Huat Hing Rubberwood Sdn Bhd v Goodnite Sdn Bhd & 2 Lg (WA-22NCC-347-08/2017)

GOODNITE SDN BHD (Company No.: 447372-U)

HAMDAN BIN YUSOF (NRIC No.: 750922-10-5849)

GONG YIN MEI (NRIC No.: 700802-74-5088) … DEFENDANTS

This is a claim by a Plaintiff against the 1st Defendant pursuant to a Letter of Guarantee dated 17.4.2012 executed by the 1st Defendant in favour of the Plaintiff. I have dismissed the claim. These are the full reasons for my decision. 2

The trial took place from 1.10.2018 to 3.10.2018.

The relevant cause papers are as follows: a) Bundle of Pleadings b) Statement of Agreed Facts c) Statement of Issues To Be Tried d) Plaintiff’s Summary of Facts e) 1st Defendant’s Summary of Facts f) Common Bundles of Documents g)

The Plaintiff called three witnesses as follows: PW-1 Koh Poh Seng Director of Locus Ace Sdn Bhd, a company engaged in the business of property investment and money lending PW-2 Gan Boon Tian Director of the Plaintiff PW-3 Gan Seow Ling Alternate director of the Plaintiff 3

The 1st Defendant called 6 witnesses as follows: DW-1 Hamdan Bin Yusop Director of the 1st Defendant DW-2 Md Hafis Bin Yusop Director of Second Home Sdn Bhd DW-3 Chong Jee Ming Advocate & Solicitor, practicing as a partner of Messrs JM Chong, Vincent Chee & Co DW-4 Tan Wei Kent Director of the 1st Defendant since 10.11.2017 DW-5 Khoo Chee Keong Finance Manager of the 1st Defendant DW-6 Everlyn Tan Siow Ling Administrative clerk of Second Home Sdn

6.

It was provided in the Investment Agreement that upon the execution thereof, Dato’ Chew shall deposit and release the following documents to the Plaintiff in exchange for the investment sum of RM5 million: a) The transfers duly executed in escrow by Dato’ Chew in favour of the Plaintiff or its nominee in respect of the Investor Shares; and b) The letter of guarantee by the 1st Defendant (a company of which Dato’ Chew was the director and had a controlling interest), guaranteeing the due performance by Dato’ Chew of the terms therein.

Dato’ Chew guaranteed a profit of RM3 million to be paid to the Plaintiff within 12 months from the date of the Investment Agreement.

The investment sum of RM5 million and the Profit Guaranteed of RM 3 million shall be paid by Dato’ Chew to the Plaintiff at the following time and manner: a) RM3 million only within 6 months from the date thereof; and 5 b) The balance of RM5 million within 12 months from the date thereof.

Dato’ Chew covenanted and undertook that he shall register the transfers of the Second Home shares into his name within 45 days from the date of the Investment Agreement and, within 1 month upon complying with the same, he shall forthwith deposit with the Plaintiff’s solicitors M/S Sia Boon Chee & Co the following: a) The share certificates of the Investor Shares; b) The undated resolutions of Second Home duly executed in escrow to sell 16 units of the properties mentioned in Appendix B to the Plaintiff or its nominee(s) at the purchase price stated therein; c) To cause Second Home to grant a Power of Attorney to the Plaintiff to sell or transfer the 16 units of properties; d) To execute and/or cause Second Home to execute or conduct any meetings to fulfil the purposes stated above; and 6 e) The revocation of the SPAs of the 16 units and fresh SPAs with the Developer.

It was agreed that in the event Dato’ Chew breached any of the provisions or failed, neglected or refused to pay to the Plaintiff the investment sum together with the Profit Guaranteed, the Plaintiff shall have an absolute discretion to exercise the following as it deemed fit: a) The transfer of the Investor Shares to the Plaintiff and/or its nominee(s); and/or b) The transfer and/or disposal of the 16 units of properties belonging to Second Home which were to be given as security to the Plaintiff to the Plaintiff and/or its nominee(s); and/or c) To enforce the guarantee against the 1st Defendant.

The Letter of Guarantee given by the 1st Defendant to the Plaintiff read as follows: “In consideration of the Agreement dated… whereby the Investor will provide funds to CKC (Chew Kar Chong) who shall purchase 85% ordinary shares of 7 Second Home Properties Sdn Bhd…and in consideration of CKC covenanting to comply and make payment to the Investor pursuant to the terms of the said Agreement, we Goodnite Sdn Bhd (which CKC has controlling interest) of…hereby guarantee the due performance by CKC of his obligations therein. We shall indemnify and keep indemnified the Investor by performing the obligations there in the event of non-performance by CKC.”

Around the time that the Investment Agreement was entered into, Dato’ Chew caused the 1st Defendant to deposit 2 post-dated cheques for the sum of RM3 million (dated 15.10.2012) and the sum of RM5 million (dated 15.4.2013) with the Plaintiff. The cheques were never banked in by the Plaintiff and the name of the Plaintiff as payee was spelt wrongly therein.

Dato’ Chew had acquired 85% of the shares of Second Home. He was allotted the shares. It was not clear from the evidence whether he paid for them and if so, how much. However, he did not declare that he held any shares on trust for the Plaintiff.

He also did not pay the Plaintiff the sum of RM8 million as stated in the Agreement. 8

However, on 31.3.2014, a company known as Hotwer Properties Sdn Bhd, of which Dato’ Chew was apparently a shareholder and director, paid the Plaintiff a sum of RM1 million.

Dato’ Chew passed away on 28.7.2017.

The Plaintiff brought this claim for the remaining sum of RM7 million against the 1st Defendant pursuant to the Letter of Guarantee.

The Plaintiff had previously sued also 2 directors of the 1st Defendant but the claim against them had been struck off.

The Plaintiff’s claim is pursuant to the Investment Agreement dated 17.4.2012 whereby Dato’ Chew was supposed to pay the Plaintiff the profit guaranteed of RM3 million within 6 months and the investment sum of RM5 million within 12 months. The Plaintiff alleged that Dato’ Chew defaulted in his obligations and only paid a sum of RM1 million through Hotwer Properties Sdn Bhd. Accordingly, the 1st Defendant is 9 liable to pay the remaining sum of RM7 million pursuant to the Letter of Guarantee executed by the 1st Defendant. Summary Of The 1st Defendant’s Defence

In gist, the 1st Defendant’s defence is premised on the following: a) Dato’ Chew has purchased 85% of the Second Home shares as required by the Investment Agreement; b) The Investment Agreement and the Guarantee were superseded and replaced by the Settlement Agreement; c) The Guarantee was discharged by the following:

material variation of the Investment Agreement;

(ii) the Plaintiff had failed to secure and had lost the securities in the Investment Agreement;

(iii) the Plaintiff had promised to give time to Dato’ Chew to repay his debt; and

(iv) the Plaintiff has promised not to sue Dato’ Chew. 10 d) The consideration of the Guarantee was unlawful and the Investment Agreement was but a disguised unlawful money lending agreement. Findings Of The Court The Settlement Agreement

There is no dispute that Dato’ Chew defaulted in his obligations as regards payments to be made to the Plaintiff under the Investment Agreement.

It is also undisputed that in 2014, a Settlement Agreement between the Plaintiff, Dato’ Chew and Second Home (of which by then Dato’ Chew was the controlling shareholder and director) was prepared with the intention to settle Dato’ Chew liabilities under the Investment Agreement.

24.

Based on the terms of the Settlement Agreement, the parties agreed to have the Plaintiff receive the proceeds of the sales of the 9 condominium units by the purchasers nominated by the Plaintiff.

