Bank Islam Malaysia Berhad v 1. Sebatik Sdn Bhd (12AM-8-08/2018; 12AM-9-08/2018)

SEBATIK SDN BHD (No. Syarikat: 111067-T) [Sekarang dikenali sebagai Titibagan Sdn. Bhd.]

ZAHARI BIN YAACOB (No. K/P Baru: 601124-05-5227) (No. K/P Lama: 6107111) … PERAYU-PERAYU (No. Syarikat: 98127-X) ... RESPONDEN DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR RAYUAN SIVIL NO. WA-12AM-9-08/2018 (No. Syarikat: 98127-X)

SEBATIK SDN BHD (No. Syarikat: 111067-T) [Sekarang dikenali sebagai Titibagan Sdn. Bhd.] … RESPONDEN 2 [DALAM MAHKAMAH SESYEN DI KUALA LUMPUR GUAMAN NO. WA-B52M-110-02/2018 (No. Syarikat: 98127-X) … PLAINTIF

SEBATIK SDN BHD (No. Syarikat: 111067-T) [Sekarang dikenali sebagai Titibagan Sdn. Bhd.]

ZAHARI BIN YAACOB (No. K/P Baru: 601124-05-5227) (No. K/P Lama: 6107111) ... DEFENDAN-DEFENDAN] DI HADAPAN YA KHADIJAH BINTI IDRIS PESURUHJAYA KEHAKIMAN 3 GROUNDS OF JUDGMENT [1] This judgment relate to two appeals separately filed by both parties in respect of 2 separate interlocutory applications filed in the lower court. The said applications are as follows –

Enclosure 10 – the Defendant’s notice of application (hereinafter referred to as the “Striking Out Application”) under Order 18 rule 19 of the Rules of Court 2012 (RoC 2012) to strike out the Plaintiff’s writ and Statement of Claim dated 7 February 2018. The learned Sessions Court Judge (SCJ) dismissed enclosure 10 with costs of RM 3000.00. Aggrieved with the dismissal of their application, the Defendant appealed via Notice of Appeal dated 7 August 2018 (enclosure 36). This appeal is registered at the High Court as Rayuan Sivil No. WA-12AM-8-08/2018 (hereinafter referred to as the “Striking Out Appeal” and the record of appeal as the “Striking Out Record of Appeal”);

Enclosure 20 – the 1st Defendant’s notice of application (hereinafter referred to as the “Expunge Application”) to expunge 6 letters issued by the First Defendant to the 4 Plaintiff. The 6 letters are amongst the documents identified and bundled for purpose of the full trial of this civil action. The SCJ allowed enclosure 20 with costs of RM 1,000.00. The Plaintiff being dissatisfied with the decision filed their Notice of Appeal dated 8 August 2018 (enclosure 39). This appeal is registered at the High Court as Rayuan Sivil No. WA-12AM-9-08/2018 (hereinafter referred to as the “Expunge Appeal” and the record of appeal as the “Expunge Record of Appeal”) [2] After considering the affidavits and submissions of both parties, on 4 December 2018 this court decided as follows –

in respect of the Striking Out Appeal – the appeal is dismissed; and

in respect of the Expunge Appeal – the appeal is partly allowed in the following manner –

4 letters are to be expunged on the basis those letters were issued on a “without prejudice” basis and therefore inadmissible; 5

(ii) while the other 2 letters are found to be open letter and therefore the 2 letters are admissible. [3] Both the Plaintiff and Defendants appealed against the above decision. This judgment deals with both the said appeals. The parties will be referred to as they are in the lower court. Facts [4] The Plaintiff is an Islamic banking institution. The 1st Defendant is a private limited company. At the application of the 1st Defendant, the Plaintiff via Letter of Offer dated 5 May 2003 offered to and the 1st Defendant accepted a facility structured on the Qardhul Hasan concept (cash note facility) subject to the terms and conditions thereto. [5] The parties subsequently executed an agreement which was referred to as the “Qardhul Hasan Loan Agreement” dated 1 December

