CIMB Bank BHD V Maybank Trustees BHD and Other Appeals (2014) 3 MLJ 169

CIMB Bank Bhd v Maybank Trustees Bhd and other appeals
[2014] 3 MLJ (Arifin Zakaria Chief Justice) 169
A CIMB Bank Bhd v Maybank Trustees Bhd and other appeals
FEDERAL COURT (PUTRAJAYA) — CIVIL APPEAL NOS 02(F)-27–04

OF 2012(W), 02(F)-28–04 OF 2012(W), 02(F)-29–04 OF 2012(W),
B 02(F)-30–04 OF 2012(W) AND 02(F)-33–04 OF 2012(W)
ARIFIN ZAKARIA CHIEF JUSTICE, RAUS SHARIF PCA, ABDULL
HAMID EMBONG, SURIYADI AND AHMAD MAAROP FCJJ
10 FEBRUARY 2014
C
Contract — Breach — Terms — Whether lead arranger for issuance of bonds was
in breach of terms — Information memorandum (‘IM’) — IM contained
important notice by lead arranger excluding its liability — Whether lead arranger
entitled to exclude liability arising from IM through notice — Condition precedent
D
— Whether lead arranger had acted in breach of condition precedent by not
ensuring accounts were ring-fenced prior to issuance of bonds — Loss — Whether
most proximate cause of the loss was issuance of the bonds without the ring fencing
in place — Liability — Apportionment of — Whether courts below had erred in
apportioning liability between lead arranger and trustee on 50:50 basis —
E
Whether trustee was wholly liable for loss — Interest — Whether bondholders were
entitled to pre-judgment interest — Indemnity — Claim for — Whether trustee
should be indemnified in full by issuer of bonds — Whether directors of issuing
company should be liable as constructive trustees
F
Tort — Negligence — Duty of care — Whether trustee was grossly negligent
When Pesaka Astana (M) Sdn Bhd (‘Pesaka’) was awarded three government
contacts, it proposed a financing scheme to finance the contracts. The scheme
G involved the issuance of public Islamic bonds worth RM140m to a primary
subscriber with Pesaka’s government contracts charged as security. Under the
terms of subscription and facility agreement, Pesaka appointed KAF
Investment Bank (‘KAF’) as the lead arranger, facility agent and issuing agent
for the issuance of the bonds. KAF, who was to advise Pesaka on how to go
H about obtaining a loan in a bond market, was, inter alia, tasked with the duty
to prepare all the required documentation to obtain the necessary approval
from the Securities Commission. KAF assisted in the preparation of a
document called the information memorandum (‘IM’) that provided
information about the bonds to potential investors. In the IM, KAF included
I an important notice to exclude any liability arising from any claim that may
arise from the IM. Under the scheme, the bonds were first issued to a primary
subscriber, who in turn sold the same to the bondholders, who in return for
investing in the bonds were to be repaid on the maturity date. The bond funds
paid by the bondholders were to be deposited into Shariah designated accounts
170 Malayan Law Journal [2014] 3 MLJ
(‘SD accounts’), which Pesaka was required to open at recognised financial A

institutions. In order to ensure that the financial interest of the bondholders
was secured, Pesaka entered into a trust deed with Maybank Trustees Bhd
(‘MTB’). Under the trust deed, MTB was appointed as the sole trustee to
manage and control the SD accounts ie the SD accounts were to be completely
ring fenced. As it turned out, instead of opening new SD accounts, Pesaka used B
its existing conventional accounts as the designated accounts and MTB was not
made sole signatory to these accounts. In short, the accounts were not
ring-fenced when the bonds were issued. Having control over the accounts,
Pesaka utilised the monies in the designated accounts for its own purposes and
C
failed to redeem the bonds and repay the bondholders on the maturity date.
Aggrieved the bondholders commenced an action in the High Court against 12
defendants. The bondholders then entered a consent judgment against all the
defendants, except KAF and MTB. However, the bondholders chose not to
execute the consent judgment. Instead they proceeded to trial against KAF and
D
MTB. The High Court found for the bondholders against MTB and KAF for
breach of contract and negligence. The trial judge also denied KAF any
indemnity against Pesaka and apportioned liability between KAF and MTB on
a 60:40 basis. On appeal, the Court of Appeal affirmed the findings of the High
Court but re-apportioned liability between KAF and MTB on a 50:50 basis.
E
MTB filed a Notice of Contribution and a counterclaim against Pesaka and the
directors of Pesaka claiming, inter alia, an indemnity in full. In addition, MTB
also filed a counterclaim against CIMB, in the light of the accounts held by
Pesaka maintained by CIMB. The Court of Appeal granted MTB an
indemnity of 2/3 of the sum claimed as against Pesaka and its directors. KAF,
F
MTB, Pesaka, the directors of Pesaka and CIMB have been granted leave to
proceed with the instant five appeals, which were jointly heard.
Held:
(1) The first issue to be considered was whether KAF was entitled to include G
the important notice in the IM and if so whether this notice operated as
a disclaimer to negate KAF’s duty of care. Based on the cases cited it was
clear that it was open to KAF, as the lead arranger, to include the
important notice as a disclaimer in the IM. It was not contrary to law or
business practice to do so. In any case, the IM contained information H
belonging to the issuer, Pesaka, and not that of the lead arranger and was
therefore Pesaka’s document. Both the High Court and the Court of
Appeal fell into serious error when they held that on the facts, there
existed a duty of care owed by KAF to the bondholders despite the
presence of the important notice in the IM. Further, it was common I
ground that the bondholders were sophisticated investors and
experienced financial institutions with vast experience in the capital
market and not ordinary investors. They were thus expected to act on
independent and professional advice from their own sources in the light
A of the disclaimer as contained in the IM. Thus, KAF as lead arranger was
entitled to exclude liability arising from the IM through the important
notice. It therefore followed that KAF could not be held liable for any
information found in the IM (see paras 32, 44, 46, 50 & 52).
B (2) The second issue to be considered with regard to liability was whether
KAF had acted in breach of the condition precedent that required the SD
accounts to be ring-fenced prior to the issuance of the bonds. From the
evidence adduced, namely the letter from Pesaka and the transactional
letter, KAF was justified in being satisfied that the SD accounts had been
C opened and that MTB had been made the sole signatory to these
accounts ie that the accounts had been ring-fenced. By holding that KAF
had a duty to independently verify that the SD accounts were
ring-fenced, the Court of Appeal had placed a much higher burden on
KAF than what was required under the issue documents. In the present
D case, it could be reasonably concluded that when the bonds were issued,
KAF was fully satisfied that all the conditions precedent had been
complied with and was not acting in breach (see paras 75, 77 & 81).
(3) Based on the evidence, the cause of loss was directly attributable to
Pesaka, who had misappropriated the funds. The Court of Appeal erred
E
in holding that the most proximate cause of the loss was the issuance of
the bonds by KAF without the ring fencing in place. KAF was not a party
to the trust deed, which was strictly between the issuer and MTB. MTB
had wide powers and rights under the trust deed and the power of
attorney, but it failed to take the necessary action to ring fence the
F
account before the issuance of the bonds or immediately after the bonds
were issued. Thus, the most proximate cause of the loss was the failure on
the part of MTB to ring fence the SD accounts or alternatively to stop
Pesaka from operating them. As such, MTB was wholly to blame for the
loss and not KAF (see paras 82, 84 & 87).
G
(4) As a result, MTB was 100% liable to the bondholders and its appeal
against the order of the Court of Appeal in apportioning liability between
MTB and KAF at 50:50 had to be dismissed (see para 91).
H (5) However, as the total sum of monies that was received and dissipated by
Pesaka did not exceed RM107m, the judgment should not be entered for
the sum of RM149,315,000, which sum represented the redemption
value of the bonds. If MTB was to be held liable for the full amount of
Pesaka’s indebtedness, it would amount to treating MTB as if it was either
I the primary debtor or guarantor to the bonds issue, which was not the
case. Accordingly, MTB was only liable to RM107m and not the full
amount of RM149,315,000 (see para 95).
(6) The Court of Appeal had erred in allowing pre-judgment interest, which
the High Court had correctly refused. In deciding the question of
interest, the court should consider the express agreement of the A

bondholders in the trust deed. In this case, cl 39 of the trust deed had
provided that no interest should be payable (see para 101).
(7) Although cl 14.1 of the trust deed clearly provided that MTB would be
indemnified ‘save and except for its gross negligence, willful default, B
willful breach or fraudulent actions’, the Court of Appeal found MTB to
be guilty of gross negligence and only ordered Pesaka to indemnify MTB
up to two-thirds of the sum claimed. However, this meant that Pesaka
would stand to gain at least 1/3 of its ill-gotten gains. It would not be
equitable for Pesaka who had received the ill gotten gains to be put in a C
position where it could retain those gains or any part of it. This is
especially so since the bondholders had not taken any steps to enforce the
consent judgment entered between Pesaka and the bondholders and
instead focused their attention on MTB on the basis that the latter was in
the position to satisfy the bondholders’ claim. Thus, MTB should be D
indemnified in full (see paras 108 & 112).
(8) The directors of Pesaka had acted dishonestly when they misapplied the
proceeds of the trust monies. In the circumstances this court had to
intervene by imputing a constructive trust upon the two directors for
their role in misapplying the trust monies. The corporate veil could not E
be the directors’ defence from MTB’s claim for indemnity. With Pesaka
having admitted full responsibility to the bondholders via the consent
judgment, the two directors should fully indemnify MTB for the loss (see
paras 128–129 & 131).
F
(9) From the totality of the evidence, CIMB was only complying with
instructions given by the banker-customer relationship and could not be
construed as being dishonest in the ordinary standards of reasonable and
honest people. As such, CIMB was not liable for the monies in the two
accounts that were in its management. MTB was totally liable (see paras G
148 & 150).
[Bahasa Malaysia summary

Apabila Pesaka Astana (M) Sdn Bhd (‘Pesaka’) diawardkan tiga kontrak
kerajaan, ia mencadangkan skim pembiayaan untuk membiayai H
kontrak-kontrak tersebut. Skim itu melibatkan penerbitan bon-bon Islam
awam bernilai RM140 juta kepada pelanggan utama yang mana
kontrak-kontrak kerajaan Pesaka telah dicagarkan sebagai jaminan. Di bawah
terma-terma perjanjian langganan dan kemudahan, Pesaka telah melantik
KAF Investment Bank (‘KAF’) sebagai pengatur utama, ejen kemudahan dan I
ejen penerbitan untuk terbitan bon-bon tersebut. KAF, yang sepatutnya
memberi nasihat Pesaka tentang cara memperolehi pinjaman dalam pasaran
bon, telah, antara lain, ditugaskan dengan kewajipan untuk menyediakan
semua dokumentasi yang dikehendaki bagi memperoleh kelulusan yang
A diperlukan daripada Suruhanjaya Sekuriti. KAF telah membantu dalam

penyedian dokumen dipanggil memorandum maklumat (‘MM’) yang
menyediakan maklumat tentang bon-bon kepada bakal pelabur-pelabur.
Dalam MM itu, KAF memasukkan notis penting untuk mengecualikan
apa-apa liaibiliti yang timbul daripada apa-apa tuntutan yang mungkin timbul
B daripada MM itu. Di bawah skim itu, bon-bon tersebut pertama kali
diterbitkan untuk pelanggan utama, yang kemudian telah menjual yang sama
kepada pemegang-pemegang bon, yang mana sebagai pulangan kerana
melabur dalam bon-bon itu hendaklah dibayar semula pada tarikh matang.
Wang bon-bon itu yang dibayar oleh pemegang-pemegang bon hendaklah
C
didepositkan ke dalam akaun-akaun Syariah yang ditetapkan (‘akaun-akaun
SD’), yang perlu dibuka oleh Pesaka di institusi kewangan yang diiktiraf. Bagi
tujuan memastikan kepentingan kewangan pemegang-pemegang bon
terjamin, Pesaka telah memasuki surat ikatan amanah dengan Maybank
D Trustees Bhd (‘MTB’). Di bawah surat ikatan amanah itu, MTB telah dilantik
sebagai pemegang amanah tunggal untuk mengurus dan mengawal
akaun-akaun SD iaitu akaun-akaun SD hendaklah dilindungi sepenuhnya.
Namun begitu, tanpa membuka akaun-akaun SD baru, Pesaka telah
menggunakan akaun-akaun konvensional sedia adanya sebagai akaun-akaun
E yang ditetapkan dan MTB tidak dijadikan penandatangan tunggal kepada
akaun-akaun tersebut. Pendek kata, akaun-akaun tersebut tidak dilindungi
apabila bon-bon itu diterbitkan. Pesaka yang mempunyai kawalan ke atas
akaun-akaun tersebut telah menggunakan wang dalam akaun-akaun yang
ditetapkan bagi tujuannya sendiri dan telah gagal menebus bon-bon tersebut
F dan membayar balik pemegang-pemegang bon itu pada tarikh matang.
Pemegang-pemegang bon yang terkilan itu telah memulakan tindakan di
Mahkamah Tinggi terhadap 12 defendan-defendan. Pemegang-pemegang bon
tersebut kemudian telah memasuki penghakiman persetujuan terhadap
kesemua defendan, kecuali KAF dan MTB. Walau bagaimanapun,
G pemegang-pemegang bon memilih untuk tidak melaksanakan penghakiman
persetujuan itu. Sebaliknya mereka telah memulakan perbicaraan terhadap
KAF dan MTB. Mahkamah Tinggi mendapati berpihak untuk
pemegang-pemegang bon terhadap MTB dan KAF kerana pelanggaran
kontrak dan kecuaian. Hakim perbicaraan juga menafikan KAF apa-apa ganti
H
rugi terhadap Pesaka dan memperuntukkan liabiliti antara KAF dan MTB
berasaskan 60:40. Atas rayuan, Mahkamah Rayuan mengesahkan
penemuan-penemuan Mahkamah Tinggi tetapi telah memperuntukkan
semula liabiliti antara KAF dan MTB berasaskan 50:50. MTB telah
I memfailkan notis sumbangan dan tuntutan balas terhadap CIMB, berdasarkan
akaun-akaun yang dipegang oleh Pesaka yang diselenggarakan oleh CIMB.
Mahkamah Rayuan memberikan MTB ganti rugi sejumlah 2/3 daripada yang
dituntut terhadap Pesaka dan pengarah-pengarahnya. KAF, MTB dan Pesaka,
pengarah-pengarah Pesaka dan CIMB telah diberikan kebenaran untuk A

memulakan lima rayuan ini, yang didengar bersama.
Diputuskan:
(1) Isu pertama untuk diambil kira adalah sama ada KAF berhak B
memasukkan notis penting dalam MM dan jika begitu sama ada notis ini
berfungsi sebagai penafian untuk menyangkal kewajipan berjaga-jaga
KAF. Berdasarkan kes-kes yang dipetik ia adalah jelas bahawa ia adalah
terbuka untuk KAF, sebagai pengatur utama, untuk memasukkan notis
penting sebagai penafian dalam MM itu. Ia tidak bertentangan dengan C
undang-undang atau amalan perniagaan untuk berbuat demikian.
Dalam apa keadaan, MM itu mengandungi maklumat yang dimiliki
penerbit, Pesaka, dan bukan pengatur utama dan oleh itu adalah
dokumen Pesaka. Kedua-dua Mahkamah Tinggi dan Mahkamah
Rayuan terkhilaf apabila memutuskan bahawa berdasarkan fakta, D
terdapat kewajipan berjaga-jaga oleh KAF kepada pemegang-pemegang
bon meskipun terdapat notis penting itu dalam MM tersebut.
Selanjutnya, adalah alasan yang sama bahawa pemegang-pemegang bon
itu adalah pelabur-pelabur canggih dan institusi-institusi kewangan
E
berpengalaman dengan pengalaman luas dalam pasaran modal dan
bukan pelabur-pelabur biasa. Mereka dengan itu dijangka untuk
bertindak berdasarkan nasihat bebas dan profesional daripada sumber
mereka sendiri berdasarkan penafian sebagaimana terkandung dalam
MM tersebut. Oleh itu, KAF sebagai pengatur utama berhak F
mengecualikan liabiliti yang timbul daripada MM itu melalui notis
penting tersebut. Oleh demikian seterusnya bahawa KAF tidak boleh
dipertanggungjawabkan untuk apa-apa maklumat yang didapati dalam
MM tersebut (lihat perenggan 32, 44, 46 50 & 52).
(2) Isu kedua untuk dipertimbangkan berkenaan liabiliti adalah sama ada G
KAF telah bertindak melanggar prasyarat yang menghendaki
akaun-akaun SD dilindungi sebelum terbitan bon-bon itu. Berdasarkan
keterangan yang dikemukakan, terutamanya surat daripada Pesaka dan
surat transaksi, KAF mempunyai justifikasi untuk berpuas hati bahawa
akaun-akaun SD telah dibuka dan bahawa MTB telah dijadikan H
penandatangan tunggal kepada akaun-akaun tersebut iaitu bahawa
akaun-akaun itu telah dilindungi. Dengan memutuskan bahawa KAF
mempunyai kewajipan untuk mengesahkan secara berasingan bahawa
akaun-akaun SD itu dilindungi, Mahkamah Rayuan telah meletakkan
beban yang lebih berat ke atas KAF daripada apa yang dikehendaki di I
bawah dokumen-dokumen terbitan itu. Dalam kes ini, ia boleh
disimpulkan secara munasabah bahawa apabila bon-bon itu diterbitkan,
KAF berpuas hati sepenuhnya bahawa semua prasyarat telah dipatuhi
dan ia tidak bertindak dalam pelanggaran (lihat perenggan 75, 77 & 81).
A (3) Berdasarkan keterangan, sebab kehilangan adalah berpunca secara

