Kaysen Construction Sdn Bhd V Kong Wha Housing Development Sdn Bhd&1lagi

  

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DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR

 

(BAHAGIAN DAGANG)

 

D22-1052-1994

 

ANTARA

 

KAYSEN CONSTRUCTION SDN BHD … PLAINTIF

 

DAN

 

1. KONG WHA HOUSING DEVELOPMENT SDN BHD

 

2. MALAYSIAN INTERNATIONAL MERCHANT

 

BANKERS BERHAD … DEFENDAN- DEFENDAN

 

GROUNDS OF DECISION

 

1. The Plaintiff, Kaysen Construction Sdn Bhd, is a private limited company involved principally in the construction of residential and commercial buildings. The 1st Defendant, Kong Wha Housing Development Sdn Bhd, is a private limited company and the developer of a project consisting of 172 units of residential and commercial buildings on Lots 690, 729 and 848 in the Mukim of Grik, in the District of Hulu Perak known as Taman Sinaran (hereinafter referred to as “the Project”). The 2nd Defendant, Malaysian International Merchant Bankers Berhad is a merchant bank.

 

2. The Plaintiff’s case against the 1st Defendant is for a sum of RM 3,762,077 payable under a written contract dated 17.8.1993 between the parties, interest, damages and costs. The 1st Defendant has since been

 

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wound up. The Plaintiff claims against the 2nd Defendant under a written guarantee dated 17.11.1993 where it had guaranteed the payment of the contract sum of RM 3,762,077 to the Plaintiff upon the issuance of the Certificate of Practical Completion.

 

3. In disputing the Plaintiff’s claim, the 2nd Defendant contends that the Plaintiff is not entitled to claim under the Bank Guarantee or to commence and continue this suit against them given that the Plaintiff had assigned absolutely all its rights, title, interest, benefits and claims under the said Guarantee to Rakyat Merchant Bankers Berhad. Further, it contends that its obligations under the Bank Guarantee had not arisen and therefore there was no obligation to make payment to the Plaintiff.

 

The Plaintiff’s Case

 

4. Lim Voon Ming (PW 1), a director of the Plaintiff, enlightened the Court as to how the Plaintiff came to be involved with the Defendants. The 1st Defendant was the developer of the Project which had been abandoned. On 31.3.1993, the Plaintiff was invited by Juruukur Bahan Malaysia to tender for the Project. Vide a Letter of Award dated 2.7.1993 (pages 9-12 of AB 1), the 1st Defendant awarded the Plaintiff the contract for the construction and completion of the said Project.

 

5. PW 1 told the Court that the Plaintiff was induced to take up the Project as the 2nd Defendant had given a Bank Guarantee dated 17.11.1993 (pages 13-15 of AB 1) for a sum of RM 3,762,077 which was equivalent to the full contract price upon the issuance of a Certificate of Practical Completion (CPC). He explained that the 2nd Defendant was prepared to make such a guarantee because the previous contractor had abandoned the Project and brought an action against the 1st Defendant in 1991. The purchasers were pressuring the 1st and 2nd Defendants to

 

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complete the Project by claiming late delivery. The 2nd Defendant was eager to complete the Project as it had given a loan of RM 2.5 million to the 1st Defendant to finance the Project. Thus, in order for the 2nd Defendant to recover the loan that was given to the 1st Defendant, it had to get another contractor to complete the Project.

 

6. PW 1 testified about a meeting that was held on 2.6.1993 which was attended by representatives from Messrs Projalma Ventures Sdn Bhd (the project manager), representatives from the 1st Defendant, the 2nd Defendant’s legal adviser, the assistant general manager, its representative, the Plaintiff’s representatives and about 100 purchasers of houses and shops in the Project. At this meeting, the 2nd Defendant’s legal adviser and assistant general manager announced that the Plaintiff would complete the Project within 9 months. The 2nd Defendant would guarantee payments to the Plaintiff upon issuance of the CPC by the Architect. The purchasers would have to waive their legitimate claim for late delivery against the developer and sign a Form of Waiver. All this is reflected in the minutes of the meeting (pages 4-7 of AB 1).

 

7. After receiving the Letter of Award, the Plaintiff started work on the Project. However, the 2nd Defendant initially did not give the bank guarantee as promised. It was only after several requests were made that the 2nd Defendant issued the Bank Guarantee to the Plaintiff on 17.11.1993. In response to questions during cross-examination as to his understanding of the time period of the Guarantee, PW 1’s response was that it was 6 months from the date of issue of the Bank Guarantee.

 

8. There is evidence that on 9.5.1994 the 1st Defendant had confirmed the quotation for the variation order (pages 48-49) and extended the completion date to 30.5.1994 (page 56). He testified that 8 days was not enough time to do a RM 139,144.00 variation. PW 1 also

 

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testified that the Plaintiff was requested to extend the fire insurance policy in favour of the 2nd Defendant from 19.5.1994 until 19.10.1994. On this issue PW 1 agreed during cross-examination that the Plaintiff did not apply to the 2nd Defendant to extend the Bank Guarantee. Neither is there any record that the 2nd Defendant ever agreed to the extension of the time period of the Bank Guarantee.

 

9. According to PW 1, the Architect issued the CPC on 8.6.1994 (page 57) after an inspection of the Plaintiff’s works. The Plaintiff then made a demand on the Bank Guarantee from the 2nd Defendant vide their letter dated 15.6.1994. Vide a letter dated 20.6.1994 (pages 59-60); the 1st Defendant complained to the 2nd Defendant that the CPC was issued “without a joint site inspection among Kaysen, Ng Architect and Kong Wha”. The 1st Defendant pointed out that there were outstanding matters which were part of the construction work that were yet to be completed and as such they did not consider the CPC to be issued in a proper manner. At first, the 2nd Defendant responded that –

 

“… MIMB is not in a position to verify the validity of the CPC and that we would be honouring our commitment to Kaysen based on the original copy of the CPC issued to Kaysen”.