It is noted the term “loan” was used and not “facility” which is the accepted term used in financing facility granted in accordance with the Shariah principles. Thus for the purpose of this judgment the agreement will be referred to as the Qardhul Hasan Facility Agreement. Under said agreement the Plaintiff agreed to provide a facility in the sum of 6 RM 600,000.00 (Cash Note Facility). The Cash Note Facility is to be utilized to purchase from the Plaintiff bank Islamic Accepted Bills. [6] Via an Asset Sale Agreement dated 22 April 2004, the Plaintiff agreed to sell the Islamic Accepted Bills to the Defendants at a price mutually agreed by both parties, that is RM 764,893.80. [7] Via an Asset Purchase Agreement dated 22 April 2004, the 1st Defendant agreed to sell the Islamic Accepted Bills to the Plaintiff at a price mutually agreed by both parties, that is RM 600,000.00. [8] The Defendants are to repay the Cash Note Facility in accordance with the terms and conditions on the Qardhul Hasan Facility Agreement which is monthly instalments of RM 12,748.23 for each month for a duration of 60 months. [9] In consideration of the Cash Note Facility given by the Plaintiff, the collateral provided includes, inter alia, the following –

the 2nd Defendant has agreed to execute a Guarantee Agreement dated 1 December 2003 (Guarantee Agreement) in favour of the Plaintiff. Pursuant to the Guarantee 7 Agreement, the 2nd Defendant has agreed to jointly and severally guarantee the Cash Note Facility;

a charge on all that parcel of land held under issued document of title HS(M) 41-95, Lot No. PT 595, Mukim Kedawang, Daerah Langkawi, Kedah Darul Aman having an area of 0.8657 hectares (Charged Property) was created in favour of the Plaintiff. [10] The 1st Defendant failed to supervise the Cash Note Facility by making the monthly payments. Vide letter dated 4 January 2016 the Plaintiff through its solicitor demanded a sum RM 396,719.90 which is the outstanding balance of the Cash Note Facility. The 1st Defendant failed to meet the said demand. The Plaintiff through its solicitor issued a letter dated 17 February 2016 to the Defendants terminating the Cash Note Facility and demanding payment of the said outstanding sum. As a result of the Defendants’ failure to do so, the Plaintiff initiated this civil action against the Defendants. [11] The Plaintiff had earlier in 2007 initiated a civil action in the High Court Shah Alam against the Defendants for monies due and payable under the Cash Note Facility Agreement. In the Plaintiff’s statement of 8 claim in Suit 2007, it was pleaded that the Plaintiff had issued a notice of termination dated 4 March 2006 to the Defendants. The Suit 2007 was subsequently withdrawn by the Plaintiff. The Striking Out Appeal Defendants’ contentions [12] The Defendants’ Striking Out Application is premised on the ground that the Plaintiff’s action is time barred. It is the Defendants’ contentions that the cause of action accrued when the notice of termination dated 4 March 2006 was issued by the Plaintiff. Thus the Plaintiff’s has until 3 March 2012 to pursue legal action against the Defendants under the Qardhul Hasan Facility Agreement. Since this instant action was filed on 7 February 2018 it is beyond the limitation period. Hence this instant action is obviously unsustainable and ought to be struck out. [13] It is further contended that the Plaintiff’s reliance on a payment made by the Defendants on 23 April 2012 is misplaced as the said payment was made via a without prejudice letter dated 20 April 2012 (20 April 2012 Letter) sent by the 1st Defendant to the Plaintiff. This 20 April 9 2012 Letter is one of the 6 letters which the Defendants sought to expunge. Since the learned SCJ had allowed the Defendants’ application to expunge the 6 letters on the ground that the 6 letters were issued on a without prejudice basis, the learned SCJ erred when she dismissed the Defendants’ application to strike out the Plaintiff’s writ and Statement of Claim. [14] It is also contended by the Defendants that the Plaintiff’s argument that the limitation period is extended by reason of a payment of another RM 7,000.00 which the Plaintiff received on 20 April 2012 from foreclosing the Charged Property is flawed because the Plaintiff’s action in this instant case is an action in personam to recover monies due under the Qardhul Hasan Facility Agreement. Therefore the cause of action had accrued upon the issuance of the notice of termination dated 4 March 2006. Plaintiff’s contentions [15] The Plaintiff relies on section 26 (2) of the Limitation Act 1953 (Limitation Act) and contend this action against the Defendants is well within the statutory limitation period. It is the Plaintiff’s case that the last payment made by the Defendants was on 23 April 2012 the Defendants 10 had made a payment in the sum of RM 7,000.00. The said payment was made via a cheque dated 20 April 2012 which was enclosed in the 1st Defendant’s letter of even date sent to the Plaintiff. Thus the Plaintiff’s right of action accrued on the date of such payment made and limitation only sets in on 22 April 2018. As this instant action was filed on 7 February 2018, the Plaintiff’s action is not time barred. [16] Besides the payment of RM 7,000.00, on 20 April 2012 the Plaintiff also received another sum of RM 7,000.00 which is equivalent to 10% of the reserved price of the Charged Property which was put up for auction. The sum RM 7,000.00 received from the auction of the Charged Property is accounted for in the Defendants’ statement of account dated 4 April 2018. (Exhibit P-4 at page 108 Rekod Rayuan Striking out Appeal) The law [17] Order 18 rule 19 of the RoC 2012 reads as follows –