langsung daripada Pesaka, yang telah menyalahgunakan wang tersebut.
Mahkamah Rayuan terkhilaf kerana memutuskan bahawa sebab paling
hampir untuk kehilangan itu adalah terbitan bon-bon itu oleh KAF
tanpa terdapat perlindungan. KAF bukan pihak kepada Surat Ikatan
B Amanah, yang mana adalah hanya antara penerbit dan MTB. MTB
mempunyai kuasa dan hak yang luas di bawah Surat Ikatan Amanah dan
Surat Kuasa Wakil, tetapi ia gagal untuk mengambil tindakan sewajarnya
untuk melindungi akaun itu sebelum terbitan bon-bon tersebut atau
dengan segera selepas bon-bon tersebut diterbitkan. Oleh itu, sebab
C paling hampir untuk kehilangan itu adalah kegagalan di pihak MTB
untuk melindungi akaun-akaun SD atau secara alternatif untuk
menghentikan Pesaka daripada melaksanakannya. Oleh itu, MTB harus
dipersalahkan sepenuhnya untuk kehilangan itu dan bukan KAF (lihat
perenggan 82, 84 & 87).
D
(4) Akibatnya, MTB adalah 100% bertanggungjawab terhadap
pemegang-pemegang bon itu dan rayuannya terhadap perintah
Mahkamah Rayuan dalam membahagikan liabiliti antara MTB dan KAF
pada 50:50 hendaklah ditolak (lihat perenggan 91).
E (5) Walau bagaimanapun, oleh kerana jumlah keseluruhan wang yang
diterima dan dilesapkan oleh Pesaka tidak melebihi RM107 juta,
penghakiman tidak patut dimasukkan untuk jumlah RM149,315,000,
iaitu jumlah yang menunjukkan nilai penebusan bon-bon itu. Jika MTB
dipertanggungjawabkan untuk kesemua jumlah keberhutangan Pesaka,
F ia sama seperti menganggap MTB sebagai penghutang atau penjamin
utama kepada terbitan bon-bon itu, yang mana bukan begitu. Oleh
demikian, MTB hanya bertanggungjawab untuk RM107 juta dan bukan
jumlah keseluruhan RM149,315,000 (lihat perenggan 95).
G (6) Mahkamah Rayuan terkhilaf kerana membenarkan faedah pra

penghakiman, yang mana telah ditolak sewajarnya oleh Mahkamah
Tinggi. Dalam memutuskan persoalan tentang faedah, mahkamah
mengambil kira perjanjian nyata pemegang-pemegang bon dalam surat
ikatan amanah itu. Dalam kes ini, fasal 39 kepada surat ikatan amanah
H itu memperuntukkan bahawa tiada faedah patut dibayar (lihat
perenggan 101).
(7) Walaupun fasal 14.1 surat ikatan amanah jelas memperuntukkan bahawa
MTB boleh diganti rugi ‘save and except for its gross negligence, willful
default, willful breach or fraudulent actions’, Mahkamah Rayuan
I mendapati MTB bersalah kerana kecuaian melampau dan hanya
memerintahkan Pesaka untuk mengganti rugi MTB sehingga 2/3
daripada jumlah yang dituntut. Walau bagaimanapun, ini bermaksud
bahawa Pesaka akan memperoleh sekurang-kurangnya 1/3 daripada
keuntungan haram yang diperolehnya. Adalah tidak adil untuk Pesaka
yang telah menerima keuntungan haram diletakkan dalam kedudukan di A

mana ia boleh menyimpan keuntungan tersebut atau sebahagian
daripadanya. Lebih-lebih lagi kerana pemegang-pemegang bon tidak
mengambil apa-apa langkah untuk menguatkuasakan penghakiman
persetujuan yang dimasuki antara Pesaka dan pemegang-pemegang bon
dan sebaliknya memberi fokus perhatian mereka kepada MTB atas dasar B
bahawa MTB berada dalam kedudukan untuk memuaskan tuntutan
pemegang-pemegang bon itu. Oleh itu, MTB patut diberi ganti rugi
sepenuhnya (lihat perenggan 108 & 112).
(8) Pengarah-pengarah Pesaka telah bertindak secara tidak jujur apabila
C
mereka menyalahgunakan hasil wang amanah itu. Dalam keadaan itu
mahkamah perlu campur tangan dengan mengandaikan amanah
konstruktif ke atas dua pengarah yang berperanan dalam
menyalahgunakan wang amanah itu. Tudung korporat tidak boleh
menjadi pembelaan pengarah-pengarah itu berdasarkan tuntutan MTB
D
untuk ganti rugi. Berdasarkan Pesaka yang telah mengakui
tanggungjawab sepenuhnya terhadap pemegang-pemegang bon melalui
penghakiman persetujuan, dua pengarah itu patut memberi ganti rugi
sepenuhnya kepada MTB untuk kehilangan tersebut (lihat perenggan
128–129 & 131).
E
(9) Berdasarkan keseluruhan keterangan, CIMB hanya mematuhi arahan
yang diberikan melalui hubungan pihak bank-pelanggan dan tidak boleh
ditafsirkan sebagai tidak jujur dalam piawai biasa seorang yang
munasabah dan jujur. Oleh itu, CIMB tidak bertanggungjawab untuk
wang dalam dua akaun di bawah pengurusannya. MTB adalah F
bertanggungjawab sepenuhnya (lihat perenggan 148 & 150).]
Notes
For cases on duty of care, see 12(1) Mallal’s Digest (4th Ed, 2013 Reissue) paras
1248–1334. G
For cases on terms, see 3(2) Mallal’s Digest (4th Ed, 2013 Reissue) paras
3451–3454.
Cases referred to
Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1985] AC 191, HL H
(refd)
Bank Islam Malaysia Bhd v Lim Kok Hoe & Anor and other appeals [2009] 6
MLJ 839, CA (refd)
Barnes v Addy (1874) LR 9 Ch App 244, CA (refd)
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] 2 All ER 92, Ch D (refd) I
Belmont Finance Corpn Ltd v Williams Furniture Ltd [1979] 1 All ER 118, CA
(refd)
Brown v Innovatorone plc [2012] EWHC 1321, (refd)
Caparo Industries plc v Dickman and others [1990] 2 AC 605, HL (refd)
A Carl-Zeiss-Stiftung v Herbert Smith & Co (a firm) and another (No 2) [1969] 2

All ER 367, CA (refd)
Datuk M Kayveas v See Hong Chen & Sons Sdn Bhd & Ors [2013] 5 CLJ 949,
FC (refd)
Dubai Aluminium Co Ltd v Salaam [2003] 1 All ER 97, HL (refd)
B
Fernrite Sdn Bhd v Perbadanan Nasional Bhd [2012] 1 MLJ 1; [2012] 5 MLRA
421, FC (refd)
Go Dante Yap v Bank Austria Creditanstalt AG [2010] 4 SLR 916, HC (refd)
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003]
C UKHL 6, HL (refd)
Hassan bin Kadir & Ors v Mohamed Moidu bin Mohamad & Anor [2011] 4
MLJ 190; [2011] 4 AMR 677, CA (refd)
IFE Fund SA v Goldman Sachs International [2007] EWCA Civ 811, CA (refd)
JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186
D (Comm), QBD (refd)
JP Morgan Chase Bank v Springwell Navigation Corp [2010] EWCA Civ 1221,
CA (refd)
Karak Rubber Co Ltd v Burden and others (No 2) [1972] 1 All ER 1210, Ch D
(refd)
E Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936, CA (refd)
Lipkin Gorman (a firm) v Karpnale Ltd and another [1992] 4 All ER 331, QBD
(refd)
Montagu’s Settlement Trusts; Duke of Manchester, Re v National Westminster Bank
F Ltd and others [1992] 4 All ER 308, Ch D (refd)
Paragon Finance plc v Thakerar & Co, Paragon Finance plc v Thimbleby & Co (a
firm) [1999] 1 All ER 400, CA (refd)
Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010]
EWHC 1392 (Comm), QBD (refd)
G Rowlandson and others v National Westminster Bank Ltd [1978] 3 All ER 370,
Ch D (refd)
Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 All ER 97, PC (refd)
Selangor United Rubber Estates v Cradock (a bankrupt) and Others (No 3) [1968]
2 All ER 1073, Ch D (refd)
H
Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 1785
(Comm), QBD (refd)
Takako Sakao (f ) v Ng Pek Yuen (f ) & Anor (No 2) [2010] 2 MLJ 181; [2010]
1 CLJ 381, FC (refd)
I Target Holdings Ltd v Redferns (a firm) [1995] 3 All ER 785; [1996] AC 421,
HL (refd)
Titan Steel Wheels Ltd v Royal Bank of Scotland plc [2010] EWHC 211
(Comm), QBD (refd)
Twinsectra Ltd v Yardley and others [2002] 2 All ER 377, HL (folld)
Legislation referred to A
Central Bank of Malaysia Act 2009 ss 56, 56(1)(a), 57
Civil Law Act 1956 s 11
Contracts Act 1950 ss 17, 18
Rules of the High Court 1980 O 42 r 12
Securities Commission Act 1993 ss 38(4), 65 B
Tommy Thomas (Alan Adrian Gomez and Nur Ashikin bt Abdul Rahim with
him) (Tommy Thomas) in Civil Appeal No 02(f )-27–04 of 2012(W) for the
appellant.
Wong Kian Kheong (Karen Lee Foong Voon and Geraldine Oh Kah Yan with him)
C
(Wong Kian Kheong) in Civil Appeal No 02(f )-28–04 of 2012(W) for the
appellant.
Cecil Abraham (Rishwant Singh, Mohamed Zaini Mazlan, Mawar Ahmad
Fadzil and Amrit Gill with him) (Zaini Mazlan) in Civil Appeal No
02(f )-29–04 of 2012(W) for the appellant.
Robert Lazar (Mark Lau, Tan Ch’eng Leong and Gopal Sreenevasan with him) D
(Sreenevasan Young) in Civil Appeal No 02(f )-30–04 of 2012(W) for the
appellant.
Malik Imtiaz Sarwar (Jenine Gill Sia, Siew Mun Lee and Zhen Yeap with him)
(Sia Siew Mun & Co) in Civil Appeal No 02(f )-33–04 of 2012(W) for the
appellant. E
Robert Lazar (Mark Lau, Tan Ch’eng Leong and Gopal Sreenevasan with him)
respondent.
respondent. F
Tommy Thomas (Alan Adrian Gomez and Nur Ashikin bt Abdul Rahim with
first to tenth respondents.
Malik Imtiaz Sarwar (Jenine Gill Sia, Siew Mun Lee and Zhen Yeap with him)
(Sia Siew Mun & Co) in Civil Appeal No 02(f )-29–04 of 2012(W) for the 11th G
respondent.
(Sreenevasan Young) in Civil Appeal No 02(f )-29–04/ of 2012(W) for the 12th
respondent.
Tommy Thomas (Alan Adrian Gomez and Nur Ashikin bt Abdul Rahim with H
first to tenth respondents.
02(f )-30–04 of 2012(W) for the 11th respondent.
Lee Zhen Yeap (Sia Siew Mun & Co) in Civil Appeal No 02(f )-30–04 of 2012(W) I
for the 12th to 20th respondents.
Wong Kian Kheong (Karen Lee Foong Voon and Geraldine Oh Kah Yan with him)
(Wong Kian Kheong) in Civil Appeal No 02(f )-30–04 of 2012(W) for the 21st
respondent.
A Robert Lazar (Mark Lau, Tan Ch’eng Leong and Gopal Sreenevasan with him)
(Sreenevasan Young) in Civil Appeal No 02(f )-33–04 of 2012(W) for the first
respondent.
B 02(f )-33–04 of 2012(W) for the second respondent.
Arifin Zakaria Chief Justice:
INTRODUCTION
C
[1] There are five appeals before this court and they are:
(a) Civil Appeal No 02(f )-27–04 of 2012 (W) with CIMB Bank Bhd as the
appellant and Maybank Trustees Bhd as the respondent;
D (b) Civil Appeal No 02(f )-28–04 of 2012(W) with Datin Murnina bt Dato’
Hj Sujak as the appellant and Maybank Trustees Bhd as the respondent;
(c) Civil Appeal No 02(f )-29–04 of 2012(W) with KAF Investment Bank
Bhd as the appellant and MIDF Amanah Investment Bank Bhd and 11
E others as the respondents;
(d) Civil Appeal No 02(f )-30–04 of 2012(W) with Maybank Trustees Bhd
as the appellant and MIDF Amanah Investment Bank Bhd and 20 others
as the respondents; and
F (e) Civil Appeal No 02(f )-33–04 of 2012 (W) with Pesaka Astana (M) Sdn
Bhd and eight others as the appellants and Maybank Trustees Bhd and
another as the respondents.
For convenience, we will first deal with the third appeal.
G
[2] This court had on 5 April 2012 granted leave to appeal to KAF
Investment Bank Bhd (‘KAF’) on the following questions of law:
(a) What liability in law is assumed by an issuer, lead arranger, facility agent
and issue agent with respect to matters contained in an information
H memorandum?
(b) To whom do the lead arranger, facility agent and issue agent owe duties in
contract, tort and/or statute, and in light of the express contractual
obligations, duties and liabilities either by way of contract or under an
I information memorandum?
(c) Whether and to what extend are sophisticated investors, with the benefit
of independent and professional advice, allowed to expressly apportion
their obligations, duties and liabilities either by way of or under an
information memorandum?
(d) Whether and to what extend is the lead arranger allowed to: A
(i) Place experienced and sophisticated investors on notice as to the

extend to which such investors are entitled to rely on information
contained in an information memorandum? and
B
(ii) Limit any liability arising from any party reading and relying on the
information memorandum?
(e) Is an information memorandum an agreement within the meaning of
s 65 of the Securities Commission Act 1993, and if so, who are parties to
the information memorandum and how does the doctrine of privity of C
contract apply?
(f ) Where a party has benefitted in pecuniary form from its fraudulent
actions, in what circumstances will a court of law countenance or permit
that party to retain the benefit of that fraud? D
(g) Where parties to a contract provide that a party will indemnify the other
in full for any and all expense, loss, damage or liability arising out of the
second party carrying out its duties under the contract in question:
E
(i) Whether a court of law can interfere with the agreed contractual
indemnity and order that only a partial indemnity be given?; and
(ii) What circumstances will justify a court making such an order in law?
(h) Whether and to what extend can a court of law, to the exclusion of the F
Shariah Advisory Council, determine or ascertain Islamic law for the
purpose of Islamic financial business within the meaning of ss 56 and 57
of the Central Bank of Malaysia Act 2009?
(i) Where a trial court makes a finding that there is no misrepresentation on
G
a particular state of facts, in the absence of an appeal from that decision
by an affected party, can a Court of Appeal intervene and set aside that
part of the High Court decision? If the answer to this question is yes, then
to what extend, if any, does the doctrine of res judicata apply?
(j) On the issue of liability for the default of the issuer in repaying the bonds: H
(i) In light of the fact that the lead arranger, issue agent and facility
agent owe no duties in contract, tort or under statute to the trustee,
can the lead arranger, issue agent and facility agent, in law, be held to
be contributorily liable with the trustee for the default in the I
repayment of the bonds;
(ii) What is the test for the apportionment of liability where more than
one party is found liable and what part does a party’s knowledge in
respect of the default play in the apportionment of liability? and
A (iii) Is the question to be asked whether (1) what is the proximate cause
of the loss, or (2) what was the real effective cause of the causa
causans of the loss?
(k) In a contractual context, can a statement of intent as to an event that is to
B take place in the future constitute a misrepresentation under the law
(including s 18 of the Contracts Act 1950)?
(l) Whether the Court of Appeal was correct as a matter of fact and law in
holding that the Securities Commission must approve an information
C memorandum bearing in mind s 38(4) Securities Commission Act 1993
and if so, whether any party who wishes to issue an information
memorandum is obliged to obtain prior approval of the Securities
Commission?
D [3] We do not propose to answer the questions of law posed individually, but
we will answer them in so far as they are relevant to the appeal before us.
BRIEF FACTS
E
[4] Pesaka Astana (M) Sdn Bhd (‘Pesaka’) had obtained three government
contracts. Pesaka proposed a financing scheme through the issuance of public
Islamic bonds worth RM140m (‘the bonds’). Pesaka appointed KAF as the lead
arranger, facility agent and issue agent for the issuance of the bonds. This is
contained in the subscription and facility agreement (‘the SFA’) entered into
F
between KAF, Pesaka and the primary subscriber (‘Kenanga’).
[5] Pesaka then set up a Due Diligence Working Group (‘the DDWG’). The
DDWG gathered all information required for the bonds scheme to formulate
G the information memorandum (‘the IM’). The IM was put together based on
the information presented by Pesaka to the DDWG.
[6] Under the bonds scheme, Pesaka’s contracts with the government will be
charged as security. The bondholders will provide funds to Pesaka to finance
H the contracts. In return, the bondholders will be repaid on the maturity date.
The security for the bonds exercise was the contracts which Pesaka had signed
with Bomba and the Ministry of Defence (‘MINDEF’). The proceeds of these
contracts were to be paid into Pesaka’s accounts which were to have Maybank
Trustees Berhad (‘MTB’) as trustee and sole signatory.
I
[7] To ensure the financial interest of the bondholders are secured, the bonds
scheme was structured with MTB as the trustee, where all the proceeds from
the government contracts due to Pesaka will be deposited in Shariah designated
accounts.
[8] The designated accounts will be under the sole control of the trustee. No A
one can use the monies in these accounts except the trustee of the accounts and
in the manner and for the purpose as specified in the trust deed. In other words,
the designated accounts will be completely ring fenced.
B
[9] Pesaka appointed MTB as the sole trustee to manage and control the
designated accounts. This was done under the trust deed entered into between
MTB and Pesaka.
[10] As it turned out, instead of opening up new Shariah designated C

accounts, upon Pesaka’s request, the DDWG agreed to use the existing
conventional accounts belonging to Pesaka as the designated accounts and to
convert them by making MTB as the sole signatory. Thus, Pesaka’s existing
accounts were used as the designated accounts. However, these designated
accounts were not fully converted as MTB was not made the sole signatory to D
these accounts. Pesaka was still the signatory and had complete control over
these accounts.
[11] Under the scheme, the bonds were first issued to Kenanga as the
primary subscriber. Kenanga then on sold the same to the plaintiffs (the E
bondholders). The bonds funds paid by the bondholders were deposited into
the designated accounts, under the control of Pesaka.
[12] Having control over the accounts, Pesaka utilised the monies in the F
designated accounts for its own purposes and failed to redeem the bonds and
repay the bondholders on the maturity date.
[13] On 25 October 2005, MTB arranged an informal meeting for Pesaka to

