ALLIANCE BANK MALAYSIA BERHAD v SONGMART HOLDINGS SDN BHD (Dalam Penggulungan- Pelikudasi Yang dilantik : Wan Idris bin Wan Ibrahim) (JA-22NCC-33-05/2023)

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MERCURIUS CAPITAL INVESTMENT LIMITED ...Defendan-Defendan GROUNDS OF JUDGMENT [Enclosures 20 & 24] Introduction [1] These are two applications filed by the Plaintiff seeking for summary judgments under O. 14 of the Rules of Court 2012 (“ROC”) against – [2] As a background of facts, at the request of the 1st Defendant, the Plaintiff via an offer letter dated 28.2.2022 (“Offer Letter”) offered the 1st Defendant two term loans. The 1st term loan was RM8.92 million (“Term Loan 1”) and another was RM5.18 million (“Term Loan 2”). Both term loans are collectively referred to as the “Loan”. [3] The Loan was given based on the terms contained in the Offer Letter and the Facilities Agreement dated 29.4.2022 both of which the 1st Defendant accepted. [4] The terms of contract provided, among others, that both term loans would be repaid through 240 monthly instalments and the interest would be charged on both term loans at the rate of 1.85% per annum below the Plaintiff’s base lending rate (“Prescribed Rate”). [5] It was also a term of the contract that in the event the Loan is recalled by the Plaintiff, interest would be charged at the Plaintiff’s prevailing current account excess rate of 1.00% per annum above the Prescribed Rate (whichever is higher) on the amount payable to the Plaintiff until the date of full settlement. [6] In consideration of the Plaintiff granting the Loan to the 1st Defendant, the other Defendants executed the following letters of guarantee to guarantee the repayment of all sums due and owing to the Plaintiff from time to time – 3rd and 4th Defendants executed the letter of guarantee dated 29.4.2022; and [7] As the 1st Defendant defaulted in the repayment of the sum due, the Plaintiff through its solicitors served a notice of demand dated 11.4.2023 to demand the arrears from the 1st Defendant, which was the sum of RM175,457.95. [8] A notice of demand dated 11.4.2023 for the arrears was also served on the remaining Defendants in their respective capacities as guarantors of the Loan. However, none of the Defendants settled the arrears nor did they respond to the notices of demand. [9] Accordingly, the Plaintiff proceeded to terminate the Facilities Agreement and recall the Loan. A notice dated 25.4.2023 was sent by the Plaintiff through its solicitors to the 1st Defendant to notify the latter of the termination and to demand repayment of the total owed under the Loan, which was RM13,990,674.23 calculated as at 19.4.2023 together with further interest accruing. [10] The Plaintiff through its solicitors also sent a notice dated 25.4.2023 to the 2nd to 5th Defendants to demand from them as the guarantors to the 1st Defendant the sum of RM13,990,674.23 calculated as at 19.4.2023 together with further interest accruing. Neither the 1st Defendant nor its guarantors paid the sum demanded by the Plaintiff. They also did not respond to the notices dated 25.4.2023. As such, on 10.5.2023, the Plaintiff commenced this suit against all Defendants to recover the sum owed under the Facilities Agreement. [11] On 14.6.2023, the 1st Defendant filed its statement of defence while on 27.6.2023 the 2nd, 3rd and 4th Defendants filed theirs. The 5th Defendant only filed its statement of defence on 31.10.2023. [12] On the request of learned counsels for all parties and premised on these two applications involving the same facts and nature, I allowed them to be heard together. Conditions for summary judgment [13] Since these applications relate to summary judgment, it is important to highlight the requirements under O. 14 r. 1 of the ROC 2012 which have to be met before an application for summary judgment is considered. They are –