 

However, on 19.8.1994 they made an about turn and rejected the Plaintiff’s demand on the ground that their payment obligations would only have arisen if the demand was made on or before the expiry of six months from the date of the guarantee, i.e. on or before 17.5.1994 (page 64 of AB 1).

 

10. PW 1 argued that the 2nd Defendant’s interpretation of the expiry date of the Bank Guarantee was inconsistent with its conduct because a variation was ordered on 9.5.1994 and an extension of time granted until 30.5.1994 to complete the variation works. This would mean that the

 

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Bank Guarantee would already have expired before the extended date of completion. Furthermore, the 2nd Defendant had required the Plaintiff to take up a fire insurance policy on 19.5.1994, naming them as the principal insured. Following the 2nd Defendant’s interpretation, the Bank Guarantee would have expired even before the effective date of the coverage.

 

11. Evidence was led that the Plaintiff had entered into a financing arrangement with Rakyat Merchant Bankers Bhd (“RMBB”) to raise financing for the Project. It was a requirement of the financing arrangement that the Plaintiff assign all its rights, title, interests, benefits and claims under the Guarantee Agreement to RMBB. The Plaintiff had intended to repay the loan to RMBB, later known as RHB Bank, after receiving the money from the 2nd Defendant. When the Plaintiff’s demand was rejected by the 2nd Defendant, it was unable to settle the loan. RHM subsequently commenced a winding up action against the Plaintiff and bankruptcy proceedings against PW 1 as guarantor.

 

12. The Plaintiff completed the Project as well as the rectification works in 1994. PW 1 told the Court that currently the houses and shops are occupied and used by the purchasers.

 

13. PW 1 was cross-examined on a letter written by Messrs Surjan Singh Sidhu & Co., the Plaintiff’s then solicitors, on 26.8.1994 after the 2nd Defendant had refused to accede to the demand for payment. He confirmed that vide paragraph 9 of the said letter, the Plaintiff had in fact confirmed that there was a time frame for making a claim under the Bank Guarantee. Although paragraph 12 of the letter refers to a meeting on 12.4.1994 during which the representative of the 2nd Defendant had given an assurance that in view of the extension of time agreed upon,

 

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they would not impose the time frame mentioned in the Guarantee, DW 1 was unable to produce the document in support of his contention. The Court notes that the 2nd Defendant had in its response dated 28.8.1994 denied giving any verbal representations to waive the time frame and that in any event, the 2nd Defendant’s representative who attended the meeting was not authorized to waive such time frame.

 

14. As regards the Deed of Assignment of Bank Guarantee, PW 1 agreed that under the terms of the assignment, if monies were due to the Plaintiff from the Defendants, it is RMBB who would be entitled to receive it. He further agreed that in light of the assignment, the Plaintiff had no right to take any steps to enforce the Bank Guarantee. Although he disagreed that when the demand was made on 15.6.1994, the Plaintiff did not obtain the consent or instructions from RMBB to issue the said demand, he later admitted that the Plaintiff was not authorized by RMBB to make the demand at that time. He also agreed that the Plaintiff had not obtained the authorization or consent from RMBB before commencing the present suit and confirmed that it had not at any time before 18.1.2007 obtained authorization or consent from RHB to commence the suit.

 

15. PW 1 testified that in the Plaintiff’s letter of demand, it had asked for the monies to be paid to RHB Bank. The said Bank was aware of the proceedings that had been instituted by the Plaintiff to recover the monies from the 2nd Defendant. He pointed out that MIMB in their letter of 19.8.1994 had not said that the demand was wrong in any way.

 

16. Shamsino Abu Hashim (PW 2) was the Head of the Credit Control Department of RHB Bank Berhad at the material time. This Department was in charge of and manages the assets and liabilities of RMBB which had been vested in RHB Bank pursuant to orders of the High Court.

 

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Possession, custody and control of the records and documents of RMBB’s customers were handed over from RMBB to BSN Merchant Bank Berhad to DCB Bank Berhad which is now known as RHB Bank Berhad.

 

17. PW 2 testified that the Plaintiff had obtained a loan from RMBB to finance its housing project in Grik, Hulu Perak. Following its failure to repay the loan, the Bank commenced winding up action against the Plaintiff and bankruptcy proceedings against Lim Voon Ming as guarantor. Both proceedings are now stayed pending the disposal of the present suit. In the meantime, the Plaintiff and RHB Bank had entered into a conditional settlement arrangement.

 

18. PW 2 identified pages 74-75 of AB 1 as a letter from RHB Bank dated 18.1.2007 to ratify and confirm that the Plaintiff was duly authorized to commence and continue with the proceedings in D2-22-1052-1994 and to recover all sums awarded to the Plaintiff and the Bank under the said suit in respect of –

 

(i) the proceeds of the contract dated 17.8.1993 entered into between the Plaintiff and the 1st Defendant; and

 

(ii) the proceeds of the Bank Guarantee dated 17.8.1993 entered into between the Plaintiff and the 2nd Defendant.

 

19. PW 2 agreed that the 18.1.2007 letter was issued by RHB Bank pursuant to a request by the Plaintiff. Although he was not a party to the discussions leading to the issuance of this letter, he disagreed that he was not aware of the circumstances of the letter and the reasons for issuing it. He explained that they would normally have a meeting with their counsels who would brief them on the case. In fact, the letter in question was drafted by their counsel before PW 2 signed it.