Striking out pleadings and endorsements (O. 18 r. 19)

The Court may at any stage of the proceedings order to be struck out or amended any pleading or the endorsement, of any writ in 11 the action, or anything in any pleading or in the endorsement, on the ground that-

it discloses no reasonable cause of action or defence, as the case may be;

it is scandalous, frivolous or vexatious;

it may prejudice, embarrass or delay the fair trial of the action; or

it is otherwise an abuse of the process of the Court, and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.

No evidence shall be admissible on an application under subparagraph (1)(a).

This rule shall, as far as applicable, apply to an originating summons as if it were a pleading. [18] The principles governing striking out application under Order 18 rule 19 of the RoC 2012 was succinctly stated in the Supreme Court case of Bandar Builders Sdn Bhd v. United Malayan Banking Corporation Berhad [1993] 3 MLJ 36; [1993] 4 CLJ 169 where it was held as follows – The principles upon which the Court acts in exercising its power under any of the four limbs of O. 18 r. 19(1) Rules of the High Court are well settled. It is only in plain and obvious cases that recourse should be had to the summary process under this rule (per Lindley M.R. in Hubbuck v. Wilkinson [1899] 1 QB 86, p. 91), and this summary procedure can only be adopted when it can be clearly seen that a claim or answer is on the face of it "obviously unsustainable" 12 (Attorney-General of Duchy of Lancaster v. L. & N.W. Ry. Co. [1892] 3 Ch. 274, CA). It cannot be exercised by a minute examination of the documents and facts of the case, in order to see whether the party has a cause of action or a defence (Wenlock v. Moloney [1965] 1 WLR 1238; [1965] 2 All ER 871, CA.). The authorities further show that if there is a point of law which requires serious discussion, an objection should be taken on the pleadings and the point set down for argument under O. 33 r. 3(which is in para materia with our O. 33 r. 2 Rules of the High Court) (Hubbuck v. Wilkinson) (supra). The Court must be satisfied that there is no reasonable cause of action or that the claims are frivolous or vexatious or that the defences raised are not arguable. (emphasis added) Thus it is only in plain and obvious case that warrants this court to exercise the power to strike out a claim or defence. [19] With regards to the duty and function of an appellate court, cases of high authorities has held that as a general principle, an appellate court will be slow to interfere with the findings of facts and judicial appreciation of the facts of the trial judge unless it appears that those findings are clearly wrong (China Airlines Ltd. v Maltran Air Corp. Sdn. Bhd. & Another Appeal [1996] 3 CLJ 163, Perembun (M) Sdn Bhd v Conlay Construction Sdn Bhd [2012] 1 LNS 1416, Sivalingam a/l Periasamy v Periasamy & Anor [1995] 3 MLJ 395). 13 Findings of the court When cause of action accrued [20] In so far as actions founded on contract or on tort are concerned, the Limitation Act provides that no action shall be brought after the expiration of 6 years from the date on which the cause of action accrued. Thus the key issue in the instant case is when does cause of action accrued?. In the case of Credit Corporation (M) Bhd v Fung Tak Sin [1991] 1 MLJ 409 it was held by the Supreme Court that cause of action accrued when there is in existence a person who can sue and the other can be sued. [21] The Defendants rely on the notice of termination dated 4 March 2006 to compute the time when cause of action arose. The said notice was not exhibited by both the Plaintiff and Defendants. However it is noted that the Plaintiff did not specifically denies that they had issued such a letter. Under such circumstances it is reasonable for this court to infer that the Plaintiff terminated the Qardhul Hasan Facility Agreement due to the Defendants’ breach of the terms and conditions thereto. Thus at the time the said agreement and / or the Cash Note Facility was 14 terminated, there arose a cause of action upon which the Plaintiff can commence legal action against the Defendants. In this respect this court agree with the Defendants’ contentions that the cause of action had accrued on 4 March 2006 and that the time for the Plaintiff to commence legal action against the Defendants had expired on 3 March 2012. Thus this civil action filed by the Plaintiff in 2018 appears to be time barred. [22] However the Plaintiff insists that the last payment made by the Defendants was on 20 April 2012 via cheque dated 20 April 2012 and therefore its cause of action against the Defendants accrued on 20 April