the affidavit in support of the application must comply with the requirements of O. 14 r. 2 of the ROC. [14] In National Company for Foreign Trade v. Kayu Raya Sdn. Bhd. [1984] 1 CLJ (Rep) 283, the Federal Court held that if, these conditions are satisfied, the plaintiff will have established a prima facie case and he comes entitled to judgment. The burden then shifts to the defendant to satisfy the Court why judgment should not be given against him. [15] In similar veins, in Cempaka Finance Bhd v. Ho Lai Ying & Anor [2006] 3 CLJ 544, the Federal Court held that once those conditions are fulfilled, the burden then shifts to the defendant to raise triable issues. [16] Now the question is whether the 2nd, 3rd, 4th and 5th Defendants have succeeded in establishing triable issues. The Defendants’ arguments [17] The 1st Defendant did not file any affidavit in reply regarding the Plaintiff’s application for the summary judgment. As such, I agree with learned counsel for the Plaintiff that all material facts asserted by the Plaintiff in its affidavit in support (in Enclosure 21) must be treated as admitted by the 1st Defendant (see Ng Hee Thoong & Anor v. Public Bank Berhad [1995] 1 CLJ 609, Binary Force Sdn Bhd v. Lembaga Pelabuhan Johor [2009] CLJU 313; [2009] 1 LNS 313; [2009] MLJU 296 and Dian Kiara Sdn Bhd v. GCH Retail (Malaysia) Sdn Bhd [2020] CLJU 1541; [2020] 1 LNS 1541; [2020] 12 MLJ 570). [18] The 2nd, 3rd and 4th Defendants argued that there are triable issues in this action and thus, the Plaintiff’s application for summary judgment should be dismissed. The 2nd, 3rd and 4th Defendants mounted the following as the triable issues: Plaintiff ought to have exhausted all legal avenues to recover monies due before initiating this suit; of the Contract Act 1950 as the amount of the increased interest is contrary to public policy and unreasonable;

the 2nd, 3rd and 4th Defendants never received the Offer Letter and never agreed to the Offer Letter; and [20]

the Plaintiff is not entitled to enter the summary judgment against the 5th Defendant as a guarantor when the value of the securities pledged to the Plaintiff far exceeds the purported outstanding sum; and

the interest claimed to be payable to the Plaintiff is excessive, inaccurate and incorrect (similar to the 2nd, 3rd and 4th Defendants’ argument); and Whether the Plaintiff’s claim against the Defendants being guarantors is premature and wrong in law [21] The first issue raised by the Defendants is on the argument that the Plaintiff ought to have exhausted all legal avenues to recover monies due under the Facilities Agreement before initiating this suit. The Defendants averred that a total of 37 units of shop has been charged to the Plaintiff as securities for the repayment of the facility. During the hearing of this application, the Defendants averred that these properties have been recently sold to an interested buyer at the price of RM25.0 million. Nevertheless, the Defendants admitted that sale of the properties is still pending. In any event, the Defendants argued that if the Plaintiff’s applications are allowed, the Plaintiff will be unjustly enriched as this claim is without taking into consideration of the sale proceeds of the 37 properties. Further, the 1st Defendant has been wound-up in August 2023 and thus, the Plaintiff should have sold the 1st Defendant’s assets in satisfaction of the monies due and owing to the Plaintiff before commencing this suit. Hence, the Defendants submitted that the suit as well as these applications are premature and wrong in law because the Plaintiff ought to have exhausted all legal avenues to recover monies due under the facility before initiating this suit. [22] On this issue, it is pivotal to be noted that clause 6.1(b) of the Letter of Guarantee (the terms in all the letters of guarantee are identical) states that the Plaintiff is not obliged to exhaust any of its rights, powers or remedies against the Defendants. The clause reads –

6.1 Principal Debtor & Primary Obligations: Although as between the Customer and the Guarantor, the Guarantor is surety for the Customer, yet between the Bank and the Guarantor for the purposes of this Guarantee, the Guarantor agrees that he is and will be treated and deemed to be the principal debtor of the Guaranteed Liabilities and his obligations and liabilities under this Guarantee are those of principal debtor or primary obligor and not merely as surety. The Guarantor further agrees that –