PW-2 had testified that the Plaintiff, Dato’ Chew and Second Home had negotiated for the Settlement Agreement as Dato’ Chew was unable to fulfil the Investment Agreement: : Thank you. Would it be correct to say that this Settlement Agreement was prepared as a final chance for Dato’ Chew to settle his debt with the Plaintiff? Correct.

The Settlement Agreement was conceived after serious negotiation between the parties. 13

There is evidence that the Settlement Agreement had been agreed by the Plaintiff, Dato’ Chew and Second Home.

When cross-examined, PW-2 revealed that the Plaintiff as well as Dato’ Chew had agreed with and finalized the terms of the Settlement Agreement: : Do you agree that your lawyer, Sia Boon Chee, must have asked you what were the agreed terms between you Dato’ and Second Home, before he could begin drafting the Settlement Agreement, am I right? Correct. : Meaning the terms negotiated must have been agreed by all parties before the Settlement Agreement was ready to sign, right? Correct.

After the settlement agreement was finalized, the Plaintiff has executed 4 copies of the Settlement Agreement and they were all forwarded to be executed by Dato’ Chew and Second Home: 14 : Ok, please refer to the next page, page 108, CBD1. Ok, four copies of the Settlement Agreement were forwarded in, together with this letter. Ok, do you agree that four copies of Settlement Agreement were forwarded to JM Chong and Vincent Chee? Four copies of the signed Settlement Agreement. Correct.

Finally, PW-2’s answer to the put-question speaks volume on the entire agreement between the parties: : Based on your answer, I put it to you that the Plaintiff, Second Home and Dato’ Chew have reached an agreement on the Settlement Agreement? Correct.

As shown above, PW-2 has repeatedly confirmed that the Settlement Agreement has been reached, agreed and finalized by all parties. 15

However, the Settlement Agreement was only signed by the Plaintiff. It was not signed by Dato’ Chew or Second Home. At least, the court does not have before it the signed copy of the Settlement Agreement and it is the contention of the Plaintiff that it had never been signed and returned to the Plaintiff.

The evidence showed that when the Settlement Agreement was received by Dato’ Chew’s solicitor, the solicitor did not know anything about it and asked Dato’ Chew about it. Dato’ Chew asked the solicitor to leave the copies of the Settlement Agreement with him and that was the end of the matter. After his death, a photocopy of the Settlement Agreement was found amongst the effects of the late Dato’ Chew.

Does the fact that the Settlement Agreement had not been signed by Dato’ Chew and Second Home show that it did not take effect as an agreement?

PW-2’s evidence was to the effect that Dato’ Chew had subsequently said that he refused to sign the Settlement Agreement. This could be due to the fact that he was unable to perform the said agreement as there were no monies left after paying the redemption sums for Second Home to be able to revert the proceeds to the Plaintiff. 16

In the Court of Appeal case of Heller Factoring Sdn Bhd v Metalco Industries [1995] 3 CLJ 9, when confronted with the issue of an agreement signed only by one party, his Lordship Mahadev Shankar JCA observed the following: “It was strenuously submitted that because Matang had not dated or signed this document, there could be no concluded contract. We are unable to subscribe to this view. The true position is that where a contract has been signed by one party only, it can be enforced where there is evidence that the other party has elected to be bound by it....Part performance by one party, accepted by the other, is such other evidence”.

Apart from Pw-2’s own admission, there was also other evidence showing that Dato’ Chew and Second Home had agreed to the Settlement Agreement.

M/S Sia Boon Chee & Co, when forwarding 4 copies of the Settlement Agreement to Dato’ Chew’s solicitor, stated: “Our client instructed the said Agreement has been agreed by the parties.”

PW-2 has also testified to the fact that he agreed with the contents of the letter dated 25.6.2014: 17 : Ok, so this letter in page 108 of the Common Bundle of Documents, do you agree with what has been written by your solicitors, the content of the whole letter, do you agree? ... : ...Do you agree with the entire content of the letter or not? Agree.

The Federal Court case of Ho Kam Phaw v Fam Sin Nin [2000] 3 CLJ 1 concerned a settlement agreement signed only by one party. Notwithstanding the subsequent refusal of the respondent in signing the said agreement, the Court found that parties have reached a binding agreement when the appellant’s solicitors forwarded the executed agreed draft together with their letter recording the consensus of the parties: “In our opinion the faxed draft was the same as the first draft and as stated earlier, this draft had been agreed upon by both parties. This was expressly stated by Messrs Sethu in their letter dated 2 July 1996. Therefore when Messrs Murthi sent four copies of the faxed draft duly signed by the appellant, there was already a concluded agreement”. 18

The following evidence demonstrates, in my view, that the parties had agreed and subsequently carried out the Settlement Agreement: a) A document detailing the method of settlement of the Investment Agreement with Dato’ Chew’s own handwritten calculation/formula of the purported outstanding sum was signed by Dato’ Chew on 10.6.2014 (hereinafter referred to as “Exhibit D-2”); b) Exhibit D-2 and the handwritten calculation/formula clearly calculated that the intended settlement sum was RM6,928,457.60; c) The gist of Exhibit D-2 was to provide a list of condominiums owned by Second Home together with their monetary values to be used to offset against the purported liabilities of Dato’ Chew; d) Subsequently, the terms of Exhibit D-2 were incorporated into the Settlement Agreement where the same units of 19 condominiums mentioned in Exhibit D-2 constituted the subject matter of the Settlement Agreement; e) The Plaintiff had subsequently nominated purchasers to enter into the sale and purchase agreements for all 9 units of condominium units as per clause 5 of the Settlement Agreement. This was substantiated by the relevant contemporaneous purchase forms by Second Home; f) All 9 purchasers of the 9 condominium units in the Settlement Agreement are either the Plaintiff’s directors, their relatives or persons introduced by them; g) The keys to 5 out of the 9 condominium units stated in the Settlement Agreement were given by Second Home to the Plaintiff on 16.12.2014; h) Exhibit D-2 also provided a specific instruction to the Plaintiff to issue invoices to Second Home for the sum of RM1,340,850.40 being the difference sum between the selling price of the condominiums and their actual prices; and 20 i) The Plaintiff did issue the invoices with the corresponding amount of RM1,340,850.40 to Second Home for fictitious renovation works intended to account for the payments of the difference sum.

Exhibit D-2 was signed by Dato’ Chew and it provides a list of 9 condominium units together with the prices that were associated with them: Unit No. SPA Price Special Price Variance RM817,312.00 RM670,000.00 RM817,312.00 RM670,000.00 RM797,312.00 RM650,000.00 RM787,312.00 RM640,000.00 RM777,312.00 RM630,000.00 RM1,122,663.00 RM1,102,663.00 RM141,631.00 RM924,759.00 RM785,361.60 RM139,397.40 RM1,122,663.00 Total RM8,269,308.00 RM6,928,457.60

Exhibit D-2 also contains the following handwritten calculation as well as signature which was recognised by PW-2, D2-5 and DW-6 to be that of Dato’ Chew: 21

The above handwritten calculation corresponds exactly with the method of settlement as stated in clause 3 of the Settlement Agreement.

Furthermore, at the bottom of Exhibit D-2 contains the following direction to the Plaintiff: “Please issue invoice to Second Home Properties Sdn Bhd for the variance sum”.

The Plaintiff has accordingly issued a total of 9 invoices to Second Home for the purported renovation works for the 9 condominium units: Unit No. Invoice Amount 1 RM147,312.00 2 RM147,312.00 3 RM147,312.00 4 22 5 RM147,312.00 6 RM161,631.00 7 RM141,631.00 8 RM139,397.40 9 - Total

The values of the Plaintiff’s invoices corresponded with the Variance Price as stated in Exhibit D-2.

