalf of Swakaya.

 

The Federal Court held the Bank enjoys a valid and enforceable absolute assignment to transfer entitlement to funds from its customer's contract proceeds to the Bank insofar as the requirements of section 4(3) of the Civil Law Act 1956 are complied with. The Federal Court endorsed the fact such an absolute assignment cannot be defeated by a claim premised on "trust" and/or a constructive "trust” by Petron claiming a beneficial interest over the funds. Petron attempted to argue that there was a constructive trust operating in its favour for the entitlement to the funds. This, it was suggested, arose pursuant to the arrangement where Swakaya endorsed Petron's entitlement to the funds by reason of services rendered by Petron to SESB on behalf of Swakaya.

 

The Federal Court also held the fact that the freezing of the first project account and the creation of the second project account (by reason of MACC investigations), did not affect or alter the validity of the absolute assignment.

 

This decision affirms the rights of assignees upon the creation of a valid assignment in respect of which written notice is furnished.

 

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For further information, please contact:

 

Datin Jeyanthini Kannaperan, Partner, Shearn Delamore & Co​

jeyanthini@shearndelamore.com

 

[1] Civil Appeal No.: 02(f)-27-04/2018(S).