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the Bank is not obliged before taking any step to enforce any of its rights or remedies under or in connection with this

to make any demand on, or sue, or commence any legal proceedings or take any step or action or obtain judgment against, the Customer or any Surety, guarantor or any other person, or otherwise enforce or seek to enforce any right or claim against, or any security or other guarantees which he Bank may have from or against, the Customer or any surety, guarantor or other person for or in respect of all or any part of the Guaranteed Liabilities; or

(ii) to exercise or exhaust any of its rights, powers or remedies against the Customer or any surety, guarantor or other person for in connection with the recovery of all or any part of the Guaranteed Liabilities; or

(iii) to make or file any claim or proof in a bankruptcy, liquidation, dissolution, administration or insolvency of the Customer or any surety, guarantor or other person. [23] At this point, I find instructive the case of Low Lee Lian v. Ban Hin Lee Bank Bhd [1997] 2 CLJ 36 where the Supreme Court allowed a chargee or creditor to pursue any or all remedies to recover monies lent, including enforcing the charge against the chargor, suing the principal debtor upon the personal covenant in the loan agreement, proceeding against the guarantor, and pursuing all these courses simultaneously or successively. The court held that – Now, it is trite that a chargee/creditor may pursue any or all remedies to recover monies lent by him. He may enforce his statutory charge against the chargor by way of proceedings in rem under s. 256 of the Code. He may sue the principal debtor (who may or may not be the chargor) upon the personal covenant contained in any loan agreement that was entered into between the parties. He may proceed against the surety who has guaranteed the loan. And he may pursue all of these courses simultaneously, contemporaneously or successively. See, China and South Sea Bank Ltd. v. Tan [1989] 3 All ER 839, 842. [24] In light of the above, it is axiomatic that the Plaintiff is entitled to pursue its claim against the Defendants even if the former has yet to obtain any judgment against the 1st Defendant or even if the 37 properties charged as securities have not been fully liquidated. Thus, the Defendants’ argument that this suit is premature is untenable. Whether the interest claimed to be payable to the Plaintiff is excessive and contravenes s. 75 of the Contract Act 1950 [25] The second issue raised by the Defendants is on the default interest increased by the Plaintiff. The Defendants argued that the interest for the default rate in overdraft facility increased by the Plaintiff from 1.0% per annum (0.50% above base lending rate (BLR)) to a total of 5.00% above BLR is excessive and contravenes s. 75 of the Contract Act 1950 as the amount of the increased interest is contrary to public policy and unreasonable. [26] The question before the court is whether the interest imposed by the Plaintiff infringes the public policy and is excessive? [27] On the issue of contravening public policy, I find that there was no explanation offered by the Defendants on how the interest imposed by the Plaintiff is contrary to public policy. Be that as it may, it has to be noted that page 6 of the Offer Letter says – INTEREST RATE UPON RECALL OF FACILITIES In the event the Credit Facilities are recalled by the Bank, interest at the Bank’ prevailing Current Account Excess Rate or 1.00% p.a. above the prescribed rate, whichever is higher, shall be charged on the amount(s) outstanding until the date of full settlement. [28] It is clear from the above clause, that the Plaintiff’s right to increase the interest is a contractual right which has been agreed upon. As such there is no basis for the Defendants now to say that the increase in the interest upon recall of the facility is contrary to public policy. The parties including the Defendants have agreed that the interest rate would be increased in the event the 1st Defendant defaults on the repayment. [29] At this juncture, it becomes necessary to highlight that the contractual right to increase the interest rate upon default in payment of a banking facility has long been recognized in this country. In Standard Chartered Bank Malaysia Bhd v. Arivalagan Krishnan & Anor [2001] 4 CLJ 168 Low Hop Bing J (later JCA) when dealing with the question of variation of interest raised by the defendant in that case held – As such, it is crystal clear that the plaintiff in accordance with this clause is allowed to vary its rate of interest at any time and from time to time. The