table a debt repayment proposal. The following details were, inter alia, revealed G
during the 25 October 2005 meeting:
(a) Dato’ Mohamad Rafie bin Sain (‘Rafie’) reported that he would like to
come clean with the bondholders and disclosed that Pesaka had actually
received the monies, amounting to RM109m, sometime between June
H
and August 2004.
(b) In response to queries from the bondholders as to where the monies were,
Rafie mentioned that the funds had been fully utilised to support Pesaka’s
overseas operation and overheads.
I
(c) The bondholders asked the trustee as to how that could have happened
and the trustee reported that KAF had disbursed the bonds proceeds
before the signatory was changed.
(d) The bondholders then turn to KAF with the question as to how KAF
A could have disbursed the funds when the documents stated that the
trustee should have been the sole signatory prior to the disbursement
(e) Farid Mohd Yusof reported that KAF had acted on the advice of Messrs
Abu Talib Shahrom & Zahari (‘the transactional solicitor’).
B
(f ) Miss Kim Lim of the transactional solicitor explained that the condition
precedent only required Pesaka to confirm that it had opened the
designated accounts and that the board had passed a resolution to change
the signatories. It does not mention the need for KAF to get confirmation
that the changes had been effected,
C
(g) Pesaka then requested for indulgence until mid December to come up
with a repayment proposal.
D HIGH COURT
[14] Aggrieved, the bondholders then commenced action in the High Court
against 12 separate defendants which includes KAF. The bondholders were the
E parties who purchased the bonds in the secondary market from Kenanga. The
bondholders’ claims against KAF in the High Court were fivefold, namely:
(a) that the three trustee accounts which formed part of the designated
accounts were not Shariah compliant;
F (b) that the bonds proceeds were not deposited into the disbursement
account under MTB’s control;
(c) that the government contracts proceeds were never deposited into the
revenue accounts under MTB’s control;
G (d) that the foreign exchange claim was not RM31,529,338; and
(e) that BOMBA had not agreed to compensate Pesaka on its foreign
exchange losses and therefore, there were misrepresentations in the IM.
H [15] The bondholders then entered a consent judgment against Pesaka (‘the
first defendant’), Rafie (‘the fourth defendant’) and the Amdac Group (the
sixth to 12th defendants) for the full sum of claim (‘the consent judgment’).
The bondholders then withdrew their action against Datin Murnina bt Dato’
Haji Sujak (‘the fifth defendant’) (Murnina).
I
[16] Having entered consent judgment for the full sum of the claim against
Pesaka, the bondholders however chose not to execute the consent judgment
against Pesaka or had the damages assessed as against Rafie and the Amdac
Group. Instead, the bondholders proceeded to trial against KAF and MTB.
[17] The learned judge dismissed the claim in para 14 (d) and (e) and no A
appeal was brought by the bondholders against the dismissal.
[18] The High Court allowed the bondholders’ claim in para, (a), (b) and
(c). The High Court found for the bondholders against MTB and KAF for
breach of contract and negligence. B
[19] The learned judge denied KAF any indemnity against Pesaka and
apportioned liability between KAF and MTB on 60:40 basis.
COURT OF APPEAL C
[20] On appeal, the Court of Appeal affirmed the findings of the High Court
but re-apportioned liability between KAF and MTB on 50:50 basis. The Court
of Appeal further granted KAF an indemnity of 2/3 of the sum of D
RM149,300,000 as against Pesaka.
KAF’S LIABILITY UNDER THE IM
[21] KAF is defined in the IM as the lead arranger. As lead arranger in a E

securitisation transaction, KAF is to advise the issuer on how to go about
obtaining a loan in a bond market. It is also tasked with the duty to make
submission of the proposal to the Securities Commission (‘SC’), as the
regulatory body, and to prepare all the required documentation in order to
obtain the necessary approval from the SC. F
[22] KAF is also responsible for:

(a) organising and identifying the apportionment of relevant advisers/parties
(if applicable) in relation to the private debt securities/Islamic securities
G
for and on behalf of the issuer;
(b) organising the formation of DDWG. It should be noted however that the
DDWG was set up by Pesaka; and
(c) participating as a member of DDWG, assisting in the preparation of IM,
H
liaising with local rating agency, marketing the securities to potential
investors, monitoring the compliance of the conditions precedent prior
to issuance and supervising the documentation of the Islamic securities to
the financial close.
I
HIGH COURT
[23] The High Court held that KAF as lead arranger owed a duty of care to
A the bondholders. This duty of care, according to the High Court, arose out of
the proximity of the relationship between KAF and the bondholders which
made it foreseeable that the bondholders would rely on the IM which KAF had
played a substantial role in putting together. The learned judge, therefore, held
that KAF owed a duty of care to the bondholders to ensure that the contents of
B the IM or otherwise known as the prospectus under the Securities Commission
Act 1993 (‘the SCA’) was neither false nor misleading.
[24] The learned judge also found that it was KAF’s duty as lead arranger, not
only to put together the information contained in the IM and to make
C submission to the SC for approval, it was also KAF’s duty to verify the
information that was given by Pesaka against the original documents.
[25] The learned judge held that KAF was liable in negligence in failing to
verify the content of the IM, as a result of which, the bondholders suffered
D damages.
[26] Learned counsel for KAF in his submission contended that the High
Court judge in coming to her decision failed to take into consideration the fact
that the IM is not KAF’s document, but that of Pesaka. In fact, the letter from
E
Pesaka dated 15 March 2004, in the IM, clearly acknowledged that the IM was
prepared by KAF based on information provided by Pesaka. Therefore, KAF
should not be held liable for the information contained in the IM.
F [27] He further contended that in coming to her decision, the learned judge
failed to consider the effect of the important notice in the IM.
[28] With respect, we agree with learned counsel for KAF that the learned
judge erred in saying that the IM had to be submitted to SC for its approval
G under s 38(4) of the SCA, whereas the said section merely requires a person
issuing the IM, to deposit a copy of the IM within seven days after it is first
issued. Therefore, it is clear that the IM is not a document which requires
approval of the SC.
H [29] The learned judge further imposed a duty on KAF to verify the
information contained in the IM against original documents. We do not know
how and on what basis this duty to verify arose. The learned judge made no
reference to any agreement or any statutory provision requiring KAF to verify
the information contained in the IM.
I
[30] The finding by the High Court in fact appears to go against the duties
and obligations of KAF as spelt out in the SFA. For instance, cl 14.2 (a) of the
SFA clearly stipulates that KAF shall not assume or be deemed to have assumed
any obligation to or fiduciary relationship with the primary subscriber other
than those for which specific provision is made by this agreement or any A
obligation to or fiduciary relationship with the issuer. Clause 14.2 (b) of the
SFA further provides that the facility agent shall not be liable for any failure of
any other party to this agreement, or the trustee to duly and punctually
perform any of their respective obligations under the issue documents.
B
COURT OF APPEAL
[31] In affirming the decision of the High Court, the Court of Appeal went
on to hold that the important notice had no legal effect for two reasons,
namely: C
(a) there was no approval from the SC for the important notice; and
(b) KAF could not contract out its statutory duties or liabilities as it
contravenes s 65 of the SCA.
D
[32] Like the High Court, the Court of Appeal fell into error in saying that
the IM needs the approval of the SC. As we stated earlier, that is not the case.
As for the second ground, the Court of Appeal construed the word ‘agreement’
in s 65 of the SCA to include the IM and accordingly the disclaimer is void as E
it contravenes the said provision.
THIS COURT
[33] The Court of Appeal relied on the case of Antaios Cia Naviera SA v Salen F
Rederierna AB, The Antaios [1985] AC 191 in extending the meaning of the
word ‘agreement’ to include the IM but as rightly pointed out by learned
counsel for KAF, in that case the House of Lord was concerned with charter
party which had an arbitration clause and in particular with the construction of
cl 5 of the charter party. Therefore, strictly, the principle of construction as G
expounded by Lord Diplock in that case is relevant to the construction of
commercial contract and is not applicable to the interpretation of statute.
[34] Section 65 of the SCA provides as follows:

H
65 Agreements to exclude or restrict liability void.
An agreement is void in so far as it purports to exclude or restrict the liability of a
person for contravention of section 55, 57 or 58 or for loss or damage under section
153.
I
We agree with learned counsel for KAF that the word ‘agreement’ in s 65 of the
SCA must be given its ordinary meaning, which would mean some kind of
contract between two or more parties. The IM on the face of it is not a
contractual document. It had been issued by KAF on behalf of Pesaka to
A provide information to potential investors. The IM was not part of the issue
documents which requires the approval of the SC. For those reasons, we hold
that the IM is not an agreement falling within s 65 of the SCA, therefore, KAF
is free to include the important notice in the IM to exclude any liability arising
from any claim that may arise from the IM.
B
[35] The important notice in the present case reads:
THIS INFORMATION MEMORANDUM IS NOT INTENDED BY KAF TO

PROVIDE THE SOLE BASIS OF ANY CREDIT OR OTHER EVALUATION,
C AND SHOULD NOT BE CONSIDERED AS A RECOMMENDATION BY
KAF TO PARTICIPATE IN THE FINANCING FACILITIES, EACH
PARTICIPANT IS URGED TO MAKE ITS OWN ASSESSMENT OF THE
RELEVANCE AND ADEQUACY OF THE INFORMATION CONTAINED
IN THIS INFORMATION MEMORANDUM AND TO MAKE SUCH
D INDEPENDENT INVESTIGATION AS IT DEEMS NECESSARY FOR THE
PURPOSE OF SUCH DETERMINATION. NEITHER KAF NOR ANY OF
ITS DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES OR
PROFESSIONAL ADVISERS (COLLECTIVELY, THE ‘PARTIES’) SHALL BE
LIABLE FOR ANY CONSEQUENCES AS A RESULT OF THE RELIANCE
E ON ANY INFORMATION OR DATA IN THIS INFORMATION
MEMORANDUM.
ALL INFORMATION AND PROJECTIONS CONTAINED IN THIS
INFORMATION MEMORANDUM HAVE BEEN SUPPLIED BYPASB AS A
MERE GUIDE ONLY AND DO NOT PURPORT TO CONTAIN ALL THE
F INFORMATION THAT AN INTERESTED PARTY MAY REQUIRE. KAF
HAS NEITHER INDEPENDENTLY VERIFIED THE CONTENTS NOR
VERIFIED THAT ALL INFORMATION MATERIAL FOR AN EVALUATION
OF THE FINANCING FACILITIES OR ABOUT PASB HAS BEEN
INCLUDED. NO REPRESENTATION OR WARRANTY, EXPRESS OR
G IMPLIED, IS MADE BY KAF WITH RESPECT TO THE AUTHENTICITY,
ORIGIN, VALIDITY, ACCURACY OR COMPLETENESS OF SUCH
INFORMATION AND DATA AS CONTAINED IN THIS INFORMATION
MEMORANDUM.
BY RECEIVING THIS INFORMATION MEMORANDUM THE
H
RECIPIENT ACKNOWLEDGES THAT IT WILL BE SOLELY
RESPONSIBLE FOR MAKING ITS OWN INVESTIGATIONS,
INCLUDING THE COSTS AND EXPENSES INCURRED, AND FORMING
ITS OWN VIEWS AS TO THE CONDITION AND PROSPECTS OF PASB
AND THE ACCURACY AND COMPLETENESS OF THE STATEMENTS
I CONTAINED IN THIS INFORMATION MEMORANDUM. FURTHER,
KAF AND PASB, AND THEIR OFFICERS OR EMPLOYEES DO NOT
REPRESENT OR WARRANT THAT ANY INFORMATION CONTAINED
HEREIN WILL REMAIN UNCHANGED FROM THE DATE OF THIS
INFORMATION MEMORANDUM.
THIS INFORMATION MEMORANDUM INCLUDES CERTAIN A

STATEMENTS, ESTIMATES AND PROJECTIONS PROVIDED BY PASB
WITH RESPECT TO ITS ANTICIPATED FUTURE PERFORMANCE.
SUCH STATEMENTS, CONCERNING ANTICIPATED RESULTS AND
SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF B
WHICH ARE OR MAY BE BEYOND THE CONTROL OF PASB.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT SUCH
STATEMENTS, ESTIMATES AND PROJECTIONS WILL BE REALISED.
THE FORECAST AND ACTUAL RESULTS MAY VARY, AND THOSE
VARIATIONS MAY BE MATERIAL. NO REPRESENTATIONS ARE OR
C
WILL BE MADE BY KAF OR PASB AS TO THE ACCURACY OR
COMPLETENESS OF SUCH STATEMENTS, ESTIMATES AND
PROJECTIONS OR THAT ANY FORECAST WILL BE ACHIEVED.
THE CONTENTS OF THIS INFORMATION MEMORANDUM ARE
STRICTLY PRIVATE AND CONFIDENTIAL AND MUST NOT BE D
REPRODUCED OR CIRCULATED IN WHOLE OR IN PART OR USED
FOR ANY PURPOSE OTHER THAN THAT FOR WHICH IT IS
INTENDED.
E
[36] The IM is widely used in other jurisdictions and it is generally accepted
that the IM is merely to provide the potential investors with the necessary
overview of the product before deciding whether to participate in bonds issue
or otherwise. It is also common practice for a lead arranger to insert the notice
of disclaimer. F
[37] In the case of IFE Fund SA v Goldman Sachs International [2007]

EWCA Civ 811, it was held that a notice of disclaimer by an arranger absolves
the arranger from the obligation to verify the accuracy of the facts contained in
the information memorandum. It was held that the disclaimer was sufficient to G
negate the duty of care. The material facts in that case may be summarised as
follows:
(a) Goldman Sachs International (‘GSI’) was the underwriter of credit
facilities made available to Autodis.
H
(b) Additionally, GSI was also the arranger for the syndication of an
intermediate tier of credit provided to Autodis for its purchase of shares
in Finelist, a UK listed company.
(c) GSI created a Syndication Information Memorandum (‘SIM’), subjet to I
certain standard wording, which was distributed on or about 30 March
2000 to possible participants, including IFE.
(d) IFE decided to invest in the security and subsequently brought an action
against GSI, alleging misrepresentation on the basis that GSI had failed
A to reveal further information regarding Finelist, which GSI had obtained

from Arthur Anderson prior to 30 May 2000.
(e) Before the trial, IFE amended its pleading and included an additional
claim for breach of duty of care.
B
[38] In its defence, GSI also relied on the terms of the ‘important notice’,
under cover of which the SIM was provided to IFE and all possible
participants. That notice contains standard terms under which arrangers and
underwriters in the world of syndicated finance provide SIMs.
C
[39] The claim by IFE was dismissed by the High Court. The Court of
Appeal affirmed the decision of the High Court. Waller LJ in dismissing the
appeal by IFE made the following observation:
D 28. … The foundation for liability for negligent misstatements demonstrates that
where the terms on which someone is prepared to give advice or make a statement
negatives any assumption of responsibility, no duty of care will be owed. Although
there might be cases where the law would impose a duty by virtue of a particular state
of facts despite an attempt not ‘to assume responsibility’, the relationship between
E GSI either as arranger or as vendor would not be one of them. I entirely agree with
the judge on this aspect. Second, since IFE and GSI were parties to the contract
under which GSI sold bonds to IFE, if there was a misrepresentation it would be one
to which the Misrepresentation Act 1967 would apply. If that Act does not, for any
reason, provide a remedy, there could as I see it be no room for IFE being able to
succeed on some other case of negligent misstatement.
F
[40] It would appear that important notice is a common practice not only in
this country but also in more established capital markets. Therefore, important
notice cannot just be brushed aside. It has to be given effect. After all, it cannot
G be denied that the bondholders in the present case are sophisticated investors
and experienced financial institutions. They have vast experience in bonds and
are expected to act on independent and professional advice from their own
sources in respect of the contractual obligations in the light of the disclaimer as
contained in the important notice.
H
[41] IFE Fund SA has been followed in a number of other cases. (See JP
Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186
(Comm); JP Morgan Chase Bank v Springwell Navigation Corp [2010] EWCA
Civ 1221; Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] EWHC
I 211 (Comm); Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc
[2010] EWHC 1392 (Comm); Standard Chartered Bank v Ceylon Petroleum
Corporation [2011] EWHC 1785 (Comm); Brown v Innovatorone plc [2012]
EWHC 1321 (Comm); and Go Dante Yap v Bank Austria Creditanstalt AG
[2010] 4 SLR 916)
[42] In Raiffeisen, the effect of important notice was considered by the court. A
At para 65, the learned judge stated:
The Information Memorandum

[65] At the beginning of the Information Memorandum (‘IM’) there was what was
headed an ‘Important Notice’ which stated amongst other things: B
‘… This Information Memorandum (the ‘Memorandum’) has been prepared from

Information supplied by the Company [EEL being defined as the Company].
The contents of this Memorandum have not been independently verified. No C

representation, warranty or undertaking (express or implied) is made, and no
responsibility is accepted as to the adequacy, accuracy, completeness or
reasonableness of this Memorandum or any further information, notice or other
document at any time supplied in connection with the Facility.
This Memorandum is being provided for information purposes only and is not D
intended to provide the basis of any credit decision or other evaluation and should
not be considered as a recommendation that any recipient of this Memorandum
should participate in the Facility. Each potential participant should determine its
interest in participating in the Facility based upon investigations and analysis as it
deems necessary for such purpose. E
No undertaking is given to assess or keep under review the business, financial
condition, prospects, creditworthiness, status or affairs of the Company, the
Borrower or any other person now or at any time during the life of the Facility or
(except as specifically provided in the Facility Agreement) to provide any recipient or
participant in the Facility with any information relating to the Company, the F
Borrower or otherwise.
This Memorandum is being made available to potential participants on the strict
understanding that it is confidential. Recipients shall not be entitled to use any of
the information contained in this Memorandum other than for the purpose of
deciding whether or not to participate in the Facility. Recipients are reminded that G
this Memorandum is subject to the confidentiality undertaking signed by them.
It was held in Raiffeisen that as the IM is only a summary, it cannot therefore be

assumed that the IM contained everything that anyone might think relevant
(even on credit issue). H
[43] Similarly in Titan Steel Wheels Limited, one of the issues was whether
Royal Bank of Scotland (‘RBS’) was entitled to rely on contractual terms
pertaining to its exclusion of liability or not. In that case, the High Court held
that there was no such duty of care, even if RBS had subsequently given advice I
to Titan.
[44] Therefore, it can be drawn from the authorities cited above, it is open to
the lead arranger to include the important notice as a disclaimer in the IM. It
A is not contrary to law or business practice to do so. This is so because the IM

contains information belonging to the issuer and not that of lead arranger. In
the present case, the IM is Pesaka’s document.
[45] Since we have held that the important notice is not rendered null and
B void by s 65 of the SCA, hence it must be given full effect and force.
[46] On close scrutiny of the judgment of the High Court and the Court of
Appeal, with respect, we are of the view that both fell into serious error when
they held that on the facts, there existed a duty of care owed by KAF to the
C bondholders despite the presence of the important notice in the IM. The
reasons given by the High Court read:
I am not going into the background of what I understand of the reasons leading to
Pesaka looking for the bonds. I find on the law that KAF as a lead arranger owes a
D duty of care to the bondholders Plaintiffs because its responsibility fundamentally
was to structure the bonds and to meet the object of its client, the issuer who was
looking for cheaper financing because the Islamic bonds were understood to offer
that advantage and so that it could meet existing obligation under the existing
contracts with Bomba and MINDEF and that the bondholders would be paid them
monies when the bonds matured.
E
While the Court of Appeal at para 20, held:
Fraudulent misappropriation of trust property was the immediate cause of the loss
of the revenue. But it was dereliction of duty and or negligence that allowed that to
F happen. The stable door was invitingly not shut, those who had the duty to shut that
door would have to restore the total loss. That such is the extend of that liability was
reaffirmed in Target Holdings Ltd v Redferns (a firm) and anor [1996] AC 421 …
[47] Both courts made no reference to the contractual documents as

