Does the bank need to inform you when they’re auctioning your property off?

CIMB ISLAMIC BANK BHD v. KHAIRUDDIN ABU HASSAN [2021] 4 CLJ 375

• CIMB Islamic Bank (“Bank”) provided a banking facility to En. Khairuddin Abu Hassan (“ Khairuddin”) to buy a penthouse (“Property”) at Mont Kiara, Kuala Lumpur pursuant to the property purchase agreement and property sale agreement executed between both parties.

• For the financing, En. Khairuddin assigned the property to the Bank as reflected in a deed and also provided a power of attorney for the same.

• The arrangement for the financing is commonly known as loan agreement cum assignment (“LACA”)

• Khairuddin defaulted in payments for the facility which resulted in the financing being terminated and cancelled by the Bank.

• The Bank then arranged for a valuation report of the property and took steps to auction the same. The proclamation of sale (“Proclamation”) for the public auction was advertised in a local newspaper, the Malay Mail, and a copy was left at the En. Khairuddin’s letterbox at the property. A copy was also given to the officer at the management office of the property for it to be handed to En. Khairuddin.

• The public auction thereafter proceeded and the Property was sold at the reserve price of RM2.1 million to two bidders at the auction.

• Khairuddin later sued the Bank at the High Court for contract and tort for the alleged failure of the Bank to essentially provide notice of the proclamation and not selling the property at the proper price.

• Khairuddin claims that the Bank’s valuer did not visit the property to do the valuation and admitted it is not acceptable for a registered valuer not to visit the site for a valuation but only rely on others to come up with the valuation report.

• The High Court found in favour of En. Khairuddin on the basis that the advertisement of the proclamation in the Malay Mail was insufficient as the newspaper was not published in the State of Perlis, Terengganu, Sabah, and Sarawak. Further, the postal notification by the Bank would have reached En Khairuddin only after the date of auction.

• The High Court also found that the true value of the property should be RM3.5 million as valued by En. Khairuddin’s valuer and not RM2.1 million which was the price sold at the auction.

• The Bank appealed to the Court of Appeal.

The Court of Appeal allowed the appeal on the basis that:

• A property that has been absolutely assigned to a bank on account of a loan granted to a borrower essentially belongs to the bank until the full payment thereof is made by the borrower, and the bank has an absolute discretion in dealing with the property as it deems necessary.

• The terms of all the documents do provide that the proclamation was sufficient for the auction to proceed without the same being notified to En. Khairuddin.

• There is further no requirement for the bank to notify the borrower of any proclamation of sale by public auction of the property, and any letter of notification, if sent out, is only part of the courtesy and service provided by the bank to its customers.

• The Court of Appeal also found that it is not necessary to evaluate a property by visiting it. It can be done by not visiting the property but getting the correct information from sales of other properties.