MBSB BANK BERHAD v WARDAH PROPERTIES SDN BHD

Case Significance

Confirms that in a section 256 foreclosure the court must order sale absent 'cause to the contrary', and that a Mareva injunction against a chargor's parent company does not, by reason of corporate separateness, restrain the sale of property owned by the subsidiary, the chargee's secured rights being paramount.

This High Court decision at Kuala Lumpur concerns a bank's foreclosure application for an order for sale of charged property under section 256 of the National Land Code 1965, and whether the chargor established 'cause to the contrary'. The plaintiff, MBSB Bank Berhad, had granted Islamic financing facilities of RM26,600,000 to the defendant, Wardah Properties Sdn Bhd, under a Tawarruq structure — a term facility to purchase the charged property (a building at Damansara Heights) and a cashline facility for working capital — secured by a legal charge over that property, a corporate guarantee from a parent company and other security. The defendant defaulted, and the bank issued notices of demand, a notice of termination and a statutory notice in Form 16D under section 254 of the Code, and also obtained a default judgment in a separate suit for the debt, which the defendant had applied to set aside. The defendant resisted the order for sale on three grounds: defective service of the Form 16D; the pendency of its application to set aside the default judgment; and an ex parte Mareva injunction granted in an unrelated suit against its parent company restraining the parent from dealing with its assets. The court held that none amounted to cause to the contrary. The service of the Form 16D satisfied the statutory requirements, the pending set-aside in the separate suit was irrelevant to the in rem foreclosure proceeding, and the Mareva injunction failed both factually and legally: it bound a separate corporate entity, the parent, and under the principle in Taylor v Van Dutch Marine Holdings Ltd the bank's secured rights as chargee were paramount and unaffected. Corporate separateness meant an injunction against the parent did not restrain the sale of property owned by the subsidiary. Finding no cause to the contrary established, and holding it duty-bound under section 256(3), the court allowed the originating summons and made an order for sale, with costs fixed at RM10,000.