G contained in the issue documents. The Court of Appeal referred to Target
Holdings Ltd v Redferns (a firm) [1996] AC 421 in support of its finding. This
is a case concerning trust, where the degree of duty of care is higher than the
present case. What is more glaring, both the High Court and the Court of
Appeal in finding that there existed a duty of care by KAF, failed to consider the
H impact of the important notice or disclaimer. The High Court made no
reference at all to the important notice. Whereas, the Court of Appeal held that
the IM is an ‘agreement’ within s 65 of the SCA and for that reason the
important notice was held to be void. This went against the principles in IFE
Fund SA and Raiffeisen cited above.
I
[48] It is also worth noting that both the High Court and the Court of
Appeal, without considering the special facts and circumstances of the case,
simply ruled that there existed a duty of care on the principles of ‘foreseeability’,
‘proximity’, ‘neighborhood’ and ‘fairness’. In applying those general phrases, it
is important to bear in mind the warning given by Lord Roskill in Caparo A

Industries plc v Dickman [1990] 2 AC 605 where he said:
But … such phrases are not precise definitions. At best they are but labels or phrases
descriptive of the very different factual situations which can exist in particular cases
and which must be carefully examined in each case before it can be pragmatically B
determined whether a duty of care exists and, if so, what is the scope and extent of
that duty.
[49] Another important consideration in this connection is whether or not

the bondholders are persons with sufficient experience or sophistication. This C
is borne out in JP Morgan Chase Bank.
[50] In the present case, it is common ground that the bondholders are
sophisticated investors with vast experience in the capital market. They are no
ordinary investors. In JP Morgan Chase Bank, Gloster J held that a trader D
employed by an investment bank, who made recommendations and gave
advice to financially sophisticated investors did not assume responsibility to the
investor as to bring into play the full range of obligations of an investment
adviser or an asset manager. She concluded by saying that the bond salesman in
the financial world are no different to any salesman in ordinary life. The duty E
of care owed by them is lower than that of investment advisors or an asset
manager.
[51] The important notice in the present case clearly states:

F
… by receiving this Information Memorandum, the recipient acknowledges that it
will be solely responsible for making its own investigations, including the costs and
expenses incurred, and forming its own views as to the condition and prospects of
[Pesaka] and the accuracy and completeness of the statements contained in this
Information Memorandum. G
This undoubtedly shifted the burden of verifying the content of the IM on the
potential investors rather than KAF.
[52] For the reasons stated above, we are of the opinion that KAF as lead H
arranger is entitled to exclude liability arising from the IM through the
important notice. It follows therefore that KAF could not be held liable for any
information found in the IM. Accordingly, we set aside the findings made by
the High Court and the Court of Appeal that KAF is liable for damages
suffered by the bondholders consequent upon their reliance on the IM. I
CONDITION PRECEDENT 11
[53] Under the scheme of the bonds issue, Pesaka was required to open four
A Shariah compliant designated accounts at recognised financial institutions.

The four accounts were:
(a) Disbursement Account (the DA);
(b) Finance Service Reserve Account (the FSRA);
B
(c) Revenue Account (the RA); and
(d) Operating Account (the OA).
The DA, the FSRA and the RA were intended to be used for the purpose of
receiving the bonds proceeds and also to receive the proceeds from the existing
C contracts which were to form the corpus of the funds to repay the bondholders.
[54] The OA was intended to receive the balance funds available upon full
redemption of the bonds which will be used to finance the working capital of
D
Pesaka.
[55] A trustee would be appointed and be the signatory to all the designated
accounts except the OA. MTB was appointed to be the trustee to the bonds
issue. The OA was intended to be operated and managed solely by the Issuer.
E The appointment of MTB as trustee to these designated accounts was to
safeguard the interest of the bondholders and to provide integrity to the
repayment scheme. This is commonly referred to as ‘ring fencing’ which was
described as being the fundamental basis upon which the bonds exercise was
premised.
F
[56] The ‘ring fencing’ works on the basis that the receipt of the existing
contract would be paid into the RA and the FSRA to which the trustee would
be the authorised signatory.
G [57] Under the scheme, KAF’s obligation in relation to the designated

accounts is set out in schedule A to the SFA which contains the conditions
precedent to the bonds issue. One of the conditions precedent is CP11, which
reads:
H 11. Confirmation by the Issuer to the Lead Arranger that it has opened the
Designated Accounts and mandates (in form and content acceptable to the Lead
Arranger) in respect of the Designated Accounts.
[58] CP11 must be read together with cl 3.1 of the SFA, which reads:
I
3.1 Condition Precedent
The obligation of the Issuer to issue the ABBA Bonds and the agreement of the
Primary Subscriber to accept and receive the ABBA Bonds under this Agreement
shall be expressly subject to this condition that the Lead Arranger has received the
documents and or evidence listed in Schedule A in each case in form and content A
satisfactory to the Lead Arranger and Primary Subscriber.
[59] It is not in dispute that there was no Shariah compliant designated

accounts opened by Pesaka. Instead, upon Pesaka’s request, the DDWG agreed B
to use the existing conventional accounts belonging to Pesaka as the designated
accounts and to convert them by making MTB as the sole signatory. However,
these designated accounts were not fully converted because MTB was not made
the sole signatory to these accounts. In other words, Pesaka was still the
signatory to these accounts, having complete control over the accounts. In C
short, the accounts were not ring fenced when the bonds were issued.
[60] The issue before the court is whether KAF had complied with CP11
before the issuance of the bonds.
D
[61] It was contended on behalf of bondholders and MTB that KAF had
acted in breach of CP11 by issuing the bonds on 1 April 2004 without ensuring
that ring fencing was in place. It was their contention that under CP11, KAF
had first to be satisfied that the designated accounts had been ‘ring fenced’ prior
to the issuance of the bonds. E
[62] In reply, it was argued on behalf of KAF that KAF had fully complied
with CP11 prior to the issuance of the bonds on the basis that Pesaka had by
four letters dated 15 March 2004 confirmed that Pesaka had opened
F
designated accounts to be managed and operated by MTB. Furthermore, the
transactional solicitor had through its letters to KAF dated 25 March 2004 and
29 March 2004 confirmed that all the conditions precedent had been met.
HIGH COURT
G
[63] The learned judge disagreed that KAF’s responsibility ended by

receiving the confirmation alone. She held that it is ‘the responsibility of KAF
to see that the condition precedent was fulfilled in real term and not in
executrix stage alone.’ She expressed the view that KAF’s duty was to ensure H
that the ring fencing feature of the designated accounts must exist in reality and
these features are to endure till the maturity of the bonds. She concluded that
the ring fencing was in fact not in place and therefore KAF was in breach of its
duty under CPU.
I
COURT OF APPEAL
[64] In affirming the findings of the High Court, the Court of Appeal held
that before KAF could issue the bonds, KAF had to be satisfied that CP11 had
A been complied with. In order to do so, KAF as lead arranger, facility agent and
issue agent, had to independently verify that they were all in place.
Confirmation by Pesaka was no proof that the required designated accounts
with the mandates had actually been opened. In its judgment, it held that ‘KAF
had to be absolutely sure that the required designated accounts with MTB in
B sole control were in place before the issuance of bonds. The stable door must be
first closed. The accounts into which revenue would be deposited must be in
operation and in the sole control of MTB before bonds could be issued. Only
such accounts could be designated accounts. But even so, those accounts must
be Shariah compliant.’
C
THIS COURT
[65] Shariah compliant was not an issue before us. As it would appear from
submissions of parties, what is critical is the absence of ring fencing in respect
D of the designated accounts which was the proximate cause of the loss. Having
said that, therefore, the issue before us is whether the High Court and the
Court of Appeal were right in their decision in holding that KAF had acted in
breach of CP11 in issuing the bonds.
E
[66] We think it is relevant to consider the circumstances which led to KAF
being satisfied that CP11 had been complied with. For this, we have to consider
the various correspondences between Pesaka, KAF and the transactional
solicitor. More importantly, the execution of the trust deed on 19 March 2004
in which MTB was appointed as the trustee.
F
[67] The powers and duties of MTB as trustee may be gathered from the
following clauses of the trust deed. Clause 7.3 of the trust deed provides:
7.3 Entitlement:
G
The Issuer agrees and covenants that the Trustee is entitled to take such action and
to exercise all rights and remedies and discretion pursuant to the terms of this Deed
and the other Issue Documents together with such powers as are reasonably
incidental thereto.’
H
And cl 8 of the trust deed provides:
8. DESIGNATED ACCOUNTS
8.1 Designated Accounts:

I
The Issuer shall open (where applicable) and maintain the following Islamic based
income bearing accounts with a Commercial Bank acceptable to the Trustee:
(a) Disbursement Account;
(b) Finance Service Reserve Account;
(c) Revenue Account; and A

(d) Operating Account.
Other than the Operating Account, all other Designated Accounts shall be operated
solely by the Trustee. The Operating Account shall be operated solely by the Issuer.
B
[68] It would appear that it is the duty of Pesaka to open the designated
accounts and the designated accounts shall be operated solely by MTB as the
trustee.
C
[69] Clause 12.3 of the trust deed provides for the appointment of MTB as
the attorney of Pesaka. It reads:
12.3 Power of Attorney
The Issuer hereby irrevocably APPOINTS the Trustee or such other person or D
persons as the Trustee may designate as its attorney or attorneys and in the name of
the Issuer in the name of the attorney or attorneys and on its behalf to do all such acts
and execute in its name or otherwise all such documents and instruments as may be
deemed necessary or expedient by the Trustee to protect or otherwise perfect the
interest of the Trustee and/or the ABBA Bondholders under this Deed or which may E
be required for the full exercise of all or any of the powers and rights conferred on the
Trustee under this Deed …’
[70] Pursuant to cl 12.3 of the trust deed, a power of attorney was executed
on 19 March 2004 by Pesaka in favour of MTB. F
[71] Clause 2 of the power of attorney grants upon the trustee such broad
powers and rights to do any act or take any action on behalf of Pesaka.
The said cl 2 reads as follows: G
2. APPOINTMENT
The Issuer hereby by way of security appoints the Trustee or any authorized officer
of the Trustee or any Insolvency Official, each with full power of substitution and
H
each with full power to act alone, to be its attorney and in its name and on its behalf
to execute and as its act and deed or otherwise to do all such assurances, acts or things
which the Issuer ought to do under the covenants and obligations contained in the
Security Documents, and generally in its name and on its behalf to exercise all or any
of the powers vested in the Trustee, or any authorized officer of the Trustee or any
Insolvency Official and (without prejudice to the generality of the foregoing): I
(a) to execute, seal and deliver and otherwise perfect any deed, assignment,
transfer, assurance, agreement, instrument or act which may in the opinion
of such attorney be required or deemed proper, necessary or desirable in or
for any of the purposes of the Security Documents;
A (b) to file any claim, to take any action or institute any proceedings which the
Trustee may deem to be necessary or advisable and to execute any
documents and do anything necessary or desirable under any of the
Security Documents and with full power to delegate any of the powers
hereby conferred upon it.
B
[72] On 24 March 2004, the transactional solicitor deposited the trust deed
and the power of attorney with the registry of the Kuala Lumpur High Court.
C [73] On 25 March 2004, the transactional solicitor forwarded a letter to

KAF confirming that other than conditions precedent numbered 7 and 9, all
conditions precedent as set out in schedule A of the SFA had been fulfilled by
Pesaka. This was followed by a letter dated 29 March 2004 from the
transactional solicitor to KAF confirming that Pesaka had fulfilled conditions
D precedent 7 and 9 of schedule A to the SFA.
[74] Under CP11, KAF is only required to obtain the confirmation and the
mandates from Pesaka that the designated accounts had been opened. The
letters from Pesaka dated 15 March 2004 relating to the designated accounts
E clearly stated that Pesaka had opened the designated accounts to be managed
and operated by MTB. Judging from Pesaka’s letters, it is incorrect to say that
the accounts are yet to be opened or at the executrix stage as stated by the
learned judge.
F [75] In view of the above, we think it is justified for KAF to be satisfied that
the designated accounts had been opened and the MTB had been made the sole
signatory to the designated accounts. In other words, the designated accounts
had been ring fenced. KAF had no knowledge that the designated accounts had
not been opened what more ring fenced.
G
IS IT KAF’S DUTY TO INDEPENDENTLY VERIFY THAT THE
DESIGNATED ACCOUNTS WERE IN FACT RING FENCED?
H [76] The Court of Appeal in its judgment stated that it was KAF’s duty, as
lead arranger, facility agent and issue agent, to independently verify that the
designated accounts had been opened with MTB in sole control prior to the
issuance of the bonds. The Court of Appeal further held that the confirmation
by Pesaka was no proof that the required designated accounts with the
I necessary mandates had actually been opened.
[77] With respect, we think that the Court of Appeal had placed a much
higher burden on KAF than what is required under the issue documents. There
is no such contractual duty in the issue documents for KAF to independently
verify that MTB had been made the sole signatory to the designated accounts. A
Under the SFA, KAF’s duty as the lead arranger is merely to ensure that Pesaka
had opened the designated accounts and that the mandates in form and
content are acceptable to KAF.
B
[78] Further, we are of the opinion that the Court of Appeal had
misinterpreted CP11 and did not give sufficient weight to the fact that the
transactional solicitor had certified the fulfillment of CP11 in their written
opinion to KAF.
C
[79] It should be pointed out that MTB did commence a separate action
against the transactional solicitor in the High Court. However, MTB failed in
its action. MTB then appealed to the Court of Appeal but later withdrew. In
the circumstances, we hold that it is not unreasonable for KAF to act on the
advice of the transactional solicitor. Hence, KAF was not relying on the D
confirmation by Pesaka alone. More importantly, the transactional solicitor
was appointed by Pesaka’s board of directors’ resolution dated 15 January 2004.
[80] Therefore, it can reasonably be concluded that when the bonds were
issued on 1 April 2004, KAF was fully satisfied that all the conditions precedent E
in schedule A of the SFA, including CP11, had been complied with.
[81] For the above reasons, we find that KAF had not acted in breach of
CP11 when KAF issued the bonds on 1 April 2004.
F
CAUSE OF LOSS
[82] The next issue to be considered is the cause of loss. From the evidence,
the cause of loss is directly attributable to Pesaka, who had misappropriated the G
fund. The facts revealed that instead of using the monies to repay the
bondholders, Pesaka had utilised the monies for its own purposes in breach of
the terms and conditions as contained in the issue documents.
[83] The Court of Appeal held that the most proximate cause of the loss was H
the issuance of the bonds by KAF on 1 April 2004 without the ring fencing in
place. The Court of Appeal so held on the ground that had KAF not issued
those bonds on 1 April 2004, there would not have been any loss even if the
ring fencing was not in place.
I
[84] The Court of Appeal was of the opinion that it was the duty of KAF to
put MTB on board as trustee of the designated accounts prior to the issuance
of the bonds. With respect, we are of the view that the Court of Appeal erred in
coming to its finding because it is not supported by the issue documents. As a
A matter of fact, KAF is not a party to the trust deed. It is strictly between the
issuer and MTB. As we have said earlier in this judgment, MTB had wide
powers and rights under the trust deed and the power of attorney to take the
necessary action to ring fence the account prior to the issuance of the bonds. It
is a fact found by the courts below that MTB was duly notified of the proposed
B date of issuance of the bonds by KAF. There is no reason for MTB not to take
immediate action to ring fence the designated accounts prior to the issuance or
immediately after the bonds were issued. In the present case MTB chose to do
nothing.
C
[85] Alternatively, MTB could have exercised its powers and rights under the
power of attorney to stop the withdrawal from the designated accounts by
Pesaka after the bonds were issued.
D [86] The Court of Appeal in its judgment correctly noted that MTB was
notified of the bonds issue which was originally on 26 March 2004 (then
rescheduled to 1 April 2004) but MTB took no assertive step to control those
conventional accounts before the issuance of the bonds. The Court of Appeal
further stated that MTB could have informed KAF that the designated
E accounts were yet to be ring fenced but MTB did not do so. For this reason, the
Court of Appeal held that MTB was equally accountable for the loss.
[87] Premised on the above, it is our view that the most proximate cause of
the loss was the failure on the part of MTB to ring fence the designated
F accounts or alternatively to stop Pesaka from operating the designated
accounts. MTB could have done that by using its powers and rights as vested
upon it by the trust deed and the Power of Attorney. In our view, MTB is
wholly to blame for the loss and not KAF.
G CONCLUSION
[88] In the result, the appeal by KAF is allowed with costs, both here and in
the courts below and the orders of the High Court and the Court of Appeal are
H set aside.
[89] This court had also granted leave to appeal to MTB on the following
questions of law:
I QUANTUM
(i) Is a trustee who has been adjudged to be negligent liable to compensate a

bondholder in full for the face value period of the bond, or only to the extent
of what the bondholder would have received had the trustee not been
negligent?
(ii) In assessing the measure of damages a trustee is adjudged to be liable for by A

reason of the trustee’s negligence, whether account has to be taken of what
the beneficiary would have received had the breach not been committed, or
is the beneficiary entitled to be indemnified in full?
B
PRE JUDGMENT INTEREST
(i) Whether the power of the court to award pre-judgment interest can be
exercised in regard of an express provision in the trust deed?
(ii) Whether in an action brought on a breach of obligation on an Islamic C
financing transaction whether the interest or compensation can be awarded
by a court?
(iii) Whether compensation for loss on a pre-judgment basis can be qualified in
the absence of clear evidence on the date to be sanctioned by the Syariah
Advisory Council? D
PESAKA’S INDEMNITY
Can a party (‘the first party’) who is adjudged to be liable on the basis that they acted E
fraudulently and who received the full benefit of their illegal act be permitted to
retain some measure of their ill-gotten gains on the basis that the party to indemnify
(‘the second party’) was negligent and whose negligence facilitated the wrongdoing
by the first party?
F
[90] In respect of MTB’s appeal the main issues that call for determination
may be summarised as follows:
(a) The liability of MTB in relation to its roles in the bond issue.
(b) The quantum recoverable by the bondholders against MTB. G
(c) The bondholders’ entitlement to pre-judgment interest.

