Chan Kheng Hoe and Rachel Lim Han Ying [Messrs. Chong + Keng Hoe] v K. Kirubakaran [Messrs. Selva Mookiah & Associates] (WA-22C-60-08/2021)

PASTPRESENTFUTURE SDN BHD [COMPANY NO.: 201001033874 (917797-X)

WONG SIEW WOON [NRIC NO.: 800304-10-5211]

LEE POH WAH [NRIC NO.: 610716-10-6029]

CHAN BAOJIE [NRIC NO.: 881105-43-5653] …DEFENDANTS GROUNDS OF JUDGMENT (Enclosure 29) Introduction

This is an Order 14A application filed by the Plaintiff in enclosure 29 (Enclosure 29) for an order that the Corporate and Individual 2 Guarantees (Guarantees) executed by the 1st Defendant (D1) and the 2nd – 4th Defendants (D2-D4) dated 14.10.2019 are: a) valid and enforceable based on the obligation by Surrealist Communities (M) Sdn Bhd to the Plaintiff vide the Adjudication Decision dated 21.5.2021 (AD) b) whether the said Guarantees are null and void due to the Plaintiff’s stand in the Adjudication Proceedings with regards the Deferred Payment Scheme eventhough the Plaintiff had financed the entire RM50 million under the Deferred Payment Scheme. Background Facts

The Plaintiff was appointed as the main contractor for a project by Poly Ritz Communities (M) Sdn Bhd (Employer) pursuant to a Letter of Award dated 8.3.2019 (LOA) The LOA was issued by Poly Ritz Ventures Sdn Bhd, the Project Management Committee at the material time (PMC) Poly Ritz Communities (M) Sdn Bhd’s name was subsequently changed to Surrealist Communities (M) Sdn Bhd.

The terms of the LOA appointing the Plaintiff as the main contractor contained a Deferred Payment Scheme which is subject to a Deferred Payment Sum Interest.

This Deferred Payment Scheme was particularized in a Supplemental Agreement signed between the Plaintiff, the PMC and the Employer. 3

The main provision for the Deferred Payment Scheme is set out in Clause 2 of the Supplemental Agreement. The Deferred Payment Scheme allows the Employer to defer payment up to the Maximum Deferred Certified Sum of RM50 million. It also provides for a Payment Term that essentially seeks to pay the Plaintiff only out of the Available Bank Balance in the Employer’s Housing Development Account.

Following the Supplemental Agreement, 4 guarantees were executed by the Defendants in the Plaintiff’s favour, essentially on the same terms.

There was a 2nd Supplemental Agreement signed between the Employer, PMC and the Plaintiff on 17.7.2020.

Disputes arose between the Employer and the Plaintiff resulting in the termination of the Plaintiff. The Plaintiff thereafter mounted an adjudication claim against the Employer for payment due under 25 payment certificates to the sum of RM56,691,243.81 (including retention sums). The amount due under the payment certificates excluding retention sum was RM51,022,119.43.

During adjudication, the Plaintiff also argued that the Payment Term was void for breach of s 35 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”).

The adjudicator found in favour of the Plaintiff, and ordered the Employer to pay, inter alia, RM51,022,119.43 certified sum to the Plaintiff 4 Findings of the Court

It is essential to note that the Adjudicator had in the AD found that the Employer, the 1st Defendant herein (D1) was to inter alia pay the sum of RM51,022,119.43 certified sum to the Plaintiff and that the Plaintiff is now demanding from D2 to D4 as the Guarantors, that the said sum be paid to the Plaintiff.

From a reading of the said Guarantees it is expressly mentioned at clause 1 therein that the said Guarantees were: “In consideration of the granting of the Deferred Payment Scheme under the Supplemental Agreement … and further agrees to indemnify the Contractor against all losses, damages, costs and expenses…”

The Guarantees also contain the following clauses which I find are material for the purpose of this Court’s decision being:- Clause 5 This Guarantee shall be a continuing guarantee for all obligations, commitments, undertakings, warranties, indemnities and covenants under or pursuant to the Contracts and shall extend to cover any sum or sums of money which shall constitute to be an amount due from the Guarantor as a result of the non performance of default of the Developer…of the terms of the Contracts” 5 Clause 7 This Guarantee.. shall in all respects and for all purposes be biding and operative until discharge by performance thereof and payment of the monies owing under the Guarantee” Clause 14 Between the Guarantor and the Contractor, the Guarantor shall be deemed to be principal debtors for all the moneys and payment of which is hereby guaranteed… nor shall the Guarantor’s liability be affected by reason of the fact that the transaction affecting the money’s hereby secured is void, voidable or unenforceable for any reason whatsoever” Clause 16 If at any time any provision herein is or becomes illegal, invalid or unenforceable in any respect, the remaining provisions herein shall in no way be affected or impaired thereby and this Guarantee shall remain valid and enforceable and binding against the Guarantor”