bank, also in accordance with cl. 6.04(3), does not have to give notice of change of rate of interest, and failure to do so shall not prejudice or have the effect of invalidating any variation. My view is fortified by the judgment of the Court of Appeal in Foo Yoke Foon v. Public Bank Bhd[2000] 3 CLJ 405. In that case, the charge documents stipulated interest at 18% per annum. They also provided for variation of interest at the instance of the respondent as well as penalty interest to be imposed. The documents were executed by the appellant in the presence of his own solicitors. Hence, the Court of Appeal held that "the appellant could not be heard to say that the variation of interest by the respondent was a unilateral act. Written notice to vary interest or to impose penalty interest is not a must." A similar situation prevails in the instant case. [30] The next question is whether the interest imposed by the Plaintiff is unreasonably excessive or exorbitant. To support the Defendants’ argument they referred to the Federal Court decision in Realvest Properties Sdn Berhad v. Co-operative Central Bank Ltd (in receivership) [1996] 3 CLJ 823; [1996] 2 MLJ 461. [31] Upon perusal of the interest imposed by the Plaintiff, with respect, I do not agree with the Defendants that the imposed rate is caught by s. 75 of the Contract Act. Firstly, I find that the element of interest here is a contractual agreed default interest rates and not a penalty as advocated by the Defendants. Secondly, on the issue of excessiveness, it is incumbent upon the Defendants to establish that the interest imposed by the Plaintiff is excessive or unreasonably high. My view is fortified by the case of Pusat Bandar Damansara Sdn Bhd & Anor v. Yap Han Soo & Sons Sdn Bhd [2000] 1 CLJ 346; [2000] 1 MLJ 513, where the Court of Appeal speaking through Siti Norma Yaakob JCA (as the Ladyship then was) held at pg. 524: "To bring that increased or penalty interest within the ambit of s. 75, it must first be shown that it was excessive in nature. The fact that it was an agreed penalty interest as opposed to one that was fixed unilaterally by the appellants, lends support to my conclusion that it could not have been that excessive to enable the respondent to agree to that rate of interest to be charged. On that reasoning the respondent cannot now be heard to complain that the rate of 19% pa on all instalments due as at 30 June 1990, is excessive and under those circumstances that rate of interest cannot be caught by s. 75. [32] Back to the case law referred to by the Defendants, it has to be noted that in Realvest Properties Sdn Bhd (supra), the method of imposing the default interest is different from the present case. In that case, aside from the prescribed 14.5% interest rate principally attached to the loan, a clause (clause 3.2) was annexed to the relevant charge instrument stating that upon default, a separate default interest of 20% per annum was chargeable "on the sum in arrears calculated retrospectively from the due date of such default until the date of payment of the amount thereof". The Federal Court held clause 3.2 of the annexure to the charge in question is void and unenforceable by virtue of s. 75 of the Contracts Act 1950 and the interest calculated by virtue of the said clause 3.2 is irrecoverable. [33] In contrast, in the instant case, the rate of default interest was agreed upon, calculated from the date of default and importantly the increased interest rate from of 1% per annum to a total of 5.00% above BLR was not unreasonable. In the premise of the foregoing, the issue of interest raised by the Defendant is clearly not a triable issue. Whether the 2nd, 3rd and 4th Defendants as the guarantors must receive the Offer Letter [34] It is the Defendants’ contention that the 2nd, 3rd and 4th Defendants never received the Offer Letter and never agreed to the Offer Letter. [35] On this issue, s. 79 of the Contract Act 1950 (“CA”) defines the contract of guarantee as follows: “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 the guarantee is given is called the “creditor”. A guarantee may be either oral or written. [36] In a normal banking business, a bank provides an offer letter to an interested borrower before a loan facility is disbursed. If the facility requires a guarantor, surety or security, the borrower, not the bank, would find a suitable guarantor and such guarantor would sign a letter of guarantee. Hence, the position of a guarantor here is only to undertake discharging all the borrower’s responsibilities in the event of the default by the borrower. A terse summation of the status of a guarantor was given by Suraya Othman JCA in the case of Bank