(d) The liability of Pesaka and the extent of indemnity recoverable by MTB.
H
LIABILITY
[91] As held earlier in this judgment MTB is wholly to blame for the loss
suffered by the bondholders. To reiterate, the most proximate cause of the loss I
was the failure on the part of MTB to ring fence the designated accounts or
alternatively to stop Pesaka from operating the designated accounts. MTB
could have done that by using its powers and rights as vested upon them by the
trust deed and the power of attorney. In our judgment, MTB is wholly to blame
A for the loss and not KAF. As a result, the appeal by MTB against the order of
Court of Appeal in apportioning liability between MTB and KAF at 50:50 has
to be dismissed with costs. Hence, MTB is 100% liable to the bondholders.
QUANTUM RECOVERABLE BY THE BONDHOLDERS AGAINST

B MTB
[92] Having found that MTB is wholly liable we must now ascertain
whether MTB is liable for the full amount of RM149,315,000 which the issuer
C (‘Pesaka’) would have to pay to the bondholders. The High Court had found
that MTB and KAF were liable for the full sum of RM149,315,000. The
decision was upheld by the Court of Appeal but the final order of the Court of
Appeal was for the sum of RM149,300,000. However, on perusing the records
and the Court of Appeal’s judgment, we cannot find any reason why the Court
D of Appeal had ordered this sum of RM149,300,000 instead.
[93] The reasons given by the Court of Appeal in upholding the decision of
the High Court are as follows:
E
[30] The actual loss occasioned by the absence of ‘ring fencing’ was RM107m,
which was the total revenue that was deposited into Pesaka’s conventional accounts
at the CIMB Cosway Branch. It was argued that any assessment of MTB’s liability
should be based on that RM107m. Common law provided that bondholders would
be indemnified for their total loss, which was the total face value of the bonds.
F Written law was not any different. Section 57 (deleted by Act 1305) of the SC Act
1993 provided that ‘a person who acquires, subscribes for or purchases securities and
suffers loss or damage as a result of any statement: or information contained in a
prospectus (the definition of which included the IM) that is false or misleading, or
any statement or information contained in a prospectus from which there is a
G material omission, may recover that amount of loss or damage from’ ’the issuer … a
principal advisor …’. As said, there were false and or misleading statements in the
IM. The IM stated the contact sum was RM150,613,200, but failed to disclose that
the revenue that would be received would be substantially less than the contract
sum, as the contracts had already been partly paid at the time of issuance of the IM.
H The IM also imparted that a foreign exchange loss claim for RM31,529,338 had
been approved. The note at the bottom of 2562AR which read ‘Bomba vide
[3118AR] has agreed to compensate [Pesaka] on losses arising out of foreign
exchange differences, on its contracts with [Pesaka] (ie contracts number (ii) and
(Hi) in the table above)’ was entirely economical with the true. The truth was that
I the Fire and Rescue Department merely acknowledged a foreign exchange loss claim
for an unspecified amount (see 3118AR). Those statements on the revenue at
2562AR could not have been true, as the total revenue actually deposited after the
issuance of bonds, which was the acid test on the truth of the statements in 2562AR,
was only RM107m and not RM180m.
That clearly evinced that the statements at 2562AR were false and misleading. Had A
‘ring fencing’ been in place, MTB would only have had RM107m to redeem the
bonds, and the shortfall would have to be covered by Pesaka, KAF and MTB.
Clearly therefore, the fact that only RM107m was lost would not assuage the
liability of KAF or of MTB.
B
[94] Before us, learned counsel for MTB submitted that any liability
attaching on MTB must be limited only to the amount that went into the RA
from the existing contracts. And the amount that came into the RA did not
exceed RM107m. Learned counsel for the bondholders conversely submitted
that MTB has to compensate the bondholders ‘in full for the face value of the C
bond’ as it represented the latter’s true loss. As an authority for this proposition,
learned counsel referred us to the case of Bartlett v Barclays Bank Trust Co Ltd
(No 2) [1980] 2 All ER 92 wherein Justice Brightman had summarised the
relevant principles on the measure of damages payable by a trustee to a
beneficiary/estate for breaches of trust as follows: D
(a) the obligation of a defaulting trustee is to effect restitution to the trust

estate;
(b) until restitution has been made, the default continues because it has not
been made good; E
(c) the obligation of a trustee who is held liable for breach of trust is
fundamentally different from a contractual or tortious wrongdoer;
(d) the trustee’s obligation is to restore to the trust estate the assets of which
he (the trustee) has deprived it; and F
(e) in the case of a wilful default by a trustee, that is, a passive breach of trust,
viz an omission by a trustee to do something which as a prudent trustee
he ought to have done, the court is entitled to order an account, that is,
a roving commission. G
Learned counsel submitted that the Court of Appeal in our instant case had
applied similar principles which were relied upon by the House of Lords in
Target Holdings Ltd v Redferns (a firm) [1995] 3 All ER 785 and rightfully held
that MTB ‘who had the duty to shut the door’ would have to restore the total
loss suffered by the bondholders. H
[95] We have deliberated on this issue, and with respect we are unable to
agree with the bondholders’ contention on this point. On the contrary we are
inclined to agree with learned counsel for MTB. On the evidence, we find that
there is no serious dispute as to the total sum of monies that was received and I
dissipated by Pesaka from the RA which did not exceed RM107m. This was
even acknowledged by the Court of Appeal which clearly stated that ‘the actual
loss occasioned by the absence of ‘ring fencing’ was RM107m’. Thus, we are of
the view that judgment should not and cannot be entered for the sum of
A RM149,315,000 against MTB in favour of the bondholders, which sum

represents the redemption value of the bonds. First, as rightfully pointed out by
learned counsel for MTB the sum of RM149,315,000 would include a sum of
RM31,529,338 which was stated to be the value of a foreign exchange loss
claim, a sum which was never approved and never meant to be received by
B Pesaka for which MTB can never be held liable for, as it had nothing to do with
the evaluation of the foreign exchange claim. Secondly, to hold MTB liable for
the full amount of Pesaka’s indebtedness would amount to treating MTB as if
it was either the primary debtor or guarantor. It is pertinent to note that in
actual fact MTB was neither the primary debtor nor a guarantor to the bonds
C issue. Instead MTB was the trustee who failed to ring fence the sum of
RM107m that came into the RA. The amount that came to the RA does not
exceed RM107m. Under the circumstances, we are of the view that MTB
should only be liable for RM107m and not the full amount of
RM149,315,000 as ordered by the High Court.
D
[96] Thus, our answers to the two questions posed on quantum would be
that MTB is not liable to compensate the bondholders in full for the face value
of the bond. Accordingly, this part of MTB’s appeal is allowed with costs. We
make an order that MTB is liable only to RM107m and not the full amount of
E RM149,315,000.
PRE-JUDGMENT INTEREST
[97] The High Court had rejected the bondholders’ claim for pre-judgment
F
interest. The rejection was based on cl 39 of the trust deed which reads as
follows:
NO PAYMENT OF INTEREST
G For the avoidance of doubt and notwithstanding any other provision to the contrary
herein contained, it is hereby agreed and declared that nothing in this Deed shall
oblige the Issuer, the Trustee or any ABBA Bondholder to pay interest (by whatever
name called) on any amount due or payable to other parties to this Deed or to
receive any interest on any amount due or payable to the Issuer, the Trustee or any
ABBA Bondholder or to do anything that is contrary to the teachings of Islam.
H
[98] The High Court in rejecting the bondholders’ claim for pre-judgment
interest gave the following reasons:
I I have carefully considered the language in clause 39 and I find that it is not so much
a matter of Syariah principles for the fact of this case but that the parties have simply
agreed not to impose interest. And although it was argued by the Plaintiffs that their
right of action did not arise from the trust deed but founded under Section 11 of
Civil Law Act as well as Order 42 Rule 12 of the Rules of High Court, it cannot be
denied that the fundamental arrangement between the parties emanate from the
issue documents of which the trust deed is part of. However, the Syariah Advisory A
Council of Bank Negara Malaysia at its fourth meeting which was held on
14.2.1998 had nevertheless resolved that the High Court may impose penalty
charges at the rate of 8% per annum on the judgment sums. This rate however is
only to be allowed for actual loss.
Accordingly, I shall order interest at the rate of 8% not from the date of 1.8.2005 as B
proposed by the Plaintiffs because this is only allowed on the judgment sum and the
sum only becomes the judgment sum as of to date. So I shall order the rate of 8% to
run from today till the date of realization. It meets the ruling or resolution of the
Syariah Advisory Council of Bank Negara.
C
[99] The Court of Appeal decided otherwise. The Court of Appeal granted
the bondholders penalty charges at the rate of 3% on the judgment sum from
30 September 2005 to the date of the judgment. The Court of Appeal gave the
following reasons:
D
[39] The learned judge refused pre-judgment interests to the bondholders, against
which the bondholders cross-appealed. Pre-judgment interests might not be
appropriate in Islamic finance business. But compensation, could it not have been
awarded? Both cl 9.4 of the SF agreement, (2.702AR) and cl 4.4 of the trust deed
(2591AR) identically provided ‘In the event of overdue payment of any amounts
due under the ABBA Bonds Issuance Facility, the issuer shall pay to the Primary E
Subscriber and or ABBA Bondholders compensation, on such overdue amounts at
the rate and in the manner prescribed by the Shariah Advisory Council of the
Securities Commission or such other relevant regulatory authority from time to
time’. Only the promised payments of RM2,565,000 and RM5,950,000 (see
2666AR) towards secondary bonds were paid on time. But when default was F
declared on 30 September 2005, all promised payments towards primary or other
secondary bonds, which then totaled RM149,300,000, fell immediately due. The
SF agreement and trust deed provided that compensation on the overdue sum of
RM149,300,000 would be payable to the bondholders ‘at the rate and in the
manner as prescribed by the Shariah Advisory Council of the Securities
G
Commission or such other relevant regulatory authority from time to time’. There
was no evidence of ‘the rate and in the manner as prescribed by the Shariah Advisory
Council of the Securities Council’. However, s 56(1)(a) of the Central Bank of
Malaysia Act 2009 provided that ‘where the proceedings relating to Islamic financial
business before any court or arbitrator any question arises concerning a Shariah
matter, the court or the arbitrator, as the case maybe shall take into consideration H
any published rulings of the Shariah Advisory Council or refer such question to the
Shariah Advisory Council for its ruling’. As its 50th meeting on 26 May 2005, the
Shariah Advisory resolved ‘that the court may impose late payment penalty charges
on judgment debts as decided by the court (compensation) mechanisms’. The
Council also resolved that the court may impose penalty charges for the actual loss I
(ta’widh), which the Council agreed to adopt the ‘annual average for overnight
weighted rate’ of Islamic money market of the preceding rate as a reference point.
The bondholders who were denied the use of their money for the period 30
September 2005 to the date of judgment (not awarded by the court below — see
72AR) had suffered an actual loss which should have been compensated. For those
A reasons, we unanimously allow the cross-appeal by the bondholders and order KAF
and MTB to pay to the bondholders the penalty charges at the rate of 3% on the
judgment sum from 30 September 2005 to the date of judgment, and the costs of
the latter appeal.
B
[100] Learned counsel for MTB argued that the Court of Appeal erred in its
findings. It was submitted that the parties to the trust deed, and here it would
include the plaintiffs as bondholders, had agreed that no interest would be
payable. It was further submitted that the seeking of interest on the principal
C amount from the date of default that is 30 September 2005 until judgment and
thereafter is a pure and simple interest or riba which the Shariah does not
permit.
[101] We are inclined to agree with learned counsel for MTB on this point.
D We are of the view that the Court of Appeal had erred in allowing pre-judgment
interest, which the High Court had correctly refused, on the premise that the
parties had agreed that no interest will be payable. It is our view that in deciding
the question of interest, the court must consider the express agreement of the
bondholders in the trust deed. In this case, the trust deed as specified under
E cl 39 clearly provides that no interest shall be payable. The trust deed is a
contract and ‘the court has a duty to defend, protect and uphold the sanctity of
the contract entered between the parties’. (See Bank Islam Malaysia Bhd v Lim
Kok Hoe & Anor and other appeals [2009] 6 MLJ 839.) It is unfortunate that the
Court of Appeal appears to have overlooked cl 39 of the trust deed but instead
F erroneously chose to rely on cl 4.4 of the trust deed which reads:
4.4 Compensation:
In the event of overdue payments of any amounts due under the ABBA Bonds, the
G Issuer shall pay to the ABBA Bondholders compensation on such overdue amounts
at the rate and manner prescribed by the Shariah Advisory Council of the Securities
Commission or such other relevant regulatory authority from time to time.
[102] First, we wish to point out that cl 4.4 of the trust deed provides for the
H issuer to pay pre-judgment compensation. As we all know in this case, the
issuer is Pesaka and not MTB. Thus, the fact that the issuer had agreed to pay
‘compensation on such overdue amounts’ cannot be applied to MTB in light of
cl 39. Secondly, there was no evidence adduced of the applicable rate as
prescribed by the Shariah Advisory Council of the SC. Thus, we are of the view
I that the order of the Court of Appeal on this issue must be set aside. We allow
MTB’s appeal on this part of the judgment with costs. The order of the High
Court in rejecting the bondholders’ claim for pre-judgment interest is
reinstated. And our answers to the three questions on pre-judgment interest are
in the negative.
MTB’S CLAIM FOR INDEMNITY FROM PESAKA A
[103] The High Court had dismissed MTB’s claim for an indemnity against
Pesaka. The High Court judge ruled as follows:
In my judgment, the manner in which Mayban Trustees managed the accounts B

when they became aware of withdrawals to me is more consistent with daily routine
banking practices rather than managing these accounts as a trustee of the bond issue
and where the accounts in question are these securitized monies. Alarm bells went
off at the various stages but were either not heard or ignored by Mayban Trustees. As
I had said earlier, Mayban Trustees have not displayed the standard of diligence and C
knowledge not only of a professional specialist trustee in the bond market but one
who is paid. I agree with the submissions of learned counsel for Pesaka that a paid
trustee is expected to exercise a higher standard of diligence and knowledge than an
unpaid trustee. I agree with the authorities that have been cited, Bolam and
Gillespie. I agree that Mayban Trustees has not shown that degree of skill, prudence
care and diligence consistent with the position held at the material time. D
And another factor that has weighed in my mind is the fact that BDO Binder,
chartered accountants reported that the bond proceeds and the contract proceeds
had been duly accounted for and that these monies were actually in fact used for the
ordinary cause of business of Pesaka, its companies and its businesses and lands
E
ultimately acquired were for and on behalf of Pesaka.
Another factor to be taken into account is the fact that Pesaka had informed and had
procured KAF’s consent as well as the DDWG on the use of the existing accounts as
designated accounts. It had prepared the necessary resolutions for the change of
mandates, authorizations and signatories to these accounts. The proceeds of the F
bonds and the monies were released into the accounts upon confirmation by the
third party that the CPs had being fulfilled. These Defendants cannot now to me be
blamed for having relied on the experts and the professionals whom they have
engaged and paid for their opinion, advice and directions.
Finally, the consent judgments which have been entered into by these Defendants G
with the Plaintiff represent in my mind, the accountability of these Defendants for
their acts despite the role of the other Defendants.
In these circumstances, the claim for indemnity against these Defendants must fail.
The counter-claim is therefore dismissed with costs.
H
[104] The Court of Appeal was of a different view on this point. The Court
of Appeal allowed MTB’s appeal on the issue of indemnity but only awarded a
limited indemnity. It gave the following reasons:
I
[48] Negligence of KAF and MTB was held by the learned judge to have disentitled
them to any indemnity from Pesaka, on account of the respective riders in cl 13.1 of
the SF agreement (in the case of KAF) and cl 14.1 of the trust deed (in the case of
MTB). But there was a total failure by the learned judge to enquire if those riders
applied in the first.
A [49] In the first place, could an exemption clause avail to the party guilty of a wilful
breach which goes to the root of the contract? In Karsales (Harrow) Ltd v Wallis
[1956] 1 WLR 936, it was held by Lord Denning that no exemption clause however
widely drafted, could avail the party guilty of a breach which goes to the root of the
contract:
B Notwithstanding earlier cases which might suggest the contrary, it is now
settled that exempting clauses of this kind, no matter how widely they are
expressed, only avail the party when he is carrying but his contract in its
essential respects. He is not allowed to use them as a cover for misconduct of
indifference or to enable him to turn a blind eye to his obligations. They do
C not avail him when he is guilty of a breach which goes to the root of the
contract.
[105] Basically, the Court of Appeal was of the view that there was a total
D failure on the part of the High Court to enquire into the exemption appearing
at cl.14.1 of the trust deed which reads:
14.1 Indemnity:
The Trustee and every other attorney, agent or other person appointed by the
E Trustee under the provisions of this Deed shall be entitled to be indemnified by the
Issuer in respect of all liabilities, costs, charges and expenses incurred by it or him in
relation to this Deed and the other Issue Documents to which it is a party or to the
preparation and execution or purported execution thereof or to the carrying out of
the trusts of this Deed or the exercise of any trusts, powers or discretions vested in it
F or him pursuant to this Deed and the other Issue Documents to which it is a party
and against all actions, proceedings, costs, claims and demands in respect of any
matter or thing done or omitted in anyway relating to this Deed in priority to any
payments to the ABBA Bondholders and the Trustee may retain and pay out of any
moneys in its hands arising from this Deed all sums necessary to effect such
indemnity and also the remuneration of the Trustee as hereinbefore provided, save
G
and except for its gross negligence, wilful default, wilful breach or fraudulent
actions.’
[106] In interpreting the above indemnity clause, the Court of Appeal