 

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20. The Plaintiff has called Tan Kwe Hee (PW 3) as a witness in this case. From his Curriculum Vitae submitted together with his witness statement, the Court notes that PW 3 had a long career in the banking industry. He started as a Current & Credit officer with UMBC in 1967 and moved to Affin Bank in 1976 as a Deputy Branch Manager. He retired on 22.10.2002 as the Senior Vice President, Head Recovery Division at the age of 58 years.

 

21. How was PW 3 involved in the Project? Since 7.8.1996, PW 3 had been appointed by Bank Negara Malaysia as Loan Recovery Advisor for the Credit Control Department (RMBB Assets) of RHB Bank Berhad. He told the Court that on the recommendations of Bank Negara, from 10.6.2009, RHB Bank had appointed a company called Tenaga Motivasi Sdn Bhd (of which he was the Managing Director) to manage the loan recovery operations of the Credit Control Department (RMBB Assets), which includes the loan to the Plaintiff in this case.

 

22. PW 3 testified that he had extensive experience in abandoned projects and had been personally involved in salvaging abandoned projects. He told the Court that when a bank finances a project that becomes abandoned, it can either foreclose on the property or it can salvage the project. Foreclosure was not a feasible option because no one would be interested in buying an abandoned project and even if there is an interested buyer, the price offered would be very low. As such, in order to maximize recovery for the bank, the bank has no choice but to salvage the project by getting a contractor to complete the project.

 

23. In such a salvage situation, the bank bears the responsibility to pay the contractor. The bank has to ensure that the project is fully completed with CPC. It would normally make payment in one lump sum through a guarantee. It undertakes to pay only on completion in order to

 

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protect the bank. The method of payment to the contractor is either through a bank guarantee or a letter of undertaking.

 

24. PW 3 was asked his views as to whether the 2nd Defendant would have an obligation to make payment in this case where the demand was made on 15.6.1994, less than two months after the guarantee was said to have expired on 17.5.1994. It is PW 3’s evidence that in such a salvage situation, the 2nd Defendant is required to make payment to the contractor even though the Bank Guarantee has lapsed as the Bank is considered the employer in the Project. He added that at the most, the Bank is entitled to deduct damages for late completion. He admitted that the above answer is based on the Letter of Demand and Bank Guarantee in this case.

 

25. PW 3 went on to say that if the Bank rejects the demand for payment, it would have got something for nothing. He was of the view that it was unconscionable for the Bank to have rejected payment on technical grounds.

 

26. PW 3 agreed his evidence as set out in paragraphs 22 to 25 above were general answers and not specifically related to the Plaintiffs claim. He admitted that he was not personally involved in any salvage situation involving the 2nd Defendant.

 

27. During cross-examination, PW 3 admitted that he knew PW 1 as a customer of RMBB. He claimed to have personal knowledge of the matters relating to the Plaintiffs claim although he was not involved in any way when the letter of award and the contract was signed between the Plaintiff and the 1st Defendant or when the Bank Guarantee was signed between the Plaintiff and the 2nd Defendant. He was also not involved when the Deed of Assignment was signed between the Plaintiff

 

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and RMBB. He admitted that he did not have any personal knowledge of any of the matters in the Plaintiff’s claim before August 1996.

 

28. The Court notes that PW 3 admitted during cross-examination that in the instant case it is the 1st Defendant who is responsible to pay the Plaintiff under the Letter of Award. Even under the Guarantee Agreement it is the 1st Defendant who is responsible to pay the Plaintiff. As such, the 1st Defendant bore the primary obligation to make payment to the Plaintiff. Although he did not have any personal knowledge as to why the 1st Defendant did not pay the Plaintiff, however from the documents available he knew that the 1st Defendant had financial difficulties. The 2nd Defendant merely guarantees the punctual payment of RM 3,762,077.by the 1st Defendant. PW 3 further agreed that under clause 4, the Guarantee is subject to the Plaintiff making a demand on or before 6 months from the date of the Bank Guarantee.

 

The Defendant’s Case

 

29. The 1st Defendant has been wound up and has neither appeared nor was it represented at the hearing. As for the 2nd Defendant, Malaysian International Merchant Bankers (MIMB), now known as RHB Bank Berhad (RHB Bank), it relied on the evidence of Antoine Andrew a/l Saindanasamy (DW 1).

 

30. DW 1 is a Loan Recovery Officer in the Credit Recovery Department of EON Bank Berhad (“EON”) and has been working with EON since January 2001. He is also part of the EON Group Legal Recovery which deals with recovery matters for the Group. This includes the 2nd Defendant which is a wholly owned subsidiary of EON. DW 1 is responsible for the recovery of non-performing loans of business

 

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enterprises and this includes the loans and credit facilities provided by the 2nd Defendant to the 1st Defendant.

 

31. DW 1 testified that the Bank Guarantee was issued by the 2nd Defendant on 17.11.1993 at the request of the 1st Defendant to guarantee payment of the contract sum of RM 3,762,077.00 by the 1st Defendant to the Plaintiff pursuant to a Turnkey Contract dated 17.8.1993 entered into between them. Under clause (2) of the Bank Guarantee, the 2nd Defendant guaranteed the payment of the contract sum subject to the terms and conditions contained in the Guarantee. Clause (3) provides that the Guarantee shall be a continuing Guarantee and shall continue until the contract sum has been repaid provided that the Plaintiff has completed construction of all the houses, the CPC has been issued by the Architect and a demand in writing is made within the period specified in clause (4). Clause (4) states that the payment obligations of the 2nd Defendant shall not arise until the CPC has been duly issued and is subject to the Plaintiff making a demand on the 2nd Defendant on or before the expiry of six months “from this date hereof”. It is DW 1 ’s evidence is that “from this date hereof’ means the date of the Bank Guarantee, namely 17.11.1993. According to him, where a demand is not made within the validity period, the Bank Guarantee shall expire and become cancelled.

