3RD Eye Marketing Sdn Bhd v Zhong Jiang (S) International Pte Ltd (JA-22NCC-62-09/2020)

the Plaintiff should file this suit against LZBTM and not the Defendant since all statements of account, purchase orders, invoices and delivery orders are between the Plaintiff and LZBTM. The Defendant has no privity of contract with the

the Plaintiff must prove LZBTM’s debt before demanding the Defendant to settle the debt on the capacity of guarantor as alleged by the Plaintiff;

the LOU is ambiguous, premature and not valid as it was only signed by a director of the Defendant; and S/N lZ4a6IVurkyT97EoifrUA

the Plaintiff can only take a legal action against the Defendant for the amount claimed if the Plaintiff has obtained a judgment against LZBTM. [14] During the trial, parties have agreed to focus on the following matters being the issues to be tried:

whether the LOU was intended to be an indemnity or guarantee or letter of comfort; and

if the LOU was an undertaking or guarantee, then whether the LOU was retrospective and not valid pursuant to s. 80 of the Contract Act 1950 (“CA”); Whether the letter of undertaking was intended to be an indemnity or guarantee or letter of comfort [15] It is pivotal to note that the Defendant did not deny the existence of the LOU. However, the Defendant averred that the LOU was not intended to be an indemnity or guarantee to settle LZBTM’s outstanding debt. The sole intention was to pay up to RM1.7 million of construction materials as requested or ordered by the Defendant for LZBTM and nothing else. Thus, according to the Defendant, the Plaintiff’s cause of action against it is not valid. S/N lZ4a6IVurkyT97EoifrUA [16] Based on the above basic issues raised by the Defendant, it is the duty of this court to scrutinize the status and intention of the LOU at the time when it was issued. [17] The Plaintiff on the other hand submitted that the LOU is a not a guarantee or letter of conform. But it is a contract of indemnity which the intention was to indemnify the Plaintiff against any loss in consideration of the Plaintiff to supply the construction materials to LZBTM. [18] To begin with, let’s see the difference between the letters of undertaking, guarantee and comfort. I take the letter of comfort first. It is usually issued in the course of business without any contractual promise and no more than a representation of fact (see Kleinwort Benson Ltd. v. Malaysia Mining Corporation Bhd [1989] 1 All ER 785). [19] As for the contract of indemnity and guarantee, the Contract Act 1950 defines the two as follows: Contract of indemnity 77. A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity". "Contract of guarantee", "surety", "principal debtor" and "creditor"