H referred to the case of Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936 to the
effect that no exemption clause however widely drafted, could avail the party
guilty of a breach which goes to the root of the contract.
[107] Premised on the above, learned counsel for MTB submitted that the
I Court of Appeal had held correctly that at the end of the day it is a matter of
construction of the clause in question. This according to learned counsel is
evident from a line of cases in Malaysia. This aspect of the submissions is better
highlighted by quoting the exact words employed by learned counsel in the
written submission which state:
The question is in all cases whether the clause, on its true construction, extends to A
cover the obligations or liability which it sought to exclude or restrict (Chitty, para
14-024). The law is that ‘no exemption clause can protect a person from liability for
his own fraud [Chitty meant fraud within the context of section 17 of our Contracts
Act 1950] or require the other party to assume what he knows to be false.
The Court of Appeal held that the issue must be resolved by the proper construction B
of the said exclusion clauses; see Hotel Anika Sdn Bhd v Majlis Daerah Kluang Utara
[2007] 1 MLJ 248), Anderson v Fitzgerald (1853) 4 HLC 484; (1853) 10 ER 551;
and Guardian Assurance Co Ltd v Condogianis (1919) 26 CLR 231. In Hong Realty
(Pte) Ltd v Chua Keng Mong [1994] 3 SLR 819 825, Karthigesu JA said:
C
It is trite law that exemption clauses must be construed strictly and this
mean that their application must be restricted to the particular
circumstances the parties had in mind at the time they entered into the
contract.
D
[108] Learned counsel for MTB advanced his arguments to the effect that
cl 14.1 of the trust deed provided that MTB would be indemnified ‘save and
except for its gross negligence, wilful default, wilful breach or fraudulent
actions’. Those were the particular circumstances that the parties had in mind
at the time when they entered into the trust deed. As such, learned counsel E
submitted that the exemption clause must be strictly construed, meaning that
it must be restricted to those particular circumstances of gross negligence,
wilful default, wilful breach or fraudulent actions by MTB.
F
[109] MTB’s stance on this point is that the exemption clauses discussed in
the preceding paragraphs could not avail to Pesaka as a defence. Clause 14.1 of
the trust deed, on its true construction, could not reasonably have been
intended to apply even when fraud by Pesaka had intervened to alter the
circumstances in which those exemption clauses would ordinarily apply. G
Learned counsel forcefully argued that any other construction would mean
that Pesaka could break every covenant with impunity.
[110] Learned counsel for Pesaka took a diametrically opposing view on this
point in that MTB’s reliance on the indemnity clause was misconceived as they H
were liable for having acted in breach of duties owed to the bondholders.
Pesaka’s stance on this point is that the indemnity provisions did not apply. For
the forgoing reason it was submitted that the Court of Appeal was clearly
wrong when it concluded that the indemnity provisions applied and that
Pesaka was disqualified from relying on the exclusion clauses and MTB was I
entitled to be indemnified.
[111] Having taken into account all that has been said on both sides
pertaining to the issue at hand, we are of the view that the Court of Appeal was
A correct in reversing the High Court decision on the issue of indemnity. As such
we are inclined to agree with learned counsel for MTB on this point that cl 14.1
of the trust deed clearly provides that MTB would be indemnified ‘save and
except for its gross negligence, willful default, willful breach or fraudulent
actions’. It is clear in this case the High Court did not make a finding that MTB
B was guilty of ‘gross negligence, wilful default, wilful breach or fraudulent
actions’. As such the High Court had erred in denying MTB’s claim for
indemnity against Pesaka.
C [112] The next issue is whether MTB should be indemnified in full by

Pesaka. As stated earlier, the Court of Appeal having held that Pesaka should
not benefit from its own fraud went on to make a finding that since MTB was
guilty of gross negligence Pesaka was only ordered to indemnify MTB 2/3 of
RM149,300,000 together with penalty charges at the rate of 3% on the said
D sum from 30 September 2005 to the date of judgment at the rate of 4% at the
date of judgment till the date of satisfaction. The reasoning behind this,
according to the Court of Appeal was that a full indemnity would mean that
MTB was blameless.
E [113] It was submitted before us that the Court of Appeal did not appreciate
the effect of their decision in only granting a limited indemnity in that the real
fraudsters ie Pesaka will stand to gain at least 1/3 of their ill-gotten gains. We
agree it would not be just and equitable for Pesaka who had received the
ill-gotten gains to be put in a position where it can retain those gains or any part
F
of it. The House of Lords had the occasion to consider the issue of contribution
in the context of the situation where one party still retained a portion of the
ill-gotten gains and whether they ought to contribute to the extent of a full
contribution in the case of Dubai Aluminium Co Ltd v Salaam [2003] 1 All ER
G 97.
[114] In that case, Dubai Aluminum, had suffered loss to the tune of
USD50m and the parties who received those monies were Mr Salaam and Mr
Al Tajir. Dubai Aluminum had also sued a firm of solicitors, Amhurst, who
H acted in the fraudulent transactions except that Amhurst were not recipients of
the monies. Amhurst settled the claim and then brought contribution
proceedings against Mr Salaam and Mr Al Tajir. Lord Nicholls of Birkenhead
dealt with the issue as follows:
I 50 The other major factor which weighed with the judge when deciding to direct
that the Amhurst firm should be entitled to an indemnity was that Mr. Salaam and
Mr. Al Tajir had still not disgorged their full receipts from the fraud. The judge
considered (at 475) it would not be just and equitable to require one party to
contribute in a way which would leave another party in possession of his spoils.
51 Mr. Salaam and Mr. Al Tajir submitted that this approach is impermissible. A
Under s. 2(1) of the 1978 Act the court is required to assess the amount of
contribution recoverable from a person which is just and equitable ‘having regard to
the extent of that person’s responsibility for the damage’. ‘Responsibility’ includes
both blameworthiness and causative potency. However elastically interpreted,
‘responsibility’ does not embrace receipts.
B
52 I cannot accept this submission. It is based on a misconception of the essential
nature of contribution proceedings. The object of contribution proceedings under
the 1978 Act is to ensure that each party responsible for the damage makes an
appropriate contribution to the cost of compensating the plaintiff, regardless of
where that cost has fallen in the first instance. The burden of liability is being C
re-distributed. But, of necessity, the extent to which it is just and equitable to
re-distribute this financial burden cannot be decided without seeing where the
burden already lies. The court needs to have regard to the known or likely financial
consequences of orders already made and to the likely financial consequences of any
contribution order the court may make. For example, if one of three defendants
equally responsible is insolvent, the court will have regard to this fact when directing D
contribution between the two solvent defendants. The court will do so, even though
insolvency has nothing to do with responsibility. An instance of this everyday
situation can be found in Fisher v C H T Ltd (No 2) [1166] 1 All ER at 90–91, 2 QB
475 at 481 per Lord Denning MR.
53 In the present case a just and equitable distribution of the financial burden E
requires the court to take into account the net contributions each party made to the
cost of compensating Dubai Aluminum. Regard should be had to the amounts
payable by each party under the compromises and to the amounts of Dubai
Aluminum’s money each still has in hand. As Mr. Sumption submitted, a contribution
order will not properly reflect the parties’ relative responsibilities if, for instance, two F
parties are equally responsible and are ordered to contribute equally, but the
proceeds have all ended up in the hands of one of them so that he is left with a large
undisgorged balance whereas the other is out of pocket.
54 Rix J considered this was obvious. So did Ferris J, in K v P (J, third party) [1993]
1 All ER 521 at 529; [1993] Ch 140 at 149. I agree with them. G
…
59 This suggests that a just and equitable distribution of the burden of liability calls
for a substantial measure of equality between the three of them. In this regard an
unusual, and notable, feature of this case is the extent to which some parties to the fraud,
but not others, remain in possession of substantial amounts of misappropriated money H
even after the plaintiff ’s claims have been met. Taken together Mr. Salaam and Mr. Al
Tajir are still net recipients to the extent of over $20m. If equality of burden is the
goal, the Amhurst firm ought not to be left out of pocket in respect of its $10m
settlement payment. The firm should not be out of pocket so long as Mr. Salaam and
Mr. Al Tajir retain a surplus in hand. Unlike Mr. Salaam and Mr. Al Tajir, neither the I
Amhurst firm nor Mr Amhurst received any money from the fraud.
[115] Similarly in the present case it is obviously not just and equitable to
allow Pesaka to keep the ill-gotten gains or any part of it. This is especially so
A when the bondholders have not taken any step to enforce the consent
judgment entered between Pesaka and the bondholders and instead focus their
attention to MTB on the basis that MTB is in the position to satisfy the
bondholders’ claim. Thus, by allowing indemnity in full, Pesaka will be called
to meet its obligation in full.
B
[116] We would therefore answer the question on Pesaka’s indemnity in the
negative. In the result, we allow MTB’s cross-appeal with costs and order full
indemnity against Pesaka.
C
[117] We now deal with the appeal by Murnina against MTB for the order
of indemnity obtained by MTB against her in the Court of Appeal.
[118] The background facts need to be restated although some had been
D mentioned earlier in our judgment.
[119] MTB had filed for a notice of contribution dated 3 June 2009 and
further re-re amended defence and counterclaim on 15 September 2009, inter
E alia, against Pesaka, Rafie, Murnina and the Amdac Group claiming for, among
others a declaration as well as judgment to the effect that MTB is entitled to be
indemnified in full by them for any judgment that may be entered in favour of
the bondholders or any one of them against MTB.
F [120] MTB’s claim for indemnity against Pesaka, Rafie, Murnina and the
Amdac Group is on the basis that they are constructive trustees over the monies
in the RA and which they had dominion over by virtue of being the directors
or chief executive officer and signatories to the bank accounts.
G
[121] MTB also claimed that a constructive trust is imposed on them by
reason of their knowledge that the monies in the RA were trust monies and that
they knew that the monies were being misapplied or were reckless as to their
application.
H
HIGH COURT
[122] On 7 July 2008, a consent judgment was recorded between the

bondholders and the defendants (Pesaka, Rafie, Murnina and the Amdac
I Group) whereby it was agreed that:
(a) judgment be entered against Pesaka in the sum of RM149,315,000
together with interest at the rate of 8% per annum from 1 October 2005
to date of satisfaction;
(b) Rafie and the Amdac Group agreed to pay to the bondholders general A
damages to be assessed together with interests thereon at the aforesaid
and period; and
(c) the bondholders withdraw their action against Murnina.
B
[123] After a full trial, judgment was given in favour of the bondholders
against the remaining defendants whereby:
(a) The bondholders’ claim against MTB and KAF was allowed on the
apportionment of 60:40 respectively. Judgment in the sum of
RM149,315,000 was accordingly entered. C
(b) The High Court however dismissed MTB’s claim for indemnity against
Murnina (and against Pesaka, Rafie and the Amdac Group) absolving her
obligation to pay in view of MTB’s negligence in not showing ‘a degree of
skill, prudence, care and diligence’ as a paid trustee. According to the D
Court of Appeal, the trial judge found as follows:
… MTB was negligent … that clauses 28.2 and (14.1) of the trust deed
disallowed an indemnity claim where there was gross negligence on the part of
MTB (64AR) … that the bond proceeds and said revenue were in fact used for
the ordinary course of business of Pesaka, its companies and its businesses and E
lands ultimately acquired were for and on behalf of Pesaka … that Pesaka had
informed and procured KAF’s consent for the use of the existing accounts as
designated accounts, that Pesaka prepared the necessary resolutions for the
change of mandate, authorisations and signatories to those accounts, that the
proceeds of the bonds and monies were released into the accounts upon F
confirmation by the third party that the CPs had been fulfilled, that these
defendants cannot now to me be blamed for having relied on the experts and
the professionals whom they have engaged and paid for their opinion, advice
and directions … that the consent judgment which have been entered into by
these Defendants with the plaintiffs represent in my mind, the accountability
of these defendants for their acts despite the role of the other defendants. G
(c) Nevertheless, with regard to the role and liability of Murnina, the High
Court held as follows:
These are my findings. I in fact first of all agree that this is an appropriate case H
for the lifting of the veil of incorporation as the evidence indicates that all the
activities of Pesaka as well as the 6-12 Defendants were directed for the benefit
of Dato’ Rafie who together with her wife own (90%) of Pesaka. Datin
Murnina may say that the shares were held by her on trust for husband and
that he does not seem to have considered her as joint owner but merely as I
holding the properties on his behalf. I agree with Mayban Trustees’
proposition that the impression given of them being in control, these 2
Defendants being in control of Pesaka and its group of companies is
consistent with the fact that Dato’ Rafie himself had given evidence that he
considered Pesaka his personal property and he exercised actual control over
A them including the monies and the accounts though they were carried out by
other personnel in his companies. I’m not going to set out, I agree that on the
findings revolved around the reasoning in Wallersteiner v Moir, Gilford Motor’s
case to find that the directing mind and controlling minds behind Pesaka and
the Amdac Group of companies is the Defendants. In my view, Datin
Murnina remains liable even if she chose not to know or if she allowed herself
B
to be used by Dato’ Rafie regardless of her personal reasons as to me she has
chosen to enter into the realm of the corporate world and engage with the
public especially in matters concerning raising public funds through this
bond issue. It’s not an uncommon feature today that many now choose to
work from home without the benefit of office space, without attending
C meetings and without even email particularly in this 21st century. It would be
disastrous if directors such as Datin Murnina would be absolved from
accountability for the reasons that she has proffered. Here monies moved in
and out of the accounts and she signed for such movements and was the
recipient of these monies insofar as these investment and shares were in her
D name. Therefore I find that she knowingly received proceeds of the trust
money and for these reasons she has rightly been brought in.
THE COURT OF APPEAL

E
[124] An appeal was filed by MTB against Rafie, Murnina and the Amdac
Group against the High Court’s refusal to grant MTB’s claim for an indemnity
or contribution from the directors of Pesaka and the Amdac Group.
F
[125] In respect of the issue of lifting the corporate veil, the Court of Appeal
discussed the position and the extent of Murnina’s involvement in the
operation, management and business of Pesaka and the Amdac Group and
came to this opinion:
G
[66] There was no appeal by Pesaka, Rafie, Murnina, or the Amdac Group to
challenge the lifting the corporate veil or to contest those findings of fact (see above)
that led the learned judge to lift the corporate veil. Mr Wong Kian Keong for
Murnina nonetheless submitted that there was no case for the lifting of the corporate
veil. But on the basis of high authority, it would seem that no credence should be
H given to that submission.
…
[69] Be that as it may, we are nonetheless of the unanimous view, that is, after all
consideration of the facts and circumstances, that the corporate veil should be lifted.
I On that, we are at one with the learned judge. First, it was all so evident that Rafie
and Murnina absolutely ruled the roost. That was evident from the pleadings alone.
Pesaka, Rafie and the Amdac Group pleaded (i) that all major decisions of Pesaka
were taken by Rafie (183AR), (ii) that the only directors of the Amdac Group of
Companies was Rafie and Murnina and Murnina practically owned the entire
equity of the Amdac Group of Companies (save for the eight Defendant — Amdac
Capital) (183AR read together with 152AR). Pesaka, Rafie and the Amdac Group A
pleaded that ‘the shares of the Amdac companies although in the names of Rafie and
Murnina, were at all material times, held upon trust for Pesaka and the Amdac
companies were treated as part of the Pesaka Group of Companies’ (183AR). And
Murnina pleaded that all her shares in Pesaka were held upon trust for Rafie
(207AR) and that all her shares in the Amdac Group were held upon trust for Pesaka
B
(207AR read together with 152AR). Given that state of the pleadings, the original
defendants admitted that Rafie owned both Pesaka and the Amdac Group through
Pesaka, and that Murnina who was a bare trustee for Rafie or Pesaka owned nothing
in her own right.
[70] The evidence was no different. Rafie testified that whatever belonged to him C
belonged to Pesaka {1730AR), that he and Murnina owned nearly 90% of Pesaka
(1730AR) and that he regarded Pesaka as his personal property (1730AR) and or as
his family company (1731 AR). Murnina testified that all her shares in the Amdac
Group were held upon trust for Pesaka (1382AR) and or Rafie (1407AR), that her
Bukit Jelutong lands were held upon trust for Pesaka (1407AR), and that her 87%
of the issued capital of Pesaka was held upon trust for Rafie (1398AR). The trust D
deeds dated 9 June 1997 (8133AR) and 11 June 2003 (8134AR) also confirmed that
Murnina held all her shares in Pesaka upon trust for Rafie.
[71] It could not be any clearer. The directing minds of Pesaka and the Amdac
Group were Rafie and Murnina who had absolute control of those companies at all
material times. Rafie and Murnina were the principals behind Pesaka and the Amdac E
Group. Rafie, Murnina and the Amdac Group were indistinguishable as separate
economic units. All notional separateness could be disregarded (Sunrise Sdn Bhd v
First Profile (M) Sdn Bhd & Anor [1996] 3 MLJ 533). And with their absolute
control of Pesaka and the Amdac Group, Rafie and Murnina had fraudulently
transferred the revenue to Murnina and the Amdac Group who had no right F
whatsoever to that revenue or to retain or use the same for whatever reason or
purpose, in breach of every covenant that they, through their alter ego, had entered
into with KAF and MTB. Murnina, who had signed the security documents and the
instructions to the CIMB Cosway Branch to transfer the revenue to herself and to
the Amdac Group, and so was right up to her neck in complicity in the loss of the
revenue, could not play humble housewife to feign ignorance. The indisputable G
truth was that Rafie and Murnina, with their dominion through Pesaka over the
revenue, had fraudulently misappropriated and converted the revenue that
belonged to the bondholders, in violation of the security documents. That was
fraud, plain and simple, in every sense of the word. The veil of corporation must be
ignored in the face of this unashamed fraud on KAF, MTB, and the bondholders H
(see Re Darby ex parte Brougham [1911] 1 KB 95). Rafie and Murnina and the
Amdac Group should not be allowed to claim limited liability through the corporate
shield. The court should pull aside the corporate veil and treat Pesaka and the
Amdac as being their creatures, for whose doings they (Rafie and Murnina) should
be responsible (see Wallersteiner v Moir; Moir v Wallersteiner & Ors [1974] 3 All ER
I
217). There was only justification to pierce the corporate veil, to ascertain the actual
ownership of assets (Aspatra Sdn Bhd & Ors v Bank Bumiputra Malaysia Bhd & Anor
[1988] 2 MLJ 97, to enable creditors to reach the assets of Rafie, Murnina and the
Amdac Group. If not, then Rafie and Murnina and the Amdac Group would make
off with the revenue. Justice positively demanded that Rafie, Murnina, and the
A Amdac Group be ordered to indemnify MTB (see Jones and another v Lipman and
another [1962] 1 All ER 442 … see also Gilford Motor Co v Home [1933] CH 935).
THIS COURT
B
[126] Before us, Murnina is now appealing the Court of Appeal’s decision in
ruling that the corporate veil of Pesaka be lifted in allowing MTB’s indemnity
claim against her together with Rafie and the Amdac Group.
C
[127] Learned counsel for MTB submitted that, at trial, Rafie had admitted
that the funds of the issuer were utilised to invest in the Amdac Group in
various investments both locally and abroad. The common pattern was that the
assets would ultimately be in the names of either Rafie or Murnina. The
D documentary evidence clearly demonstrated that Murnina’s knowledge of the
bonds issue was far more extensive than what she sought to portray, despite her
counsel’s plea that she merely played the role of homemaker and dutiful
housewife. Murnina allowed herself to be used by Rafie in carrying out the
design to move monies out of the trust account as well as to be recipient of
E those monies on those assets which are in her name. She executed various
resolutions in relation to the bonds issue including all resolutions pertaining to
the opening of the designated accounts. She conceded that she made it a point
to read the documents she signed. In short, she had the knowledge that she was
used by Rafie to move out the monies from the trust accounts. The Court of
F Appeal and the High Court were therefore not wrong in lifting the corporate
veil and in finding her liable. We agree with MTB’s position that the various
entities, Pesaka included, were a mere facade to perpetrate the acts. The
corporate veil cannot, in our view, be a defence for Murnina from the claim for
indemnity by MTB.
G
[128] We are also in agreement with MTB’s stand that Murnina was guilty of
having been in ‘knowingly receipt’ of the revenue from the background facts as
adverted to earlier. The trial court in fact made such a finding and this we
affirm. Murnina had in our view acted dishonestly when she misapplied the
H proceeds of the trust monies. This simply means that she had not acted as an
honest person would in the circumstances (see Royal Brunei Airlines Sdn Bhd v
Tan [1995] 3 All ER 97 which describes such act as a ‘conscious impropriety’).
Lord Nicholls in that case said, ‘Honest people do not knowingly take others’
property or participate in a transaction he knows involves a misapplication of
I trust assets or in such a case deliberately close his eyes or ears, or not ask
questions, lest he learn something he would rather not know’. Murnina thus
cannot escape liability by playing blind and pleading ignorance. She had
participated in committing the breaches of duty by Pesaka and Rafie and must
be held liable.
[129] In the circumstances, this court must intervene by imputing a A

