Legal Update 9 of 2018

CASE:

OCBC BANK v LIM HOCK KOK [2018] 1 MLRA 703

ISSUE:

Can a Borrower refuse to provide additional security to the Bank when requested if they have been paying the monthly repayments promptly?

And if the Borrower refuses to provide the additional security, can the Bank then terminate the loan agreement and demand full repayment of the loan?

BRIEF FACTS:

  • OCBC Bank granted a term loan of RM2.8m to Lim to finance the purchase of a property. 
  • As security for the said loan, Lim charged his property which was valued at RM3.5m.
  • Lim had promptly paid the monthly instalments towards repayment of the loan granted.
  • Then, through a notice, OCBC required Lim to provide more security valued at no less than RM2.2m. OCBC said this was required because the property provided as security was only valued at RM858,000.00 and not RM3.5m as initially thought.
  • So, since the security provided by Lim was not enough, OCBC required more security.
  • Lim did not comply with that notice and because of that OCBC terminated the loan and demanded repayment of the full loan amount.
  • When Lim did not respond to OCBC’s demand, OCBC then filed a claim in court to recover the loan sum. 
  • OCBC filed an application for Summary Judgment [a process for quick judgment] on the basis that there were no disputes as to fact. And that the loan agreement allowed them to request for more security.
  • The High Court Judge did not allow the application for summary judgment on the basis Lim was entitled to challenge the different valuation of the property held as security and this could only be explained by witnesses at a trial. 
  • The High Court did not think this was a suitable case for summary judgment.
  • OCBC disagreed. OCBC contended that they had an absolute right to seek further security from Lim and his failure to comply resulted in Lim breaching the loan agreement causing OCBC to terminate the loan agreement.

Held: Appeal allowed at Court of Appeal

  • When a valid contract is entered into, it is necessary for the courts to uphold the bargain which has been struck between the parties. 
  • OCBC bank has a right to require Lim to furnish any additional security and the bank is not required to provide any grounds to exercise their right.
  • Under the terms of the loan agreement. Lim has no right to question the request for additional security. 
  • Therefore. OCBC was well within their rights to terminate the Loan Agreement.
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