 

32. The 2nd Defendant was aware that RMBB (now known as RHB) was involved in the financing of the Project. On 6.12.1993, the 2nd Defendant acknowledged receipt of and consented to a Deed of Assignment of the Bank Guarantee dated 6.12.1993 between the Plaintiff and RMBB (now RHB). Clause 2 of the Deed of Assignment states that for the purpose of securing the performance of the Plaintiff’s obligations, the Plaintiff assigns absolutely all its present and future rights, title, interest, benefits and claim under the Bank Guarantee to RMBB (now RHB).

 

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33. The CPC was issued by the Project Architect on 8.6.1994 (page 57). Vide a letter dated 15.6.1994 (page 58), the Plaintiff informed the 2nd Defendant that they had received the CPC. Pursuant to the terms of the Bank Guarantee, it made a claim for 95% of the contract sum of RM 3,762,077.00 amounting to RM 3,573,975.15. A request was made for a sum of RM 2.2 million to be remitted to RMBB’s account and the balance of RM 1,373,975.15 to their own account.

 

34. Vide a letter dated 20.6.1994, the 1st Defendant informed the 2nd Defendant that the CPC was issued without a joint site inspection between the Plaintiff, the Project Architect and the 1st Defendant. Furthermore, there were outstanding construction work which needed to be completed before the CPC could be issued. As a result of the foregoing, the 1st Defendant did not consider the CPC to be issued in a proper manner and requested the 2nd Defendant to withhold disbursement of money under the Bank Guarantee until a satisfactory explanation was received from the Architect and the Plaintiff. The 2nd Defendant’s response vide their letter dated 28.6.1994 (page 61) was that it was not in a position to verify the validity of the CPC and it “would be honouring our commitment to Kaysen based on the original copy of the CPC issued to Kaysen”. DW 1 admits that there was nothing in this letter to state that the demand was made out of time or that it is RMBB who should have made the demand. On the contrary, DW 2’s response was that they were honouring their commitment.

 

35. However, vide their letter dated 19.8.1994, the 2nd Defendant informed that they were unable to accede to the Plaintiff’s request for payment because their obligation to pay would have arisen only if a demand was made on or before the expiry of 6 months from the date of the Guarantee, namely, on or before 17.5.1994.

 

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36. DW 1 further testified that the Plaintiff was not entitled to file the suit in its own name because under the Deed of Assignment, all its rights, title, interest, benefits and claims had been assigned absolutely to RMBB (nor RHB). He argues that only RHB can bring an action against the 2 nd Defendant under the Bank Guarantee and that the Plaintiff was not entitled to commence and continue with the action in its own name at the time that the action was filed. DW 1 referred to the letter dated 18.1.2007 whereby RHB ratified and confirmed that the Plaintiff was duly authorized to commence and to continue with the proceedings in the present suit on the Bank’s behalf and as its collecting agent. He pointed out that there is nothing in the Writ of Summons and Statement of Claim in the present case to suggest that the Plaintiff was suing on behalf of RHB or as a collection agent of RHB or that any sums received would be paid directly to RHB. Notwithstanding RHB’s letter of 18.1.2007, he nevertheless maintained that the Plaintiff was not entitled to sue under its own name and that the suit was therefore not competently commenced.

 

37. During cross-examination, DW 1 agreed that it was only at the time of filing their Amended Statement of Defence that the 2nd Defendant had first pleaded that the Plaintiff did not have the right to commence the suit.

 

38. In the course of cross-examination, DW 1 agreed that as at 2.6.1993, the Project was already abandoned. When that happened, the options available to the 2nd Defendant were either to foreclose, to sue the guarantors or to rehabilitate or salvage the Project. In this case, foreclosure was not feasible as there were buyers who had made payments and had an interest in the Project. Although DW 1 at first testified that the guarantors had been adjudged bankrupt, however, during re-examination, he changed his testimony when he said that he

 

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believed that the guarantors were not bankrupt at the time. However, notwithstanding the above answers, DW 1 refused to answer when asked if rehabilitation or salvaging the Project was the only viable option available to the 2nd Defendant.

 

39. DW 1 was in agreement that no contractor would have contracted with a financially troubled 1st Defendant without a Bank Guarantee from the 2nd Defendant. He further agreed that as the 1st Defendant was insolvent, the only real prospect of payment came from the 2nd Defendant. Whilst agreeing that the Bank Guarantee issued by the 2nd Defendant is a demand guarantee, he nevertheless maintained that it is subject to clause 4. He disagreed that in the context of the Guarantee Agreement, the 6 months should from the date of the issuance of the CPC and not from the date of the Agreement. The 2nd Defendant contends that the Guarantee expired on 16.5.1994. DW 1 agreed that since the CPC was issued on 8.6.1994, the Bank Guarantee would have lapsed even before the CPC was issued. Notwithstanding the above, he disagreed that that would be an absurd result.