constructive trust upon Murnina (as well as Rafie) for her role in misapplying
the trust monies. Constructive trust is ‘a trust which is imposed by equity in
order to satisfy the demands of justice and good conscience, without reference
to any express or presumed intention of the parties’ (per Arifin Zakaria Chief
Justice in Hassan bin Kadir & Ors v Mohamed Moidu bin Mohamad & Anor B
[2011] 4 MLJ 190; [2011] 4 AMR 677). Equity therefore demands that
Murnina (and Rafie) must not be allowed to keep those monies and in the
process unjustly enrich herself (see Fernrite Sdn Bhd v Perbadanan Nasional Bhd
[2012] 1 MLJ 1; [2012] 5 MLRA 421).
C
[130] As regards Murnina’s counsel’s submission that MTB has no legal

standing to pursue this action since the bondholders had entered a consent
judgment with Murnina (and Rafie and the Amdac Group) and withdrawn the
suit against her, we hold that there is no merit in this submission in view of our D
earlier findings.
[131] With Pesaka having admitted full responsibility to the bondholders via
the consent judgment, it would be a travesty of justice that it be allowed to keep
a portion of the ill-gotten gains and accordingly we order that Murnina too E
(and Rafie who together with Murnina owned 90% of Pesaka) must fully
indemnify MTB for the loss. We therefore dismiss her appeal with costs. The
order on indemnity by the Court of Appeal is to that extent set aside.
F
CIVIL APPEAL NO 02(f )-27–04 OF 2012(W) — APPEAL NO (i) (CIMB’S
APPEAL)
[132] CIMB is appealing against the order of the Court of Appeal to

indemnify MTB to the extent of 1/3 of the total liability that MTB would have G
to bear, that is after deduction of the sum to be indemnified by Pesaka, Rafie,
Murnina and the Amdac Group. For purposes of this appeal the following two
questions will be answered:
(a) Having regard to the long established mandate rule for corporate H
customers under the law and practice of banker/customer, whether the
Court of Appeal acted correctly in holding that CIMB was liable as a
constructive trustee to a third party viz Mayban Trustees for monies held
in an account operated at its Cosway branch at all material times by the
customer of the said account, viz, Pesaka through its duly authorised I
signatories?
(b) Not having found CIMB liable under either the ‘knowing receipt’ or
‘knowing assistance’ category, whether the Court of Appeal was
nevertheless right in law in holding CIMB liable as a constructive trustee?
A [133] Even though the antecedents of this appeal have been adequately
provided for under KAF’s appeal, when the need arises, additional details will
be supplied in order to have better comprehension of the matter under
discussion.
B [134] Pursuant to the IM document, the opening of the designated accounts

were required to be undertaken. Despite the want of ring-fencing,
RM8,405,059.90 was deposited into the FSRA held at CIMB (formerly BCB),
Terminal 3, Subang Branch. This was an existing conventional account in the
name of Pesaka. A further sum of RM45,500,000 was deposited into the
C pre-existing escrow account in CIMB at the Cosway branch. Likewise this was
also a conventional account in the name of Pesaka and under its control. MTB
in its counter-claim alleged that this pre-existing escrow account, an account
meant to receive payments from government contracts, was converted into the
RA. The aggregate sum, collected from the bondholders and deposited under
D the two CIMB accounts amounted to RM53,905,059.90 (FSRA and escrow
deposits).
[135] As there was no evidence adduced to show that there was anything
untoward as regards the act of depositing the monies into those two accounts,
E such transaction must have taken place in the course of a normal banking
practice. On the other hand the same cannot be said of the disposals of the
monies from those two accounts. The admission by Pesaka, amongst others,
that practically all the monies had been withdrawn from those two accounts,
part of which were utilised for overseas investments or advanced to its related
F companies, and left the bondholders high and dry.
[136] In this case, MTB had filed a counter claim pursuant to its duties
under the trust deed against CIMB, pleading negligence and breach of duty as
a constructive trustee, in light of the accounts held by Pesaka being maintained
G
by CIMB. As reflected in paras 62, 63 and 64 of the counter claim MTB
alleged that CIMB owed a duty of care to it. The High Court held that not only
was there no duty owed to MTB but a banker-customer relationship existed
between CIMB and the original signatories, namely Rafie and Murnina. The
H
trial judge found that CIMB had not acted dishonestly and thereupon
dismissed MTB’s counterclaim. The Court of Appeal however took a different
view and held that CIMB did owe a duty as a constructive trustee to MTB and
accordingly entered judgment against CIMB; hence this appeal. Thus, the
question is did CIMB commit any breach of constructive trust for those acts of
I
disposals from the CIMB accounts?
[137] In Paragon Finance plc v Thakerar & Co, Paragon Finance plc v
Thimbleby & Co (a firm) [1999] 1 All ER 400 the court had summed it up
succinctly when it held, amongst others:
A constructive trust arises by operation of law whenever the circumstances are such A
that it would be unconscionable for the owner of property (usually but not
necessarily the legal estate) to assert his own beneficial interest in the property and
deny the beneficial interest of another.
(See also Takako Sakao (f ) v Ng Pek Yuen (f ) & Anor (No 2) [2010] 2 MLJ 181;
B
[2010] 1 CLJ 381).
[138] In Datuk M Kayveas v See Hong Chen & Sons Sdn Bhd & Ors [2013] 5
CLJ 949 this court opined:
C
…it may be construed that a constructive trust arises by operation of law irrespective
of the intention of the parties, in circumstances where the trustee acquires property
for the benefit of the beneficiary, and making it unconscionable for him to assert his
own beneficial interest in the property and deny the beneficial interest of another.
Being bereft of any beneficial interest, and with equity fastened upon his conscience,
he cannot transfer any interest to himself let alone a third party. If he does, then a D
constructive trust comes into existence.
[139] The logical sequential question to be resolved is, did CIMB owe a duty
to anyone regarding the two accounts except to Pesaka? It was indisputable that
E
those accounts were under the control of Pesaka, and being conventional
accounts, the signatories were still Rafie and Murnina.
[140] Factually CIMB was in a peculiar position in that it was in a ‘conflict

of interest’ position. Not only was it a bondholder, and thus beneficially F
entitled to the monies in the accounts, but at the same time running a banking
business. Releasing the monies would cause CIMB to suffer equally as any
bondholder whilst any refusal to act on the instruction of Pesaka as a customer
would entail a breach of the banker-customer relationship between them. Yet as
clearly seen, despite the two accounts being under the management of CI MB, G
never for a moment did it take advantage of its position and recover its losses.
Instead the transfers to the other accounts as instructed by Pesaka were
approved. So, where is the evidence to indicate even a trace of dishonesty?
[141] The High Court when rejecting the counterclaim, justified its decision H
by concluding that there was failure by MTB to establish dishonesty on the part
of CIMB, an essential ingredient when intending to establish a breach of
constructive trust. The Court of Appeal in reversing the High Court held that
CIMB owed a duty of care as a constructive trustee to MTB.
I
[142] A perusal of the submission of MTB pointed to its heavy reliance on
the ‘knowing assistance’ proposition regarding the liability of CIMB,
expounded amongst others, by Selangor United Rubber Estates v Cradock (a
bankrupt) and Others (No 3) [1968] 2 All ER 1073, Karak Rubber Co Ltd v
A Burden and others (No 2) [1972] 1 All ER 1210 and Rowlandson and others v
National Westminster Bank Ltd [1978] 3 All ER 370. In those cases dishonesty
was not a relevant ingredient to found liability against a constructive trustee
under the ‘knowing assistance’ proposition; this approach was a major shift as
propounded by Barnes v Addy (1874) LR 9 Ch App 244, which demanded
B that, ‘agents receive and become chargeable with some part of the trust
property, or unless they assist with knowledge in a dishonest and fraudulent
design on the part of the trustees.’
[143] A rethinking was detected in Carl-Zeiss-Stiftung v Herbert Smith & Co

C (a firm) and another (No 2) [1969] 2 All ER 367 (CA) when it opined that an
element of dishonesty or of consciously acting improperly was required to be
established before a trustee could be said to have breached a trust (see also
Belmont Finance Corpn Ltd v Williams Furniture Ltd [1979] 1 All ER 118; Re
Montagu’s Settlement Trusts; Duke of Manchester v National Westminster Bank
D Ltd and others [1992] 4 All ER 308; Lipkin Gorman (a firm) v Karpnale Ltd and
another [1992] 4 All ER 331).
[144] Then came the case of Royal Brunei Airlines which especially clarified
the principles relating to dishonest assistance. In this case, Royal Brunei
E contracted an agency agreement with Borneo Leisure Travel Sdn Bhd (‘BLT’),
wherein it was to sell tickets for the Royal Brunei. The proceeds were then
deposited into a current account which was also the common account to defray
some of BLT’s expenses eg salary and overdrafts. BLT was to hand over the
proceeds of the tickets to Royal Brunei within 30 days. The respondent (Tan)
F was the managing director and the principal shareholder of BLT. Later BLT
went into insolvency and Royal Brunei took action against Tan for knowingly
assisting in breaching a trust. The Privy Council when discussing whether the
breach of trust must be a dishonest and fraudulent breach of trust committed
by the trustee, at the end of the day found Tan, on an objective test, liable. The
G Privy Council when discussing the fault based liability opined:
Given then, that in some circumstances a third party may be liable directly to a
beneficiary, but given also that the liability is not so strict that there would be
liability even when the third party was wholly unaware of the existence of the trust,
H the next step is to seek to identify the touchstone of liability. By common accord
dishonesty fulfils this role.
[145] The above principle was extended by Twinsectra Ltd v Yardley and
others [2002] 2 All ER 377 (HL), when it introduced the two-fold tests of an
I objective and subjective test. In this case, Leach who was a solicitor, acted for
Yardley in a purchase of a piece of property. Financing was needed and Barclays
Bank agreed to finance the purchase. Unfortunately delays happened and an
alternative source had to be found. Twinsectra agreed to finance but subject to
Leach giving an undertaking guaranteeing payment. Leach refused but was
agreed upon by another solicitor ie Sims. Later Barclays’ loan came through A
thus dispensing with the need of Twinsectra’s loan. However Yardley and Sims
proceeded with Twinsectra’s loan, with Sims now assuming the principal
liability over the loan, as Sims owed Yardley monies. This agreement between
them was not known to Leach and Twinsectra except for a proposed draft of the
undertaking seen by the former. Sims handed over the monies to Leach who B
then paid it out on Yardley’s instructions. When Yardiey defaulted and Sims
went bankrupt Twinsectra sued Leach for dishonest assistance of the breach of
trust occasioned by Sims. The trial Judge found Leach not dishonest. The
Court of Appeal disagreed and overturned that decision. The House of Lords
agreed with the trial judge and allowed Leach’s appeal. C
[146] In a gist, a new test was introduced by Twinsectra, in that the concept
of subjective dishonesty became a requirement in a breach of trust situation.
Lord Hoffman at p 382 in this case opined:
D
I do not think that it is fairly open to your Lordships to take this view of the law
without departing from the principles laid down by the Privy Council in Royal
Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378. For the reasons given by my noble
and learned friend, Lord Hutton, I consider that those principles require more than
knowledge of the facts which make the conduct wrongful. They require a dishonest E
state of mind, that is to say, consciousness that one is transgressing ordinary
standards of honest behaviour. I also agree with Lord Hutton that the judge correctly
applied this test and that the Court of Appeal was not entitled, on the basis of the
written transcript, to make a finding of dishonesty which the judge who saw and
heard Mr Leach did not.
F
[147] Lord Hutton at p 384 had added:
Thirdly, there is a standard which combines an objective test and a subjective test,
and which requires that before there can be a finding of dishonesty it must be G
established that the defendant’s conduct was dishonest by the ordinary standards of
reasonable and honest people and that he himself realised that by those standards his
conduct was dishonest. I will term this ‘the combined test’.
[148] Having scrutinised the evidence, we are satisfied that what was H
adduced before the court was merely evidence pointing to CIMB complying
with the instructions given by the banker-customer relationship. In light of the
peculiar position of CIMB, and with no cogent evidence having been adduced
to say otherwise, it is our view that CIMB could not be construed as being
dishonest in the ordinary standards of reasonable and honest people, with itself I
knowing, based on the subjective dishonest test, that what it did was dishonest
when transferring the monies to other accounts. This finding and conclusion
therefore would be in line with the combined tests of an objective and
subjective test as propounded by Twinsectra.
A [149] As opposed to CIMB’s position MTB’s stand is as follows. It argued

that as all the pre-conditions of the designated accounts had not been complied
with it could not move in and administer the accounts. Whether this position
is acceptable or otherwise requires a scrutiny of the facts and background of this
case. And this we have done when discussing KAF’s appeal. We found MTB
B liable for failing to ring fence the designated accounts. No further discussion
therefore is needed here on the finding of MTB’s liability except to say that with
the authority it held MTB could have taken up many peremptory actions.
Instead it did practically nothing. To use the words of the learned judge, MTB
instead of being proactive, had behaved ‘like a mannequin’, when its
C
appointment as trustees went as far back as July 2003. MTB had been
unprofessional and indifferent when it failed to take action despite being aware
of the inaction of Pesaka.
D [150] From the totality of the evidence we therefore hold that CIMB was not
liable for the monies disposed on the instruction of Pesaka from the designated
account and instead hold MTB totally liable.
[151] Thus, our answer to the two questions are in the negative. The appeal
E is allowed with costs and the order of the Court of Appeal set aside. The counter
claim by MTB against CIMB is dismissed with costs.
CIVIL APPEAL NO 02(f )-33–04 OF 2012(W) — APPEAL NO (v)

