Bank Pembangunan Malaysia Berhad v Alpha Biologics Sdn Bhd & 1 Lagi (WA-22NCC-308-08/2016)

ALPHA BIOLOGICS SDN BHD (No. Syarikat: 606545-H)

SPRING HILL BIOVENTURES SDN BHD … DEFENDAN- (No. Syarikat: 591528-H) DEFENDAN 25 GROUNDS OF DECISION [1] The Plaintiff’s claim is based on 2 Letters dated 21/6/2016 and 9/12/2009 executed between the Plaintiff and the 2nd Defendant (B1/133 and B1/307 respectively) (‘the Impugned Letters’ and/or 30 ‘the 1st and 2nd Impugned Letters’). There is a dispute between the Plaintiff and 2nd Defendant as to the nature of the 2 Impugned Letters: the Plaintiff’s position is that the 2 Impugned Letters constitute Letters of Undertaking whilst the 2nd Defendant takes the position that they are Letters of Guarantee. I shall touch on this disputed issue later. 35 [2] The 1st Defendant was wound-up on 16/5/2016 and did not defend against the Plaintiff’s claim. 2 [3] The Issues to be Tried has been summarised by the Plaintiff as 5 follows: “1. Whether the Letters of Undertaking dated 21/6/2006 and 9/12/2009 are in effect contracts of guarantee?

Whether the 2nd Defendant had consented to the Plaintiff to vary 10 the terms of 1st Term Loan Facility by way of Letter of Undertaking dated 21/6/2006.

Whether the 2nd Defendant had consented to the Plaintiff varying the terms of 2nd Term Loan Facility by way of Letter of Undertaking dated 15 9/12/2009.

Whether the Plaintiff is entitled to vary the terms of Term Loan Facilities with the 1st Defendant without the consent of the 2nd Defendant.

Whether the variations on the 1st Term Loan Facility discharge the liability of the 2nd Defendant under the Letter of Undertaking dated 21/6/2006.

Whether the variations to the 2nd Term Loan Facility discharge the 25 liability of the 2nd Defendant under the Letter of Undertaking dated 9/12/2009.

Whether the Plaintiff is under the obligation to notify the 2nd Defendant on the default of the 1st Defendant under the Term Loan 30

Whether the 2nd Defendant has locus to raise the issue of the realisation of the 1st Defendant’s charged assets.

Whether the Plaintiff is liable for any action of the Receiver & Manager in disposing the 1st Defendant’s charged assets.

Whether the Receiver & Manager realised the 1st Defendant’s charge assets at a gross undervalue.

Whether the 2nd Defendant is entitled to any set-off against the value of realisation of the 1st Defendant’s charged assets (if any)”. 45 [4] A total of 5 witnesses were called at the trial - PW1 - Amreen bin Mohamed, Senior Manager/Head, Recovery Section, Group Credit Recovery; 3 PW2 - Tuan Syarifah Nur Alina Syed Nor, Account Management 5 Executive; PW3 - Roger Yeoh Khoon Beng, Associate Director of PricewaterhouseCoopers Advisory Services Sdn Bhd; DW1 - Amirul Fares bin Wan Zahir, Former Director of 2nd Defendant; DW2 - Bruce Cohen, Chairman of Board of Directors of Viropro, Inc. 10 1st Term Loan Facility [5] The 1st Term Loan Facility in the amount of RM20,000,000.00 was granted to the 1st Defendant pursuant to letters of offer dated 6/12/2005, 30/5/2006, 16/6/2006, and a 1st Term Loan Agreement 15 dated 25/7/2006. [6] As one of the securities pursuant to Cl.17 of the letter of offer dated 6/12/2005 (‘6/12/2005 Letter of Offer’), the Plaintiff had initially requested for a “Letter of Awareness Comfort with assurance that the 20 project is viable throughout the tenure of the loan from the ultimate shareholders, namely Khazanah Nasional Berhad, Great Eastern Life Assurance (M) Berhad, Pacificmas Fidelity Sdn Bhd and TH Group Berhad” (B1/1-10). 25 [7] The 6/12/2005 Letter of Offer also made reference to a condition precedent in Cl.19 (viii) that “BPMB shall have received undertakings from the existing ultimate shareholders that they shall not divest their investment in the company until full settlement of the Bank’s loan, in the form satisfactory to BPMB”. 30 [8] The security in Cl.17 of the 6/12/2005 Letter of Offer was subsequently amended in the letter of offer dated 30/5/2006 4 (‘30/5/2006 Letter of Offer’), where the Plaintiff had then requested 5 for a letter of undertaking from the 2nd Defendant “to cover any shortfall for the company during the tenure of the Facility and to meet all repayments under the Facility in the event that ABSB [1st Defendant] is unable to meet its debt obligations under the Facility Agreement” (B1/11-13). 10 [9] In compliance with the Plaintiff’s requirement, the 2nd Defendant had by way of the 1st Impugned Letter issued to the Plaintiff as security for the 1st Term Loan Facility granted to the 1st Defendant. The 1st Impugned Letter provides as follows: 15 “In consideration of your granting or continuing to make available the Term Loan Facility of Ringgit Malaysia Twenty Million (RM20,000,000.00) only (“the Term Loan”) or any other accommodation for so long as you may think fit to Alpha Biologics Sdn Bhd (Company No.606545-H) of Suite 3.02, Level 3, Wisma E & C, No.2, Lorong Dungun Kiri, Damansara 20 Heights 50490 Kuala Lumpur (“the Borrower”) we, hereby declare, confirm and undertake that we shall upon demand by you, cover any shortfall in the obligations of the Borrower during the tenure of the Term Loan and to meet all repayments under the Term Loan in the event the Borrower is unable to meet its debt obligations under the Loan Agreement executed or 25 to be executed between the Borrower and you”. [10] The 1st Term Loan Facility was also secured by, inter alia, debentures executed by the 1st Defendant on 25/7/2006 in the sum of RM20,000,000.00, i.e. 1st Debenture is over the Project Assets and 30 the 2nd Debenture over all the 1st Defendant’s moveable and immoveable assets, Deed of Assignment created by the 1st Defendant on 25/7/2006 over the Plaintiff’s rights and benefits of the land and building under a Tenancy Agreement dated 19/3/2004 between the 1st Defendant and Penang Development Corporation 35 (‘PDC’) (‘1st Assignment’) and Memorandum of Deposit dated 5 25/7/2006 by 2nd Defendant over a fixed deposit of RM5 million (‘1st 5 MOD’). 2nd Term Loan Facility [11] By way of a letter of offer dated 23/10/2009 (B1/148-160), the Plaintiff granted to the 1st Defendant additional banking facilities in the 10 amount of RM10,000,000.00 comprising - (a) RM5 million term loan;

RM2 million term loan; and (c) RM3 million revolving credit facility (‘RC Facility’). [12] The following securities were provided under the 2nd Term Loan 15

Debenture created by the 1st Defendant on 22/12/2009 over the Project Assets (‘3rd Debenture’);

Debenture created by the 1st Defendant on 22/12/2009 over all the 1st Defendant’s present and future assets both moveable and 20 immoveable (‘4th Debenture’);

Supplemental Deed of Assignment executed by the 1st Defendant on 22/12/2009 over all rights and benefits of the land and building under the Tenancy Agreement (‘Supplemental

2nd Impugned Letter, the terms of which are identical to the 1st Impugned Letter save for the amount of the facility granted; and

