Granstep Development Sdn Bhd v Tan Chong Heng & 4 Lagi (WA-222-116-11/2020)

LEE TIEN LIT DEFENDANTS GROUNDS OF DECISION 2 Introduction [1] These are cross applications for summary judgment and disposal of case on point of law in relation to the enforcement of a guarantee/ indemnity for the carrying out of construction works. [2] The Plaintiff is a private limited company involved in the business of housing development. [3] The First to Fourth Defendants are individuals and directors of Tan Chong Heng Construction Sdn Bhd (“Contractor”). [4] The Fifth Defendant is also an individual and the project manager of the Contractor. Background and Preliminary [5] The Plaintiff is the developer of the project known as “Cadangan Membina dan Menyiapkan Pembangunan Rumah (Skim 3) Yang Mengandungi: A, 28 Unit Rumah Berkembar 3 Tingkat (50’ x 70’), I, Type A, A1, A2 & A3 di Atas PT 15855 – PT 15868, II, Type B, B1, B2 & B3 di Atas PT 15922 – PT 15935, B, 13 Unit Rumah Teres Superlink 3 Tingkat Type D, D1, D2 & D3 di Atas PT 15896 – PT 15908 (22’ x 70’), C, 39 Unit 3 Rumah Teres Superlink 3 Tingkat Type C, C1, C2, C3, C4 & C5 di Atas PT 15869 – PT 15894 dan PT 15909 – PT15921 (24’ x 70’), D, 1 Unit Pondok Pengawal Bagi Messrs Granstep Development Sdn Bhd” (“Project”). [6] By a letter of award dated 8 February 2018 (“Contract”), the Plaintiff appointed the Contractor to carry out and complete the Project at the contract sum of RM51,911,000.00. [7] During the carrying out of the Project, there were delays encountered by the Contractor. Despite of extension of time granted, the Contractor failed to complete the Project by the extended time. [8] Thus, the Plaintiff on 1 September 2019 procured a performance guarantee (“Guarantee”) from each of the Defendants respectively on the same terms in consideration of the Plaintiff paying the Contractor in accordance with the Contract and the advances given to the Contractor. The Guarantee provided by the First Defendant is reproduced below as representative sample: 4 5 6 [9] Subsequently the Plaintiff’s architect on 12 November 2019 issued a notice of default to the Contractor for breach of contract pursuant to clause 25.1 (b), (c) and (d) of the conditions of the Contract. [10] In consequence, the Plaintiff on 29 November 2019 determined the Contractor’s employment under the Contract and thereafter on 16 January 2020 appointed a new contractor to complete the uncompleted Project. [11] The Plaintiff claimed to have suffered loss and damage due to breach of contract on the part of the Contractor which resulted in the determination of the employment of the Contractor under the Contract. [12] By reason of the same, the Plaintiff hence on 10 August 2020 demanded the sum of RM7,800,000.00 from each and every of the Defendants pursuant to the Guarantee. [13] However, the Defendants failed, refused or neglected to pay the Plaintiff as so demanded and the Plaintiff on 17 November 2020 instituted this suit. [14] The Plaintiff thereafter on 2 March 2021 filed its application pursuant to Order 14 of the Rules of Court 2012 (“RC”) (“O14 Application”) praying for the following: 7

that a summary judgment be entered against the 1st to the 5th Defendants; and

(ii) that the 1st to 5th Defendants be jointly and/or severally liable to pay to the Plaintiff:

the sum of RM7,800,00.00;

pre-judgment interest at the rate 5% per annum on the sum of RM7,800,000.00 from the date of filing of Writ until the date of the judgment;

post-judgment interest at the rate 5% per annum on the sum of RM7,800,000.00 from the judgment until full and final realisation of judgment sum;

the costs of the proceedings, including the cost of this O14 Application; and

such further and other relief as this Honourable Court may deem fit and just. [15] The affidavits which were filed for purposes of the O14 Application are as follows:

Plaintiff’s affidavit in support affirmed by Tan Peng Soon dated 2

(ii) Defendants’ affidavit in reply affirmed by Tan Soon Lin dated 26 March 2021;

(iii) Plaintiff’s affidavit in reply affirmed by Tan Peng Soon dated 12 April 2021; and

(iv) Defendants’ further affidavit affirmed by Tan Soon Lin dated 22 April 2021. 8 [16] Subsequently, the Defendants on 26 March 2021 filed their application pursuant to O14A of the RC12 (“O14A Application”) praying for the following:

Bahawa Mahkamah yang Mulia ini memutuskan persoalan undang-undang di bawah dengan pentafsiran “Performance Guarantee-Performance Guarantee” semuanya bertarikh 1/9/2019 yang diberikan oleh Defendan-Defendan sebagai penjamin kepada Plaintif iaitu:

Sama ada “Performance Guarantee-Performance Guarantee” tersebut adalah suatu Bon Perlaksanaan (Performance Bond) atau suatu

Sama ada “Performance Guarantee-Performance Guarantee” tersebut adalah tidak bersyarat (unconditional) atau bersyarat (conditional);

