Exim Bank ‘Reckless’, Sought ‘Collateral Advantage’ When Selling Don Chan Palace Hotel, Rules Court

Source: FMT

The High Court here has admonished Export-Import Bank of Malaysia Bhd (Exim Bank) for wrongful conduct in the sale of certain high-value secured properties belonging to a borrower in a case which concluded here last week.

“The conduct of selling the secured property for US$36 million without knowing the actual market value of the same clearly points to nothing less than a reckless act on the part of (Exim Bank) with complete disregard of the defendants,” Federal Court judge Zabariah Mohd Yusof, sitting as the trial judge, said in her grounds of decision.

“This court certainly does not condone such conduct.”

The properties included the Don Chan Palace Hotel, a 5-star international hotel constructed on a swathe of land measuring almost 176,000 sq metres along the Mekong River in Laos valued at US$140 million.

Concessionaire Sun Holding, the alter ego of Seremban-based entity Rancang Timur Sdn Bhd, had mortgaged the hotel and RM109 million worth of third party-owned assets as well as its development rights to Exim Bank to secure financing facilities for the project.

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Zabariah was hearing a counterclaim brought by the defendants, Sun Holding (Sun Park Hotel) Co Ltd, and two individuals, Cheok Tiam Cheng and Cheok Soon Guan, against Exim Bank for wrongful and unconscionable conduct and for usurping Sun Holding’s right to the property and the development.

“The facts show that the plaintiff (Exim Bank) did not do any valuation on the secured property and there was no attempt by the plaintiff to determine the prevailing market value at the time of the sale which prejudiced the rights and interests of the defendants,” she said.

“It appears that the plaintiff was only interested to obtain a sum which was just enough to cover the debt owed.”

Zabariah said she found it “perplexing” that Exim Bank would choose to sell for US$36 million given that the International Commercial Bank Lao Ltd (ICBL) had valued the property at US$71 million a mere seven months earlier.

Dismissing its contention that the sale price had been determined on a “willing buyer, willing seller” basis, the judge said the ICBL valuation should have at least triggered Exim Bank into carrying out a proper valuation of the properties.

“There was practically no attempt by the plaintiff to find out the true market value of the secured property,” she said.

Zabariah concluded that Exim Bank had exercised its power of sale improperly and for a collateral purpose.

She found that Exim Bank had sold the hotel to Masceana, a special purpose vehicle in which it owned a 51% stake, with the intention of securing a substantial profit for itself.

“Effectively, the plaintiff did sell the secured property to itself,” she said, adding that it had acted in conflict of interest.

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As a result of the transactions, Exim Bank ended up with a “collateral advantage”, having recovered the entire debt of US$36 million while acquiring 51% beneficial ownership of the hotel and its land, Zabariah said.

In contrast, Sun Holding was deprived of the true value of the development.

Finding that Exim Bank had breached its duties of care and to act in good faith when exercising its power of sale, Zabariah allowed the counterclaim and ordered an assessment of damages, including aggravated and punitive or exemplary damages, if proven, together with interest and costs.

She also ordered the release and discharge of all third-party legal charges held by Exim Bank.