Supplemental Memorandum of Deposit by 2nd Defendant over a Fixed Deposit of RM5 million on 22/12/2009 (‘Supplemental MOD’). 30 [13] By way of a letter dated 3/6/2011 (B1/378), the Plaintiff had requested for the 1st Defendant to make payment due to the Plaintiff in the sum of RM4,090,115.84 under the 1st Term Loan Facility and in 6 the sum of RM532,019.69 under the 2nd Term Loan Facility. This 5 comes to a total of RM4,622,135.53. In this letter, the Plaintiff had also stated that it had no objection to Viropro Inc acquiring all the shares in the 1st Defendant. [14] Subsequently, by way of a letter dated 8/9/2011 (B1/379-382), 10 Messrs Lee Hishammuddin Allen & Gledhill (‘Plaintiff’s Solicitors’) had notified the 1st Defendant that it was in default of its repayment obligations as provided for under the terms and conditions of the 1st Term Loan Facility and the 2nd Term Loan Facility. The Plaintiff’s Solicitors further informed that as at 10/8/2011, the 1st Defendant was 15 further indebted to the Plaintiff in the sum of RM4,599,422.69 under the 1st Term Loan Facility and in the sum of RM759.042.83 under the 2nd Term Loan Facility. This comes to a total of RM5,358,465.52. [15] By way of a letter dated 25/10/2012 (B1/383-386), the Plaintiff’s 20 Solicitors had once again notified the 1st Defendant that it was in default of its repayment obligations as provided for under the terms and conditions of the 1st Term Loan Facility and the 2nd Term Loan Facility. The Plaintiff’s Solicitors further informed that as at 9/10/2012, the 1st Defendant was further indebted to the Plaintiff in 25 the sum of RM11,376,366.49 under the 1st Term Loan Facility, in the sum of RM2,480,007.95 under the 2nd Term Loan Facility and in the sum of RM138,447.53 under a 3rd Term Loan Facility, which the 2nd Defendant has no knowledge about. The total sum due under the 1st and 2nd Term Loan Facilities comes up to RM13,856,374.44. 30 It is observed that all the 3 letters dated 3/6/2011, 8/9/2011 and 25/10/2012 were neither addressed nor copied to the 2nd Defendant. 7 5 [16] On or about 31/7/2014 (B1/316-318), the 2nd Defendant was copied in a letter issued by the Plaintiff to the 1st Defendant (‘31/7/2014 Letter’) wherein the 1st Defendant was informed by the Plaintiff’s Solicitors of, inter alia, the following:

that the 1st Defendant had allegedly failed to adequately and to 10 the satisfaction of the Plaintiff, remedy all the breaches as set out in the previous letter sent to the 1st Defendant; and

(ii) that the 1st Defendant is in default of its payment obligations under the 1st and 2nd Term Loan Facilities. It is observed that no demand was made against the 2nd Defendant of 15 the outstanding amount in the 31/7/2014 letter; the said letter was merely copied to the 2nd Defendant. [17] The Plaintiff has, by the 31/7/2014 Letter, also terminated and recalled the 1st and 2nd Term Loan Facilities and demanded payment 20 of the outstanding amount of RM31,908,811.70 as at 16/7/2014. Findings Whether the Letters of Undertakings are in law guarantees (Issue 1) 25 [18] Firstly, the Plaintiff argued that the Impugned Letters are not guarantees as there is no credible evidence that the 2nd Defendant intended them to be guarantees as the 2nd Defendant did not call the signatories to the 1st Letter of Guarantee, Dr. Raja Lope and Yeo Keng Un and an adverse inference ought to be drawn against the 2nd 30 Defendant under s.114(g) Evidence Act 1950 for not calling them as witnesses nor the documents which would show that the Impugned Letters were intended to be guarantees. 8 5 [19] With respect I find the Plaintiff’s argument is without merit as -

the construction of the terms of the 1st and 2nd Letters of Guarantee is a point of law which is dependent upon the terms therein aided by the existence of the two Letters of Offer and the 10 background facts leading to the 2nd Defendant’s investment in the project; and

the 1st and 2nd Letters of Guarantee are identical in terms; therefore the evidence taken in respect of the 2nd Letter of Guarantee has the same effect in assisting the Court on the issue of 15 construction. DW1, signatory to the 2nd Letter of Guarantee testified on behalf of the 2nd Defendant.

I find there is no reason to invoke s.114(g) of the Evidence Act against the 2nd Defendant because when Amirul was cross-examined as to whether there were “Any attempts to reach [Dr. Raja Lope and 20 Yeo Keng Un]”, DW1 answered in the affirmative and explained (NOP /8/3/2017 p.28 lines 10-22) - We discussed in terms of who should be witnesses for this case. And it was felt that I should be sufficient to cover the case for the fund because I was the signatory to the same, 25 as you would refer it’s Letter of Undertaking, which I would refer those Letter of Guarantee on page 307, which I co-signed with Raja Lope”. I find no adverse inference ought to be drawn against the 2nd 30 Defendant for not adducing “documents that would purportedly show the Undertakings were intended to be guarantees” as submitted by the Plaintiff because a perusal of DW1’s cross-examination revealed that the documents referred in concluding that the Impugned Letters were guarantees were produced in Court as Items 1 to 4 in 35 9 Common Bundle of Documents (Vol.1) (Bundle B1) (NOP / 8/3/2017 5 p.28 lines 10-22). For the given reasons I find there is no issue of any suppression or withholding of material witness or material documents by the 2nd Defendant to warrant the Court to invoke any adverse inference against it as enunciated by the Supreme Court in Munusamy Vengadasalam v. Public Prosecutor [1987] 1 MLJ 10 492, a case referred to in one of the Court of Appeal cases cited by the Plaintiff, i.e. Wong Kar Juat & Anor v. S7 Auto Parts (M) Sdn Bhd [2015] 9 CLJ 590 607 [44]. Further, I find the principles with regard to the presumption in s.114(g) of the Evidence Act 1950 in Wong Kar Juat (supra), Juahir Sadikon v. Perbadanan Kemajuan 15

(M) Sdn Bhd v Govindasamy a/l Suppiah [2016] 5 MLJ 508 have been adhered to by the Plaintiff. [20] Secondly, the Plaintiff argued s.79 of the Contracts Act 1950 20 (‘CA 1950’) relied on by the 2nd Defendant to mount their position that the Impugned Letters are in fact letters of guarantee is incorrect because there must have been a request made by the 1st Defendant in order for the 2nd Defendant to be a surety under s.79 CA 1950. To substantiate this position the Plaintiff relied on - 25

3 Indian authorities on s.126 of the Indian Contracts Act, 1872:

Ramchandra B. Loyalka v. Shapurji N. Bhownagree AIR 1940 Bom 315 - “There must be a contract, first of all, between the principal debtor and the creditor. That lays the foundation for the whole transaction. Then there 30 must be a contract between the surety and the creditor, by which the surety guarantees the debt, and no doubt the consideration for that contract may move either from the creditor or from the principal debtor or both. But if those are the only contracts, in my opinion, the case is one of indemnity. In order to constitute a contract of guarantee there must 35 be a third contract, by which the principal debtor expressly or 10 impliedly requests the surety to act as surety. Unless that element is 5 present, it is impossible in my view to work out the rights and liabilities of the surety under the Indian Contract Act”. (per Beaumont CJ at p.316 right-p.317 left); (Emphasis is of Plaintiff) 10 “There must be a third contract either expressly made or arising by the conduct of the parties (emphasis added) by which the principal debtor agrees to satisfy the claim of the surety. If the surety satisfies the claim of the creditor without such contract, the action of the surety woul be voluntary, and the debtor may repudiate all liability or the payment made 15 by the surety, on the ground that he had never requested the surety to make any”. (per Kania J’s at p.318 left); (Emphasis is of Plaintiff) 20