Sama ada adalah perlu untuk Plaintif memperolehi suatu penghakiman, perintah atau awad terhadap kontraktor utama Tan Chong Heng Construction Sdn Bhd (TCHSB) yang memutuskan bahawa TCHSB telah memungkiri Perjanjian No: JOS/KL/GDSB/1701/S3/MBW bertarikh 25/5/2018 di antara TCHSB dan Plaintif sebelum membuat apa-apa tuntutan terhadap Defendan-Defendan di bawah “Performance Guarantee-Performance Guarantee” tersebut. [17] The Affidavits which were filed for purposes of the O14A Application are as follows:

Defendants’ affidavit in support affirmed by Tan Soon Lin dated 26

(ii) Plaintiff’s affidavit in reply affirmed by Tan Peng Soon dated 12 April 2021; and

(iii) Defendants’ affidavit in replay affirmed by Tan Soon Lin dated 22 April 2021. 9 [18] Both the O14 Application and O14A Application were fixed before me for hearing on 20 May 2021 and 22 June 2021. I decided to hear both of them together. After having read the written submissions of the parties and heard oral arguments of counsel, I deferred my decision to deliberate on the arguments put forth by them. [19] Now having done so, I hereby furnish my decision below with the supporting grounds. Contentions and Findings [20] The Plaintiff basically contended that its O14 Application for summary judgment ought to be given upon the true construction of the Guarantee particularly with clauses 1(a), (b) and (c), 2 and 3 read together based on principles of construction of legal documents as held by Zainun Ali FCJ in SPM Membrane Switch Sdn Bhd v Kerajaan Negeri Selangor [2016] 1 MLJ 464: “[27] In recent times, the restatement of principles in the landmark case of Investors Compensation Scheme Ltd v. West Bromwich Building Society[1998] 1 WLR 896, 912-913 "(ICS)" provides a helpful starting point for the consideration of the relevant principles. The judgment of Lord Hoffmann is as reproduced below, where His Lordship stated that: ... I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 WLR 1381, 1384-1386 and Reardon Smith Line Ltd v. Yngvar Hansen-Tangen[1976] 1 WLR 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious 10 utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of 'legal' interpretation has been discarded. The principles may be summarised as follows:

Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

The background was famously referred to by Lord Wilberforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v. Eagle Star Life Assurance Co Ltd [1995] 1 WLR 1 508.

The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v. Salen Rederierna AB [1985] AC 191, 201: If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to conclusion that flouts business common sense, it must be made to yield to business common sense. [28] However, there are reservations to a wholesale adoption and approval of the ICS principles. The applicability of the ICS principle, specially vis-à-vis the question of rectification of contracts, is doubted. This has been alluded to in the recent judgment of this court in Menta Construction Sdn Bhd v. Lestari Puchong Sdn Bhd [2015] 8 CLJ 1117 for reasons that we will not repeat here. Save for this reservation, the remaining ICS principles, for avoidance of doubt, where it does not concern rectification - are good law. … 11 [34] Where the natural meaning of the contract is not clear and in the particular absence of words to the effect mentioned above, the principles in ICS in their qualified form (see [28] which qualifies its application vis-à-vis rectification), remain applicable and relevant to the construction of the construct such as to enable the court to objectively determine "the meaning which the contract would convey to a reasonable person having all the background knowledge... available to the parties. [35] The principles of Lord Hoffmann were summarised in Berjaya Times Square Sdn Bhd v. M-Concept Sdn Bhd [2010] 1 CLJ 269; [2010] 1 MLJ 597 at p. 296 CLJ; [42] 620G (MLJ). Gopal Sri Ram FCJ, who delivered the leading judgment of the court stated: Here it is important to bear in mind that a contract is to be interpreted in accordance with the following guidelines. First, a court interpreting a private contract is not confined to the four corners of the document. It is entitled to look at the factual matrix which forms the background to the transaction. Second, the factual matrix which forms the background to the transaction includes all material that was reasonably available to the parties. Third, the interpreting court must disregard any part of the background that is declaratory of subjective intent only. Lastly, the court should adopt an objective approach when interpreting a private contract. (emphasis added) [36] This objective approach to interpretation is the "ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation which they were at the time of the contract." (K. Lewison, The Interpretation of Contracts(5th edn, 2011), Sweet and Maxwell, at 1.03). … [41] Thus in addition to the above in interpreting the contract, the court must approach it holistically. No term is to be taken or interpreted in isolation. This canon of construction is so long established, it is almost banal. See for instance Chamber Colliery Ltd v. Twyerould [1893] [1915] 1 Ch 268 (Note): ... the application of the well-known (sic) rule that a deed ought to be read as a whole, in order to ascertain the true meaning of its several clauses; and that the words of each clause should be so interpreted as to bring them into harmony with the other provisions of the deed, if that interpretation does no violence to the meaning of which they are naturally susceptible.” [21] Furthermore, the Plaintiff emphasized that the Guarantee is enforceable simpliciter unconditionally by a mere demand just as in performance bonds as trite in the cases of China Airlines Ltd v Maltran Air Corp Sdn Bhd (formerly known as Maltran Air Services Corp Sdn Bhd) and Another Appeal [1996] 2 MLJ 517 FC, Karya Lagenda Sdn Bhd v Kejuruteraan Bintai Kindenko Sdn Bhd & Anor [2007] 6 MLJ 12 72 FC, LEC Contractors Sdn Bhd (formerly known as Lotteworld Engineering & Construction Sdn Bhd) v Castle Inn Sdn Bhd [2000] 3 MLJ 339 CA, Cygal Bhd v Bandar Subang Sdn Bhd [2004] 3 CLJ 67 CA, HSH Engineering & Construction Sdn Bhd v Belton Properties Sdn Bhd & Anor [2001] 2 CLJ 186, Suharta Development Sdn Bhd v United Overseas Bank Bhd & Anor [2005] 2 MLJ 762, Focal Asia Sdn Bhd & Anor v Raja Noraini Binti Datuk Raja Nong Chik & Anor [2009] 1 LNS 913, Yorker Sdn Bhd v PT Mayora Indah [2014] 9 MLJ 591 and SK Akmida Holdings Sdn Bhd v Ahmad Zaki Sdn Bhd [2020] 9 MLJ