It is to be noted that the Defendants did not specifically denied they had made such payment. However the Defendants’ contends the Plaintiff is barred from relying on the payment made because the payment was made through a letter which was issued on a without prejudice basis which ought not to be admitted as evidence. [23] In this respect, for reasons which will be stated below, this court finds the 20 April 2012 Letter is a letter issued on a without prejudice basis and as such the said letter is to be expunged from the records. However that does not mean the fact that a payment was made on 20 April 2012 is also to be expunged or that the Plaintiff cannot rely on it. The payment made is a separate issue from the status of the 20 April 15 2012 Letter. The Plaintiff may not be able to produce the 20 April 2012 Letter to support its contentions of such payment but surely there are other ways and means to do the same including the statement of account of the 1st Defendant in respect of the Cash Note Facility. In fact it is pertinent to note that the Plaintiff has exhibited documents to support their contentions that they received payment of RM 7,000.00 from the Defendants. The supporting documents can be seen from Exhibit P-2 of the Plaintiff’s affidavit resisting the Striking Out Application (see page 102 and 103 of the Striking Out Record of Appeal). In their affidavit in reply to the said averment, whilst the Defendants specifically denied the amount claimed by the Plaintiff, the Defendants did not deny that they had made the RM 7,000.00 payment. [24] Section 26 of the Limitation Act reads as follows – 26 Fresh accrual of action on acknowledgment or part payment

Where there has accrued any right of action to recover land or to enforce a mortgage or charge in respect of land or personal property, and –

the person in possession of the land or personal property acknowledges the title of the person to whom the right of action has accrued; or

in the case of any such action by a mortgage or chargee the person in possession as aforesaid or the person liable 16 for the debt secured by the mortgage or charge makes any payment in respect thereof, whether principal or interest, the right shall be deemed to have accrued on and not before the date of the acknowledgment or last payment.

Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, or any claim to the personal estate of a deceased person or to any share or interest therein, and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment: Provided that a payment of a part of the rent or interest due at any time shall not extend the period for claiming the remainder of the rent or interest then due, but any payment of interest shall have effect, for the purposes of this subsection only, as if it were a payment in respect of the principal debt. (emphasis added) [25] Pursuant to section 26 (2) of the Limitation Act and based on the facts of this instant case, the Plaintiff’s right to initiate legal proceedings is deemed to have accrued on the date of the payment of RM 7,000.00 made by the Defendants, that is, on 20 April 2012. Since this action was filed against the Defendants in February 2018, it is within the statutory limitation period. 17 [26] Thus it is my considered opinion that the Plaintiff’s writ and Statement of Claim does not fall within any of the limb of rule 19 (1) (b),

and (d) of Order 18 of the RoC 2012. The Striking Out Appeal was accordingly dismissed. The Expunge Appeal [27] In the Expunge Application, the 1st Defendant sought for the following prayers –

(A) Semua surat-surat berkenaan dengan percadangan / perbincangan penyelesaian (tanpa prejudis) termasuk tetapi tidak terhad kepada:-

Surat Defendan Pertama kepada Plaintif bertarikh 19 Januari 2010;

(ii) Surat Defendan Pertama kepada Plaintif bertarikh 2 Mac 2011;

(iii) Surat Defendan Pertama kepada Plaintif bertarikh 29 April 2011;

(iv) Surat Defendan Pertama kepada Plaintif bertarikh 20 April 2012;

Surat Defendan Pertama kepada Plaintif bertarikh 4 September 2012;

(vi) Surat Defendan Pertama kepada Plaintif bertarikh 22 Januari 2013, yang terdapat dalam Ikatan Dokumen Plaintif yang difailkan oleh pihak Plaintif untuk tujuan perbicaraan dalam Mahkamah Yang Mulia ini, ditolak dan / atau dibuangkan (expunged) dan / atau dikeluarkan bagi tujuan perbicaraan tindakan ini; 18