(ii) K.V. Periyamianna Marakkayar & Ors. v. Banians And Co. AIR 1926 Mad 544 - “I think that the Contract Act draws a distinction between contracts of indemnity and contracts of suretyship, and that contracts of suretyship, unlike contracts of indemnity, require the concurrence o three persons, 25 namely, the principal debtor, the creditor, and the surety. The surety undertakes his obligation at the request express or implied of the principal debtor. Beading Sections 126 and 145 together, it seems to me that there can be no contract of guarantee as distinguished rom a contract of indemnity unless there is privity between the principal debtor and the 30 surety as it is difficult to speak of an implied promise between persons between whom there is no privity of contract. Section 126 refers to contract of guarantee and speaks of three persons with reference to that contract, namely, the person who gives the guarantee, the person in respect of whose default the guarantee is given and the person to whom 35 the guarantee is given”. (per Sastri J at p. 548 left to p.549 right); (Emphasis is of Plaintiff)

(iii) Janwatraj Jethmal AIR 1958 Raj 343 at p.436 left applying the principles in Ramchandra B. Loyalka (supra) and K.V. 40 Periyamianna (supra) and held that the document was not a guarantee; and

DW1’s evidence that the Impugned Letters were provided pursuant to the Plaintiff’s request instead of the 1st Defendant. 45 11 5 [21] S.79 CA 1950 states- “A “contract of guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case o 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 10 the person to whom the guarantee is given is called the “creditor”. A guarantee may be either oral or written”. [22] It is not disputed that s.126 of the Indian Contracts Act is in pari materia with s.79 CA1950. However I am inclined to agree with the 15 2nd Defendant’s submission that the Plaintiff’s aforesaid submission (in para 21 above) is with respect misconceived. I rest on the authority of Ginlon (M) Sdn Bhd v. MBF Finance Berhad [2004] 2 MLJ 641 where the Court of Appeal at 645[10] propounded the legal principle of suretyship pursuant to s.79 CA 1950 in the following 20 manner: “For there to be a surety, therefore, there must be a contract of guarantee, in which the surety undertakes to perform the promise, or discharge the liability, of a third person in case of the third person's default. It is statutorily a three-party situation, although the third party is not a 25 party to a contract of guarantee. Section 81 provides: 'The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract', that is the contract of guarantee. The remedy of the person to whom the guarantee is given is therefore to sue the surety on his undertaking in the contract of guarantee if the 30 third person defaults. The remedy is against the person of the surety. In the case of a charge, however, even a third-party charge, it is statutorily a bipartite situation between the chargor and the chargee. The default giving rise to remedies under the charge is always, statutorily, the default of the chargor, not of any third person”. 35 (Emphasis added) Following the Court of Appeal decision in Ginlon (supra), I agreed with the 2nd Defendant’s submission that s.79 CA 1950 does not statutorily impose the condition of a third contract between the principal debtor and the 2nd Defendant as the guarantor. 40 12 5 [23] I have examined the evidence of DW1 in Q&A 18 and Q&A(s) 23 & 24 in relation to the 1st and 2nd Impugned Letters as follows: “(a) Q&A18, WS-DW1 10 Please refer to p 133 @ CBOD 1 and describe this document. Based on our records, this is the 1st Letter of Guarantee dated 21 June 2006 issued by Spring Hill to BPMB (“1st 15 Letter of Guarantee”) pursuant to their request. This was to fulfil the requests as per the letter dated 30 May 2006. (Emphasis is of Plaintiff)

Q&A23 & 24, WS-DW1 20

Please refer to p 307 @ CBOD 1 and describe this document. This is the 2nd Letter of Guarantee dated 9 December 25 2009 issued by Spring Hill to BPMB (“2nd Letter of Guarantee”) pursuant to their request. The 2nd Letter of Guarantee is identical to the 1st Letter of Guarantee save for the value of the term loan facilities granted.

Who prepared the 2nd Letter of Guarantee? The 2nd Letter of Guarantee was prepared by Spring Hill based on the terms requested by BPMB”. 35 (Emphasis is of Plaintiff) These are my observations: taken in its proper context, my findings are as follows:

I find DW1 had merely referred to the Plaintiff’s ‘request’

(ii) Looking at the 6/12/2005 Letter of Offer and the 30/5/2006 10 Letter of Offer which were addressed to the 1st Defendant, as a matter of construction, the Plaintiff made the request to the 1st Defendant; the suretyship must have been undertaken at the request of the 1st Defendant, the principal debtor as it is not the Plaintiff’s case that the Plaintiff itself had issued the request directly to the 2nd 15 Defendant.

(iii) Based on the passages quoted from the Indian authorities above, it is clear that there is no requirement for an express agreement between the principal debtor and the guarantor for it to be a contract of guarantee as the principal debtor’s request may be 20 derived by inference as is evident from the language “by which the principal debtor expressly or impliedly requests the surety to act as surety” in order to constitute a contract of guarantee. Therefore with respect I disagreed with the Plaintiff’s submission that “DW1’s evidence indicates the 2nd Defendant agreed 25 to provide the Undertakings pursuant to the Plaintiff’s request”. [24] With regard to the construction of a document, in Woo Yew Chee v. Yong Yong Hoo [1979] 1 MLJ 131 where in deciding whether a particular transaction was a licence or a tenancy, Raja 30 Azlan Shah CJ (as His Royal Highness then was) at p.133 A-B right, said - 14 “I now turn to the crux of the matter: was the transaction a licence or a 5 tenancy? What is the test to be applied? It is now well known that the law will always look beyond the terminology of the agreement to the actual facts of the situation (see Addiscombe Garden Estates Ltd. v. Crabbe [1958] 1 QB 513)”. (Emphasis added) 10 A similar approach was adopted by the Supreme Court in Malayan Banking Bhd v. PK Rajamani [1994] 1 MLJ 405 at p. 410 I wherein referring to Woo Yew Chee (supra), it stated that “the correct approach would be to look at the substance, not just the label which 15 had been attached to the letter.” (see also Bekalan Sains P&C Sdn Bhd v. Bank Bumiputra Malaysia Bhd [2011] 5 MLJ 1 at 57- 58[152]). [25] Other principles to bear in mind in construing the Impugned 20 Letters are -

as a matter of construction, an objective test must be applied to the interpretation of the contract as propounded by the Court of Appeal in Cipta Cermat Sdn Bhd v Perbandaran Kemajuan Negeri Kedah [2007] 2 MLJ 746 as follows: 25 “[18] It is a guideline to contractual interpretation that a court is not confined to look only at the formal contract. It is entitled to take into account the circumstances surrounding the making of the contract, including the factual matrix that forms the background to the contract (see Keng Huat Film Co Sdn Bhd v Makhanlal (Properties) Pte 30 Ltd [1984] 1 MLJ 243. Essentially the approach is objective. The court is not concerned with the subjective intention of the parties. It is their imputed intention that is relevant. Lord Clyde in Bank of Credit and Commerce International SA v Munawar Ali put the approach in this way: 35 The knowledge reasonably available to them (the parties to contract) must include matters of law as well as matters of fact. The problem is not resolved by asking the parties what they thought they intended. It is the imputed intention of the parties that the court 40 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 had any conscious intention 15 in relation to that eventuality. It is an objective approach which is 5 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 which they have used read in the context of the circumstances in which they made the agreement”. (at 755 [18] per Gopal Sri Ram JCA (as he then was)) 10 (see also Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010] 1 CLJ 269 at 297 [43]; The Commissioners of Inland Revenue v. Raphael and Others [1935] AC 96 (House of Lords) at pp.142-143) & Bellajade Sdn Bhd v. Orion Choice Sdn Bhd and another appeal [2016] MLJU 1171 (CA) at para 34); and 15

(ii) in applying the objective approach, the courts endorsed the approach that best elucidates the commercial purpose of the contract: In Bon Chong Hing @ Chong Hing & Anor v Gama Trading Company (Hong Kong ) Ltd [2011] 6 CLJ 493 the Court of Appeal at 508[35] held - 20 “That the task of interpreting a contract requires an objective approach … At the end of the day, the correct test to apply is the test of a reasonable man and this is said to be the stamp of an objective approach as opposed to the subjective view of a party to the contract. Of course, emphasis is always placed on the words used in the contract but where the words 25 used lead to a conclusion that defies business logic, then the contract must be construed in such a way as to make it conform to business logic”. (at 508 [35] per Abdul Malik Ishak JCA (as he then was)) 30 [26] Applying the law to the facts of the present case, I find whilst the Impugned Letters employed the phrase, “… we hereby declare, confirm and undertake …”, the true purport of the Impugned Letters is a contract of guarantee pursuant to s.79 CA 1950 for these reasons - 35

the factual matrix leading to the execution of the Impugned Letters will reveal that the intention of the parties is limited in its application - 16 “(i) the [Impugned Letters] provides that the 2nd Defendant undertakes 5 to cover any shortfall in the obligations of the 1st Defendant during the tenure of the 1st and 2nd Term Loan Facilities; and

(ii) the [Impugned Letters] provides that the 2nd Defendant undertakes to meet all repayments under the 1st and 2nd Term Loan Facilities in 10 the event the 1st Defendant is unable to meet its debt obligations under the 1st and 2nd Term Loan Facilities”.