 

40. DW 1 further agreed that in this case, the Architect had extended the completion date to 30.5.1994. This completion date would fall after 16.5.1994, the date which the 2nd Defendant contends is their limit of liability. He agreed that as late as 9.5.1994, 7 days before the date when the Guarantee Agreement would allegedly expire, there was a confirmation of a variation order. When asked whether the Plaintiff could have refused to do the variation, his response was that the Plaintiff could have refused subject to an extension of the Bank Guarantee. It is his evidence that the Plaintiff should have, in the 7 days remaining, apply for an extension of the Guarantee Agreement and, if he does not get the extension, he could refuse to do the variation.

 

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41. DW 1 admitted that as far as the Project was concerned, the 2nd Defendant had derived the full benefit of the Project but had not made payment to the Plaintiff.

 

Evaluation of the Evidence and Findings

 

42. In coming to a decision in this case, the Court has carefully considered the evidence adduced by both parties as well as the documentary evidence relied upon by them. The Court has also received invaluable assistance from the written submissions filed by both parties.

 

Proper construction of the Bank Guarantee and the words “from this date hereof”

 

43. The first issue to be considered is the proper construction of the Bank Guarantee and the words “from this date hereof” in clause 4.

 

44. The Plaintiff’s case is founded on the fact that the 2nd Defendant had failed to pay the sum of RM 3,762,077, which payment was guaranteed under the Bank Guarantee. It is the Plaintiff’s contention that the Bank Guarantee is valid for 6 months from the date of the CPC and not the date of the Bank Guarantee. Since the Plaintiff’s demand was made on 15.6.1994, mere days after the CPC was issued on 8.6.1994, the Plaintiff claims that its demand was made within the time stipulated in the Bank Guarantee.

 

45. The 2nd Defendant, on the other hand, claims that the Bank Guarantee is valid for 6 months from the date of the Bank Guarantee itself and not from the date of the CPC. It contends that the Bank Guarantee was issued on 17.11.1993 and expired on 16.5.1994. It took the position that since the demand was made on 15.6.1994 after the

 

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expiry of the Bank Guarantee, the 2nd Defendant was not obliged to make payment under the said Guarantee.

 

46. As the determination of this issue revolves around the proper interpretation of clause 4 of the Bank Guarantee, clause 4 is reproduced below for ease of reference:

 

“(4) The payment obligation of the Issuer hereunder shall not arise until such time the Certificate of Practical Completion in respect of the Project shall have been duly issued by the Project Architect and is subject to you making as demand on the Issuer on or before the expiry of six (6) months from this date hereof. This Guarantee shall remain valid and in full force and effect from the 2 day of July 1993. This Guarantee shall, unless a demand is made within the validity period as aforesaid, shall then expire and be returned to us for cancellation.”

 

(Emphasis added)

 

47. In submitting that the words “six (6) months from this date hereof’ mean 6 months from the date of the Bank Guarantee, learned counsel for the 2nd Defendant has argued that the intention of the parties may be considered by the Court. He argues that there is no documentary evidence between the parties which is consistent with the Plaintiff’s interpretation of the Bank Guarantee and that documentary evidence was in fact consistent with the 2nd Defendant’s interpretation of the words in question.

 

48. The Court has carefully perused the letter from Messrs Surjan Singh Sidhu & Co dated 26.8.1994 relied on by the 2nd Defendant. Messrs Surjan Singh Sidhu were then the solicitors on record for the Plaintiff and the letter was issued after the 2nd Defendant had refused to make payment under the Bank Guarantee on the grounds that the time

 

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period for making the demand had expired. Whilst it is true that Messrs Surjan Singh Sidhu had referred to the fact that the Guarantee was subject to a claim being made within a specified time frame, the said time frame was not clearly spelled out. It is noted that in paragraph 10 of the said letter, Messrs Surjan Singh Sidhu had pointed out that the Plaintiff had never agreed to the time frame. The Court is of the view that reading paragraphs 10 and 11 together, it would appear that the contents of Messrs Surjan Singh Sidhu’s letter is consistent with the 2nd Defendant’s position as the solicitor was talking about “an extension of time to complete the project out of time due to late approvals by the authorities”, “your representative also assured our clients that in view of the extension of time agreed upon, you would not impose the time frame mentioned in your above Guarantee”. There would be no issue about an extension of time on 12.4.1994 if the expiry of the Bank Guarantee was linked only to the issuance of the CPC.

 

49. It is true that when PW 1 was asked during cross-examination about his understanding of the time period of the Guarantee, he had answered that it was 6 months from the date of issue of the Bank Guarantee. He had also answered that the specific time frame for making the claim was 6 months from the date of the Bank Guarantee. Based on this, the 2nd Defendant had submitted that their interpretation of clause 4 is the correct one subscribed to by both parties.

 

50. The 2nd Defendant had cited 2 authorities in support of its case on this issue. In the case of YM Orang Kaya Menteri Paduka Dato’ Wan Ahmad Isa Shukri Wan Rashidi v Kwong Yik Bank Bhd (2) [1989] 1CLJ (Rep) 187, the issue that arose was whether there must be a proper demand issued to a guarantor. In holding that the demand was a condition precedent to suing the guarantor, the Supreme Court held as follows:

 

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“The first thing to do is to look at the Letter of Guarantee. The liability of the guarantor depends very much on the language of that instrument and the nature of the liability it creates. A guarantor is therefore entitled to insist on a rigid adherence to the terms of his obligation by the creditor, and cannot be made liable for more than he has undertaken”.

 

51. In the case of Teknik Cekap Sendirian Berhad v Public Bank Berhad [1995] 4 CLJ 697, the Court of Appeal held that a performance bond was nothing more than a written guarantee and in order to interprete the obligations of the bank, one need only look at the written bond itself to determine what were the terms and conditions agreed upon between the parties. As pointed out by His Lordship Shaik Daud bin Mohd Ismail JCA, “A great deal, therefore, depends on the wordings of the bond itself”.

