TRENERGY INFRASTRUCTURE SDN BHD v HONG LEONG BANK BERHAD

Case Significance

Holds that a bank's consolidation and set-off clause did not survive the cancellation of the banking facilities, there being no valid event of default and the commercial intent not supporting a perpetual clause; the customer was declared entitled to the deposited and escrow monies.

This High Court (Kuala Lumpur, Commercial Division) decision concerns an originating summons by which a company sought a declaration that it was entitled to all rights and interests in funds held by Hong Leong Bank Berhad in Fixed Deposit Accounts and an Escrow Account established under a Facilities Agreement. The plaintiff and the bank had entered into a Facilities Agreement dated 15 April 2021, under which the bank granted the plaintiff banking facilities that included a Revolving Contract Financing Line. The dispute turned on the legal effect of the cancellation of those facilities on the wider Facilities Agreement, and in particular on whether a consolidation and set-off clause survived the cancellation.

The banking-law issues the court addressed included whether the cancellation of the facilities effectively terminated the Facilities Agreement, whether future obligations under it were discharged on cancellation, and whether the consolidation and set-off provisions in the agreement survived. The court examined the survivability of contractual terms after termination, the commercial intent and purpose of the agreement, and whether the parties had intended the consolidation clause to be perpetually enforceable. It also considered the alleged events of default, including a change in shareholding without consent, and whether any such default had been waived by the conduct of the parties.

After considering the affidavits, written submissions and oral arguments, the court found in favour of the plaintiff. It held, among other things, that there were no valid events of default entitling the bank to exercise its rights under the consolidation clause after the cancellation of facilities, that the commercial intent and purpose of the Facilities Agreement did not support the bank's interpretation of that clause as a perpetual provision enforceable even after cancellation, and that the conduct of the parties supported the conclusion that the clause did not survive cancellation. The court accordingly allowed the originating summons and made a declaration that the plaintiff was entitled to all monies, including accrued interest, held in the Fixed Deposit and Escrow Accounts.