I have also noted that the Plaintiff had in the Adjudication Proceedings also taken the position that the Deferred Payment Scheme was null and void as per enclosure 31 paragraphs 8 to 11, and proceeded to register the AD. I agree with learned counsel for the Defendants that the doctrine of estoppel will apply here to prevent the Plaintiff’s from asserting a contrary and inconsistent position taken at the Adjudication Proceedings. Authority for this can be found in the Court of Appeal decision of Peguam Negara Malaysia v Nurul Izzah bt Anwar & Ors [2017] MLJU 273. 6

I find that the consideration mentioned in the said Guarantees are premised and expressed to be based on the Deferred Payment Scheme granted under the Supplemental Agreement. It is clear that a Deferred Payment Scheme under section 35 of the Construction Industry Payment and Adjudication Act 2012 (CIPAA) is void. The said section provides:

(a) the obligation of one party to make payment is conditional upon that party having received payment from a third party; or

(b) the obligation of one party to make payment is conditional upon the availability of funds or drawdown of financing facilities of that party.

It is also provided under sections 24(a) and 25 of the Contracts Act 1950 that:- section 24(a) The consideration or object of an agreement is lawful, unless :

(a) it is forbidden by a law; section 25 If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void. 7

Based on the above provisions i.e section 35 CIPAA and sections 24(a) and 25 of the Contracts Act when read together, I hold that the Guarantees are founded on a consideration which is forbidden by law i.e the Deferred Payment Scheme and thus the Guarantees are null and void. Authority for this can also be found in the Federal Court case of Sababumi (Sandakan) v Datuk Yap Pak Leong [1998] 3

Accordingly, as I have held that the Guarantees are void, no legal obligation can flow from the said Guarantees and thus the contention that the Guarantors i.e D2 to D4 are principal debtors cannot arise thereto as the base of, or to put it in other words, the consideration on which the Guarantees are founded is illegal /forbidden by law. I rely on Jupiters Ltd (trading as Conrad International Treasury Casino) v Gan Kok Beng & Anor [2007] 7 MLJ 228 where Vincent Ng J (as he then was) held: “(i) When a contract is made void by a statute, no right or obligation can arise from it. It is deprived of all legal force. It is a nudum factum. It cannot be sued upon. The pretended contract is no contract at all. No subsequent right can be founded on it. Something [2007] 7 MLJ 228 at 240cannot spring from nothing. See Swan v Bank of Scotland (a case on the Stamp Act) (1836) 10 Blight NS 627; 6 ER 231, Cowern v Nield [1912] 2 KB 419 (contract void under Infants Relief Act), and John Edwards & Co v Motor Union Insurance Co Ltd [1922] 2 KB 249. The following statement by Gillard J in Sharp v Ellis; Re Edward Love & Co Pty Ltd (1971) 20 FLR 199 at p.205 embodies the first principle on a void contract. 8 If the original agreement were rendered null and void by the existing law and one party performed his part of the illusory bargain, such performance would be without any contractual significance whatever and no right or remedy, either expressly or impliedly, would arise from that performance in his favour.

Thus, the fact that the term “guarantee’ as per the said Guarantees incorporates the indemnity agreement does not in my view make the indemnity therein any more valid. The said ‘indemnity’, although a distinct and independant obligation, is still relying on the same 9 consideration which is forbidden by law as per the Guarantees themselves i.e the Deferred Payment Scheme and thus the Indemnities are also null and void. The Guarantees are therefore devoid of any legal force.

The fact that the Plaintiff has suffered loss to the amount adjudicated as the Plaintiff had financed the entire RM50 million under the Deferred Payment Scheme, is with respect, irrelevant to the issue when the Guarantees are themselves held to be void. In this respect I have also considered the learned Plaintiff’s counsel’s argument that the Guarantee should be construed in a way that makes commercial sense and/or that the Defendants have waived their rights to challenge the Guarantees but I find that these arguments are untenable in light of the Guarantees themselves being void for the reasons mentioned above.

I also find from the facts that the Guarantees were entered into pursuant to the Supplemental Agreement which was based on the Letter of Award dated 8.3.2019 (LOA) and which contained and referred to the Deferred Payment Scheme as per clause 8 of the LOA and clause 2.1 and 4 of the Supplemental Agreement respectively. I further find that the Learned Adjudicator had ruled on the same and found that the said Deferred Payment Scheme to be void as seen in paragraph 12.1 the AD found in enclosure 30.

In the circumstances, this Court holds that as the said Deferred Payment Scheme in the LOA , the Supplemental Agreement and/or the Guarantees are void due to the consideration which is forbidden by law, no action can arise thereto from the Guarantees. See 10 Yeoman Credit Ltd v Latter (1961) 1 WLR 828 and Fulcrum Capital Sdn Bhd v Dato Samsudin Abu Hassan [2000] MLJU 610 which had relied on the former case wherein Holroyd Pearce LJ was quoted to have stated: "Since a guarantee is by definition an obligation to answer for the debt, default or miscarriage of another, there cannot, in respect of a void contract, be any debt, default or miscarriage to answer for."

I am therefore answering the questions posed in Enclosure 29 as follows:-

(i) as to prayer 1 (a), the answer is in the negative i.e the Guarantees are not valid and enforceable