DW1 testified that prior to the signing of the 2nd Impugned Letter, he had sight of the terms of the 6/12/2005 Letter of Offer and 15 30/5/2006 Letter of Offer which are instructive on the limited parameters of the obligations under the Impugned Letters as alluded in paras 6, 7 and 8 above. In this regard DW1 testified that - “The Board of Spring Hill [2nd Defendant] has always used the term ‘letters of comfort’ in reference to our obligation to provide an ‘undertaking’ to 20 BPMB [Plaintiff]. As such, my understanding of a ‘letter of undertaking’ has always been a letter that expresses our intention of using our best endeavour to assist Alpha Biologics [1st Defendant] in meeting their repayment obligations during the tenure of the 1st and 2nd Term Loan Facilities. It is essentially to give comfort to BPMB that we will help out if 25 Alpha Biologics is facing difficulties with their debt obligations to BPMB during the subsistence of the facilities”. [27] Thirdly, the Plaintiff submitted that the 2nd Defendant has undertaken a primary liability based on the terms of the Impugned 30 Letters, thus effectively being indemnities pursuant to s.77 CA 1950 which reads - “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”. 35 [28] Based on the express terms of the 1st Impugned Letter reproduced in para 9 above (the 2nd Impugned Letter bears identical terms save for the amount of facility), the liability of the 2nd Defendant is clearly dependent on 2 factors - 40 17 5

there being a shortfall in the obligations of the 1st

the 1st Defendant being unable to pay its debt obligations, which is essentially a default. According to the Merriam-Webster’s Collegiate Dictionary 10 (10th Edition), “shortfall” means “A failure to come up to expectation or need” (p.1084) and “default” means “To fail to fulfill a contract, agreement, or duty: to fail to meet a financial obligation.” (p.301). The combined effect of both these terms contextually connotes the 1st Defendant’s failure to fulfill the obligations to the Plaintiff. 15 [29] Contrary to the Plaintiff’s submission that the Plaintiff is entitled to demand payment from the 2nd Defendant without first establishing that the 1st Defendant had defaulted in its obligation under the 1st and 2nd Term Loan Facilities, in my considered opinion, the 2nd 20 Defendant’s liability is only invoked upon the 1st Defendant’s default; in other words, the 2nd Defendant’s liability is a secondary, not a primary one as the Plaintiff sought to contend. [30] For the distinction between a contract of indemnity and a 25 contract of guarantee, I drew support from the case of South East Asia Insurance Bhd v Nasir Ibrahim [1992] 2 MLJ 355, albeit it was acknowledged by the Supreme Court it is often difficult to determine whether a given instrument is a guarantee or an indemnity, it held a relevant consideration is that the indemnifier unlike a surety, is not 30 discharged by the creditor giving time to the principal debtor (per Gunn Chit Tuan SCJ (as he then was) at p.361A-B). At p.360 E, His Lordship opined - 18 “In a contract of indemnity, the promisor undertakes an original and 5 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 (see Yeoman Credit Ltd v Latter)”. 10 In South East Asia Insurance Bhd’s case (supra), at p.360H, in the instrument in question, amongst others, it is written - “I, the undersigned, Nasir Ibrahim, hereby undertake to indemnify and hold you harmless against all claims, damages, loss or demands arising out of the said guarantee … 15 I further declare and agree that this indemnity shall continue to remain in force and valid,

until your liability under the said guarantee shall cease 20

notwithstanding any agreement between yourselves, the principal and the said contractor extending the period of liability under the said guarantee.” However in the present case, I find there is nothing stipulated in the 25 Impugned Letters that the 2nd Defendant is obliged to hold the Plaintiff harmless against any loss irrespective of the 1st Defendant’s default. [31] I drew further assistance on the nature of a contract of indemnity in Sia Siew Hong & Ors v Lim Gim Chian & Anor [1995] 30 3 MLJ 141 where Gopal Sri Ram JCA (delivering the judgment of the Court of Appeal) at p.147 H-I to p.148 A-D considered the following factors collectively in concluding that the purported guarantees were in fact indemnities and dismissed the appeal - “(a) there was no formal obligation on the creditor to make a formal 35 demand of the sum in question;

the existence of a deeming provision in the document which imposed a primary obligation on the appellant as a principal debtor; 40

taking into account all the relevant circumstances, it was clear that the parties intended for the appellant to assume the primary obligation to indemnify the respondents in the event of a default; and 19 5

the existence of a clause in the document which points to the appellant agreeing to undertake an original liability”. [32] I find the 2 cases of Ling Sing Hung & Ors v. Kontiki Trading 10 Pte Ltd [1998] 4 CLJ 345 and The Pacific Bank Bhd v. Vimla Textiles & Ors. [2004] 6 CLJ 406 (HC) cited by the Plaintiff merely set out the general principles of law to distinguish the contract of guarantees and indemnities and are of no assistance to the Plaintiff. 15 [33] The Plaintiff further argued that by providing the Impugned Letters before the execution of the Loan Agreements, the 2nd Defendant had done so without regard to any additional terms and conditions that may be imposed under the Loan Agreements. In this regard I wholly agreed with the 2nd Defendant’s submission that - 20

the aforesaid argument is a non sequitur;

the 2nd Defendant had provided the 1st Impugned Letter based on the terms of the 6/12/2005 Letter of Offer and 30/5/2006 Letter of Offer and the 2nd Impugned Letter based on the terms of the 22/12/2009 Letter of Offer. Thus the 2nd Defendant was only aware 25 of and agreed to guarantee the Facility Amount, Grace Period, Interest Payment and Principal Repayment as per the terms stated in the Letters of Offer aforementioned. Further despite being aware that the terms of the offer may be varied, for reasons which shall dealt hereafter, this does not change the fact that the 2nd Defendant’s 30 consent is still needed if the 2nd Defendant is to remain bound under the Impugned Letters. 20 [34] Pertaining to Issue 1, it is my finding that the Impugned Letters 5 dated 21/6/2006 and 9/12/2009 are in fact guarantees. If the Undertakings were Guarantees, whether the 2nd Defendant’s liability has been discharged as a result of the variations in the Letters of Offer (Issues 2, 3, 4, 5 & 6) 10 [35] I find the 2nd Defendant has established that the Impugned Letters are guarantees with no express waiver provisions for these reasons:

PW1 confirmed in cross-examination that the Impugned Letters are not standard form bank guarantees.

