In the case of Tenaga Nasional Bhd v. Transformer Repairs & Services Sdn Bhd & Ors [2024] 1 CLJ 110, the Court of Appeal decided that an execution creditor,who has been informed that movable property in the possession of an execution debtor may belong to a third party, should inquire from the third party before seizing and selling the movable property pursuant to a writ of seizure and sale (“WSS”).
Facts
Tenaga Nasional Berhad (“TNB”) had engaged Zanwa Sdn Bhd (“Zanwa”), who owned a piece of land, to supply, erect, and commission two units of power transformers for TNB (“Power Transformers”). The two Power Transformers were supposed to be built by Zanwa on the said land. However, the Power Transformers were never completed and the said land was sold in a public auction to the 2nd Respondent (Judgment Debtor).
The 1st Respondent (Judgment Creditor) had been incorporated pursuant to a shareholders’ agreement between Zanwa and Magnitude Power Sdn Bhd. The 1st Respondent and the 2nd Respondent entered into a tenancy agreement and the 1st Respondent allowed Zanwa to continue its manufacturing and business operations on the said land, including the completion of the two Power Transformers for TNB.
Thereafter, Zanwa was wound up by an order of the High Court dated 5.4.2019. The 2nd Respondent filed a suit against the 1st Respondent due to the 1st Respondent’s breach of the tenancy agreement. The 2nd Respondent obtained a summary judgment and enforced the same by way of a WSS.
Pursuant to the WSS, the Bailiff seized all movable properties on the said land, including the two Power Transformers. As a result, the seized movable properties were sold to the 3rd Respondent for a sum of RM216,000.00.
TNB commenced an action to recover the Power Transformers against the Respondents. The claim was dismissed by the High Court. On appeal to the Court of Appeal, the Court of Appeal allowed TNB’s appeal with costs and ordered that the two Power Transformers be returned to TNB.
Decision by the Court of Appeal
The main issue in the case was whether an execution creditor could lawfully seize and sell movable property in the possession of an execution debtor pursuant to a WSS when the movable property did not belong in equity to the execution debtor.
The Court held that the two Power Transformers were owned by TNB due to the documentary evidence adduced by TNB, including, inter alia, the Contract between TNB and Zanwa, Purchase Orders, Zanwa’s Invoices, and TNB’s payments.
As a result, the Court of Appeal held that the bailiff’s seizure and subsequent auctioning of the Power Transformers were invalid. It is trite that the scope of the WSS means a sheriff or bailiff can only lawfully seize and sell movable property pursuant to a WSS when the said property belongs in equity to the execution debtor. The Court of Appeal followed the legal principle in Lim Ker v. Chew Seok Tee [1967] 1 LNS 88 (FC) that states: –
“The simple reason is that a judgment creditor can levy execution only on property belonging to the debtor or appearing to belong to him by reason of being in his apparent possession, not, certainly, on property belonging to any third party at the creditor’s mere whim and fancy.”
Further, the Court of Appeal took into consideration that the 2nd Respondent was aware of TNB’s equitable ownership of the two Power Transformers before the judicial auction of the same. The 2nd Respondent, however, did not inquire from TNB regarding the ownership of the two Power Transformers and had further proceeded with the judicial auction. Consequently, the Court of Appeal held the 2nd Respondent was not able to rely on the equitable estoppel doctrine.
TNB’s claim was premised on, inter alia, Section 9 of the Specific Relief Act 1950 (“SRA“). In this regard, the Court of Appeal decided that the High Court Judge ought to have issued a restitution order, requiring the return of the two Power Transformers. The 3rd Respondent (Successful Bidder) could not have acquired any legal or equitable ownership of the two Power Transformers because the bailiff’s seizure and the judicial auction regarding the two Power Transformers were invalid.
The Court of Appeal also made two consequential orders in respect of the 3rd Respondent; firstly, that the money in the client’s account of the 2nd Respondent’s solicitors (this bank account was held by the 2nd Respondent’s solicitors as trustees for the 3rd Respondent’s payment of the sale proceeds (auction)) shall be returned forthwith to the 3rd Respondent; and secondly, all court fees and commission paid by the 3rd Respondent with regard to the judicial auction shall be refunded to the 3rd Respondent.
Further, the Court of Appeal held that the 3rd Respondent’s cause of action is against the 2nd Respondent for abuse of court process regarding the judicial auction. Hence, the 3rd Respondent has a right to claim from the 2nd Respondent for the loss suffered on the tort of the abuse of court process.
Conclusion
The 3rd Respondent’s Motion for Leave to Appeal to the Federal Court was subsequently dismissed on 4.1.2024.
This case sends an important message to all execution creditors that in the event there is a movable property belonging to a third party, the execution creditor should always inquire from the said third party prior to seizing and auctioning the movable property.
Our Firm acted for TNB from the High Court to the Federal Court.
Author: Gurjeevan Sachdev