Pembangunan Malaysia Bhd v. Spring Hill Bioventures Sdn Bhd [2020] 4 CLJ 15, as follows: [32] Under a contract of guarantee, there must be three parties involved: the surety, principal debtor/borrower and the creditor. A contract of guarantee is therefore an undertaking to guarantee the obligations of a named principal. In this regard, a contract of guarantee is essentially a collateral contract by which a guarantor/surety undertakes to answer for the default of the principal debtor/borrower who is to be primarily liable to the creditor. The guarantor therefore only owes a secondary obligation to the creditor to make good the particular defaults of the principal debtor. (see the cases of South East Asia Insurance Bhd v. Nasir Ibrahim [1992] 4 CLJ 14 1801; [1992] 1 CLJ (Rep) 295; [1992] 2 MLJ 355 and Yeoman Credit Ltd v. Latter & Anor [1961] 2 All ER 294). … … [41] We find that the learned judge, having considered the evidence before the court, had rightfully found that s. 79 does not require an express third contract between the principal debtor Alpha Biologics and the surety respondent for it to constitute a contract of guarantee. Further, the learned judge had correctly inferred by looking at the letters of offer from the appellant dated 6 December 2005 and 30 May 2006, which were addressed to Alpha Biologics, that it was the appellant creditor who had made the request to the borrower Alpha Biologics to provide the letters of undertaking and not the appellant creditor who had made the request directly to the respondent surety. By implication, the learned judge had inferred, which inference was correct, to come to the conclusion that the suretyship must have been undertaken at the request of Alpha Biologics. This thus satisfied the requirement that the request from the principal debtor or borrower to the surety need not be done expressly but can be implied, as in this case, from the surrounding circumstances of the case. [37] Back to the present case, it is my view that there is no obligation on the part of the Plaintiff to give the Offer Letter to the 2nd, 3rd and 4th Defendants since they are only the guarantors and not the borrower. [38] The Defendants also contended that the guarantee is void for want of consideration as the guarantors derived no commercial benefit when guaranteeing the 1st Defendant’s debt. [39] In this issue, I find that in the letters of guarantee signed the 2nd, 3rd and 4th Defendants, it is clear that the consideration is the Plaintiff agrees to grant the Loan to the 1st Defendant. Again, this issue is also baseless. Whether the Plaintiff is entitled to enter the summary judgment against the 5th Defendant when the value of the securities pledged far exceeds the purported outstanding sum [40] It is also the contention of the 5th Defendant that the Plaintiff is not entitled to enter the summary judgment against the company as a guarantor when the value of the securities pledged to the Plaintiff far exceeds the purported outstanding sum. [41] On this issue, I find that the 5th Defendant is a public listed company at the Singapore Stock Exchange (“SGX”) and the 1st Defendant’s parent company. [42] On 20.4.2023, upon receiving the Plaintiff’s notice of demand dated 11.4.2023, the 5th Defendant made an announcement to SGX which reads– “At the date of this announcement, no formal legal proceedings have been commenced by the Bank in respect of the Alliance Term Outstanding Sum and the Alliance Facility Outstanding Sum (collectively, the Alliance Outstanding Sums”). The Company will continue to engage with the Bank to discuss the settlement of the Alliance Outstanding Sums.”. [43] Following the announcement, SGX sent to the 5th Defendant some public queries for the company to respond. The queries and the 5th Defendant’s responses are as follows: Singapore Stock Exchange queries the 5th Defendant’s responses 1. Please confirm if the entire amount outstanding under the Alliance Term Outstanding Sum and the Alliance Facility Outstanding Sum now become due and payable and if the Group is able to settle the amount currently Based on the Notices of Demand, the entire amounts outstanding under the Alliance Term Loans and Alliance Facility now have become due and payable. The Company is planning to divest all of the properties owned by Songmart Holdings, to generate cash flow to repay the entire amount outstanding under the Alliance Term Loans and Alliance Facility. The Group expects to be able to settle all outstanding amounts pursuant to the divestment, but in the event there is any shortfall, the Group intends to cover the shortfall via a sale of other movable assets of Songmart Holdings and its subsidiaries.