The Impugned Letters are one pager documents which do not contain any waivers of the 2nd Defendant’s rights as a guarantor under CA 1950 in contrast to long form agreements which contain waivers as found in Cl.12.03 of the Loan Agreement (B1/33-34) - “BPMB may at any time without in any way affecting the security hereby 20 created … And the securities and liability and or obligations created by this Agreement shall continue to be valid and binding for all purposes whatsoever notwithstanding:- 25

any time or indulgence which BPMB may from time to time grant to the Borrower for the payment of monies due to BPMB or for the observance or performance of any term, stipulation, covenant or undertaking on the part of the Borrower to be observed and 30 performed; or

any arrangement entered into or any composition accepted by BPMB modifying its rights and remedies or by way of any alteration in the obligations, terms, stipulation, covenants and undertakings 35 contained herein or by any forbearance as to payment, time, performance or otherwise”. [36] The Plaintiff submitted that the issue of variation and its effect was not put to the Plaintiff’s witnesses and is thereby deemed 40 21 abandoned by the 2nd Defendant or according to the Plaintiff, “This 5 issue is moot” and cited Aik Ming (M) Sdn Bhd & Ors v Chang Ching Chuen & Ors and another appeal [1995] 2 MLJ 770 at p.794 F to p.795 I. With respect, in my opinion, the Plaintiff’s submission is misconceived as the rule in Browne v Dunn as applied in Aik Ming’s case (supra) with particular emphasis on the passage emboldened 10 below does not apply for the following reasons:

The passage in Aik Ming’s case quoted by the Plaintiff, amongst others, stated - “… It is essential that a party's case be expressly put to his opponent's material witnesses when they are under cross-examination. A failure in 15 this respect may be treated as an abandonment of the pleaded case and if a party, (in the absence of valid reasons) without valid reasons, refrains from doing so, then he may be barred from raising it in argument”. (Emphasis added)

I find there are valid reasons proffered by the 2nd Defendant from refraining cross-examination per se on the issue of variation. Firstly, the fact that the 1st and 2nd Term Loan Facilities were varied is not disputed, neither the terms of the variation as is evident from Issues 2, 3, 4, 5, & 6 of the Common Issues to be Tried (see para 3 25 above). Neither have PW1 nor PW2 alluded to anything different and in fact PW1 has referred to the terms of the variation without disputing them in Q&A 5 WSPW1. The matters in dispute are - “(a) whether the effect of the variation on the 2nd Defendant was material within the ambit of the law; and 30

whether the Letters of Guarantee require the Plaintiff to obtain the 2nd Defendant’s consent prior to any variations to the Term Loan Facilities”. 35 Secondly, from cross-examination, it transpired that neither PW1 nor PW2 were involved with the 1st Defendant’s Term Loan Facilities from the very beginning: PW1 was only involved in 2012, 22 well after the issuance of the Letters of Offer, Impugned Letters and 5 the subsequent variations and for that matter had no personal knowledge of the variation made in 2009 and 2010. PW2, whom the Plaintiff submitted the effect of the variations should have been put to, was only in charge of the 1st Defendant’s account with the Plaintiff since March 2015 whereas the variations to the 1st and 2nd Term 10 Loan Facilities occurred on 23/10/2009 and 26/7/2010 respectively. [37] S.86 CA 1950 states - “Discharge of surety by variance in terms of contract 15 Any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance”. The principle governing the discharge of a guarantor where his 20 consent was not sought in a variation of the terms of agreement between the principal debtor [in this instant case is the 1st Defendant] and the creditor [in this instant case is the Plaintiff] is expressed by Blackburn J in the English Court of Appeal case of Polak and Another v. Everett [1876] QBD 669 at pp.673-674 as follows: 25 “… that on the principles of equity a surety is discharged when the creditor, without his assent, gives time to the principal debtor, because by so doing he deprives the surety of part of the right he would have had from the mere fact of entering into the suretyship, namely, to use the name of the creditor to sue the principal debtor, and if this right be 30 suspended for a day or an hour, not injuring the surety to the value of one farthing, and even positively benefiting him, nevertheless, by the principles of equity, it is established that this discharges the surety altogether. The reason given for this, as stated in Samuell v. Howarth by Lord Eldon, is, because the creditor, by so giving time to the 35 principal, has put it out of the power of the surety to consider whether he will have recourse to his remedy against the principal or not, and because he in fact cannot have the same remedy against the principal as he would have had under the original contract. And he adds: “The creditor has no right, it is against the faith of his contract, to give time to the principal, 40 even though manifestly for the benefit of the surety, without the consent of the surety.” The principle being, as I understand it, that as it is very 23 undesirable that there should be any dispute or controversy about whether 5 it is for his benefit or not, there shall be the broad principle, that if the creditor does intentionally violate any rights the surety had when he entered into the suretyship, even though the damage be nominal only, he shall forfeit the whole remedy.” (Emphasis added) 10 [38] The effect of the principle in s.86 CA 1950 is reiterated when the case of Polak (supra) was cited with approval by the Federal Court in Citibank N.A. v. Ooi Boon Leong & Ors. [1981] 1 MLJ 282 at p.284 B-C wherein Raja Azlan Shah CJ (as His Royal Highness 15 then was) at p.283 G-I right stated - “The section [s. 86] provides express provision for the respondents to consent to any variation. They are the sole judges whether or not they will consent to remain liable notwithstanding such variation, and that if they have not so consented they will be discharged. This provision 20 is in accordance with what is stated to be the law by Cotton L.J. in Holme v. Brunskill which was followed in the Privy Council in National Bank of Nigeria Limited v. Awolesi : "The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be 25 consulted, and that if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet that if it is not self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the court, will not, in an action 30 against the surety, go into an inquiry as to the effect of the alteration … but will hold that in such a case the surety himself must be the sole judge whether or not he will consent to remain liable notwithstanding the alteration, and that if he has not so consented he will be discharged."”. (Emphasis added) 35 Although the Federal Court held the variation in Citibank (supra) fell within the de minimis rule (at p.284 C-D left), the Federal Court held the guarantors were bound to the variation as the contract of guarantee contained an express waiver of their rights in respect of the variation or alteration (at p.284 A-C right). However in this instant 40 case I have stated at para 35 above that the Impugned Letters do not contain waivers of the 2nd Defendant’s rights under CA 1950. 24 5 [39] S.88 CA 1950 states - “88. Discharge of surety when creditor compounds with, gives time to, or agrees not to sue principal debtor. A contract between the creditor and the principal debtor, by which the 10 creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract”. [40] S.135 of the Indian Contracts Act is in pari materia to s.88 CA 15

In considering what amounts to grant of time, the dicta of the Supreme Court of India in the case of Amrit Lal Goverdhan Lalan (Dead) by His Legal Representative v. State Bank of Travancore and Others [1968] AIR SC 1432, a case common to both parties is instructive. The pertinent passage is as follows: 20 “What really constitutes giving of time is the extension of the period at which, by the contract between them, the principal debtor was originally obliged to pay the creditor by substituting a new and valid contract between the creditor and the principal debtor to which the surety does not assent. The reason why an agreement to give time discharges the surety 25 is because if, after making such an agreement, the creditor were to sue the surety the latter would at once be turned on the principal debtor in breach of the agreement to give time, so that the effect of such an agreement is to prevent the surety from either requiring the creditor to call upon the principal debtor to pay off the debt, or himself paying off the debt, 30 and then suing the principal debtor, thereby causing prejudice to the surety (Rouse v. Bradford Banking Co., per A.L. Smith, L.J.). “Thus, to substitute for payment in one sum payment by instalments amounts to a giving of time. Again, whenever the taking of a new security from the principal debtor by the creditor operates as a giving of time, the surety is 35 no longer liable, but not where that transaction has no such effect.” (Halsbury’s Laws of England, Vol.18, p.509)”. [41] The above position is fortified in a passage in the case of T.N.S. Firm v. V.P.S. Muhammad Hussain and others AIR [1933] 40 Madras 756 (cited by the Plaintiff), where Cornish J at p.761 right stated - 25 “A surety is discharged if, without his assent, the creditor binds himself by 5 agreement with the principal debtor to give him time. And, with reference to the discharge of a surety, “giving time means the putting it out of the power of the creditor to sue during the extended time”. [42] Reverting to the factual narrative, the 1st Term Loan Facility 10 was varied vide the Plaintiff’s letter dated 23/10/2009 (B1/43-46) in the following manner: “(i) the original grace period of 3 years to commence repayment of the principal amount was varied to 4 years from the date of first drawdown; and 15