The total invoice amount was equivalent with the difference between the prices stated in the sale and purchase agreements and the agreed values for the 9 condominium units.

According to DW-6, an employee of Second Home, these invoices were meant to pass off as expenses for income tax purposes.

When confronted, PW-2 even agreed that the Plaintiff’s invoices were issued pursuant to the Settlement Agreement: : So the 9 invoices were issued pursuant to the Settlement Agreement or what? Yes. 23

Subsequently, Second Home had in December 2014 delivered the access keys of 5 of the 9 condominiums to the Plaintiff as demonstrated by a series of Second Home’s letters and the following concession: CROSS EXAMINATION : Ok Mr Gan, could you please refer to page 121 of the Common Bundle of Documents, CBD1? Ok I refer you to page 121 to 130 of the Common Bundle of Documents, 121 to 130. ... : Yes. Ok Mr Gan, do you agree with me that these are the Second, this is the letters issued by Second Home to the Plaintiff? Yes. : And then these letters are all dated 16.12.2014? Correct. : And this letter, the purpose of the letters was to hand over the keys to these five condominium units to the Plaintiff, do you agree? ... Correct. 24 : And in this letter as well, they are apportionment that was made how much to pay for the outgoings. Correct? Correct. : Can you confirm that the Plaintiff has received the keys of these five condominium units from Second Home? Yes or no? Yes. : And you received it in the month of December 2014, right? I forgot about the time. : But is that around the time that the letter was dated? About that. RE-EXAMINATION : Sorry. Can I just ask, how come the keys were delivered in December, 2014 for the apartment but the Sale and Purchase Agreement, some of them were signed in 2016 and 2017? At that point of time, he gave me all these 9 units keys and said...and told me, if anyone want to see the unit, then can bring the key. 25 PW-2 has admitted that the said keys were delivered pursuant to the Settlement Agreement. : So were the keys given pursuant to the Settlement Agreement also? At that time, yes.

Thereafter, Second Home has entered into the sale and purchase agreements for the said 9 condominium units with the following purchasers: Unit No. Purchasers SPA Date SPA Price 1 Gan Seow Ling 14.4.2015 RM1,102,663.00 2 Gan Boon Tian 27.4.2017 RM924,759.00 3 Gan Boon Tian 14.4.2015 RM1,122,663.00 4 Lee Bee Ken & Lee Bee Yong 17.6.2014 RM1,122,663.00 5 Wong Seng & Wong Cheng Houng 19.8.2014 RM777,312.00 6 Gan Loong Ching & Gan Boon Tian 20.8.2014 RM787,312.00 7 Wong Seng & Wong See Mei 28.8.2014 RM797,312.00 8 Gan Seow Ling 28.8.2014 RM817,312.00 9 Tee Tiam Hing 1.3.2016 RM776,446.40 - Highlighted units were purchased by the Plaintiff’s directors 26

PW-2 has testified that he asked the above purchasers to purchase the 9 condominium units: : Ok. Based on your answer to Question 11 of your witness statement, do you agree that Lee Bee Ken, Lee Bee Yong, Wong Seng, Wong Cheng Houng and Wong See Mei are your friends? Yes. : So the Plaintiff has asked them to purchase some of the condominium in the Settlement Agreement, am I right? ... I asked them to buy.

Other than the above, the fact that the Plaintiff has nominated them to purchase the 9 condominium units is further substantiated by the following: a) The contemporaneous Second Home purchase forms detailing the purchasers and selling prices of the 9 condominium units; 27 b) The said purchase forms recorded that PW-3 and the Plaintiff’s employee Cik Zamilah were the contact persons for the sales; and c) Except for unit B2-09-03, the amount of the purchase prices for the 9 condominium units were exactly as stipulated in column “SPA Price” in Exhibit D-2.

To amplify (a) above, PW-3 agreed that she was the contact person dealing with Second Home for the sales of the 9 condominium units: : But based on all these purchase forms, my instruction is that you and Cik Zamilah are the contact person for the sale of these 9 condominium units, right? Previously it was not me, only Zamilah. : Alright. But you would agree that the Plaintiff put you and Cik Zamilah in charge to liaise with Second Home on the sale of the 9 condominiums, am I right? Previously it was Zamilah. ... 28 : You would agree that it was Cik Zamilah was put in charge to liaise with Second Home on these sales of these 9 condominiums. Correct. : So then later on the Plaintiff asked you to liaise with Second Home on sale of these 9 condominiums. Initially was Cik Zamilah but later on you also joined in. Correct.

With regard to unit B2-09-03, the Plaintiff’s letter dated 1.2.2016 had directed Second Home to enter into a sale and purchase agreement with one Tee Tiam Hing for the discounted price of RM776,446.40 from the original price.

In the same letter, the Plaintiff had stated that the original price for unit B2-09-03 was RM817,312.00, which was the “SPA Price” stated in Exhibit D-2.

Second Home had on 1.3.2016 entered into the sale and purchase agreement with Tee Tiam Hing for the sale of unit B2-09-03 with the purchase price of RM776,446.40 as dictated by the Plaintiff. 29

The Plaintiff’s letter and its involvement in relation to the sale of B2-09-03 are strong indications that the transaction involved the Plaintiff’s interests: : Thank you. You use the Plaintiff’s company’s letterhead because the sale of unit B2-09-03 involve the Plaintiff’s interest, am I right? Agree.

Even as late as 1.3.2016, Second Home had been complying with the terms as dictated by the Plaintiff according to the Settlement Agreement.

Apart from B2-09-03, the remaining condominium units listed in the Settlement Agreement were sold according to the agreed prices in Exhibit D-2.

PW-2 testified it was agreed that the Dato’ Chew would pay to the Plaintiff whatever amount of purchase price received by Second Home from the sales of the 9 units stated in the Settlement Agreement: 30 : Would I be correct to say that after these people purchased these nine condominium units, the Plaintiff was expecting Second Home to pay the proceeds to the Plaintiff? Agree.

Since the inception of the Settlement Agreement, it is evident that the Plaintiff and Dato’ Chew had altered and departed from the terms of the Investment Agreement and elected to be governed by the new arrangement in the Settlement Agreement: : No, why should Second Home settle Goodnite’s debt? Because Second Home did not pay me this 8 million. : No but why is Second Home liable to pay you the 8 million? The money I invested in Second Home. : But Second Home is not a party to the Investment Agreement. I invested in the Second Home’s shares. 31 : I put it to you that you want Second Home to settle Dato’s personal liability is precisely because Second Home is a party to the Settlement Agreement. Agree.

With regard to the purchase of 9 condominium units by way of bank loans, it was established in cross-examination that the proceeds would have to be returned to the Plaintiff: : Ok, I refer you to Question 9 of your witness statement. So Ms Gan, would you agree with me that the reason that you obtained bank loan to purchase these two condominium units was because the surplus of the purchase price regarding the bank loan was supposed to be given to Huat Hing. Agree.

All of the above conduct clearly pointed to the fact that not only had the Settlement Agreement been agreed upon, but the parties had acted pursuant to the said agreement despite it not being executed by Dato’ Chew and Second Home. The Settlement Agreement had been 32 executed by the Plaintiff so there is no question that the Plaintiff did not agree to it. Obviously the Plaintiff had agreed to it. The question is whether Dato’ Chew and Second Home had agreed to it and one must remember that Dato’ Chew controlled Second Home at that time. I am of the view that the fact of Exhibit D-2 and the fact that the parties actually carried the Settlement Agreement into effect, even though Second Home never reverted the proceeds to the Plaintiff because there were none to revert, does not mean that the parties did not agree to enter into the Settlement Agreement at the material time.