[22] However and in opposition, the Defendants raised a preliminary objection and contended that the Plaintiff’s O14 Application should be dismissed in limine because it was made late after the entry of the Defendants’ defence. [23] Furthermore, the Defendants contended that there are plainly triable issues which would defeat the summary judgment application, viz:

the Guarantee is conditional and the Plaintiff must prove default by the Contractor under the Contract, otherwise the Plaintiff’s claim and institution of this suit is premature;

(ii) the Guarantee has been executed by the Defendants under duress; and 13

(iii) the Plaintiff’s claim under the Guarantee in unconscionable and a form of unjust enrichment. I noted that the first of the aforementioned alleged triable issues is also the main plank of the Defendants’ O14A Application. [24] The law on summary judgment is settled and it suffices for me to refer to the case of Chempaka Finance Bhd v Ho Lai Ying (trading as KH Trading) & Anor [2006] 2 MLJ 685 FC where Steve Shim (CJ (Sabah & Sarawak)) held as follows with emphasis added: “In an application under O. 14, the burden is on the plaintiff to establish the following conditions: that the defendant must have entered appearance; that the statement of claim must have been served on the defendant; that the affidavit in support must comply with r. 2 of O. 14 in that it must verify the facts on which the claim is based and must state the deponent's belief that there is no defence to the claim. (See Supreme Leasing Sdn Bhd v. Dior Enterprises & Ors [1989] 1 LNS 144; [1990] 2 MLJ 36.) Once those conditions are fulfilled, the burden then shifts to the defendant to raise triable issues. The law on this is trite…” as well as the case of Bank Negara Malaysia v Mohd Ismail Ali Johor & Ors [1992] 1 CLJ 627 SC where Mohd Azmi SCJ held as follows with emphasis added: “Under an O. 14 application, the duty of a Judge does not end as soon as a fact is asserted by one party, and denied or disputed by the other on affidavit. Where such assertion, denial or dispute is equivocal, or lacking in precision or is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable in itself, then the Judge has a duty to reject such assertion or denial, thereby rendering the issue as not triable. In our opinion, unless this principle is adhered to, a Judge is in no position to exercise his discretion judicially under an O. application. Thus, apart from identifying the issues of fact or law, the Court must go one step 14 further and determine whether they are triable. This principle is sometimes expressed by the statement that a complete defence need not be shown. The defence set up need only show that there is a triable issue. Where the issue raised is solely a question of law without reference to any facts or where the facts are clear and undisputed, the Court should exercise its duty under O.

If the legal point is understood and the Court is satisfied that it is unarguable, the Court is not prevented from granting a summary judgment, merely because " the question of law is at first blush of some complexity and therefore takes a little longer to understand". (See Cow v. Casey [1949] AER 197; and European Asian Bank AG v. Punjab & Sind Bank [1983] 2 AER 508 at 516).” [25] As for the law on preliminary point of law, Mohd Noor Ahmad JCA held as follows in Petroleum Nasional Bhd v Kerajaan Negeri Terengganu & Another Appeal [2003] 5 AMR 669 CA with emphasis added: “In a nutshell, the Order enables the court to determine any question of law or construction of document where it appears to the court that such question is suitable for determination without the full trial of the action and such determination will finally determine the entire cause or matter or any claim or issue therein. The Order is new to our civil procedure and hence, the few local decisions of the High Court on the ambit of Order 14A are not instructive. For that reason, we are inclined to refer to foreign cases decided on the equivalent of our Order 14A. In Korso Finance Establishment Anstalt v. John Wedge (unreported, February 15 1994, CA Transcript No 14/387), the English Court of Appeal laid down the following principles on the ambit of Order 14A:-

An issue is "a disputed point of fact or law relied on by way of claim or defence".

A question of construction is well capable of constituting an issue.

If a question of construction will finally determine whether an important issue is suitable for determination under Order 14A and where it is a dominant feature of the case a court ought to proceed to so determine such issue.