(B) bahawa apa-apa surat-surat percadangan / perbincangan penyelesaian (tanpa prejudis) yang diekshibitkan dalam mana-mana Afidavit yang diikrarkan oleh pihak Plaintif serta perenggan-perenggan Afidavit berkenaan dengan surat-surat percadangan / perbincangan penyelesaian tersebut adalah ditolak dan / atau dibuangkan (expunged) dan / atau dikeluarkan bagi tujuan pendengaran Kandungan 10 – Permohonan Pembatalan Defendan-Defendan bertarikh 16 Mei 2018 atau mana-mana permohonan lain dalam tindakan ini… [28] It is the Plaintiff’s contentions that the without prejudice rule is not applicable as the above letters were not endorsed with the phrase “without prejudice”. It is further argued that the above letters were not made in the course of negotiations and that the Defendants admitted the debt and offered to settle the debt by some means and appealed for extension of time. [29] After perusing the above letters and the factual circumstances leading to the issuance of the letters, it is the considered opinion of this court –

that the letters dated 2 March 2011 (2nd March 2011 Letter) and 29 April 2011 (29th April 2011 Letter) are admissible as the said letters are open letters and not issued on a without 19 prejudice basis. The 2 letters are hereinafter collectively referred to as the “Open Letters”; and

that the letters dated 19 January 2010, 20 April 2011, 20 April 2012 and 4 September 2012 were issued on a without prejudice basis. Thus they are inadmissible and to be expunged from the record of appeal. The said 4 letters are hereinafter collectively referred to as the “Impugned Letters”. The law [30] Section 23 of the Evidence Act 1950 states as follows – 23 Admissions in civil cases when relevant In civil cases no admission is relevant if it is made, either upon an express condition that evidence of it is not to be given, or under circumstances from which the court can infer that the parties agreed together that evidence of it should not be given. Explanation - Nothing in this section shall be taken to exempt any advocate from giving evidence of any matter of which he may be compelled to give evidence under section 126. Thus an admission of liability made by a party upon an express condition (like in the form of marked communication such as “without prejudice”) 20 that evidence of such admission should not be given or if an admission is made under circumstances from which the court can infer that the parties agreed that evidence of it should not be given, such admission is not admissible. [31] As decided by the Federal Court in the landmark case Malayan Banking Bhd v Foo See Moi [1981] 2 MLJ 17; [1981] 1 LNS 95 letters written without prejudice are inadmissible in evidence of the negotiations attempted and where the negotiations conducted lead to a settlement the letters become admissible in evidence of the terms of the agreement. Chang Min Tat FJ in delivering the decision of the apex court said as follows – It is settled law that letters written without prejudice are inadmissible in evidence of the negotiations attempted. This is in order not to fetter but to enlarge the scope of the negotiations, so that a solution acceptable to both sides can be more easily reached. But it is also settled law that where the negotiations conducted without prejudice lead to a settlement, then the letters become admissible in evidence of the terms of the agreement, unless of course the agreement has become incorporated in another document which would then be the evidence of the agreement. [32] With regards to the factors which need to be taken into consideration when determining whether a letter is issued with prejudice or otherwise, the court in Indran a/l N Jeganathan v Nithiyani a/p K 21 Kulaveerasingam [2011] 7 MLJ 237 referred to a Hong Kong case of Re Jinro (HK) Ltd [2002] 4 HKC 90 and said – [30] In Re Jinro (HK) Ltd [2002] 4 HKC 90 the judge held that it was not necessary for a 'without prejudice' stamp to be expressly applied to the negotiations if it was clear from the surrounding circumstances that the parties were genuinely seeking to compromise the dispute. It was stated in that case that a party claiming without prejudice privilege on communication would have to show that the communication was made

at a time when there was an existing dispute between the parties: (ii) legal proceedings in relation to the dispute had commenced or were contemplated: (iii) the communication was made in a genuine attempt to settle the dispute; the communication was made with the intent that if negotiations failed, it could not be disclosed without the parties consent. [33] Thus the application of the “without prejudice” rule is not dependent on the use of the phrase “without prejudice” (see also Wong Nget Tahu & Anor v Tay Choo Foo [1994] 4 CLJ 617; [1994] 3 MLJ). Regards must be given to the circumstances surrounding the issuance of the letters in question, namely, the circumstances which led to the issuance of the said letters and the circumstances that transpired thereafter. 22 Findings of the court The Open Letters 2nd March 2011 Letter (see page 52 of the Expunge Record of Appeal) [34] The gist of the said letter is as follows –

the 1st Defendant apologised for the delay in making the monthly instalment;

the 1st Defendant has no source of income as it is facing a grave financial crisis;

request the Plaintiff to extend the and postpone the date of the repayment which was stated in the Plaintiff’s letter dated 7 February 2011 (not produced); and