It is trite law that the effect of settlement agreement extinguishes the earlier agreement and constitutes a fresh agreement between parties.

Therefore, the terms of the earlier agreement are no longer valid and enforceable, even when the settlement agreement was subsequently breached or abandoned.

This elementary proposition is fortified by the case of Capitalcorp Securities Sdn Bhd v Kweh Chen Seng [2002] 5 MLJ 699 in which Rekhraj J observed that: 33 “Further, the parties to the compromise or settlement were sui juris, and therefore the settlement or compromise so entered into between them had constituted a new and independent agreement, made for good and valuable consideration, the full effect of which was to put an end to the earlier cause of action which became spent and exhausted, unless the parties to the proceedings herein had reserved for themselves the liberty to enforce the original cause of action or claim in the event the compromise agreement was vitiated”.

The subject matter of the Settlement Agreement was the Investment Agreement executed by Dato’ Chew and the Plaintiff wherein it was agreed between them and Second Home that 9 units of condominium owned by Second Home would be exchanged to discharge the purported indebtedness of Dato’ Chew arising from the Investment Agreement.

As the Settlement Agreement was silent on the Guarantee executed by the 1st Defendant, I am of the view that the guarantor is discharged.

In the case of Southern Pipe Industry (M) Sdn Bhd v Jashin Engineering (M) Sdn Bhd & 2 Ors [2014] 1 LNS 1013, where the 34 Plaintiff sought to recover the remaining outstanding sum from the guarantors notwithstanding the fact that settlement agreement was reached between the creditor and the principal debtor, the learned High Court Judge held that: “I agree with learned counsel for the defendants, Miss Soo San San that there is no specific reference made to the 2nd and 3rd defendants pertaining to their obligations as guarantors to repay the debt. Instead, the terms of the settlement agreement clearly set out the 1st defendant’s obligation to settle its outstanding debts. The plaintiff in such circumstances should have insisted that both the 2nd and 3rd defendants execute a guarantee to the settlement agreement if they had wanted the 2nd and 3rd defendants to be bound by the terms contained therein, but they chose not to do so. Therefore, by conduct the plaintiff had evinced its intention that upon the execution of the settlement agreement by the 1st defendant, Jashin; both the 2nd and 3rd defendants were to be discharged from their liabilities as guarantors”.

Further, in the case of Samanda Holdings v Sakullah Holding Sdn Bhd & Ors [2006] 5 CLJ 459, in the context of the effect of a settlement agreement between the creditor and principal debtor on the guarantors, it was held that: 35 “Further, by reason of the dead of settlement entered into between the plaintiff and the third defendant on 18 November 1993, the plaintiff must be deemed to have varied its alleged rights under the earlier alleged deed of settlement dated 5 October 1987 and the effect of which would be to release the fourth and fifth defendants of their roles as guarantors”.

The Court of Appeal case of Tan Poh Khiang v Malayan Banking Bhd [2015] 1 MLJ 817 concerned a settlement agreement reached between the respondent bank and principal debtor together with several other guarantors (except the appellant who was the second defendant).

The respondent bank instituted an action against the appellant for the alleged shortfall between the outstanding sum and settlement sum in the Settlement Agreement.

The Court of Appeal unanimously found that the said settlement agreement which the appellant was not a party operated to release the appellant as a guarantor: “We, therefore, found that the learned JC had erred in law and on the facts when he failed to take into account the concluded settlement of Novel Villa’s debt to the plaintiff and as confirmed by PW1, and that by virtue of s 87, the 36 second defendant was released from the guarantee...In short, we found that there was a full and final settlement of the debt due from Novel Villa to the plaintiff which in law discharged the second defendant as a guarantor”.

Section 88 of the Contracts Act 1950 provides: “A contract between the creditor and the principal debtor, by which the 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.”

Accordingly, it would appear that once the Settlement Agreement is entered into or agreed by all the parties, the guarantor is discharged and it does not matter that the Settlement Agreement was not carried out into effect. The remedy of the Plaintiff would be pursuant to the Settlement Agreement. In Sir David Foskett’s The Law and Practice of Compromise the effect of a settlement agreement is summarised as follows: “Given the normal meaning, purpose and effect of a compromise, the natural inference is that the common intention of the parties is that the compromise will henceforth govern their legal relationship in connection with the disputes in which they had been engaged and that, accordingly, those disputes would 37 still be regarded as “ dead” even in the event of breach of the compromise. In the circumstances, it is submitted that recourse to the original claims will not be permitted.”

On this basis, I would dismiss the Plaintiff’s claim.

The Investment Agreement was dated 17.4.2012.

81.

The Plaintiff commenced this action against the 1st Defendant on 22.8.2017 which was more than 4 years after the breach of the Investment Agreement and immediately after the passing of Dato’ Chew on 28.7.2017.

This shows, prima facie, that the Plaintiff had given time to Dato’ Chew to settle his liability under the Investment Agreement. 38

PW-2 had admitted during cross-examination that the Plaintiff had, without the consent of the 1st Defendant, given time to Dato’ Chew to settle his debt to the Plaintiff. : ...You did not issue the Letter of Demand to Dato’ Chew because he was still making effort to settle his debt to the Plaintiff. You just need to answer agree or not agree. Yes. : Yes, thank you....Ok, and prior to his passing, the Plaintiff has given him a lot of opportunity and time to settle his debt, agree? Agree or not? Correct. : And Dato’ Chew also willing and agree to accept the time and opportunity given to him by the Plaintiff, am I right? Correct.

Apart from that, PW-2 had indicated clearly that the Plaintiff had promised not to sue Dato’ Chew and Dato’ Chew had accepted the promise: 39 : So it was Dato’ Chew that requested Plaintiff not to sue him. Am I right? No, no yes or no. : Yes or no? Did he ever requested? Did say. ... : ...My earlier question was that, has the Plaintiff agreed not to sue Dato’ Chew, not the First Defendant but Dato’ Chew at that moment. Temporary, yes.

It is not in dispute that the agreements to give time and not to sue Dato’ Chew were made without consulting the 1st Defendant or seeking the consent of the 1st Defendant.

It is settled law that where the creditor enters an agreement with the principal debtor whereby the principal is given an extension of time, beyond that contemplated in the original contract, in which to perform his obligations, the surety is discharged. The basis of the rule is that an extension of time deprives the surety of his right at any time to pay the debt and sue the principal in the name of the creditor; the creditor is unable to place his remedies at the disposal of the surety without breaching the agreement as to the extension of time, and so since the 40 surety’s right or remedy is suspended, he is discharged altogether. Otherwise, if the surety were able to claim against the principal, this would nullify the effect of the extension of time, and if he were unable to claim, but remained liable to the creditor, it would put the principal in a better position than the surety, which would offend the co-extensiveness principle. The rationale of the rule is summarised by Cockburn CJ in Swire v Redman [1876] 1 Q.B.D. 536 to 541 as follows: “The relation of principal and surety gives to the surety certain rights. Amongst others the surety has a right at any time to apply to the creditor and pay him off, and then (on giving a proper indemnity for costs) to sue the principal in the creditor’s name. We are not aware of any instance in which a surety has in practice exercised this right; certainly the cases in which a surety uses it must be very rare. Still the surety has this right. And if the creditor binds himself not to sue the principal debtor, for however short a time, he does interfere with the surety’s theoretical right to sue in his name during such period. It has been settled by decisions that there is an equity to say that such interference with the rights of the surety-in the immense majority of cases not damaging him even to the extent of one shilling-must operate to deprive the creditor of his right to recourse against the surety, though it may be for thousands of pounds.”