Respondents to an application under Order 14A are not entitled to contend they should be allowed to hunt around for evidence or something that might turn up on discovery which could be relied upon to explain or modify the meaning of the relevant document. If these were material circumstances of which the court should take account in construing the document, they must be taken to have been known, and could only be such as were known, to the parties when the agreement was made. In the absence of such evidence the court should not refrain from dealing with the application. (see The Supreme Court Practice 1999, vol 1, paragraph 14A/2/5). In the same case it was held:- 15 In my judgment the question of construction is well capable of constituting an issue in the cause or matter. An issue may be said to be a disputed point of fact or law relied on by way of claim or defence. In the present case the determination of the question of construction one way or the other will finally determine an important issue, namely whether the respondents are primarily liable under the agreement. If the determination is in favour of the appellant it will finally determine the entire matter… The whole case does not have to be disposed of. It is sufficient if substantial matters can be disposed of. The real question in this case at the end and really crucial one it seems to me is: will the court be able to dispose of the case or the major part of the case or the most significant issue in the case under Order 14A dealing with the matter today.” [26] First and foremost, it is apt that I deal with the Defendants’ preliminary objection that the Plaintiff’s O14 Application was filed late after the Defendants’ defence had been filed and served. In Perkapalan Shamelin Jaya Sdn Bhd & Anor v Alpine Bulk Transport New York [1998] 1 CLJ 424 CA, Gopal Sri Ram JCA (later FCJ) held as follows with emphasis added: “In Ng Hee Thoong & Anor V. Public Bank Bhd [2000] 1 CLJ 503 this court reversed the High Court and granted leave to defend principally on the ground that the issue whether a valid demand had been made of the defendants in that case was plainly arguable. This court also took into account the fact that the plaintiff in that case had remained inactive for more than a year and then moved for summary judgment without giving notice of intention to proceed under the relevant provision of the Rules. When properly understood, there is nothing in Ng Hee Thoong & Anor v Public Bank Bhd [2000] 1 CLJ 503 case to suggest that an application for summary judgment may be defeated solely on the ground that there has been a delay in moving the court. Such a proposition runs counter to the interests of justice. For delay can surely provide no answer to an application made under O. 14 where there are no bona fide triable issues. We therefore take this opportunity to declare the absence of the proposition contended for by counsel. In our judgment, authority that is plainly against the appellants concludes the point taken by counsel. We have in mind, of course, the judgment of Raja Azlan Shah J (as he then was) in Comptroller General of Inland Revenue, Malaysia v. Weng Lok Mining Co Ltd [1969] 1 LNS 32[1969] 2 MLJ 98. His Lordship in granting a summons for judgment taken out about three months after appearance had been entered to the writ applied the following passage in the judgment of Baron Pollock in McLardy v. Slateum (1890) 24 QBD 504, 506: 16 The view taken by other judges, and by the masters, is that the intention of O. 14 r. 1 was that the plaintiff should apply within a reasonable time after the appearance of the defendant, but that it very often happens that a defence, which has been delivered, itself discloses facts which make an application under O. 14 right and proper. We think that this is the proper construction of the rule... Although the primary intention of the rule may be that an application should be made before a defence has been delivered in the ordinary course, yet we think that it is not in all cases compulsory. Therefore our judgment upon this point of law and practice is that a plaintiff is not necessarily too late in making his application under O. 14 r. 1 because a defence has been delivered... If a plaintiff makes his application after the ordinary time, the onus is on him to shew that the delay is justifiable under the special circumstances of the case.” See also Government of Malaysia v Takasima Industries (M) Sdn Bhd & Ors [2018] 10 MLJ 458. [27] In the premises, the Defendants’ preliminary objection to the O14 Application is overruled. [28] Moving on, I discern the Defendants’ first alleged triable issue is that in respect of the nature of the Guarantee as to whether it is a conditional guarantee that required proof of default or otherwise an unconditional guarantee. I find that this is essentially a pure question or issue of construction of the Guarantee. [29] In Malayan Insurance (M) Sdn Bhd v Asia Hotal Sdn Bhd [1987] 1 CLJ 246 SC, Hashim Yeop Sani SCJ (later CJ (Malaya)) held as follows with emphasis added: “What is involved in the present appeal is the other principle considered in European Asian Bank by Goff LJ (as he then was) that is, what happens when a legal issue is raised by the defence in an O. 14 application. In this regard several principles are 17 involved. Firstly, the Court hearing an O. 14 application should work within the framework of O. 14 and not to embark in an exercise under O. 33 r. 2 which empowers the Court to determine any question or issue arising in a cause or matter whether of fact or law or partly of fact or partly of law before trial of the cause or matter. Order 33 r. 2 is entirely for a different purpose. Secondly, where the issue raised is solely a question of law pure and simple without reference to any facts or where the facts are clear and undisputed the Court should exercise its duty under O. 14 as in any other cases and decide on the question of law. This is so even if the issue of law raised is a difficult one. If the Court after considering the argument is satisfied that it is really unarguable then the Court should grant summary judgment.” [30] Nonetheless, it must be appreciated that the Malayan Insurance (M) Sdn Bhd case was decided based on the then Rules of the High Court 1980 before the amendment to add Order 14A into the rules. [31] In the present circumstances here in light of both O14 Application as well as the O14A Application fixed before me, I am therefore empowered to either grant summary judgment or summarily dismiss the suit depending on my construction of the Guarantee based on the parties’ contentions. In addition, I have carefully reviewed the questions posed in the O14A Application and I am satisfied that they are fit and proper to be so determined as preliminary points of law. [32] It is not in dispute amongst the parties that the Contractor’s liability to the Plaintiff under the Contract has not been determined conclusively in a court of law or arbitration. [33] From the contentions of the parties, it is thus necessary to determine as a matter of law whether the Guarantee is in nature a contract of 18 suretyship defined in s. 77 to 100 of the Contracts Act 1950; particularly whether it is payable on demand akin to that of a performance bond. [34] In the English court of appeal case of Marubeni Hong Kong and South China Limited v The Mongolian Government [2005] 1 WLR 1497, Carnwath LJ held as follows with emphasis added: “The MMOF Letter