(ii) the original terms whereby repayment commences on the 37th month and the principal repayment is to be paid in 83 equal installments and 1 further final installment was varied to the effect that the repayment of the principal amount and the repayment now 20 commences on the 49th month and the principal repayment is to be made in 72 equal installments. Arising thereof, interest for the 37th month to the 48th month was to be capitalized”. [43] The fact of these variations and that the variations were made 25 without the express consent of the 2nd Defendant was also not disputed (NOP 6/3/2017 p.24 lines 5-8). The 2nd Defendant only came to know about the variations to the 1st Term Loan Facility on or about the month of July 2016 arising from a due diligence undertaken by the 2nd Defendant on the 1st Defendant emanating from the letters 30 of demand dated 6/6/2016 (B1/326-328) and 14/7/2016 issued by the Plaintiff’s solicitors to the 2nd Defendant. DW1 in explanation in chief (WS DW1 Q&A 46) explained the effect of the variations as follows: “(a) the compression of the repayment period from 84 months to 72 months would have resulted in higher monthly repayments from the 35 4th year onwards at a time when the 2nd Defendant’s charter life was supposed to have ended and its focus would be on monetising its investments; and

the interest capitalised from the 37th to 48th months were added to 40 the repayments from the 4th year onwards”. 26 [44] The impact of the variation was explained by DW1 during 5 cross-examination (NOP 8/3/2017 p.72 lines 14-22) (the material parts) as follows: Before that, there are few other things because when you compress the payments from seven years to six years, towards the end you effectively increase the monthly 10 repayment. So if one were to do a spreadsheet, it comes out to the tune of almost a quarter about 23% increase. So that’s quite a material increase in repayments and Spring Hill has a charter life and at that point in time when the increase of repayments are needed, is the point in time when the charter 15 life of the fund would have ended. So for Spring Hill perspective as a guarantor to the loan itself, it’s problematic”. DW1 explained “charter life” as - 20 Charter life of the fund itself. So the investors came in to start the company which is effectively a fund about 2003 January and the charter life goes on for seven years plus two, so nine years. There’s an investment period of five years. So the intention is to make investments during the 25 first five years with the view of monetizing the investments within the nine years where possible. So that’s –”. [45] DW1 in re-examination clarified the following (NOP 8/3/2017 p.110 line 10 to p.113 line 10 (material parts): 30 “PTS … Now would you like to clarify for us as to where can it be found anywhere in the documents where you derive your answer of the Charter Life of 7 plus 2 years? So having had the chance to have a look at the document 35 again; at first I thought it wasn’t in here but it is contained in the Articles of Association of the company itself. … 40 349, under ‘Tenure.’ ‘The preference shares shall have a tenure of 7 years commencing from the date the same are issued to the holder and shall mature on the date falling on the 7th anniversary 45 date thereafter.’. PTS Why do you refer to preference shares? 27 5 Preference shares are basically the shares that the ultimate shareholders owned. That’s their stake in the company. PTS Thank you. And the ‘plus 2 years’ what is that? 10 The plus 2 years can be referred back to the investment policy which the 5 plus 2, so if the investment – … 15 … it’s on page 335, Clause 11. … Whether the investment period is 5 years at the full 20 discretion of the fund company be extended for further 2 years. So investment period is 5 years in which case the preference shares will be 7 years but if the investment period which has had in this case been extended for another 2 years, then the preference shares will also increase by 2 25 years. It moves accordingly. … The investment period can be extended for another 2 years. 30 … Similarly the preference share is 7 years on page 349; it can be extended by another 2 years in accordance with the 35 investment period”. [46] According to DW1’s evidence, the compression of the loan repayment came at a time where the 2nd Defendant would no longer 40 be making investments but rather realizing the returns on investment; the effect of which the 2nd Defendant would have had to make additional repayments at the estimated increase of 23% at the time it would have been focusing on monetizing its investments. Further the grant of time gave the 1st Defendant a 1 year extension of time to 45 commence repayment of the principal amount which means that the 1st Defendant has now contracted with the Plaintiff, without the 28 consent of the 2nd Defendant, to defer repayment of the principal 5 amount until a whole year later. I find this variation has prejudiced the 2nd Defendant as it would no longer have the right to sue the 1st Defendant for repayment during the original 37th to 48th months if the Plaintiff had called on the guarantee upon a default but the 2nd Defendant would have to wait till the 49th month to sue the 1st 10 Defendant. [47] I find the grant of time by the Plaintiff to the 1st Defendant had resulted in the substitution of the terms of the 6/12/2005 Letter of Offer and 30/5/2006 Letter of Offer. Applying the principles from 15 Amrit Lal Goverdhan Lalan (supra) and T.N.S. Firm (supra) to the evidence at hand, in my judgment, the variations to the 1st Term Loan Facility which are in no way de minimis but are very material attracts the provisions of ss.86 and 88 CA 1950 and completely discharges the 2nd Defendant from the terms of its guarantee under the 1st 20 Impugned Letter. [48] The 2nd Term Loan Facility was varied vide the Plaintiff’s letter dated 26/7/2010 (B1/194-200) according to DW1 in the following manner: 25 “[T]he form of the revolving credit facility will include a bank guarantee and the purpose of the 2nd Term Loan Facility was varied to part-finance the purchase of raw materials as well as pre-expenditure for obtaining a cGMP certificate”. 30 [49] The 2nd Defendant only came to know of the variation to the 2nd Term Loan Facility on or about July 2016 in the same manner as occurred to the 1st Term Loan Facility mentioned in para 43 above. 29 [50] PW1 confirmed during cross-examination that he was not 5 aware of any documentation where the 2nd Defendant’s consent was sought in relation to the variation to the 2nd Term Loan Facility (NOP 6/3/2017 p.26 lines 7-25). [51] DW1 was candid during cross-examination to a question posed 10 by Plaintiff’s Counsel that the variation of the 2nd Term Loan Facility whilst affecting the 2nd Defendant’s liability under the 2nd Impugned Letter was not material. Notwithstanding this, I agreed with the 2nd Defendant’s submission that s.86 CA 1950 “will bite on the facts as there was a variation on the terms of the loan granted without the 15 consent of the 2nd Defendant.” coupled with the fact that the 2nd Impugned Letter does not contain any express waiver of its right in respect of variation as I have alluded at paras 35 and 38 above. [52] For the given reasons, I find that the 2nd Defendant has been 20 discharged of its liabilities under the 2nd Impugned Letter for all transactions subsequent to the variation. Whether the Plaintiff is obliged to notify the 2nd Defendant that the 1st Defendant had defaulted and demand for payment within 25 the tenure of the 1st and 2nd Term Loan Facilities (Issue 7) [53] The Plaintiff submitted that the Plaintiff’s demand against the 2nd Defendant was made within the tenure of the 1st and 2nd Term Loan Facilities: the tenure of the 1st Term Loan Facility was for 10 years and it ended on 30/9/2016 whilst the tenure of the 2nd Term 30 Loan Facility was for 7 years and ends on 19/1/2020. With respect I find this is totally misplaced since the 1st and 2nd Term Loan Facilities were terminated and recalled by the 31/7/2014 Letter which 30 was addressed to the 1st Defendant and copied to the 2nd Defendant 5 referred to in paras 16 and 17 above. [54] The Plaintiff further submitted that -

the Impugned Letters do not expressly require the Plaintiff to notify the 2nd Defendant of the 1st Defendant’s default; instead the 10 Impugned Letters stipulate that the 2nd Defendant has an obligation to cover on demand any shortfall which the 1st Defendant is obliged to pay during the tenure of the Term Loan Facilities, which include “any other accommodation for so long” as the Plaintiff “may think fit” to the 1st Defendant; and 15