It is not material what form the giving of time by the creditor takes, so long as there is a legally binding and enforceable agreement by the 41 creditor that he will suspend his rights against the principal. The agreement need not be in writing, nor of an express nature, but may be implied from the conduct of the creditor and the principal. However, the intention to vary the principal’s obligations must be unequivocal and mere forbearance to sue, or gratuitous indulgence by the creditor, is not sufficient.

It is provided in section 90 of the Contracts Act 1950 that : “Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety.”

I am of the view that in the present case, the 1st Defendant has not proved anything more than a gratuitous indulgence by the Plaintiff to give time to Dato’ Chew and the Plaintiff merely forbore to sue him. There was no binding contract made for good consideration whereby the Plaintiff had agreed not to sue Dato’ Chew. At least, the 1st Defendant has not proved the existence of such a contract. I am also of the view that the Plaintiff had not agreed not to sue nor had the Plaintiff agreed to release Dato’ Chew. The Plaintiff said his agreement not to sue was only “temporary”. In the circumstances, I am of the view that the 1st Defendant is not discharged as guarantor by the giving of time and the 42 forbearance from suing Dato’ Chew temporarily on the part of the Plaintiff.

The Plaintiff has submitted that Dato’ Chew is the alter ego of the 1st Defendant and therefore Dato’ Chew’s consent (to the Settlement Agreement as well as the forbearance to sue) should be deemed the consent of the 1st Defendant. I do not agree. There is no plea for the court to lift the corporate veil and I find no reason to ignore the separate legal entity of the 1st Defendant from its controlling shareholder or director. It is also settled law that there must be evidence either of actual fraud or some conduct amounting to fraud in equity to justify the lifting of the corporate veil. (see Giga Engineering Construction Sdn Bhd v Yip Chee Seng & Sons Sdn Bhd & Anor [2015] 9 CLJ 537 FC) The failure to obtain the consent of the 1st Defendant is only relevant insofar as it relates to the Settlement Agreement which I have found that Dato’ Chew and Second Home and the Plaintiff had agreed upon.

As stated above, the Plaintiff was supposed to be given a Power of Attorney in respect of 16 units of properties belonging to Second Home as security for the Investment Agreement. No Power of Attorney had 43 ever been given and the Plaintiff was never given the 16 units which were subsequently sold to third parties although some of the purchasers were directors of the Plaintiff. It is not in dispute that the Plaintiff was never given any security over the 16 units of properties as contemplated under the Investment Agreement.

The 1st Defendant had alleged that the “loss” of the securities by the Plaintiff had discharged it as the guarantor. The 1st Defendant relied on section 94 of the Contracts Act 1950 which provides that: “A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contact of suretyship is entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with the security, the surety is discharged to the extent of the value of the security.”

The 1st Defendant submitted that the Plaintiff’s failure in holding the Securities was analogous to the creditor who had failed to register its mortgage that led to the discharge of the guarantor in the case of Wulff And Billing v Jay [1872] LR 7 QB 756 wherein Cockburn C.J. observed that: 44 “Cases have been cited and authorities have been referred to in Story’s Equity Jurisprudence, which abundantly establish that which is a common and well-known proposition, that where a debt is secured by a surety, it is the business of the creditor, where he has security available for the payment and satisfaction of the debt, to do whatever is necessary to make that security properly available. He is bound, if the surety voluntarily proposes to pay the debt, to make over to the surety what securities he holds in respect of that debt, so that, being satisfied himself, he shall enable the surety to realize the securities and recoup himself the amount of the debt which he has had to pay. That is now a well-known proposition. Here, by registering the bill of sale, and by afterwards availing themselves, or by protecting the securities and holding them in their hands they could have made them over to the surety when the surety was willing, or was called on, to pay: but by omitting to do what was necessary in order to place themselves in that position, and by allowing bankruptcy to supervene so as to enable the trustee under the bankruptcy to take possession of these goods adversely, it is clear that they have placed the surety in a position very detrimental and prejudicial to the surety; and for that the surety ought to have, according to the general doctrine, a remedy”.

The above statement of principle is reflected in sections 92 and 94 of the Contracts Act 1950. In the same case, Hannen J held that: “As a surety, on payment of the debt, is entitled to all the securities of the creditor, whether he is aware of their existence or not, even though they were given after the contract of suretyship, if the creditor who has had, or ought to 45 have had, them in his full possession or power, loses them or permits them to get into the possession of the debtor or does not make them effectual by giving proper notice, the surety to the extent of such security will be discharged. A surety, moreover, will be released if the creditor, by reason of what he has done, cannot, on payment by the surety, give him the securities in exactly the same condition as they formerly stood in his hands”.

Quain J in the same case held that: “If through any neglect on the part of the creditor, a security to the benefit of which a surety is entitled is lost, or is not properly perfected, the surety is discharged”.

One of the most important rights that a surety has by reason of his position is the right to call for all securities held by the creditor for the guaranteed debt in the same state and condition as they were when they were originally received by the creditor.

I am of the view that in order for the Plaintiff to be said to have lost a security, the Plaintiff must have had the security in the first place. In the present case, the Plaintiff were not given any security over the 16 units of properties and it was the obligation of Dato’ Chew to ensure that the Plaintiff was given the requisite resolutions and Power of Attorney 46 and all other relevant documents so that the Plaintiff can have security over the properties. Dato’ Chew did not fulfil his part of the obligation and there was nothing the Plaintiff could have done. Since the Plaintiff did not have the security in any form whatsoever in the first place, I am of the view that it cannot be said that the Plaintiff has lost or released its security or failed to perfect its security. I am not with the 1st Defendant on this ground.

The Plaintiff has submitted that the Guarantee was not simply a guarantee. It was also an indemnity and so the 1st Defendant was not released by any Settlement Agreement entered into by the Plaintiff (because it was not fully effected) or any time or indulgence or promise not to sue given to Dato’ Chew). The Guarantee in this case was a very simple guarantee and indemnity, the wording of which had been set out above.

As far as an indemnity goes, there was only one sentence saying: “We shall indemnify and keep indemnified the Investor by performing the obligations herein in the event of non-performance by CKC.” 47

The issue to determine is whether the 1st Defendant had undertaken a primary obligation to the Plaintiff or merely a secondary duty. If the former, the document is an indemnity and if the latter, the document is merely a guarantee.

The distinction between a guarantee and an indemnity was succinctly explained in Halsbury’s Laws of Malaysia (Volume 2(2)) (2013 Reissue): “A guarantee is a contract which creates a secondary or accessory liability under which a third party agrees to be liable to repay the debt of another, or to be answerable for the performance of that debtor’s obligations to the creditors, conditional upon the debtor failing to do so. An indemnity is a primary liability under which a third party agrees to be answer for the liability of a debtor to repay a debt or perform obligation as if he (the third party) was the principal debtor”.

It is clear from a reading of the Guarantee in this case that the 1st Defendant had undertaken a secondary liability which was to perform the obligations under the Investment Agreement in the event of non – performance by Dato’ Chew. In other words, the 1st Defendant’s liability was contingent upon Dato’ Chew’s breach of the Investment Agreement. 48

Nothing in the Guarantee suggested that the 1st Defendant had undertaken an independent obligation that was enforceable without depending on any antecedent breach on the part of Dato’ Chew.

There was also no “principal debtor” clause in the Guarantee.

The cases show that the use of the word “indemnity” itself is not enough to turn what is in essence a guarantee into an indemnity.