A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety"; the person in respect of which default the guarantee is given is called the "principal debtor", and the person to whom S/N lZ4a6IVurkyT97EoifrUA the guarantee is given is called the "creditor". A guarantee may be either oral or written. [20] The Supreme Court in South East Asia Insurance Bhd v. Nasir Ibrahim [1992] 4 MTC 268; [1992] 2 MLJ 355 had expounded the differences between the contract of indemnity and guarantee by holding – We found in the first place that the difference between a contract of indemnity and a contract of guarantee appears to have been overlooked. A contract of indemnity is defined in s. 77 of our Contracts Act 1950 as 'a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person'. A contract of guarantee, according to s. 79 of the Contracts Act 1950 'is a contract to perform the promise, or discharge the liability, of a third person in case of his default'. The person who gives the guarantee is called the 'surety'; the person in respect of which default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. In a contract of indemnity, the promisor undertakes an original and independent obligation to indemnify, as distinct from a contract of guarantee which is a collateral contract by which the promisor undertakes to answer for the default of another person who is to be primarily liable to the promisee'. [21] In a more recent decision of Lim Chon Jet @ Lim Chon Jat & Ors v. Wee Ai Hua & Anor [2022] 1 LNS 2316 the Court of Appeal explained the contract of guarantee in detail where – [39] Under s. 79 of the Contract Act 1950 (CA 1950), a 'contract of guarantee' is defined as a contract to perform the promise or discharge the liability of a third person in the event of his default The person who gives the guarantee is called S/N lZ4a6IVurkyT97EoifrUA the 'surety', the person in respect of which default the guarantee is given is called the 'principal debtor' and the person to whom the guarantee is given is called the 'creditor'. Therefore, there must be three parties involved under a contract of guarantee: the surety, the principal debtor and the creditor. It is an undertaking to guarantee the obligations of a named principal. A contract of guarantee is essentially a collateral contract by which a guarantor undertakes to answer for the default of the principal debtor to the creditor. As regards to the liability, the guarantor only owes a secondary obligation to the creditor to make good the particular defaults of the principal debtor. See the cases of Yeoman Credit Ltd v. Latter & Anor [1961] 2 All ER 294, South East Asia Insurance Bhd v. Nasir Ibrahim [1992] 4 CLJ 1801 and Bank Pembangunan Malaysia Bhd v. Spring Hill Bioventures Sdn Bhd [2020] 4 CLJ 15, [22] Before I proceed further to determine the status of the LOU, it is pertinent to highlight that the language written in a letter of undertaking must be construed like any ordinary contract. In Michael C. Solle v. United Malayan Banking Corp [1984] 1 CLJ Rep 267 Hashim Yeop Sani FCJ (as he then was) held that – "The principles of construction to be applied to the undertaking are similar to those applied to an ordinary contract. The intentions of the parties are to be gathered from the language used. They are presumed to have intended what they said. The common and universal principle is that an agreement ought to receive that construction which its language will admit, which will best effectuate the intention of the the parties, to be collected from the whole of the agreement." . [23] Back to the LOU, for ease of reference, the letter is reproduced as below – S/N lZ4a6IVurkyT97EoifrUA [24] Looking at the wordings of the LOU, I find that it was drafted in a plain language without any ambiguity. The phrases that “I, Pan, GuoHua being the directors of Zhong Jiang (Singapore) International Pte Ltd undertake and covenant, irrevocably and unconditionally to pay you, upon your demand all sums due and payable by LZ Building Technology (M) Sdn Bhd to you. We shall indemnify and keep you indemnified against all sums S/N lZ4a6IVurkyT97EoifrUA damages and claims that you have against LZ Building Technology (M) Sdn Bhd” are clear, unequivocal and self-evident admission by the Defendant to treat the LOU as a contract of indemnity. [25] In Common Ground TTDI Sdn Bhd v. Ken TTDI Sdn Bhd [2021] 1 LNS 1611 where Mohd Nazlan Mohd Ghazali J (now CJA) held that – [59] In the final analysis, contracting parties should not dispute the clear terms of the agreement which they have agreed to be bound by. What have been agreed by contracting parties should be given effect to. [26] In addition, I find the intention of the parties also shows that the LOU is meant none other than an undertaking to indemnify. The narrative can be seen from the evidence given by PW2 in his witness statement on how the LOU came into existence and its purpose. He gave the evidence as follows: Q6. What the Plaintiff do after LZ had breach the payment terms? A6. As I am the person in charge of LZ account, I had on numerous occasions requested for LZ to make payment to the Plaintiff but it was unsuccessful. On January 2019, I communicated with Tan Lip Wan, the representative of LZ that the Plaintiff would have no choice but to stop the supply of CMI construction materials to LZ if LZ fails to make payment Q7. What happened after that? A7. On or around 3.3.2019, Tan Lip Wan contacted me to inform me the Plaintiff that LZ’s director, Mr. Pan Guo Hua would like to meet up with Mr Ung Boon Siew and myself to resolve the debt due and owing by LZ S/N lZ4a6IVurkyT97EoifrUA to the Plaintiff. The meeting was set on 7.3.2019 at Forest City Droptop Café. Q9. What was the outcome of the meeting? A9. During the meeting, Pan Gua Hua had acknowledge that LZ was indebted to the Plaintiff and parties were in negotiation for an amicable settlement. Pan Gua Hua had introduced the Defendant and