willing to discuss with the Plaintiff on the best solution to settle the problem. 29th April 2011 Letter (see page 53 of the Expunge Record of Appeal) [35] The gist of the said letter is as follows –

the 1st Defendant made reference to a discussion held between 1st Defendant and the Plaintiff’s officers; 23

the 1st Defendant informed it is facing great financial difficulty as it was out of project for more than 2 years; and

that the 1st Defendant is hopeful to secure a few government projects which would enable payment to be made to the Plaintiff as agreed. [36] The Open Letters essentially relate to the 1st Defendant’s inability to repay the Cash Note Facility due to the financial crisis faced by the 1st Defendant. Such was the fact at that point in time. Based on the contents of the letter, there was nothing to indicate that the parties were discussing or negotiating an amicable settlement in respect of the monies due from the Defendants to the Plaintiff. There is also no evidence of any follow-up correspondence in relation to the said 2 letters. Conclusion [37] Based on the reasons above, this court is of the considered view that the Open Letters are admissible as those letters were not intended to be privileged and that the learned SCJ erred in deciding otherwise. As such this court is compelled to reverse the decision of the learned 24 SCJ in respect of the said letters and allowed the Plaintiff’s appeal in so far as the Open Letters are concerned. The Impugned Letters [38] As this court is duty bound to consider the factual circumstances surrounding the issuance of the Impugned Letter in order to determine its status, this court has taken into consideration the Plaintiff’s letters which responded to the Impugned Letters. Below is the summary of the contents of the Impugned Letters and the Plaintiff’s letters responding to the said letters. Letter dated 19 January 2010 (see page 51 of the Expunge Record of Appeal) [39] In the said letter –

the 1st Defendant referred to their letters dated 14 April 2009 and 5 November 2009 and the tele-conversation on 15 January 2010 between the parties;

the 1st Defendant stated that the Plaintiff basically agreed on the following matters – 25

that the 1st Defendant is allowed to pay RM 175,612.40 as stated in the 1st Defendant’s earlier proposal;

(ii) the Plaintiff to proceed with the foreclosure action and that the 1st Defendant will buy the Charged Property for RM 100,000.00 in the event there is no buyer;

(iii) the Plaintiff to give a written undertaking to withhold proceedings against the Defendants as long as all post dated cheques of the 1st Defendant are good for payment; and

(iv) the sum RM 175,612.40 is to be paid in 12 instalments with the initial payment of RM 30,000.00 followed by monthly payments of RM 13,237.49 each until full settlement. [40] In reply to the above letter, the Plaintiff issued a letter endorsed “WITHOUT PREJUDICE” dated 5 February 2010 (see page 68 of the Expunge Record of Appeal) stating as follows –

the Plaintiff is unable to consider the 1st Defendant’s settlement proposal and the 1st Defendant is asked to improve the offer to a lump sum payment of RM 328,778.52; 26

any proposal for settlement is subject to the Plaintiff’s final management approval; and

the Plaintiff’s request for the 1st Defendant to submit a further proposal is not to be construed as a waiver of the Plaintiff’s right to proceed legal action against the Defendants at any time without further notice to the Defendants. The 20 April 2012 Letter (page 54 – 55 of the Expunge Record of Appeal) [41] The contents of the said letter may be summarised as follows –

the 1st Defendant informed that they were offered a Government contract worth RM 23,905,929.90 where works has commenced in January 2012;

the 1st Defendant requested for the balance amount due to the Plaintiff to be paid in 10 monthly instalments and that the said amount to be reduced as the second guarantor passed away in January 2012. The 1st Defendant proposed the following – 27 Bayaran yang perlu dibuat RM 328,778.52 Bayaran yang telah dibuat sehingga kini RM 80,000.00 Hasil Jualan Lelong (19 April 2012) RM 95,000.00 Jumlah perlu dibayar RM 153,778.52 Pengurangan 50% (Disebabkan kematian penjamin kedua) RM 76,889.26 Bayaran yang perlu dibayar dalam tempoh 10 bulan dari tarikh surat ini RM 76,889.26

as such the Defendants proposed for an amount in the sum of RM 76,889.26 to be paid in 10 months; and

the 1st Defendant submitted a cheque in the sum of RM 7,000.00 (together with a payment voucher) as the initial payment to show their conviction to settle the problem. [42] The Plaintiff, via its letter dated 27 July 2012 (page 69 of the Expunge Record of Appeal) which was endorsed “WITHOUT PREJUDICE”, replied as follows –