 

52. The authorities relied on by learned counsel for the 2nd Defendant on this issue both point to the fact that in interpreting the Bank Guarantee, the Court must look at the Bank Guarantee itself.

 

53. The Plaintiff, on the other hand, argues that the Court is entitled to look at the factual matrix forming the background of the transaction. Reliance was placed on the very recent case of Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010] 1 CLJ 269 where the Federal Court laid down guidelines to be followed when interpreting a contract. At page 296, His Lordship Gopal Sri Ram FCJ held as follows:

 

“First, a court interpreting a private contract is not confined to the four corners of the document. It is entitled to look at the factual matrix forming the background to the transaction. Second, the factual matrix which forms the background to the transaction includes all material that was reasonably available to the parties.

 

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Third, the interpreting court must disregard any part of the background that is declaratory of subjective intent only. Lastly, the court should adopt an objective approach when interpreting a private contract”.

 

In its decision, the Federal Court had referred to the case of Bank of Credit and Commerce International SA v Munawar Ali [2001] 2 WLR

 

735 where Lord Clyde held that –

 

“The problem is not resolved by asking the parties what they thought they intended. It is the imputed intention of the partied that the court is concerned to ascertain. The parties may well have never applied their minds to the particular eventuality which has subsequently arisen, so that they may never in fact have had any conscious intention in relation to that eventuality. It is an objective approach which is required and a solution should be found which is both reasonable and realistic. The meaning of the agreement is to be discovered from the words that they have used in the context of the circumstances in which they made the agreement”.

 

(Emphasis added)

 

54. And in the case of Sri Kelangkota-Rakan Engineering JV Sdn Bhd & Anor v Arab Malaysian Prima Realty Sdn Bhd & Ors [2003] 3 CLJ 349, the Federal Court, in dealing with the issue of whether the correspondence exchanged between the parties during negotiations may be looked at as an aid to the construction of agreements, referred to the case of Premm v Simmonds [1971} 3 All ER 237 where Lord Wilberforce had found as follows:

 

“It may be said that previous documents may be looked at to explain the aims of the parties. In a limited sense this is true; the commercial or business object, of the transaction, objectively

 

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ascertained, may be a surrounding fact…And if it can be shown

 

that one interpretation completely frustrates the object, to the extent of rendering the contract futile, that may be a strong argument for an alternative interpretation if that can reasonably be found”.

 

(Emphasis added)

 

55. In light of the authorities relied on by both parties, the Court is satisfied that in interpreting the Guarantee Agreement, it must first look at the words in the Bank Guarantee itself to decipher its true meaning and import. And whilst doing so, it is entitled to look at the factual matrix forming the background to the transaction. It is required to take an objective approach in interpreting the Guarantee Agreement and any interpretation which frustrates the commercial or business object of the transaction must not be accepted over one that does.

 

56. The Court takes the view that in deciphering the true meaning of the words “six (6) months from this date hereof’ in clause (4), it should not look only at that clause but that it should look at the totality of the whole Guarantee Agreement. A perusal of Preamble B would show that a sum of RM 3,762,077.00 was payable by the 1st Defendant to the Plaintiff pursuant to the Turnkey Contract. Ninety-five per cent (95%) of the said sum was to be paid on issuance of the CPC, two point five per cent (2.5%) after six (6) months and the balance six (6) months thereafter. It is also clearly stated that payment would only be due upon satisfactory completion of the houses up to issuance of the CPC and that no proportionate claim for work done would be entertained if the work should stop for any reason.

 

57. The Court notes that Preamble C provides that “At the request of Kong Wha, the Issuer has agreed to guarantee the payment of the

 

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Contract Sum to Kaysen”. It follows there from that the 2nd Defendant’s liability to pay the Plaintiff only arises after the contract sum is payable by the 1st Defendant and this in turn would be, inter alia, only after the CPC by the Architect has been issued. This is reenacted in clause (3) where it can be seen that the 2nd Defendant’s unconditional and irrevocable undertaking to pay the Plaintiff arises only if and when the 1st Defendant is in default.

 

58. The Court further notes that clause (3) is consistent with the Preamble and the foregoing clause. Clause (3) provides that the Guarantee shall be a continuing guarantee subject always to the Plaintiff completing construction of all the houses “resulting in the issue of the Certificate of Practical Completion by the Project Engineer” and to a demand in writing being made within the period specified in clause (4) hereof.

 

59. Clause (4) talks about the payment obligation of the Issuer not arising until such time as the CPC is issued by the Project Architect and is subject to the Plaintiff making a demand on the Issuer “on or before the expiry of six (6) months from this date hereof”. The Court is of the view that in light of the fact that the payment obligation of the 2nd Defendant would not arise until such time as the CPC was issued by the Project Architect, the words “from this date hereof” can only mean from the date of issuance of the CPC. The Court finds that the argument that those words would mean six (6) months from the date of the Guarantee Agreement would bring an absurd result. The Bank Guarantee is dated 17.11.1993. Six (6) months from that date would be 16.5.1994. The CPC was only issued on 8.6.1994. The 2nd Defendant’s argument that the words “from this date hereof” means from the date of the Guarantee Agreement would require the Plaintiff to make a demand from the 2nd Defendant even before the 1st Defendant’s obligation to pay the Contract

 

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Sum arises. The Court is unable to accept the 2nd Defendant’s argument as such an interpretation would render the entire Guarantee Agreement an absurdity.