We can start with the English Court of Appeal case of Stadium Finance Co Ltd v Hel [1965] 109 SJ 471 in which a mother had signed an “indemnity form” in support of a hire purchase agreement made by her infant son which contained the following expression: “I will indemnify and keep indemnified you, your successors and assigns from all loss or damage suffered and all claims, costs, and expenses made against or suffered by you in any way arising out of or consequent upon your having entered into such agreement, whether arising out of a breach by the customer of any of the terms and conditions thereof or otherwise including any such loss or damage as aforesaid as may arise from the said agreement being (for whatever reason) unenforceable against the customer”. 49

Stadium Finance argued that by virtue of the above clause, the indemnity form is an indemnity and not a guarantee.

Lord Denning MR in holding that the “indemnity form” is in truth a guarantee which gave rise to a secondary obligation as opposed to an indemnity, made the following observation: “The test was whether as between two people, one of the two was under a primary liability to perform the obligation, while the other’s obligation was secondary only. If so, it was a contract of guarantee and not of indemnity. One always looked to see if there was a primary and secondary obligation, or two primary obligations... Reading cl. (2) in relation to cll (1) and (3), the whole burden of this document was that it was a guarantee, to come into force if the principal debtor defaulted and to the extent of his default”.

Lord Russel concluded the judgment with the following sage remark: “If finance companies wished to make sure that primary liability was put on other...they must find some other and clearer form, bearing in mind that most people were not prepared to subject themselves to the nuisance of primary liability”. 50

In essence, the Stadium Finance case established the following: a) one must first determine whether or not the agreement imposes primary or secondary liability on the surety; b) if the agreement provided that the liability was only contingent on a breach by another, then it is certainly a guarantee and not indemnity; and c) the clearest of words have to be deployed before primary obligation could be inferred from the agreement.

The next authority is another English Court of Appeal case of Western Credit Ltd v Alberry [1964] 1 WLR 945 whereupon the effect of the following clause in a guarantee to a hire purchase agreement was subjected to scrutiny: “I, the undersigned, guarantee the payment by the said hirer to you of the instalment...agreed to be paid and the performance and observance by the said hirer of the terms of the said agreement: and I will indemnify you against any loss or damage you may sustain as a result of the act, default, or negligence of the said hirer”. 51

In interpreting the above clause, Sellers LJ concluded that the guarantee imposed secondary liability on the surety to answer for the breach of the hirer and hence was not, on proper construction, an indemnity: “The word “indemnity” is used, but they sentence is descriptive in its context of the kind of non-performance or non-observance which might arise under the guarantee, following as it does the guarantee of the performance and observance by the hirer under the agreement. I cannot read it as an indemnity against any loss or damage as a result of the termination of the contract by the hirer when the contract of hire has been fully performed by him according to its tenor. It would be a remarkable contract if it were so”.

Apart from the above, the concurring judgment of Lord Russel in Western Credit case is illuminating on how the word “indemnity” was interpreted in this context: “I construe the part starting “and I will indemnify” as expository of the liability involved in the guarantee, rather than as imposing a liability which, by embracing all the liability under the guarantee and more, renders the guarantee superfluous as a protection to the company”. 52

Furthermore, his Lordship echoed the dicta in Stadium Finance case in observing that: “It would, in my opinion, require a very clear and unambiguous contract to impose further liability on a signatory to what might well be thought by anyone signing such a document as this, to be a guarantee and nothing more”.

In the Australian case of Re Taylor; Ex Parte Century 21 Real Estate Corporation [1995] 130 ALR 723, the Federal Court of Australia adopted a similar approach when it had the occasion to decide if an “indemnity clause” would elevate the instrument in question to be an indemnity rather than a mere guarantee.

In the words of Burcheit J, Clause 2 of the guarantee in Re Taylor was aptly described as follows: “But cl 2 has been drafted as an obligation to indemnify against costs, damages, expenses and loses “arising out of or in the consequence” of a failure, and that failure is expressed by the words, “in the event of South Pacific in any respect failing to discharge its obligations under the promissory note”. 53

Despite the fact that clause 2 of the guarantee in Re Taylor was significantly well drafted compared to the present Guarantee, Burcheit J, concluded that the instrument in question was a guarantee and not an indemnity: “The word “Indemnify” is used, but the obligation is only to attach in the event of a failure by South Pacific to discharge its obligations. This looks very like the language of a collateral contract to answer for the default of another, who is contemplated as liable in the first place to the promise. It does not appear to express a primary obligation undertaken by the guarantors”.

In the case of Hong Leong Finance Berhad v Thamilchelevan s/o Palinesamy & Anor [1996] 1 CLJ 471, the Court was called upon to construe clause 3 of a guarantee that required the guarantor to indemnify the financier against all lost and damage under a hire purchase agreement, the Court categorically held that the mere usage of the word “Indemnify” did not ipso facto convert the guarantee into an indemnity.

To put it in perspective, clause 3 of the guarantee in Hong Leong Finance case is reproduced in the judgment as follows: 54 “3. I/We will jointly and severally on written demand indemnify you against all loss or damage you may sustain under the said Hire Purchase Agreement whether or not such loss or damage results from the commission of any breach by the hire and whether or not you have any legal right to claim against the hirer for such loss or damage or have availed yourself of your legal remedies against the hirer or the goods comprised in the said Hire Purchase Agreement”.

Again, the above indemnity clause in Hong Leong Finance case was more defined and meticulously drafted than the present Guarantee.

However, after examining multiple common law authorities, the learned Judge Abdul Malik Ishak J held that: “Several observations must be made in regard to the agreement. The heading of the agreement clearly shows that the hire purchase agreement is in the nature of a guarantee and that guarantee was by a dealer. The expression “guarantee” appears on at least four occasions apart from that appearing at the heading of the agreement. The agreement sets out the obligations of the dealer as a guarantor to the appellant in the event of default by Thamil. In my judgment, it is a guarantee agreement and not an indemnity ... The usage of the word “indemnify” that appears in cl. 3 of the “guarantee of hire purchase agreement” in solitary form cannot convert the guarantee by the dealer into an indemnity”. 55

Recently in the Court of Appeal case of RMarine Engineering (M) Sdn Bhd v Bank Islam Malaysia Berhad [2013] 1 LNS 318, speaking in the vein of the distinction between a guarantee and an indemnity, Ananthan Kasinather JCA stated that: “We do not propose to dwell at length on whether the performance bond furnished by the respondent in this case is a guarantee or indemnity since in our view, it is evident from the words of the performance bond that it s a guarantee. We opine to this effect because the liability of the respondent according to the bond only arises “if IRSB fails to effect payment wholly or partially within the time stipulated in the contract”. In other words, the liability on the part of the respondent to pay under the bond only arises following default on the part of Intraline ie, IRSB. In essence, a guarantee is a binding promise of one person to be answerable for a present or future debt or obligation of another if that other defaults. The distinctive feature of a guarantee is the secondary nature of the obligation which is assumed by the surety or guarantor”.

In Malayan Banking Berhad v Bumisetia Development Sdn Bhd & 2 Ors [2009] 1 LNS 1282, as against an argument that a “Letter of Guarantee” was an indemnity, the Court observed that: 56 “It must be noted that the expression “Letter of Guarantee” appears in the heading of the agreement and the word “Guarantee” and not “indemnity” appears in several occasions in all the pages of the Agreement. It goes to show that the intention of the parties was to enter into a contract of guarantee. As it has been submitted for the Plaintiffs, the Letter of Guarantee which the 2nd Defendant had signed, was not a contract by him to keep the Plaintiffs harmless against loss because the Letter of Guarantee is a contract between the Plaintiffs and the 2nd Defendant which is intended by them to secure the performance of the obligation of the 1st Defendant. There is no doubt that the Letter of Guarantee is indeed a guarantee”.