Please provide the Company’s plan should the bank commence formal legal proceedings As at the date of this announcement, formal discussions between the Bank, Songmart Holdings, Songmart Malaysia and the Company have commenced. The Company is planning to divest all the properties owned by Songmart Holdings, to generate cash flow to repay all outstanding amounts under the financing arrangements entered into by Songmart Malaysia and Songmart Holdings, including the the Alliance Terms Outstanding Sum and Alliance Facility Outstanding Sum. The Company is committed to reach an agreement between the parties by working closely with the parties and the Bank on a concrete repayment proposal. However, should the Bank commence formal legal proceedings, the Company will appoint professional advisers as may be necessary, and take appropriate actions accordingly. [44] From the above announcement issued by the 5th Defendant, it is clear that the company admitted to SGX the existence of outstanding sums with the Plaintiff and the company agreed to settle all the outstanding sums. Whereas in the 5th Defendant’s responses to SGX’s queries, the company neither refuted the outstanding sums nor claimed the outstanding sums exceed the value of the securities pledged by the 1st Defendant. [45] Added to it, I agree with learned counsel for the Plaintiff that the value of the securities pledged by the 1st Defendant has nothing to do with the question whether the 1st Defendant committed an event of default which entitled the Plaintiff to terminate the Loan and claim the outstanding sums. [45] Premised on the above, the 5th Defendant’s argument is without merit. Conclusion [46] In Citibank NA v Ooi Boon Leong & 2 Ors [1981] 1 MLJ 282, the Supreme Court held that a matter ought to be decided under O. 14 once all the issues are clear and the matter in substance can be decided once and for all without going to trial. [47] Based on the above observation, I find that the Defendants failed to establish to the Court that the existence of any triable issue in their arguments to make out the Plaintiff’s applications for summary judgment deserving to be dismissed. Thus, I allow the Plaintiff’s applications for summary judgment in Enclosures 20 and 24 with costs. Dated: 22.12.2024 -SIGNED- (SHAMSULBAHRI BIN HAJI IBRAHIM) Judge, Johor Bahru High Court Counsels: For the Plaintiff – Clarence Edwin (Nur Diyana Kadir with him); Messrs. Clarence Edwin Law Offices For the 2nd, 3rd & 4th Defendants – Low Yee Lin; Messrs. Yee & Tan For the 5th Defendant - Ho Zhi Yee – Messrs. Wong Kian Kheong Cases referred to:  Bank Pembangunan Malaysia Bhd v. Spring Hill Bioventures Sdn Bhd [2020] 4 CLJ 15  Binary Force Sdn Bhd v. Lembaga Pelabuhan Johor [2009] CLJU 313; [2009] 1 LNS 313; [2009] MLJU 296  Cempaka Finance Bhd v. Ho Lai Ying & Anor [2006] 3 CLJ 544  Citibank NA v Ooi Boon Leong & 2 Ors [1981] 1 MLJ 282  Dian Kiara Sdn Bhd v. GCH Retail (Malaysia) Sdn Bhd [2020] CLJU 1541; [2020] 1 LNS 1541; [2020] 12 MLJ 570  Low Lee Lian v. Ban Hin Lee Bank Bhd [1997] 2 CLJ 36  National Company for Foreign Trade v. Kayu Raya Sdn. Bhd. [1984] 1 CLJ (Rep) 283  Ng Hee Thoong & Anor v. Public Bank Berhad [1995] 1 CLJ 609,  Pusat Bandar Damansara Sdn Bhd & Anor v. Yap Han Soo & Sons Sdn Bhd [2000] 1 CLJ 346; [2000] 1 MLJ 513  Realvest Properties Sdn Berhad v. Co-operative Central Bank Ltd (in receivership) [1996] 3 CLJ 823; [1996] 2 MLJ 461  Standard Chartered Bank Malaysia Bhd v. Arivalagan Krishnan & Anor [2001] 4 CLJ 168 Legislations referred to:  Contract Act 1950 – s.  Rules of Court 2012 - O.