(ii) the Court should avoid interpreting a commercial document that defies business common sense citing Bon Chong Hing (supra) and Bellajade (supra) which followed the former case. 20 [55] The approach adopted by the Plaintiff in construing the Impugned Letters propounded by the Court of Appeal in Bon Chong Hing and Bellajade (supra) was similarly taken by the 2nd Defendant (see para 25 above). 25 [56] Apart from what has been alluded to regarding the construction of the Impugned Letters (see paras 24 to 29 above), the Court should take into consideration the contracts as a whole and to harmonise as far as possible all the words and phrases used (per Lord Wright at p.143 in The Commissioners of Inland Revenue (supra)) which 30 would include the construction of the following terms and phrases: “In consideration of your granting or continuing to make available the Term Loan Facility of Ringgit Malaysia XXX (RMXXX) only (“the Term Loan”) or any other accommodation for so long as you may think fit to 31 Alpha Biologics Sdn Bhd (Company No.606545-H) of Suite 3.02, Level 3, 5 Wisma E & C, No.2, Lorong Dungun Kiri, Damansara Heights 50490 Kuala Lumpur (“the Borrower”) we, hereby declare, confirm and undertake that we shall upon demand by you, cover any shortfall in the obligations of the Borrower during the tenure of the Term Loan and to meet all repayments under the Term Loan in the event the Borrower is 10 unable to meet its debt obligations under the Loan Agreement executed or to be executed between the Borrower and you”. (Emphasis added) [57] In construing the terms above, I agreed with the 2nd 15 Defendant’s submission that “the 2nd Defendant’s obligation arises upon there being a shortfall or failure by the 1st Defendant to meet its debt obligations. This, by implication, invites notification [and a corresponding demand made] if there is a shortfall or the 1st Defendant is unable to meet its debt obligations, hence, a default”. 20 (Emphasis added). Such a construction in my judgment “conforms to business logic” as per the dicta of the Court of Appeal in Bong Chong Hing. [58] The evidence revealed that no demand was made by the 25 Plaintiff against the 2nd Defendant of the outstanding sum allegedly owed to the Plaintiff of RM31,908,811.70 as at 16/7/2014. The 31/7/2014 Letter was merely copied to the 2nd Defendant being the first time that the 2nd Defendant was notified of the 1st Defendant’s alleged default. 30 [59] The 1st demand made of the 2nd Defendant pursuant to the Impugned Letters was on 6/6/2016 (B1/326-328) as confirmed by PW1 in cross-examination. However in my judgment such demand as submitted by the Plaintiff is outside the ambit of the Impugned 35 Letters which provides that the 2nd Defendant upon demand by the 32 Plaintiff to “cover any shortfall in the obligations of the Borrower 5 during the tenure of the Term Loan and to meet all repayments under the Term Loan in the event the Borrower is unable to meet its debt obligations under the Loan Agreement executed or to be executed between the Borrower and you.”. 10 Whether the 2nd Defendant is entitled to set off its liability against the alleged undervalued sale of the charged assets by the Receiver and Manager (‘R & M’) (Issues 8, 9, 10 &11) [60] Under this head of argument, the Plaintiff submitted as a debenture holder, it is liable for the actions of the R&M in limited 15 circumstances. In support thereof, the Plaintiff cited the case of Standard Chartered Bank Ltd. v. Walker And Another [1982] 1 WLR 1410 wherein Lord Denning M.R. delivering the judgment of the English Court of Appeal at 1415 H to p.1416 A-C opined - “So far as the receiver is concerned, the law is well stated by Rigby L.J. in 20 Gaskell v. Gosling [1896] 1 Q.B. 669, a dissenting judgment which was approved by the House of Lords [1897] A.C. 575. The receiver is the agent of the company, not of the debenture holder, the bank. He owes a duty to use reasonable care to obtain the best possible price which the circumstances of the case permit. He owes this duty not only to the 25 company, of which he is the agent, to clear off as much of its indebtedness to the bank as possible, but he also owes a duty to the guarantor, because the guarantor is liable only to the same extent as the company. The more the overdraft is reduced, the better for the guarantor. It may be that the receiver can choose the time of sale within a 30 considerable margin, but he should, I think, exercise a reasonable degree of care about it. The debenture holder, the bank, is not responsible for what the receiver does except in so far as it gives him directions or interferes with his conduct of the realisation. If it does so, then it too is under a duty to use reasonable care towards the company and the 35 guarantor. If it should appear that the mortgagee or the receiver have not used reasonable care to realise the assets to the best advantage, then the mortgagor, the company, and the guarantor are entitled in equity to an 40 allowance. They should be given credit for the amount which the sale 33 should have realized if reasonable care had been used. Their 5 indebtedness is to be reduced accordingly”. (Emphasis added) [61] Whilst the 2nd Defendant in submission stated “We accept the position of the Plaintiff with regard to the principal of agency as 10 propounded in [Standard Chartered Bank Ltd]”, the 2nd Defendant highlighted “The assets were sold at a paltry sum of RM635,500.00 of which the Plaintiff received RM297,139.72” and submitted “the [R&M] has failed to take the appropriate measures to ensure that the assets of the 1st Defendant are realised for value”. 15 [62] The 2nd Defendant further submitted - “122. The following critical points can be gleaned from the undisputed evidence led by the 2nd Defendant at trial: 20

the Plaintiff had knowledge that DW2 was in the midst of preparing a proposal to both the Plaintiff and PDC;

DW2 was under the impression that he was given a 30-day timeline for a restructuring plan;

the Plaintiff did not dispute DW2’s understanding of the 30- day timeline; and

the Plaintiff, with knowledge that DW2 was in the process of 30 preparing the proposal, appointed the Receiver and Manager to dispose of the 1st Defendant’s assets.

All the proposals made were substantially more than what the assets were disposed of subsequently. However, the proposals 35 were summarily rejected without any reasons given by the Plaintiff. In fact, the Plaintiff has not provided any evidence to even show how Viropro Inc’s proposals were reviewed.

To this end, [the] Plaintiff had conducted itself in a manner which 40 interfered with the Receiver and Manager’s duties to realise the best value for the 1st Defendant’s assets without even so much as giving them a reason to substantiate their rejection of Viropro Inc’s proposals for a higher value. 45 34

None of the issues raised by DW2 in his letters dated 9/10/2014 5 and 29/12/2014 were investigated, including the sale of the 1st Defendant’s plant facility as a whole, the value of the equipment or the issue of contamination.

… As borne out by PW3, the Plaintiff chose the option that yielded 10 a much lesser sum despite being fully aware of the higher sum that could have been recovered through DW2’s proposals”. [63] With respect I was unable to accept the 2nd Defendant’s 15 submission for these reasons. Following the authority of Standard Chartered Bank Ltd. v. Walker (supra), the 2nd Defendant as guarantor can therefore only argue its liability should be reduced if it can be shown that the Plaintiff has given directions or interferes with the R&M’s realisation of the secured assets. I agreed with the 20 Plaintiff’s submission that the 2nd Defendant cannot claim that its liability should be reduced by way of set-off because the 2nd Defendant’s allegation does not fall within the principle in Standard Chartered Bank Ltd. v. Walker because -

the 2nd Defendant did not allege that the Plaintiff interfered with 25 the conduct of the realisation;

(ii) the 2nd Defendant in its defence alleged - “(a) the Plaintiff purportedly acted in bad faith by appointing R&M although it was aware that the 1st Defendant’s proposal for loan restructuring and had responded to the same (See: para 52.1, 30 Defence).

the Plaintiff is purportedly accountable for the conduct of its agent, the R&M, because the R&M failed to take reasonable care to obtain the best price when the assets of the 1st Defendant (See: paras 35 52.2 and 53 to 59, Defence)”. [64] Since it is my finding that the 1st and 2nd Impugned Letters are guarantees, I agreed with the Plaintiff’s submission that the 2nd Defendant’s liability is co-extensive to the 1st Defendant. It is 40 35 observed that s.9.03 (d) of the 1st Debenture states in exercising the 5 power of sale, the R&M, agent for the 1st Defendant (Borrower) -

“may sell at such time and in such manner and at such price “as the R&M “think fit and in exercising such discretion … may have regard to the views and desires of BPMB [Plaintiff]; and

(ii) “shall be not be accountable for any loss or damage which may 10 be suffered by the Borrower by reason of the exercise of such discretion.”. Similar provisions are found in the 2nd, 3rd and 4th Defendants. [65] Having examined the body of evidence from PW3 and DW2, I 15 find the evidence showed the following as per the Plaintiff’s submission:

Before the R&M was appointed the 1st Defendant had ceased operations and it did not have any revenue generating business. The 1st Defendant’s premises were abandoned; with no workers except 20 for 1 security guard and there were signs of break-ins with the tables and chairs strewn over.