that he is sitting in the board of the Defendant as a director. In the same meeting, the Defendant through Pan Gua Hua had proposed and the Plaintiff had agreed to resume the supply to LZ in return the Defendant shall issue the LU to undertake and covenant, irrevocably and unconditionally pay to the Plaintiff all sums due and owing by LZ upon the Plaintiff’s demand and the Defendant shall also indemnify and keep the Plaintiff indemnified against all sums, damages and claims that the Plaintiff have against LZ. It was also communicated between the parties that LZ is at the final stage of the project Plot 29-2, so Mr Pan Gua Hua had pleaded to the Plaintiff to help them to complete the project so that LZ can get payment from the Developer to enable the Defendant to pay the Plaintiff the outstanding debt. He also reassured us that the Defendant is a China government linked corporation. Q10. What happened after that? A10. Upon parties’ agreement and Pan Gua Hua’s undertaking for Defendant to issue the LU, Plaintiff had agreed to resume to supply to LZ up to 19 April 2019 being the last order made by LZ [27] The evidence of PW2 on the purpose and intention of the LOU was corroborated by PW1’s as below: S/N lZ4a6IVurkyT97EoifrUA Q12. Can you show to this Honourable Court the LU and explain the contents therein? A.12. The Lu is at Ikatan Dokumen Bersama Bahagian B page 20. The contents of the LU was drafted by myself and forwarded by David to the Defendant to adopt and issue the same on the Defendant’s letterhead. The LU was a simple LU to state that the Defendant had agreed to pay the Plaintiff all sums due and payable by LZ up to the limit of RM1,700,000.00. [28] Undoubtedly the LOU was issued as a result of the meeting held by both parties and clearly with the fact that the Defendant agreed to issue the LOU as a letter of undertaking and indemnity so that the Plaintiff would continue supplying the construction materials to LZBTM. I agree with learned counsel for the Plaintiff that it is unreasonable for the Defendant suddenly issued the LOU which the intention was for the future order of the construction materials whereas LZBTM was still indebted a substantial amount of money to the Plaintiff. [29] It has to bear in mind that the wordings in the LOU were prepared by PW1. Thus, he is the best person to explain about the exact intention and purpose of the LOU based upon his avowed personal knowledge. On the contrary, there was no affirmative written evidence tendered by the Defendant to substantiate its averment that the LOU was for the future order of the construction materials and to dispel the PW1’s evidence. [30] In the Court of Appeal decision in Syarikat Binaan Utara Jaya (A Firm) v. Koperasi Serbaguna Sungei Glugor Berhad [2009] 1 CLJ 786; [2009] 2 AMR 50, Abdul Malik Ishak JCA stated the following key principle:- S/N lZ4a6IVurkyT97EoifrUA [16] I am fortunate that the contract here is in writing and so the parties are confined within the four corners of the document in which they have chosen to seal their agreement and neither of them can adduce evidence to say that his intention has been misstated or overlooked in the agreement or that some essential features of the contract has been omitted or ignored. To allow such evidence would involve the plain violation of s. 92 of the Evidence Act 1950 (Afshar M. M. Tacki v. Dharamsey Tricamdas [1947] AIR (34) 98 Bombay)". [31] In light of the above, I have no doubt that the LOU is a letter of indemnity. Whether the LOU was retrospective and not valid pursuant to s. 80 of the Contract Act 1950 [32] The Defendant submitted that if the LOU was intended as to settle the outstanding sum viz. the past debt of LZBTM, the letter would be void under s. 80 of the CA. In other words, the LOU cannot apply respectively. [33] With respect, I find the argument is misconceived. S. 80 of the CA specifically deals with the consideration of guarantee whereas as alluded earlier, the LOU is a contract of indemnity. [34] S. 80 of the CA reads – Consideration for guarantee 80. Anything done, or any promise made, for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee. S/N lZ4a6IVurkyT97EoifrUA [35] In light of the above observation, I hold that the provision of s. 80 of the CA as suggested by its shoulder note is only applicable in a contract of guarantee and clearly not in contract of indemnity. Thus, that section is not applicable in the present action. Conclusion [36] Premised on the discussions alluded to in the above, as a conclusion I find that the LOU was issued with the full knowledge of the Defendant that its sole intention was to indemnify against any loss of the Plaintiff to supply the construction materials to LZBTM up to limit of RM1.7 million. In short, the LOU was issued with the Defendant’s undertake to settle LZBTM’s debt and in consideration the Plaintiff resumed the supply the construction materials to LZBTM. [35] By having duly signed the LOU, the Defendant ought not escape from the obligations stipulated therein. Hence, I allow the Plaintiff’s claim with costs. Dated: 2.2.2023 - SIGNED - (SHAMSULBAHRI BIN HAJI IBRAHIM) Judicial Commissioner, High Court, Johor Bahru S/N lZ4a6IVurkyT97EoifrUA Counsels: For the Plaintiff – Law Cheun Yao; Messrs. Tham Teoh & Partners For the Defendant – Chai Yee Man & KC Kok; Messrs. Choo & K.C. Kok Cases referred to:  Common Ground TTDI Sdn Bhd v. Ken TTDI Sdn Bhd [2021] 1 LNS 1611  Kleinwort Benson Ltd. v. Malaysia Mining Corporation Bhd [1989] 1 All ER 785  Lim Chon Jet @ Lim Chon Jat & Ors v. Wee Ai Hua & Anor [2022] 1 LNS 2316  Michael C. Solle v. United Malayan Banking Corp [1984] 1 CLJ Rep 267  South East Asia Insurance Bhd v. Nasir Ibrahim [1992] 4 MTC 268; [1992] 2 MLJ 355  Syarikat Binaan Utara Jaya (A Firm) v. Koperasi Serbaguna Sungei Glugor Berhad [2009] 1 CLJ 786; [2009] 2 AMR 50 Legislations referred to:  Contract Act 1950 – ss. 77 & 79 S/N lZ4a6IVurkyT97EoifrUA