The material parts of the letter are in the following terms: "To: MARUBENI HONG KONG LTD In consideration of you entering into the Deferred Payment Sales Contract No 258500 (hereinafter called the "agreement") with Buyan Holding Company Ltd, a corporation duly organized and existing under the laws of Mongolia, with its principal office at I- 4000-68-4 Ulaanbaatar, Mongolia (hereinafter called the "Buyer") for sales and purchase of a textile plant the contact (sic) price of which is United States Dollars Eighteen Million Eight Hundred Eleven Thousand Six Hundred Seventy (USD18,811,670), the undersigned Ministry of Finance of Mongolia unconditionally pledges to pay to you upon your simple demand all amounts payable under the Agreement if not paid when the same becomes due (whether at stated maturity, by acceleration or otherwise) and further pledges the full and timely performance and observance by the Buyer of all the terms and conditions of the Agreement. Further Ministry of Finance undertakes to hold indemnify and hold you harmless from and against any cost and damage which may be incurred by or asserted against you in connection with any obligations of the Buyer to pay any amount under the Agreement when the same becomes due and payable (whether at stated maturity, by acceleration or otherwise) or to perform or observe any term or condition of the Agreement or in connection with any invalidity or unenforceability of or impossibility of performance of any such obligations of the Buyer. This covenant shall come to force from the date of implementation of this agreement and remain in full force and effect until all amounts due to you by the Buyer under the Agreement have been paid in full and all the terms and conditions of the Agreement have been fully performed and observed by the Buyer. 19 The Ministry of Finance hereby waives any right to require you to proceed against the Buyer or against any security received from the Buyer or any third party or to pursue any other remedy available to you…." …

Chitty, Law of Contracts (29th Ed) vol 2 para 44-014 discusses the development of the law of "performance guarantees", starting with Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159: "A number of cases have involved discussion of the nature of 'performance guarantees' which are, in essence, exceptionally stringent contracts of indemnity. They are contractual undertakings, normally granted by banks, to pay or repay, a specified sum in the event of any default in performance by the principal debtor of some other contract with a third party, the creditor. An unusual feature of several modern cases has been that the bank's liability arises on mere demand by the creditor, notwithstanding that it may appear on the evidence that the principal debtor is not in any way in default, or even that the creditor is in default under the principal contract. Such guarantees are sometimes called 'first demand guarantees'. It has been held that performance guarantees of this nature are analogous to a bank's letter of credit…"

Those passages provide the context for discussing the cases relied on by Mr Howard. They show that "demand bonds" (however described) are a specialised form of irrevocable instrument, developed by the banking world for its commercial customers. They have been accepted by the courts as the equivalent of irrevocable letters of credit. As such, they have been described as part of "the lifeblood of commerce"; and, in the words of Donaldson LJ: "Thrombosis will occur if, unless fraud is involved, the courts intervene and thereby disturb the mercantile practice of treating rights thereunder as being the equivalent of cash in hand." (Intraco Limited-v-Notis Shipping Corporation [1981] 2 Lloyd's Rep. 256,257) It cannot be assumed that cases relating to such banking instruments provide any useful guidance when construing guarantees given outside the banking context. The authorities relied on by Mr Howard must be seen in this light. …

Turning to the MMOF Letter, the starting-point in my view is that it is not a banking instrument, and it is not described, either on its face or in the supporting Legal Opinion letter, in terms appropriate to a demand bond or something having similar legal effect. The Legal Opinion describes it as a guarantee. The terminology is not of course conclusive. However, I agree with Cresswell J that, if MHK had wanted the additional security of a demand bond, one would have expected them to have insisted on appropriate language to describe it, in both the instrument itself, and in the Legal Opinion. The absence of such language, in a transaction outside the banking context, creates in my 20 view a strong presumption against MHK's interpretation. (Since the letter did not follow the contractual form, I do not think that Mr Howard can find support in the words of Article 7.1 of the DPS contract.)

The question then becomes whether there are sufficient indications in the wording of the instrument to displace that presumption. Mr Howard relies on the words "unconditionally pledges" and "simple demand". However, they are qualified by the following words, which indicate that the obligation only arises if "the amounts payable under the agreement (are) not paid when the same becomes due". As Cresswell J said, this is wording appropriate to a secondary obligation, that is one conditional upon default by the buyer. It is true that in Esal similar wording was held insufficient to displace the ordinary effect of what was admittedly a performance bond. However, here the starting-point is different, and there is no reason for reading the words in other than their ordinary meaning.

That sense is reinforced by the following pledge of – ".. the full and timely performance and observance by the buyer of all the terms and conditions of the agreement." It is not suggested, as I understand it, that this indicates anything other than a secondary obligation. It is true that the letter also contains a primary obligation, in the form of an indemnity against cost or damage resulting from the buyer's default. However, this does not assist MHK in this case, and there is no reason to treat this as qualifying the ordinary meaning of the earlier part of the letter.