the Plaintiff rejected the 1st Defendant’s proposal because the amount proposed (RM 76,889.26) was way below the total amount of the balance facility due which is 28 RM 392,124.64. The proposal of 10 monthly instalment is not acceptable as the amount due was long overdue; and

the 1st Defendant is requested to submit a new proposal with all supporting documents before 10 August 2012, failing which, the Plaintiff will proceed to take the necessary steps including legal action against the Defendants. Letter dated 4 September 2012 (see page 56 – 57 of the Expunge Record of Appeal) [43] Via letter dated 4 September 2012, the 1st Defendant replied to the Plaintiff’s letter dated 27 July 2012, stating among others, as follows –

the 1st Defendant appealed to the Plaintiff to re-consider the 1st Defendant’s appeal and proposal as stated in the 20th

the Defendants are in the midst of obtaining the death certificate of the second guarantor to be submitted to the

the period of repayment proposed is 10 months and not 10 years; 29

the 1st Defendant’s application for a loan from the SME Bank is pending and therefore it is under a constraint to carry out the current project; and

the 1st Defendant is serious and trying their level best to settle the problem. [44] In reply to the 1st Defendant’s letter dated 4 September 2012, the Plaintiff issued a letter endorsed “WITHOUT PREJUDICE” dated 26 December 2012 (see page 72 – 73 of the Expunge Record of Appeal) the contents of which is as follows –

reference is made among others to the following –

a meeting between the Plaintiff and the 1st Defendant on 31 October 2012;

(ii) the 1st Defendant’s letter dated 4 September 2012;

(iii) the Plaintiff’s letter dated 27 July 2012;

(iv) the 1st Defendant’s 20 April 2012 Letter;

the Plaintiff’s letter dated 6 Jun 2011 and 5 August 2010. 30

the Plaintiff reiterated its non-acceptance of the proposal made by the 1st Defendant to settle the matter in the manner stated by the 1st Defendant in its letter dated 4 September 2012.

the reason for not accepting the 1st Defendant’s proposal –

the 1st Defendant breached the terms and conditions stated in the Plaintiff’s letter dated 5 August 2012 which resulted in the termination of the Cash Note Facility via Plaintiff’s letter dated 6 June 2011;

(ii) the amount proposed by the 1st Defendant for a full settlement as stated in their letter dated 4 September 2012 is very much below the amount of the balance facility due; and

the Plaintiff will commence legal action if the 1st Defendant fail to pay RM 392,124.64 within 14 days from the date of the Plaintiff’s letter. [45] The Plaintiff issued another “WITHOUT PREJUDICE” letter dated 16 January 2013 (see page 74 – 75 of the Expunge Record of Appeal) 31 which referred to the 1st Defendant’s letter dated 14 January 2013 (not produced before the court) and the Plaintiff’s letter dated 26 December

The brief contents of the said letter is as follows –

the total amount in arrears as at 15 January 2013 is RM 392,124.64;

the 1st Defendant is requested to submit a concrete proposal to settle the total amount in arrears on or before 23 January 2013; and

the 1st Defendant is reminded that the said letter does not mean the Plaintiff has waived its right to pursue legal action against the Defendants and that the Plaintiff retain the right to resort to all or any of the remedy available under the facility agreement and / or the Charge. 1st Defendant’s letter dated 22 January 2013 (see page 58 – 60 of the Expunge Record of Appeal) [46] In the said letter the 1st Defendant, among others, said as follows –

via letter dated 5 February 2010 the Plaintiff has agreed with a Settlement Proposal where the amount to be paid as settlement of the matter was RM 328,778.52. The 1st 32 Defendant was to pay RM 10,000.00 each month for 12 months and proceeds from the auction of the Charged Property is to be deducted from the amount due to the

the 1st Defendant proposed that the sum RM 182,000.00 (which consist of the total of the sum thus far paid by the 1st Defendant (RM 80,000.00), proceeds from the foreclosure action (RM 95,000.00) and the payment made in 2012 (RM 7,000.00) is to be deducted from RM 328,778.52. This would give a sum of RM 146,778.52 and the 1st Defendant proposed that it only pay half of it, that is, RM 73,389.26 since the other half is the portion of the deceased guarantor; and