 

60. The Court notes the argument of the 2nd Defendant that when PW 1 was asked during cross-examination his understanding of the time period of the Guarantee Agreement, his answer was that it was 6 months from the date of the Bank Guarantee. Learned counsel for the 2nd Defendant thus argues that both parties actually share the same understanding that the Bank Guarantee expired 6 months from the date of the Bank Guarantee and the Court cannot ignore this when determining the proper meaning of clause (4).

 

61. In answer to the 2nd Defendant’s argument above, the Court relies on the case of Bank of Credit and Commerce International SA v Munawar Ali [2001] 2 WLR 735, which was referred to by the Federal Court in the case of Berjaya Times Square Sdn Bhd (supra). In line with the above authorities, it is the Court’s finding that the words “six (6) months from this date hereof’ means six months from the date of issuance of the CPC. The Court is of the view that this finding is consistent with the factual matrix forming the background of the transaction which is not seriously in dispute. The Court further finds that this interpretation of the afore-stated words will not have the effect of bringing an interpretation which would frustrate the very intention behind the Guarantee Agreement.

 

Effect of the Deed of Assignment of the Guarantee Agreement

 

62. The existence of the Deed of Assignment between the Plaintiff and RMBB and its contents is not in issue between the parties. What then is the effect of this Deed of Assignment?

 

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63. The Deed of Assignment of Contract and the Deed of Assignment of Bank Guarantee, both dated 6.12.1993, were entered into between the Plaintiff and RMBB to enable the Plaintiff to obtain financing for the Project. Under these Deeds of Assignment, the Plaintiff assigned all its rights, title, interests, benefits and claims under the Turnkey Contract as well as the Guarantee Agreement to RMBB.

 

64. Arising from the Deed of Assignment of the Guarantee Agreement, two issues that arise here for the determination of the Court are, firstly whether the Plaintiff was entitled to commence and continue with this action against the 2nd Defendant and secondly, whether the Plaintiff was competent to commence this suit in its own name.

 

65. The 2nd Defendant has submitted that the Deed of Assignment creates an absolute assignment, the legal effect of which is that the Plaintiff is not entitled in law to sue the 2nd Defendant on the Bank Guarantee in its own name. Neither is it competent to commence or maintain the present action against the 2nd Defendant. The 2nd Defendant relies on section 4(3) of the Civil Law Act 1956 and the Federal Court case of Nouvau Mont Dor (M) Sdn Bhd v Faber Development Sdn Bhd [1984] 2 MLJ 268 which was followed by the Court of Appeal in Kredin Sdn Bhd v YTF Investments Sdn Bhd [1998] 1 CLJ 205 in support of its contention.

 

66. In respect of this issue, the Plaintiff has given various reasons for saying that as a collecting agent of RHB Bank, it could commence this action in its own name. Learned counsel for the Plaintiff had submitted that by its letter dated 18.1.2007, RHB Bank had duly authorized the Plaintiff to commence and continue with these proceedings. He pointed out that this was consistent with the Deed of Assignment of Bank Guarantee wherein the Plaintiff had covenanted that it will allow its

 

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name to be used as and when required by the Assignee for the purpose of enforcing the Assignee’s rights. He submits that the Plaintiff had entered into the Letter of Award and the Bank Guarantee on such terms as to be personally liable and as such had a corresponding right to sue thereon. The Plaintiff contends that RHB cannot be sued under the Letter of Award and the Bank Guarantee because the Deed of Assignment only transfers rights and benefits and not liabilities and that one of the presumptions of contracts to the contrary under section 183 of the Contracts Act 1950 for allowing an agent to enforce a contract on behalf of his principal is if it can be shown that the principal, although disclosed, cannot be sued.

 

67. The Court has carefully considered the submissions of both parties on this issue. In the case of Nouvau Mont Dor (M) Sdn Bhd v Faber Development Sdn Bhd (supra) relied on by the 2nd Defendant, the Federal Court considered the question of whether the assignor was entitled to sue under his own name. The facts would show that the appellant, a purchaser, had entered into a sale agreement to purchase one unit of shop/office from a developer, Tan Kim Chua Realty for a sum of RM 184,320.00. Public Bank granted the appellant a fixed loan of RM 92,160.00 to pay for the balance of the purchase price. The appellant entered into a loan agreement with the bank and also executed a deed of assignment of all his rights, title and interest in the property to the bank. Subsequently, the respondent purchased from the developer the whole building, including the units already sold by the developer. The appellant commenced proceedings against the developer for certain declaratory relief. After the filing of the originating summons, the assignment was revoked following settlement of the fixed loan. At the hearing of the originating summons, the respondent raised a preliminary objection that at the time of the filing of the originating summons, the action could

 

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not be maintained in the name of the appellant as assignor having regard to the terms of the assignment.

 

68. In coming to a decision in the above case, the Federal Court held as follows:

 

“It is common ground that if the assignment was an absolute one, not purporting to be by way of charge only, within the meaning of section 4(3) of the Civil Law Act 1956, then the appellant, as assignor was not entitled to sue in its own name but the action should be brought by the assignee (Public Bank) in its own name or by the assignee in the name of the assignor [Read v Brown; Hughes v Pump House Hotel Co. Ltd and Walter & Sullivan Ltd v J. Murphy & Sons Ltd]”.

 

69. The Federal Court went on to say that in every case of this kind, all the terms of the instrument must be considered. Whatever may be the phraseology adopted, if upon consideration of the whole instrument it is clear that the intention was to give a charge only, then the action must be in the name of the assignor. On the other hand, if it is clear from the instrument that the intention was to pass all the rights of the assignor in the debt to the assignee, then the action must be brought in the name of the assignee.