Finally, Mr Howard relies on the clause under which the Government waives "any right" to require MHK to proceed against the buyer, or to pursue any other remedy. He suggests that this indicates the commercial purpose of the instrument, analogous to that of a performance bond, to provide security which is readily and easily realisable. If that was the intention, it seems to me a round-about way of indicating the purpose. In any event, it is at best a neutral indication. In a normal performance bond there would be no need for such a waiver, because there would be no question of the issuing party having any such right. Nor am I impressed by the fact that establishing a default under the main contract may require recourse to Japanese arbitration. Whatever the reasons which led the parties to the respective contracts to choose different systems of law, that by itself cannot in my view be a reason for altering the natural interpretation of the MMOF Letter.

I conclude, therefore, that the judge was correct to reject the submission that the MMOF Letter was to be treated as a demand bond or its equivalent.” 21 [35] Moreover in the subsequent English case of Vossloh Aktiendesellschaft v Alpha Trains (UK) Limited (2010) EWHC 2443 (Ch), Blackburne J held as follows with emphasis added: “28. This brings me to the so-called "performance bond”, sometimes known as a "performance guarantee”, often as a "demand bond” or "demand guarantee” or even as a "first demand guarantee”. In the context of the present dispute I prefer the expression "demand bond”. In essence it is a particularly stringent contract of indemnity. It is a contractual undertaking by a person, usually a bank, to pay a specified amount of money to a third party on the occurrence of a stated event, usually the non-fulfilment of a contractual obligation by the principal to that third party. Sometimes the wording of the contract has the result that the liability of the person who has given the bond arises on mere demand by the creditor, notwithstanding that it may be evident that the principal is not in any way in default or even that the creditor himself is in default under his contract with the principal. It all depends on the wording of the instrument. It is often a difficult question to determine whether, on its true construction, a particular contract which provides for payment on demand is a performance or demand bond (where the obligation to pay is triggered by a demand alone or by a demand accompanied by the provision of specified documents) or whether it is a guarantee (strictly so called) where the obligation to pay is of the "see to it” kind, i.e. conditional on proof by the creditor of default by the principal.” I am nonetheless mindful that there is also the New Zealand case of Quay Park Arena Management Limited v Great Lakes Reinsurance (UK) PLC [2014] NZHC 2204 which held that there is no good reason to restrict strict liability of pay-out to only performance bonds and guarantees issued by financial institutions but I prefer the reasoning set out in the English cases. [36] In the premises and circumstances of this case, I find and hold that the Guarantee here which has not been issued by a financial institution but by the principal officers i.e. the directors of the Contractor and its 22 project manager employee is a guarantee simpliciter subject to the framework of the Contracts Act 1950. But, it is certainly not a performance bond. Consequently the performance bond cases relied upon by the Plaintiff that stressed on the importance of pay-out upon demand due to their special customary status in commerce are unhelpful, if not also irrelevant here; see Esso Petroleum Malaysia Inc v Kago Petroleum Sdn Bhd [1995] 1 CLJ 283 where Peh Swee Chin FCJ held as follows: “… While considering other factors in conjunction with what has been stated above, there was a special one among them, ie. performance bonds of the present sort were involved here. A performance bond, like a pure on-demand guarantee in the instant appeal, has always occupied an important place in the national or international world of commerce. It will be remembered that Lord Diplock in the American Cynamid had alluded to special factors to be taken into consideration in the particular circumstances of individual cases …” In fact, these performance bond cases relied upon by the Plaintiff centred on principles of interlocutory injunctions to restrain pay-out or receipt of monies thereunder. They are not summary judgment cases on pay-out. [37] As the result, this Guarantee must accordingly be construed in the ordinary way on its own wordings based on settled principles of construction of contract without any special status or consideration or status given to it equivalent to a performance bond as seemingly so suggested by the Plaintiff. [38] Upon my scrutiny of the Guarantee, I however find that it is unclear whether pay-out thereunder is unconditional on a mere demand or conditional upon proof of default of the Contractor and/or proof of loss and 23 damage incurred by the Plaintiff. In this regard, I find and hold that there are ambiguities and inconsistencies, viz.:

clause 1(b) particularly the emphasized phrase “If the Contractor defaults in any manner whatsoever in due and proper performance of the Agreement, or commits any breach of the provisions thereof, or any of the duties abovementioned, the Guarantor, shall pay to the Company on demand the sum of Ringgit Malaysia Seven Million and Eight Hundred Thousand (RM7,800,000.00) to the Company” and clause 3 particularly the emphasized phrase “The Guarantor shall forthwith pay the sum of Ringgit Malaysia Seven Million and Eight Hundred Thousand (RM7,800,000.00) whether there are any legal suits or dispute between the Company and the Contractor and the Guarantor shall not be entitled to request for any proof of default by the Contractor and shall pay immediate upon demand the above said Guaranteed

(ii) clause 1(c) in the emphasized phrase “This Guarantee shall be the primary obligation of the Guarantor and accordingly the Guarantor shall not be obliged before enforcing this Guarantee to take any action in court,…” in contrast with s.79 of the Contracts Act 1950 as interpreted recently in Bank Pembangunan Malaysia Bhd v Spring Hill Bioventures Sdn Bhd [2020] 4 CLJ 15 CA where Suraya Othman JCA held as follows with emphasis added: “[32] Under a contract of guarantee, there must be three parties involved: the surety, principal debtor/borrower and the creditor. A contract of guarantee is therefore an undertaking to guarantee the obligations of a named principal. In this regard, a 24 contract of guarantee is essentially a collateral contract by which a guarantor/surety undertakes to answer for the default of the principal debtor/borrower who is to be primarily liable to the creditor. The guarantor therefore only owes a secondary obligation to the creditor to make good the particular defaults of the principal debtor. (see the cases of South East Asia Insurance Bhd v. Nasir Ibrahim [1992] 4 CLJ 1801; [1992] 1 CLJ (Rep) 295; [1992] 2 MLJ 355 and Yeoman Credit Ltd v. Latter & Anor [1961] 2 All ER 294).”;