the 1st Defendant proposed to pay RM 73,389.26 by 12 monthly instalments of RM 6,115.77 each month. 12 post dated cheques will be submitted to the Plaintiff as proof of the 1st Defendant earnest to settle the matter. It is the fervent hope of the 1st Defendant that the Plaintiff accept the proposal. 33 [47] Based on the above, it is evident that the Plaintiff and Defendant were in communication through a series of letters and meetings and the Impugned Letters form part of the communication between the two parties. The subject matter of the correspondence was the 1st Defendant’s failure to honour its part of the bargain under the Qardhul Hasan Facility Agreement in relation to the repayment of the Cash Note Facility. The 1st Defendant proposed to settle the matter by paying RM 175,612.40 (and subsequently RM 73,389.26) instead of RM 328,778.52 as demanded by the Plaintiff. However the proposal was rejected by the Plaintiff who requested for the 1st Defendant to submit concrete proposal for purpose of settling in full the amount in arrears. Despite the indulgence accorded to the 1st Defendant, the 1st Defendant failed to settle the matter. Thus there was no agreement reached between the parties in respect of the amount to be paid by the Defendants under the Qardhul Hasan Facility Agreement. [48] The Plaintiff, had on more than one occasion rejected the 1st Defendant’s proposal for settlement and had made it clear that they have every right to commence legal action against the Defendants, yet they did not do so. Instead the 1st Defendant was asked to come up with a more sensible and reliable proposal. Via their “WITHOUT 34 PREJUDICE” letter, the Plaintiff made it very clear of their intention that their request for proposal is not to be construed as waiver of their rights to pursue legal action against the Defendants. In simple words, the Plaintiff is not prepared for such conduct to be used against them as they were only trying to accommodate the 1st Defendant to settle the repayment of the Cash Note Facility. Be that as it may, the Plaintiff’s conduct in rejecting (more than once) the proposal settlement followed by its request (more than once) for a further proposal with supporting documents, the reply and counter-proposal by the 1st Defendants clearly shows there was negotiation carried out between the parties in respect of the amount the Defendants ought to pay. [49] Considering the circumstances at the material time, this court is of the view that it was not intended by the parties for the Impugned Letters to be admitted as evidence in civil action between them. Such intention is inferred from the conduct of the parties, in particular the Plaintiff who saw it fit to issue their letters to the 1st Defendant on a without prejudice basis. The Plaintiff’s letters were all in response to the Impugned Letters where the 1st Defendant had submitted various proposal for settlement. Thus it only make sense that the Impugned Letters are also intended to be construed as letters issued on without prejudice basis. In this respect 35 reference is made to Sarkar Law of Evidence Volume 1, where it is stated at page 737 as follows – Where the privilege exists, it covers not only the particular letter itself but all subsequent parts of the same correspondence on both sides notwithstanding that they are not expressed to be “without prejudice” unless there is a clear break in the chain of correspondence to show that the ensuing letters are open. Moreover where a letter offering terms, but not stated to be “without prejudice” is followed by another saying that the communications between the parties are to be “without prejudice” the former letter is protected [Hals, 3rd Ed, Vol 15, para 728] [50] The Plaintiff cited the case HSBC Bank Malaysia Bhd (formerly known as Hong Kong Bank Malaysia Bhd) v L H Timber Products Sdn Bhd (formerly known as Ho Lim Sawmill Sdn Bhd) & Ors [2005] 6 MLJ 625 where the court ruled among others that the defendant’s letter to the plaintiff admitting its debts did not carry “without prejudice” label and as such constituted open letters or letters not based on “without prejudice”. However the facts in that case did not show that the defendant letters were part of a series of communications between the parties negotiating a settlement like in the instant case. In the case of Ted Bates (M) Sdn Bhd v Balbir Singh Jholl [972] 2 MLJ 257 where letters written without the endorsement “without prejudice” and extension of time was requested to repay debt owed was ruled to be not privileged and admissible. However like the case of L H Timber Products, there was 36 nothing in the facts to indicate that the letters were part of a negotiation process like in the instant case. Conclusion [51] Premised on the aforesaid, it is this court’s considered view that the Impugned Letters are not admissible for the purpose of this civil action and therefore expunged from the Bundle of Documents. The learned SCJ did not erred in so far as the status of the Impugned Letters are concerned. Thus in so far as the Impugned Letters are concerned, the Expunge Appeal was dismissed. ( KHADIJAH BINTI IDRIS ) JUDICIAL COMMISSIONER HIGH COURT (COMMERCIAL DIVISION) DATED 8 MARCH 2019 Counsel: Plaintiff : Tengku Nadiatul Hanim Tengku Mohamad Nasser of Messrs Radzlan, Low & Partners Defendants :