What could be gleaned from the above authorities is unquestionably clear viz, if the agreement reveals that the surety’s obligation is materialized at the instance of the debtor’s breach, that agreement is a guarantee as opposed to an indemnity.

If however, a promisor is under a standalone obligation to make payment and/or to save the promise from losses as a principal debtor, then that agreement is an indemnity.

The Plaintiff relied on the case of Sia Siew Hong & Ors v Lim Gim Chian & Anor [1995] 3 MLJ 141 wherein the Court held that the 57 document described as a guarantee was in indemnity. However, an examination of the case would reveal that the guarantee in that case contained provisions which imposed primary rather than secondary obligations. This is evident in the judgment of Gopal Sri Ram (JCA) ( as he then was) when he observed that: “Secondly, the deeming provision upon which I have laid emphasis, certainly points to the document being an indemnity rather than a guarantee. That clause imposes upon the appellants the primary obligation of a principal debtor and not merely a secondly obligation of a surety. … Fourthly, there is the last clause in the document which reads: ‘ This guarantee may be enforced by either of you or both at any time.’ This clause appears to point to the appellants agreeing to undertake an original liability, irrespective of any default on the part of the company.”

There is also a ‘principal debtor’ clause in that case, which is a distinguishing feature of an indemnity. This is what the clause said: “Such debts shall be deemed to be owing from us as principal debtors to you notwithstanding any defect informality or insufficiency in the borrowing powers of the borrower or in the exercise thereof which might be a defence as between the borrower and the lender provided that the total sum recoverable 58 from us hereunder is limited to the sum of Ringgit Malaysia two hundred and fifty thousand (RM250,000).”

I am of the view that the Guarantee in the present case is merely a guarantee, as suggested by its title, Letter of Guarantee, and is not also an indemnity. Whether the Investment Agreement is a sham to cover up a money lending transaction

It is the submission of the 1st Defendant that the Investment Agreement was a sham agreement, to cover up what was in truth an unlawful money lending transaction at exorbitant interest rates.

A glaring fact from a perusal of the Investment Agreement is that, if the Plaintiff was paying the sum of RM5 million to Dato’ Chew to acquire 40% of his 85% shareholding in Second Home, then there would be no reason for Dato’ Chew to have to repay the sum of RM5 million to the Plaintiff. PW-2 gave evidence to the effect that there were 2 options. If Dato’ Chew transferred the shares to the Plaintiff, then he does not have to pay the RM5 million to the Plaintiff but if the shares are not transferred, then Dato’ Chew would have to repay the RM5 million as 59 well as the Profit Guaranteed of RM3 million. However, nowhere is such an option reflected in the Investment Agreement which provides expressly that Dato’ Chew is to pay both the RM3 million Profit Guaranteed as well as repay the sum of RM5 million to the Plaintiff.

At the trial, PW-2 acknowledged that the amount of profit guarantee in the Investment Agreement is equivalent to 60% profit on the Plaintiff’s Investment Sum of RM5,000,000.00: : This so called profit-guarantee of three million is equivalent to 60% of your investment sum of five million. Do you agree? Correct.

The said 60% return on the Plaintiff’s investment was expressed to be payable within 6 months from the date of the Investment Agreement. This means that the Plaintiff was entitled to 10% return every month during that period: : And according to the agreement, if three million is payable within six months’ time then you are having 60 10% return on your investment each month, right? Right or not? Correct.

It is important to appreciate that this Investment Agreement was expressed to be a purchase of shares in Second Home, a property holding company whose profit is dependent on the sales of its properties: : Then you will agree with me that Second Home’s profit is dependent on whether or not it could sell its property. Am I right? Correct.

The Investment Agreement was conceived without any due diligence conducted on Second Home nor any professional assessment on the purported profit guarantee: : Did the Plaintiff engaged a property valuer to ascertain if the Second Home can generate three million in six months’ time? 61 : Meaning the so called profit-guarantee of three million was not based on any assessment by any professional. Is that correct? Yes or no? Correct : Has the Plaintiff conducted any due diligence exercise on Second Home Property Sdn Bhd before entering into this agreement with Dato’ Chew? : So without conducting the due diligence, the Plaintiff did not know how much is the liability of Second Home Property Sdn Bhd isn’t it? Correct. : Meaning the Plaintiff trusted Dato’ Chew’s assessment on Second Home’s liability. Correct. : Ok. So the Plaintiff has decided to invest five million not knowing the exact liability of Second Home. Correct.

Instead, PW-2 stated that he purely relied on Dato’ Chew on the purported profit guarantee who was, at the material time, yet to be the director and shareholder of Second Home: 62 : Thank you. I refer you to Question 3 and paragraph B of your answer in your witness statement. Ok, do you agree with me that at March 2012, Dato’ Chew was not a director nor a shareholder of Second Home? Yes or no? Agree. : Thank you very much. So in March 2012, Dato’ Chew did not provide the Plaintiff any documents to support his claim about this investment profit of three million, right? Correct. : And you are telling this Court that you choose to believe in an outsider about the potential profit of Second Home. Is that right? Yes, correct.

It is pertinent to note that despite its claim that the Investment Agreement was for the purchase and investment of shares, PW-2 could not even confirm how many units of Second Home shares the Plaintiff it was entitled to, despite taking a long time to do his own calculation: 63 : Yes. Do you agree that the Plaintiff is entitled to have 40% out of the 85% of shares held by Dato’ Chew? Correct. : Ok. Listen to me. If that is the case, can you tell me how many units of Second Home shares the Plaintiff is supposed to own? ... : Supposed to own. How many units? You are supposed to know, isn’t it? 16 units.

Simple mathematic dictates that 40% of 1,700,000 units of Second Home shares held by Dato’ Chew is 680,000 units.

Apart from the above, the Guarantee itself unwittingly disclosed the purpose of the Investment Agreement, that is to provide fund to Dato’ Chew to purchase Second Home shares:

I am satisfied that the Investment Agreement is a sham agreement and what in essence was the agreement between the Plaintiff and Dato’ Chew was that the Plaintiff made a loan of RM5 million to Dato’ Chew to enable him to purchase shares in Second Home and the RM3 million 64 Profit Guaranteed was no more than the interest that is payable for the loans of RM5 million. That is why Dato’ Chew was required to pay to the Plaintiff the sum of RM8 million. The Investor Shares were meant to be part of the security for the loan and the Plaintiff was never interested in them and that was why the Plaintiff never sued to recover the Investor Shares from Dato’ Chew or his estate which were meant to be held on trust for the Plaintiff.

In the House of Lords case of A.G. Securities v Vaughan & Ors [1990] 1 A.C. 417 Lord Justice Bingham defined ‘sham agreement’ lucidly as follows: “A written agreement is a sham where it incorporates clauses by which neither party intends to be bound and which is obviously a smokescreen to cover the real intentions of both contracting parties: Hadjiloucas v Crean [1988] 1 WLR 1006, 1013, per Purchas L.J. The accepted definition of a sham is that given back by Diplock L.J. in Snook v London and West Riding Investments Ltd [1967] 2 Q.B.786,802: ‘As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a ‘sham’, it is, I think, necessary to consider what, if any , legal concept is involved in the use 65 of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities ( see Yorkshire Railway Wagon Co v Maclure [1882] 21 Ch D 309 C.A. and Stoneleigh Finance Ltd v Philips [1965] 2 Q.B. 537), that for acts or documents to be a ‘sham’, with whatever legal consequences follow from thus, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.’ Put more shortly, a sham exists where the parties say one thing intending another: Donald v Baldwyn [1953] N.Z.L.R. 313, 321 per F.B. Adams J.”

Learned Counsel for the 1st Defendant submitted that Diplock in the Snook case intended to explain that parties to a sham agreement invariably have no intention to create legal rights and obligations. I do not think that is the correct position.