(iii) clause 1(d) which reads “The Guarantor shall indemnify and hold the Company harmless from and against any and all losses and expenses, of whatsoever nature (including, without limitation, all legal fees and expenses), in the event the Contractor fails to fulfill any of the conditions, terms and obligations under the Agreement.” compared with the aforesaid clauses 1(b) and 3 of the Guarantee. [39] As far as the genesis of the Guarantee in the matrix of fact is concerned, it is plain that the Guarantee was not entered into concomitant with the Contract but much later after the Contract was allegedly underperformed according to the Plaintiff. This seem to have resulted in the Defendants agreeing with the Plaintiff to give a guaranteed stipulated sum of RM7,800,000.00 akin to liquidated and ascertained damages payable upon demand (“Plaintiff’s Intention”) as seen in clauses 1(b) and 3 of the Guarantee. The Defendants might however have agreed to give an indemnity based on the actual loss and damages sustained by the Plaintiff instead (“Defendants’ Intention”) as seen in clauses 1(c) and 1(d) of the Guarantee. Nonetheless, the provisions in the Guarantee are not harmonious when read together as a whole and interpreted objectively whether to give effect to the Plaintiff’s Intentions or Defendants’ Intention. They cannot, in my judgement, be wholly reconciled especially whether 25 the Guarantee is a guarantee or indemnity within the meaning assigned by the Contracts Act 1950. [40] In the case of Malaysia Motor Insurance Pool v Teirumeniyar Sinagara Vello [2019] 10 CLJ 731 FC, Alizatul Khair Osman FCJ held as follows with emphasis added: “[98] Coming to the contra proferentum rule, it provides that where a term is ambiguous, such ambiguity ought to be construed against the party who prepared it. In general contracts, common law courts have been quick to apply against 'unfair terms' like exclusion or exemption clauses. But the rule sees particular application in insurance contracts. This point is aptly summarised in MacGillivray on Insurance Law (12th edn), at pp. 317-318: The common law rule of construction, that verba chartarum forties accipiuntur contra proferentum, means that ambiguity in the wording in a policy, or slip, is to be resolved against the party who prepared it. It has been said that a party who proffers an instrument cannot be permitted to use ambiguous words in the hopes that the other party understand them in a particular sense and that the court which has to construe them will give them a different meaning, but the ambiguity usually arises inadvertently from including conflicting standard printed clauses in the same policy.” [41] Thus in Concrete Engineering Products Berhad v Greengroup Engineeering Sdn Bhd & Anor [2018] MLRU 1542 Lee Swee Seng J (now JCA) held as follows with emphasis added: “[92] Even if for a moment it may be argued that the operative clause and the qualifying clause of the LU is unclear as to the right to set off with respect to payments made on behalf of D1 by D2 and thus the outstanding sum is to be hived off and excised for such a payment on behalf of D1 for materials purchased, one must then fall back on the contra proferentem rule in that a 26 document is interpreted against the party that had produced it in the event of ambiguity or uncertainty. [93] It is to be expected that D2 would take care of their own interests and would have so stipulated it if it was intended that the LU is to be subject to a set-off in respect of purchase of materials on behalf of D1 whether from the plaintiff or any other suppliers. [94] The same applies with equal force to D1 who had agreed to the LU to be worded in its present form, that they too would have insisted on the inclusion of a term in the LU if it was intended that the LU be subject to payments also to their other suppliers and/or sub-contractors. [95] It is only reasonable that the failure of D2 (or for that matter, D1 who agreed to it) to reserve any right of deductions to make 3rd party payments or self-payments from the interim certificate monies, should be held against them. [96] It is reasonable and natural to assume that a commercial party like D2 that put forward a document where they assume a liability would look after their own interests. It was observed by Lord Mustill in Tam Wing Chuen v. Bank of Credit & Commerce Hong Kong Ltd. [1996] 2 BCLC 69 at page 77, para b as follows: "... the basis of the contra proferentem principle is that a person who puts forward the wording of a proposed agreement may be assumed to have looked after his own interests, so that if the words leave room for doubt about whether he is intended to have a particular benefit there is reason to suppose that he is not."(emphasis added)” See also Gan Kee Earthworks Sdn Bhd v Lim Ee Kheng (2019) MLRHU 1511. [42] At this juncture, it is plain and obvious that the Defendants’ first alleged triable issue is indeed arguable and thus triable that renders the O14 Application unsustainable. That notwithstanding and since there is the O14A Application as well on the same issue, I will also proceed to answer this issue because it is a neat and pure point of law involving the 27 construction of the Guarantee that does not require resolving disputed facts in a trial. [43] In light of the ambiguous irreconcilable provisions in the Guarantee, this is, in my judgement, an appropriate instance to apply the contra proferentum principle to answer the issue. It is never in dispute that the Guarantee has been drawn up by an advocate and solicitor appointed by the Plaintiff. [44] The Plaintiff