F
(PESAKA, RAFIE AND THE AMDAC GROUP’S APPEAL)
[152] This brings us to the appeal filed by Pesaka, Rafie and the Amdac
Group.
G
[153] MTB had filed counterclaim against Pesaka, Rafie, Murnina and the
Amdac Group claiming for a declaration as well as judgment to the effect that
MTB is entitled to be indemnified in full by them for any judgment which may
be entered against MTB in favour of the bondholders or any one of them.
H
[154] MTB’s claim for indemnity against Pesaka, Rafie, Murnina and the
Amdac Group is on the basis that they are constructive trustees over the monies
in the RA. MTB claimed that a constructive trust was imposed because they
had knowledge that the monies in the RA were trust monies and that they knew
I that the monies were being misapplied or that they were reckless as to their
application.
[155] The High Court dismissed MTB’s indemnity claim against Pesaka,
Rafie, Murnina and the Amdac Group.
[156] The Court of Appeal allowed MTB’s appeal and made the following A
orders:
(a) KAF and MTB should jointly bear 1/3 of the total loss of
RM149,300,000 together with all penalty charges;
(b) Pesaka to pay KAF and MTB the sum of 2/3 of RM149,300,000 B
together with penalty charges at the nominal rate of 3% on 2/3 of
RM149,300,000 from 30 September 2005 to the date of judgment, and
penalty charges at the rate of 4% on 2/3 of RM149,300,000 from the
date of judgment to the date of satisfaction;
C
(c) Pesaka to pay KAF and MTB the costs of their appeals;
(d) Rafie, Murnina and the Amdac Group to pay MTB, the sum of 2/3 of
RM149,300,000 together with penalty charges at the nominal rate of 3%
on half of 2/3 of RM149,300,000 from 30 September 2005 to the date of
judgment, and penalty charges at the rate of 4% on half of 2/3 of D
RM149,300,000 from the date of judgment to date of satisfaction; and
(e) Rafie, Murnina and the Amdac Group to pay the costs of MTB’s appeal
against them.
E
[157] We have dealt with the appeal by Murnina. For the same reasons in
Murnina’s appeal, we would also dismiss the appeal by Rafie and the Amdac
Group with costs and therefore we hold that they are fully liable to MTB.
[158] In respect of liability of Pesaka for MTB’s claim for indemnity, learned F
counsel for Pesaka contended that the Court of Appeal clearly erred in holding
that the indemnity provision under cl 14.1 of the trust deed applied and that
Pesaka could not rely on the exclusion in cl 14.1 which according to learned
counsel was clear, unambiguous and unequivocal in its meaning. It was
submitted that an indemnity clause in business contracts did not have to satisfy G
the test of reasonableness as required for indemnity provisions in a consumer
contract. It was further contended that while the High Court had applied the
indemnity provision as written and agreed to by the parties, the Court of
Appeal in effect rewrote the provision. It was also submitted that there was no
basis for a finding of fraud by the Court of Appeal, and as such it erred in H
concluding that Pesaka was disqualified from relying on the exclusion clause.
For reasons which we will set out shortly we are unable to agree with the
aforesaid submissions.
[159] In considering the liability of Pesaka to MTB, the learned trial judge I
found that this was an appropriate case for lifting the corporate veil. She found
that Rafie was the directing mind behind Pesaka and the Amdac Group.
However she dismissed MTB’s claim for reasons as set out in the relevant
passages in her judgment. The main reason appears to be her finding that MTB
A ‘has not shown that degree of skill, prudence, care and diligence consistent with
the position held at the material time’, which disentitled it to any indemnity
under cl 14.1.
[160] The Court of Appeal found that there was a total failure on the part of
B the learned trial judge to enquire if the exemptions in cl 14.1 applied.
Summarising the more recent development of the jurisprudence on the
application of an exemption clause from leading authorities the Court of
Appeal said:
C [49] In the first place, could an exemption clause avail to the party guilty of a wilful
breach which goes to the root of the contract? In Karsales (Harrow) Ltd v Wallis
[1956] 1 WLR 936, it was held by Lord Denning that no exemption clause however
widely drafted, could avail the party guilty of a breach which goes to the root of the
contract:
D Notwithstanding earlier cases which might suggest the contrary, it is now
settled that exempting clauses of this kind, no matter how widely they are
expressed, only avail the party when he is carrying his contract in its
essential respects. He is not allowed to use them as a cover for misconduct of
indifference or to enable him to turn a blind eye to his obligations. They do
E not avail him when he is guilty of a breach which goes to the root of the
contract.
[50] But such a doctrine of fundamental breach as a rule of law was disapproved by
the House of Lords in Suisse Atlantique Societe d’Armement Maritime SA v NV
Rotterdamsche Kolen Centrale [1967] 1 AC 361, who held, albeit obiter, that whether
F an exclusion clause was applicable when there was a fundamental breach was one of
the true construction of the contract. However, the doctrine of fundamental breach
continued to be used until it was again disapproved by the House of Lords in Photo
Production Ltd v Securicor Transport Ltd [1980] AC 827 (see Contract Law in
Malaysia by Cheong Mei Fong, at p 203), who held that whether an exclusion clause
G was applicable when there was a fundamental breach was one of the true
construction of the contract. On that, Their Lordships wire uncompromisingly
clear:
Much has been written about the Suisse Atlantique case. Each speech has been
subjected to various degrees of analysis and criticism, much of it constructive.
H Speaking for myself I am conscious of imperfection of terminology, though
sometimes in good company. But I do not think that I should be conducing to the
clarity of the law by adding to what was already too ample a discussion a further
analysis which in turn would have to be interpreted. I have no second thoughts as to
the main proposition that the question whether, and to what extent an exclusion clause
I is to be applied to a fundamental breach, or a breach of a fundamental term, or indeed
to any breach of contract, is a matter of construction of the contract. Many difficult
questions arise and will continue to arise in the infinitely varied situations in which
contracts come to be breached — by repudiatory breaches, accepted or not, by
anticipatory breaches, by breaches of conditions or of various term negligent, or
deliberate action or otherwise. But there are ample resources in the normal rules of
contract law for dealing with these without the superimposition of a judicially A
invented rule of law: Per Lord Wilberforce.
My Lords, an exclusion clause is one which excludes or modifies general secondary

or anticipatory secondary, that would otherwise arise under the contract by
implication of law. Parties are free to agree to whatever exclusion or modification of
B
all types of obligations as they please within the limits that the agreement must
retain the legal characteristics of a contract; and must not offend against the
equitable rule against penalties; that is to say, it must not impose upon the breaker
of a primary obligation a general secondary obligation to pay to the other party a
sum of money that is manifestly intended to be in excess of the amount which would
fully compensate the other party for the loss sustained by him in consequence of the C
breach of the primary obligation. Since the presumption is that the parties by
entering into the contract intended to accept the implied obligations exclusion
clauses are to be construed strictly and the degree of strictness appropriate to be
applied to their construction may properly depend upon the extent to which they
involve departure from the implied obligations. Since the obligations implied by law D
in a commercial contract are those which, by judicial consensus over the years or by
Parliament in passing a statute, have been regarded as obligations which a reasonable
businessman would realise that he was accepting when he entered into a contract of
a particular kind, the court’s view of the reasonableness of any departure from the implied
obligations which would be involved in construing the express words of an exclusion
clause in one sense that they are capable of bearing rather than another, is a relevant E
consideration in deciding what meaning the words were intended by the parties to bear.
But this does not entitle the court to reject the exclusion clause, however unreasonable the
court itself may think it is, if the words are clear and fairly susceptible of one meaning
only: per Lord Diplock.
… F
The law is that ‘no exemption clause can protect a person from liability for his own fraud
[Chitty] meant the fraud within the context of section 17 of our Contracts Act 1950 or
require the other party to assume what he knows to be false. But it is uncertain whether,
there is any rule of law, based on public policy, which would prevent the exclusion
by a principal of liability for fraud on the part of his agent acting as such. It is, G
however, clear that any such exclusion would have to be expressed in clear and
unmistakable terms on the face of the contract so as to leave the other party in no
doubt that fraud was covered’ (Chitty, para 14-136). (Emphasis added.)
H
[161] The Court of Appeal opined (and in our view rightly) that the
upholding or otherwise of the exemption clause agreed to by the parties
depended upon the proper construction of that clause which must be
construed strictly stating that:
I
[53] … what was agreed must be resolved by the proper construction of the said
exclusion clauses (for the general principles of construction of contract, see Hotel
Anika Sdn Bhd v Majlis Daerah Kluang Utara [2007] 1 MLJ 248) which must be
construed strictly contra proferentem (Anderson v Fitzgerald (1853) 4 HLC 484 ;
(1853) 10 ER 551; Guardian Assurance Co Ltd v Condogianis (1919) 26 CLR 231).
A [54] In Hong Realty (Pte) Ltd v Chua Keng Mona [1994] 3 SLR 819, 825, [1994]
Karthigesu JA said:
It is trite law that exemption clauses must be construed strictly and this
mean that their application must be restricted to the particular
circumstances the parties had in mind at the time they entered into the
B contract. On any view of the matter the respondent and the appellants
could not have intended that the exemption clauses in the contract of
bailment would apply when some act had intervened to alter the
circumstances in... which the exemption clauses would ordinarily apply.
C
[162] Turning to the exemption clause under cl 14.1 (as well as cl 13.1 of the
SFA in their application to KAF) the Court of Appeal found that the
exemption clause did not apply for the following reasons:
D [55] Clause 13.1 of the SF agreement provided that KAF would be indemnified
‘save that the Issuer shall not be liable to the Facility Agent for any expenses, loss,
damage, or liability referred to herein arising from the gross negligence or wilful
misconduct or fraud or wilful default by the Facility Agent’. Clause 14.1 of the trust
deed provided that MTB would be indemnified ‘save and except for its gross
negligence, wilful default, wilful breach or fraudulent actions’. Although differently
E worded, but yet both exemption clauses excluded indemnity where loss was
occasioned by gross negligence, wilful misconduct or fraud or wilful default by KAF
or MTB. Those were the particular circumstances that the parties had in mind at the
time when they entered into the SF agreement or trust deed. Both exemption clauses
must be strictly construed to mean that their application must be restricted to those
F particular circumstances of gross negligence, wilful misconduct or fraud or wilful
default by KAF and or MTB. But both exemption clauses did not provide for the
circumstance of fraud by Pesaka (fraud by Pesaka was by its wilful act that deprived,
by inequitable means, the revenue that belonged to the bondholders; see Kerr on the
Law of Fraud and Mistake (7th Ed), at p 1). So, could KAF or MTB have intended
that the exemption clauses would apply even when some act had intervened to alter
G the circumstances in which those exemptions clauses would ordinarily apply? Could
KAF or MTB have intended that the exemption would apply even when there was
fraud by Pesaka? But it should not seem that KAF or MTB could have intended so,
as contacting ‘parties … assume the honesty and good faith of the other; absent such
an assumption they will not deal’ (HIH Casualty and General Insurance Ltd & Ors v
H Chase Manhattan Bank & Ors [2003] 2 Lloyd’s Rep 61 68 per Lord Bingham). Since
honesty was assumed, it could not have been contemplated by KAF or MTB that the
exemption clauses applied even when there was fraud by Pesaka. KAF and or MTB
could not have intended that the exemption clauses would apply even when fraud by
Pesaka had intervened to alter the circumstances in which those exemption clauses
would ordinarily apply. If that had been intended, then it should have been
I
expressed in clear and unmistakable terms on the face of the SF agreement and trust
deed so as to leave KAF or MTB in no doubt that fraud by Pesaka was covered.
Clause 13.1 of the SF Agreement and cl 14.1 of the trust deed, on its true construction,
could not reasonably have been intended to apply even when fraud by Pesaka had
intervened to alter the circumstances in which those exemption clauses would ordinarily
apply. Any other construction would mean that Pesaka could break every covenant with A
impunity. And that absurd result could never be right. Suffice it to say that those
exemption clauses could not avail to Pesaka as a defence. (Emphasis added.)
[163] We find no reason to disagree with the aforesaid conclusion of the

B
Court of Appeal. Indeed, in Suisse Atlantique Lord Reid said:
As a matter of construction it may appear that the terms of the exclusion clause are
not wide enough to cover the kind of breach which has been committed. Such
clauses must be construed strictly and if ambiguous the narrower meaning will be
taken. Or it may appear that the terms of the clause are so wide that they cannot be C
applied literally: that may be because this would lead to an absurdity or because it would
defeat the main object of the contract or perhaps for other reasons. (Emphasis added.)
[164] On the finding of fraud against Pesaka, we are of the view that on the
D
evidence, the Court of Appeal was right in concluding that Pesaka fraudulently
misappropriated and converted the monies which belonged to the bondholders
in breach of the security documents. Summing up the material events relating
to the fraudulent misappropriation of the bond proceeds by Pesaka the Court
of Appeal said:
E
[18] ‘Ring fencing’ was not even there after the bonds had been issued and after the
bonds proceeds had been fully disbursed. In the meantime, revenue flowed into
Pesaka’s conventional account at the CIMB Coswav branch. Pesaka had a number of
conventional accounts, but the revenue was only deposited into the revenue/proceeds
account at the CIMB Cosway branch. That revenue belonged to bondholders. Still F
‘ring fencing’ was not in place, not even after all revenue had been deposited into
Pesaka’s aforesaid account. That revenue in that aforesaid conventional account was
not controlled by MTB. As a matter of sad fact, MTB had no control whatsoever of
all revenue deposited into the aforesaid conventional account after the issuance of
the bonds. When revenue was deposited into the aforesaid conventional account, Pesaka G
controlled it. The signatory or signatories to all conventional accounts were vet the
nominee/s of Pesaka. In that state, it should have dawned upon KAF and or MTB that
the security of the bondholders had been totally breached. Pesaka could withdraw
the revenue at will, notwithstanding that the revenue had been assigned and was no
longer its property. And sad to say, so it proved to be that Pesaka could indeed
withdraw all revenue. Between July 2004 and September 2005, Pesaka fraudulently H
withdrew all revenue that had been deposited into its conventional account at the CIMB
Coswav branch. On Pesaka’s instructions, all revenue in that conventional account was
transferred to other accounts. Pesaka had made off with the revenue, despite Pesaka’s prior
notices to the CIMB Coswav and Subang branches that Pesaka had assigned and charged
all rights and title in and to all said conventional accounts to MTB (see 3727 and I
3729AR). Not surprisingly, there was nothing left in the till for the redemption of bonds.
Bond holders were left high and dry, and quite without payment.
[165] In the circumstances we agree with the Court of Appeal that Pesaka
A cannot rely on the exemption clause under cl 14.1 as a defence. In HIH

Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6
Lord Bingham said:
For, as Lord Justice Rix observed more than once in his judgment (pars 160, 169),
B fraud is a thing apart. This is not a mere slogan. It reflects an old legal rule that fraud
unravels all: fraus omnia corrumpit. It also reflects the practical basis of commercial
intercourse. Once fraud is proved, ‘it vitiates judgments, contracts and all
transactions whatsoever’: Lazarus Estates Ltd v Beasley [1956] 1 QB 702 at p 712, per
Lord Justice Denning. Parties entering into a commercial contract will no doubt
recognize and accept the risk of errors and omissions in the preceding negotiations,
C even negligent errors and omissions. But each party will assume the honesty and
good faith of the other; absent such an assumption they would not deal.
As such, Pesaka cannot benefit from its own fraud.
D [166] We also agree with the Court of Appeal that notwithstanding MTB’s
breach of duty or negligence, it is no excuse for Pesaka by its fraudulent
misappropriation, to deprive the bondholders of the monies. Pesaka must
indemnify MTB. On the extent of the indemnity, for reasons which we have set
out earlier in this judgment, we order full indemnity against Pesaka. Hence, the
E Court of Appeal’s order on the indemnity by Pesaka is varied to that extent.
[167] In the result the appeal by Pesaka, Rafie and the Amdac Group are
dismissed with costs.
F Order accordingly.
Reported by Kohila Nesan

CIMB Bank BHD V Maybank Trustees BHD and Other Appeals (2014) 3 MLJ 169

Uploaded by

Copyright:

Available Formats

CIMB Bank BHD V Maybank Trustees BHD and Other Appeals (2014) 3 MLJ 169

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CIMB Bank BHD V Maybank Trustees BHD and Other Appeals (2014) 3 MLJ 169

Uploaded by

Copyright:

Available Formats

CIMB Bank Bhd v Maybank Trustees Bhd and other appeals

[2014] 3 MLJ (Arifin Zakaria Chief Justice) 169

A CIMB Bank Bhd v Maybank Trustees Bhd and other appeals

FEDERAL COURT (PUTRAJAYA) — CIVIL APPEAL NOS 02(F)-27–04

(‘SD accounts’), which Pesaka was required to open at recognised financial A

interest, the court should consider the express agreement of the A

[Bahasa Malaysia summary

A diperlukan daripada Suruhanjaya Sekuriti. KAF telah membantu dalam

pengarah-pengarah Pesaka dan CIMB telah diberikan kebenaran untuk A

A (3) Berdasarkan keterangan, sebab kehilangan adalah berpunca secara

G (6) Mahkamah Rayuan terkhilaf kerana membenarkan faedah pra

yang telah menerima keuntungan haram diletakkan dalam kedudukan di A

A Carl-Zeiss-Stiftung v Herbert Smith & Co (a firm) and another (No 2) [1969] 2

Arifin Zakaria Chief Justice:

(i) Place experienced and sophisticated investors on notice as to the

[10] As it turned out, instead of opening up new Shariah designated C

[13] On 25 October 2005, MTB arranged an informal meeting for Pesaka to

KAF’S LIABILITY UNDER THE IM

[21] KAF is defined in the IM as the lead arranger. As lead arranger in a E

[22] KAF is also responsible for:

[34] Section 65 of the SCA provides as follows:

THIS INFORMATION MEMORANDUM IS NOT INTENDED BY KAF TO

THIS INFORMATION MEMORANDUM INCLUDES CERTAIN A

[37] In the case of IFE Fund SA v Goldman Sachs International [2007]

A to reveal further information regarding Finelist, which GSI had obtained

The Information Memorandum

‘… This Information Memorandum (the ‘Memorandum’) has been prepared from

The contents of this Memorandum have not been independently verified. No C

It was held in Raiffeisen that as the IM is only a summary, it cannot therefore be

A is not contrary to law or business practice to do so. This is so because the IM

[47] Both courts made no reference to the contractual documents as

is important to bear in mind the warning given by Lord Roskill in Caparo A

[49] Another important consideration in this connection is whether or not

[51] The important notice in the present case clearly states:

A Shariah compliant designated accounts at recognised financial institutions.

G [57] Under the scheme, KAF’s obligation in relation to the designated

[59] It is not in dispute that there was no Shariah compliant designated

[63] The learned judge disagreed that KAF’s responsibility ended by

8.1 Designated Accounts:

(c) Revenue Account; and A

12.3 Power of Attorney

C [73] On 25 March 2004, the transactional solicitor forwarded a letter to

(i) Is a trustee who has been adjudged to be negligent liable to compensate a

(ii) In assessing the measure of damages a trustee is adjudged to be liable for by A

(c) The bondholders’ entitlement to pre-judgment interest.

QUANTUM RECOVERABLE BY THE BONDHOLDERS AGAINST

(a) the obligation of a defaulting trustee is to effect restitution to the trust

A RM149,315,000 against MTB in favour of the bondholders, which sum

MTB’S CLAIM FOR INDEMNITY FROM PESAKA A

In my judgment, the manner in which Mayban Trustees managed the accounts B

[106] In interpreting the above indemnity clause, the Court of Appeal

C [112] The next issue is whether MTB should be indemnified in full by

[122] On 7 July 2008, a consent judgment was recorded between the

THE COURT OF APPEAL

[129] In the circumstances, this court must intervene by imputing a A

[130] As regards Murnina’s counsel’s submission that MTB has no legal

[132] CIMB is appealing against the order of the Court of Appeal to

B [134] Pursuant to the IM document, the opening of the designated accounts