The 1st Defendant did not own the land where the facility and business operated. The 1st Defendant failed to pay rentals due and owing to PDC. Prior to the appointment of R&M, PDC had already 25 commenced action against the 1st Defendant for outstanding rental and possession of the premises. PDC later wound up the 1st Defendant.

The R&M initially attempted to negotiate for some moneys from PDC for the premises. The R&M obtained a valuation report for this 30 purpose. PDC was however not interested. Due to PDC’s pending action for rental and possession of the premises the R&M had to sell the charged assets on the premises. The R&M took steps to 36 advertise the sale of the 1st Defendant’s other charged assets. The 5 R&M called for tender. Valuation reports were also commissioned for the purpose of the auction to determine market value. [66] In Fisar bin Hj Abdullah v Malayan Banking Bhd [2015] 1 MLJ 867, the Court of Appeal at 877[33] stated - 10 “But if it remains in the realms of argumentum ad hominem, it is of no assistance. The ultimate test of market price is what a buyer is willing to pay in an open sale at the time of purchase. It is also common knowledge that market conditions vary according to economic conditions. It is equally common knowledge that the prices can go up or go down, and it is without 15 notice. Hence, the best point of time a disposal is to be made is anybody's guess. Unless evidence is adduced that proves that the respondent wilfully chose what it knows to be the wrong time to sell, the argument is irrelevant”. (Emphasis added) 20 [67] I find nothing turned on the issue of restructuring as the cross-examination evidence of DW2 below showed there was nothing concrete in the restructuring proposals: 25 “(a) When DW2 proposed Viropro’s restructuring plans to the Plaintiff, Viropro did not have the financial means to fund the purported restructuring. Notably, Viropro did not even have money to settle its obligations under the agreement where the 2nd Defendant sold its stake in the 1st Defendant to Viropro.

DW2 in his letters represented that it was in position to make advance payments if the Plaintiff agreed to the restructuring. DW2, in cross-examination, admitted that Viropro had not secured the funds to make those payments when the proposal was made.

DW2 in his letters also offered to issue RPS as part of the proposed restructuring. Viropro is however a “pink sheet” company. Unlike companies listed on NYSE or NASDAQ, Viropro does not comply with stringent regulatory requirements and does not lodge financial 40 statements. It is impossible to know the actual financial position of Viropro.

DW2’s proposal involved the 1st Defendant carrying out new businesses. DW2 in his various letters outlined various business 45 37 plans. These business plans were actually preliminary in nature. 5 Neither Viropro nor DW2 has secured any firm business contracts”. [68] Whilst the 2nd Defendant claimed that it was entitled to a set-off, the 2nd Defendant did not adduce evidence to support what its loss 10 was. [69] There was no evidence adduced by the 2nd Defendant to challenge the valuation reports prepared by Raine & Home as follows:

Valuation Report on the Plant and Machinery belonging to the 1st Defendant - “The market value of the plant and machinery is RM1,226,600.00 and the forced sale value of the plant and machinery is RM613,300.00”. 20

Valuation Report on the block of double storey factory - “The market value of the block of double-storey factory building is RM4,000,000.00 and the forced sale value of the block of double-storey factory building is RM3,200,000.00”. 25 [70] Therefore in the light of the above, I find the 2nd Defendant has not adduced any evidence to demonstrate the charged assets were sold at an undervalue. There is no merit whatsoever in the 2nd Defendant’s contentions referred in paras 61 and 62 above. 30 Conclusion [71] The Court has considered the Written cum oral Submissions of the learned Counsel for the Plaintiff and the 2nd Defendant. For all the foregoing reasons on a balance of probabilities, to summarise I 35 found - 38

Issue 1 - The Impugned Letters (Letters of Undertaking dated 5 21/6/2006 and 9/12/2009) are in effect contracts of guarantee.

Issues 2, 3, 4, 5 & 6 - The 2nd Defendant has been completely discharged of its obligation under the 1st Impugned Letter (1st Letter of Guarantee) and of its liability under the 2nd Impugned Letter (2nd Letter of Guarantee) for all transactions subsequent to the variation 10 i.e. 26/7/2010.

Issue 7 - In the affirmative, there is a need to notify the 2nd Defendant.

Issue 8 - No, it is not pleaded and it does not fall within the exception of Standard Chartered Bank Ltd. v. Walker at pp.1415 - 15 1416.

Issues 9, 10 & 11 - In the negative. [72] Accordingly, the Court made the following order: “(1) Berkaitan dengan tuntutan Plaintif ke atas Defendan Ke-2 bagi 20 jumlah tertunggak dan terhutang di bawah Fasiliti Pinjaman Terma Pertama, pohonan di bawah perenggan 32(a) Penyata Tuntutan ditolak;

Berkaitan dengan tuntutan Plaintif terhadap Defendan Ke-2 bagi 25 jumlah tertunggak dan terhutang di bawah Fasiliti Pinjaman Terma Kedua, Defendan Ke-2 adalah dengan ini dilepaskan dari liabiliti bermula daripada tarikh kelainan (date of variation) Fasiliti Pinjaman Terma Kedua iaitu pada 26/7/2010; 30

Jumlah tertunggak dan terhutang di bawah perenggan (2) di atas hendaklah ditentukan oleh Mahkamah;

Suatu tarikh klarifikasi untuk menentukan jumlah tertunggak dan terhutang di bawah perenggan (2) di atas kini ditetapkan pada 35 16/8/2017; dan

Plaintif dikehendaki membayar kos sebanyak RM40,000.00 kepada Defendan Ke-2, tertakluk kepada Alokatur”. 40 39 [73] For completeness, on 14/11/2017, pursuant to prayer 3 of the 5 Court’s Order dated 1/8/2017, the 2nd Defendant was ordered to pay the sum of RM932,472.10 under the 2nd Term Loan Facility as at 26/4/2016 with interest accruing thereon on the said sum at a rate of 1.75% per annum together with Plaintiff’s Effective Cost of Fund from 27/4/2016 until the date of full and final settlement. 10 Dated: 31/3//2018 15 SGD. (LAU BEE LAN) Judge Counsel for the Plaintiff: 20 Encik Andrew Chiew together with Encik Wafiy Azman Messrs Lee Hishammuddin Allen & Gledhill Advocates & Solicitors 25 Level 6, Menara 1 Dutamas Solaris Dutamas No. 1, Jalan Dutamas 1 50480 Kuala Lumpur 30 Counsel for the 2nd Defendant: Encik Peter Justin Skelchy together with Cik Nuraini Ali 35 Messrs Cheah Teh & Su Advocates & Solicitors L-3-1, No. 2, Jalan Solaris Solaris Mont’ Kiara 50480 Kuala Lumpur 40