wishes the Guarantee construed as a guarantee payable forthwith on demand of the sum of the sum of RM7,800,000.00 without any requirement of the Plaintiff to prove prior default of the Contractor under the Contract but the Defendants insisted that it is subject to proof of default of the Contractor under the Contract by the Plaintiff. There is the clash between the enforcement of the Plaintiff’s Intention or the Defendants’ Intention. [45] In my further judgement, the Guarantee may be construed in favour of the Plaintiff as a demand guarantee if it is solely based on the provisions in clause 3 and possibly even with clause 1(b) read together. However, this is not so. By reason of the additional provisions of clause 1(c) and 1(d) read together which irreconcilably conflict with clause 3, this Guarantee must be construed contra proferentum as an indemnity in favour of the Defendants. Being an indemnity, I find and hold that the Plaintiff must prove default on the part of the Contractor as well as its loss and damage sustained as the result of the default as plainly provided in clause 1(d) of the Guarantee. In other words, it is not for the Plaintiff to 28 claim for the sum of RM7,800,000.00 simpliciter without proof notwithstanding this might have been the Plaintiff’s desire to do so. I am aware the Plaintiff also relied on clause 2 of the Guarantee but that is of no assistance to the Plaintiff because it strictly concerns any other rights and remedies between the Plaintiff and the Contractor under the Contract only but not between the Plaintiff and the Defendants. [46] It therefore follows that the Plaintiff’s cause of action based on the indemnity has not yet accrued unless and until the Contractor is found to be liable to the Plaintiff by a court of law or arbitration and/or the resultant loss or damage suffered by the Plaintiff conclusively assessed too. As the result, this suit has hence been prematurely instituted by the Plaintiff and I so find and hold accordingly. [47] In the premises, it is therefore unnecessary for me to determine the Defendants’ other two alleged triable issues. But for completeness, I will deal with them briefly. [48] One of the two alleged triable issues is that the Guarantee was made under duress which is of course vehemently denied by the Plaintiff. The issue of duress is however a mixed question of fact and law that can only be satisfactorily resolved in a trial. Although it is generally difficult to successfully prove duress even at trial, this cannot be summarily concluded without trial. In Bergamo Development (M) Sdn Bhd v ECK Development Sdn Bhd & Anor [2018] 5 MLRH 337, I found there was actionable economic duress that warranted the setting aside of the settlement agreements after trial. I am mindful of the cases of Perlis 29 Plantations Bhd v Mohamad Abdullah Ang & Anor [1988] 2 CLJ Rep 134 and Ooi Kiah Inn Charles & Anor v Kukuh Maju Industries Sdn Bhd (Formerly Known as Pembinaan Muncul Hebat Sdn Bhd) [1993] 2 MLJ 224 SC where summary judgment was given in spite of the defence of duress raised but the facts therein are, in my view, significantly different and distinguishable. I sensed that there may be economic duress which needs to be investigated here by the nature of the consideration given by the Plaintiff as stated in the Guarantee. That aside, the Defendants have also averred that the Plaintiff has threatened to halt payments to the Contractor or make deductions from the Contractor under the Contract if the Defendants did not execute the Guarantee. The threat must have been made orally and has to be tried. [49] The other of the two alleged triable issues is that the Guarantee is unconscionable and a form of unjust enrichment. This is likewise a mixed question of fact and law that again can only be satisfactorily resolved in a trial. Upon my review of the Guarantee, it seems to me that the Plaintiff might not have given sufficient valuable consideration for the Guarantee as required by s. 26 of the Contracts Act 1950; see also Hanafiah, Raslan, Mohamed & Partners v Weng Lok Mining Co Ltd [1976] 1 MLRH 404. It is provided in the opening of clause 1 of the Guarantee that the Plaintiff’s consideration is by paying the Contractor as per the terms of the Contract and that the Plaintiff has given a loan or advance to the Contractor. Prima facie the given considerations appear to be performance of an existing obligation already assumed by the Plaintiff under the Contract as well as past consideration which may not be good and sufficient consideration; see Williams v Roffey Brothers & Nicholls Contractors Limited [1991] 1 QB 1 and South East Asia Insurance 30 Berhad v Nasir Ibrahim [1992] 2 MLJ 355 SC respectively. There is no doubt that the Plaintiff would be unconscionably or unjustly enriched if its demand is honoured when the Guarantee is bad in law. Conclusion [50] For the foregoing reasons, I hereby dismiss the O14 Application with costs of RM5,000.00 subject to the usual allocator. As for the O14A Application, I answer questions (1)(a) and (b) that the Guarantee is a conditional contract of indemnity and question 1(c) in the affirmative with no order as to costs. Accordingly, this suit is struck off. Dated this 24 August 2021 t.t. LIM CHONG FONG JUDGE CONSTRUCTION COURT 1 HIGH COURT KUALA LUMPUR 31 COUNSEL FOR THE PLAINTIFF: DERRICK OON WEN ZUN (HO JIAN YAU AND NG WENN MEI WITH HIM) SOLICITORS FOR THE PLAINTIFF: NAZREEN OON & PARTNERS COUNSEL FOR THE DEFENDANTS: GANESALINGAM VIJAYARATNAM (RASGITHIRA SIVAJI GANESAN WITH HIM) SOLICITORS FOR THE DEFENDANTS: GANESALINGAM VIJAYARATNAM & AISHA JOTHILINGAM