Parties to a sham agreement have a common intention that the acts or documents were not to create the legal rights and obligations 66 which they had the appearance of creating. For instance, in the present case, if the Investment Agreement were a sham to cover up a money lending transaction at exorbitant interest, does it mean that because it is a sham, the underlying money lending transaction is ipso facto not enforceable?

In the Court of Appeal case of Ong Thean Chye & Ors v Tiew Choy Chai & Anor [2011] 1 CLJ 674, whereby the Court in ruling that a sham agreement was unenforceable, emphatically held that: “Courts too will not lend its aid to enforce pretended obligations. Only real obligations will be enforced. As a sham document it was entirely unenforceable. There was no basis for the respondents to claim ‘professional fees and charges’ of any kind whatsoever. Further, as a sham document, the respondents have no locus standi to seek the prayers they sought for in their statement of claim”.

In respect of the money lending transaction, the 1st Defendant submitted that it is not in dispute that the Plaintiff is not a licensed moneylender under section 5 of the Moneylenders Act 1951. Therefore, under section 15 of the Moneylenders Act 1951, the Plaintiff was not entitled to enter into a money lending transaction: 67 “No moneylending agreement in respect of money lent after the coming into force of this Act by an unlicensed moneylender shall be enforceable.”

Pursuant to section 10A of the Moneylenders Act 1951 it is provided that where in any proceedings against a person, it is alleged that such person is a moneylender, the proof of a single loan at interest made by such person shall raise a presumption that such person is carrying on the business of moneylending, until the contrary is proved.

Section 2 of the Moneylenders Act provided that “moneylender” means any person who carries on or advertises or announces himself or hold himself out in any way as carrying on the business of moneylending, whether or not he carries on any business.

In Yeep Mooi v Chu Chin Chua & Ors [1981] 1 MLJ 14, the Federal Court held: “We have on another occasion observed that the Moneylenders Ordinance 1951 does not strike at moneylending but at moneylenders and at the loans lent by them. The Ordinance is never intended to apply to an individual or any member of the public unless he does so as a business.” 68

In Muhibbah Teguh Sdn Bhd v Yaacob Mat Yim [2005] 4 CLJ 853, it was held: “It is axiomatic that one or two moneylending transactions (even in consideration of a larger sum) do not make the lender a moneylender within the purview of the definition of moneylender in s 2 of the Moneylenders Act

It is also axiomatic that the Act is intended to apply to moneylenders exclusively and not to moneylending transaction per se. Considering the scheme of the Act and the definition of the word “moneylender” in s 2 read with s 2A(1)(h), s 3 should only be read as a provision designed to facilitate proof of borrower’s assertion that the lender was at the material time of the loan carrying on the business of moneylending. Nonetheless, it cannot be said that, upon proof of a single interest bearing moneylending transaction, the lender becomes a ‘moneylender’ as defined in s 2 of the Act.”

In Ngui Mui Khin & Anor v Gillespie Bros & Co Ltd [1980] 2 MLJ 9 the Federal Court said: “At the outset we wish to observe that the Moneylenders Ordinance 1951 does not apply to money-lending but only to moneylenders. It does not make every moneylending transaction illegal and unenforceable. It is only a 69 moneylending transaction of a moneylender which is the subject matter of the ordinance and must comply with its observations on pain of being declared illegal and unenforceable by the court.”

In Pan Global Equities Sdn Bhd v Taisho Company Sdn Bhd [2005] 3 CLJ 734 the Court said this: “The Moneylenders Act 1951 is designed to protect individuals who because of their impoverishment are caught in the jaws of unlicensed lenders. It is not designed to apply to facts such as in the present case. The loans made in the present case were thus not caught by the Moneylenders Act 1951.”

In this respect, the Plaintiff has denied that it is a money lender or that it has made any loan to Dato’ Chew.

In fact, the only evidence which could go towards showing that the Plaintiff or its director Mr Gan Boon Tian had made a loan to the 1st Defendant or Dato’ Chew before was in a series of whatsapp conversations between Mr Gan Boon Tian and Ms Gan Seow Ling of the Plaintiff with Mr Khoo, an accountant of the 1st Defendant, regarding payments to be made to one Mr Koh. 70

Mr Koh Poh Seng gave evidence and said that he was the person referred to and that the conversations in question were concerning a loan given by his company Locus Ace Sdn Bhd (which is a licensed moneylender) to the 1st Defendant. He testified that the 1st Defendant had not paid Locus Ace the interest due on the loan and he had chased Mr Gan Boon Tian for the payment as he was the introducer. He also remembered at one time that the Plaintiff paid Locus Ace the interest owing by the 1st Defendant.

Mr Khoo in cross examination confirmed that the messages in question do not show any loan given by the Plaintiff or Mr Gan to Dato’ Chew.

This is a portion of the testimony: : Mr Khoo, I take you to the first whatsapp message. Page 511. Does this message show a loan by Mr Gan to Dato’ Chew? … : Does it show a loan given by Mr Gan to Dato’ Chew? Khoo : It doesn’t show. 71 : Thank you. Does it show any loan given by the Plaintiff Huat Hing Rubberwood to Dato’ Chew? Khoo : It doesn’t. : I now take you to the second conversation, the second whatsapp. … : No. 2. Same question, does this message show any loan given by either Mr Gan or Huat Hing Rubberwood to Dato’ Chew? Khoo : No. : To make life easy, can he go through the remaining messages one by one and tell the Court whether these messages one by one show any evidence of a loan either by Mr Gan or by Huat Hing Rubberwood to Dato’ Chew? Khoo : No. : So there is no evidence at all with regard to these alleged loans that you claimed were given by Mr Gan and Huat Hing Rubberwood to Dato’ Chew. Is that right? Khoo : Yes. 72 … : I now take you to your answer to Question 28. I put it to you that there is also no evidence at all in this Court regarding these loans or the interest that is payable thereon. Do you agree? Mr Khoo you have no evidence of the loan, so now I am asking you there is supposed no evidence-Khoo : Agree … … : 27 to 30. All the question pertaining to the alleged loans. All these pages do not at all support your answers. … Khoo : Agree.

Although Learned Counsel for the 1st Defendant tried to salvage the case somewhat in re –examination, the damage was done and I am of the view that, on balance, the Plaintiff is not carrying on the business of moneylending. There is no evidence of any system or continuity in the giving of loans on interest by the Plaintiff. To prove that a man is a 73 moneylender, it is necessary to show some degree of system and continuity in his moneylending transaction. That is absent in the present case. Accordingly, I find that the Plaintiff’s claim would not be defeated by the defence that the Investment Agreement is in reality a moneylending transaction.

However, because I have held that the Plaintiff and Dato’ Chew had entered into a composition or Settlement Agreement which superseded the Investment Agreement, the 1st Defendant’s liability as guarantor had been discharged pursuant to the Letter of Guarantee which is not an indemnity.

In the premises, I dismissed the Plaintiff’s claim with costs of RM50,000.00 subject to allocator. Wong Chee Lin Judicial Commissioner Kuala Lumpur High Court Commercial Division Dated: 19th November 2018 74 Solicitors for the Plaintiff Hargopal Singh A/L Indar Singh Gill Messrs M Sujata & Associates Advocates & Solicitors 104B, Jalan SS21/39, Damansara Utama 47400 Petaling Jaya Selangor Tel : 03-7725 1373 Fax: 03-7725 1371 Solicitors for the Defendant Amos Ho Chern Wey & Ong Sin Lee Messrs Amos Ho, Sew & Kiew Advocates & Solicitors D-5-7, Megan Avenue 1