 

70. The case of Nouvan Mont Dor (supra) was followed by the Court of Appeal in the case of Kredin Sdn Bhd v YTF Investments Sdn Bhd [1998] 1 CLJ 205 where His Lordship Shaik Daud Ismail JCA held that –

 

“…if at all, there is a cause of action to institute the action to enforce the sale and purchase agreement against YTF, it would be the bank who would be entitled to do so and not Kredin. Clause 1 of the deed of assignment makes this clear when together with its

 

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rights, title and interests, Kredin also assigned “all remedies for enforcing” to the bank”.

 

71. The Court, upon a careful perusal of the Deed of Assignment of Bank Guarantee, is satisfied that the Plaintiff had given an absolute assignment of all its rights, title and interests under the Bank Guarantee to RMBB (now RHB). That this assignment is an absolute assignment is clear from the very phraseology itself where clause (2) states emphatically that “the Assignor HEREBY ASSIGNS absolutely to the Assignee all the Assignor’s present and future rights, title and interest under the Bank Guarantee…”. Based on the authorities of Nouvan Mont Dor (supra) and Kredin Sdn Bhd v YTF Investments Sdn Bhd (supra), the Court is satisfied that the Plaintiff, having assigned its rights etc. absolutely to RMBB was not entitled to sue in its own name. On the contrary, the action should be brought by the assignee (RMBB) in its own name or else by the assignee in the name of the assignor. Hence the rationale for clause 4(b) of the Deed of Assignment whereby the Assignee covenants with the Assignee that –

 

“..it will do or permit to be done each and every act or thing which the Assignee may from time to time require to be done for the purpose of enforcing the Assignee’s rights under the Bank Guarantee and this Assignment and will allow its name to be used as and when required by the assignee for that purpose”.

 

72. The Court has considered whether the letter of ratification given by RHB Bank Berhad dated 18.1.2007 would have the effect of rectifying the Plaintiff’s lack of locus standi in commencing this suit. In the said letter, RHB purports to ratify and confirm that the Plaintiff was duly authorized “to commence and continue with the proceedings in the D2 Suit .. on the Bank’s behalf and as the Bank’s collecting agent..”. The Court finds that the case of Seema Development Sdn Bhd v Fah Kin Pang & Ors

 

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[1979] 2 CLJ 571 relied on by the Plaintiff to be not relevant to the issue at hand. The issue in Seema Development (supra) was whether the original solicitor for the plaintiff who instituted the summons was properly authorized by the plaintiff and secondly, whether the subsequent solicitor, Yeow, was only authorized to act as solicitor but not to conduct the prosecution of its case. The issue in that case was the plaintiff’s ratification of the acts of its solicitor.

 

73. In respect of the Plaintiff’s claim of being the collecting agent for RMBB or RHB, the Court has carefully perused the Statement of Claim and finds that whilst it is true that the Plaintiff has pleaded the Loan Agreement with RMBB, the Deed of Assignment of Contract as well as RMBB’s claim against them for repayment of the Term Loan, there is nothing in the Statement of Claim that even remotely suggests that the Plaintiff was acting as the collecting agent for RMBB. In fact, quite dissimilar to the Plaintiff’s letter of demand to the 2nd Defendant dated 15.6.1994 which asks for a sum of RM 2.2 million to be remitted directly to RMBB, the Statement of Case merely prays for judgment in the sum of RM 3,762,077.00 with no mention of any sum being due to RMBB. The Court thus finds it difficult to accept the Plaintiff’s contention that in filing this case, they were acting as the collecting agent for RMBB.

 

74. The Court finds that RHB’s act of ratification on 18.1.2007 may well have been assisted the Plaintiff’s case if this had been a case of the Plaintiff filing the Writ of Summons in the name of RMBB (or RHB) but without their consent at the initial stage. The Bank’s ratification, if the issue of delay can be overcome, may well have resolved the issue. Unfortunately, the issue here is who the proper party to bring the suit is and in such a situation, RHB’s ratification does not have the effect of lending legitimacy to the Plaintiff’s claim.

 

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Conclusion

 

75. In conclusion, the Court finds that the words “six (6) months from this date hereof’ means six months from the date of issuance of the CPC and as such, the Plaintiff’s claim was made within the time specified in clause (4). However, the Court finds that vide the Deed of Assignment of Bank Guarantee, the Plaintiff had given an absolute assignment of all its rights, title and interests under the said Guarantee to RMBB (now RHB). The Court finds that this assignment is an absolute assignment and that the Plaintiff, having assigned its rights, title, interests and benefits absolutely to RMBB, was not entitled to sue in its own name. The action should have been brought by the assignee (RMBB/RHB) in its own name or else by the assignee in the name of the assignor. And lastly, the Court finds that the letter of ratification dated 18.1.2007 given by RHB Bank Berhad would not be capable of rectifying the Plaintiff’s lack of locus standi in commencing this suit. As such, the Court finds that the Plaintiff was not competent to maintain this action at the time when the Writ of Summons was filed on 22.12.1994. The Court finds that the Plaintiff has not succeeded in making out a case against the 2nd Defendant on a balance of probabilities. The Plaintiff’s claim against the 2nd Defendant is dismissed with costs.

 

(Amelia Tee Hong Geok bt Abdullah)

 

Pesuruhjaya Kehakiman Dagang 6 KUALA LUMPUR

 

5.7.2010.

 

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Mr. Rajendran Navaratnam with Ms. Tay Kian Har (Messrs Azman Davidson & Co.) for the Plaintiff.

 

Mr. Brendan Siva with Ms. Aida Haryani (Messrs Kadir Andri & Partners) for the 2nd Defendant.

 

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