Kuwait Finance House (Malaysia) Berhad v WSJ International Sdn. Bhd. & 7 Lagi (22M-233-04/2019)

WSJ INTERNATIONAL SDN. BHD. (formerly known as Wood Star Jaya Sdn. Bhd.)

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SELVARAJAN A/L MARUTHAMUTHU ... DEFENDANTS 2 GROUNDS OF JUDGMENT (Enclosure 9) Introduction [1] Kuwait Finance House (Malaysia) Berhad (“Plaintiff”), a licensed Islamic financial institution, filed this civil action claiming from the defendants outstanding sums due under Islamic financing facilities granted by the Plaintiff to the first defendant, WSJ International Sdn Bhd (dahulunya dikenali sebagai Wood Star Jaya Sdn Bhd) (“1st Defendant”). The second to the eighth defendants has all agreed to guarantee the payment of the financing facilities. [2] Vide enclosure 9, the plaintiff applied for summary judgment to be entered against the first, second and the eighth defendants. On 11 October 2019, this court allowed summary judgment to be entered against the said defendants. [3] Vide Notice of Appeal dated 22 October 2019, the 1st Defendant and second defendant appealed against the order for summary judgment dated 11 October 2019. Vide Notice of Appeal dated 1 November 2019 the eighth defendant appealed against the same. 3 Factual Background [4]

a Forex Line Facility of RM 2,000,000.00;

a Murabahah Letter of Credit-i Facility of RM 10,000,000.00; and

a Murabahah Tawarruq Facility of RM 3,000,000.00. (the above facilities are collectively referred to as “Murabahah Facilities”) subject to the terms and conditions therein. [5]

a Murabahah Letter of Credit Facility Agreement;

Murabahah Tawarruq Facility Agreement; and

Forex Line Agreement 4 which are all dated 18 May 2007. The above agreements are collectively referred to as “Murabahah Agreements”. [6] Vide Supplemental Letter of Offer dated 26 November 2007 (“3rd Letter of Offer”), the Plaintiff increased the limit of the Murabahah Facilities as follows –

the limit of the Murabahah Letter of Credit-i Facility was increased to RM 40,000,00.00;

the limit of the Murabahah Tawarruq Facility was increased to RM 9,000,000.00; and

the limit of the Forex Line Facility was increased to RM 5,000,000.00. [7] Pursuant thereto, the Plaintiff and the 1st Defendant entered into the following –

Supplemental

Supplemental Murabahah Tawarruq Facility Agreement; and

Supplemental Forex Line Agreement. 5 which are all dated 11 December 2017. The above agreements are collectively referred to as “Supplemental Murabahah Agreements”. [8] The Plaintiff also granted, via letter dated 24 March 2008 (“4th Letter of Offer”) to the 1st Defendant a KFH Wakalah Letter of Credit-i Facility of USD 10,000,000.00 and a KFH Murabahah Tawarruq Working Capital Financing-i Facility of USD 10,000,000.00 subject to the terms and conditions therein. Both the said facilities are collectively referred to as “Murabahah Tawarruq Facility”. [9]

KFH Wakalah Letter of Credit-i Facility Agreement; and

KFH Murabahah Tawarruq Working Capital Financing-i Facility Agreement both of which are dated 10 April 2008. The above agreements are collectively referred to as Murabahah Tawarruq Agreements. The 2nd Defendant had signed the Murabahah Tawarruq Agreements in her capacity as a director of the 1st Defendant. 6 [10] Subsequently pursuant to a letter of offer dated 18 December 2008 (“5th Letter of Offer”) the Plaintiff granted to the 1st Defendant 20 Ijarah Facilities up to the aggregate amount of RM 102,300,000.00, comprising inter alia the following –

KFH Ijarah Muntahiah Bitamlik Facility of RM 5,752,188.00 (“Ijarah 2 Facility”);

a KFH Ijarah Muntahiah Bitamlik Facility of RM 6,672,538.00 (“Ijarah 3 Facility”);

a KFH Ijarah Muntahiah Bitamlik Facility of RM 5,752,188.00 (“Ijarah 8 Facility”);

a KFH Ijarah Muntahiah Bitamlik Facility of RM 5,138,621.00 (“Ijarah 13 Facility”);

a KFH Ijarah Muntahiah Bitamlik Facility of RM 3,834,792.00 (“Ijarah 14 Facility”); and

a KFH Ijarah Muntahiah Bitamlik Facility of RM 3,834,792.00 (“Ijarah 18 Facility”), the above facilities are collectively known as “Ijarah Facilities”. [11] By the 5th Letter of Offer, the Plaintiff and the 1st Defendant entered into an Ijarah Asset Acquisition Financing-i Agreement for each 7 of the Ijarah Facilities, all of which are dated 26 March 2009 (collectively referred to as “Ijarah Agreements”). [12] By a Supplemental Letter of Offer dated 29 April 2014 (“6th Letter of Offer”) issued by the Plaintiff and duly accepted by the 1st Defendant, the Plaintiff further agreed to the 1st Defendant’s request to redeem 10 out of the 20 Ijarah Facilities subject to, inter alia, the execution and perfection of third party 2nd legal charges over 3 vessels to secure the indebtedness under the Murabahah Tawarruq Facility. [13] The 1st Letter of Offer, 2nd Letter of Offer, 3rd Letter of Offer, 4th Letter of Offer, 5th Letter of Offer, 6th Letter of Offer, Murabahah Agreements, Murabahah Tawarruq Agreements and Ijarah Agreements shall hereinafter be referred to collectively as the “Financing Agreements”. [14] The Murabahah Facilities, Murabahah Tawarruq Facility and Ijarah Facilities (collectively “Financing Facilities”) are secured, inter alia, by the second to the eighth defendants in the following manner – 8

a Guarantee and Indemnity Agreement dated 18 May 200 provided by Nor Raihan Binti Ahmad Kamarudin (“2nd Defendant”), 3rd and 4th Defendants;

a Second Guarantee and Indemnity Agreement dated 11 December 2007 provided by the 2nd Defendant, 3rd and 4th

a Third Joint and Several Guarantee dated 10 April 2008 provided by the 2nd Defendant, 3rd and 4th Defendants;

a Fourth Joint and Several Guarantee dated 26 March 2009 provided by the 2nd Defendant, 3rd and 4th Defendants. all the above guarantees are collectively referred to “Individual Guarantees”.

a Joint and Several Guarantee dated 26 March 2009 provided by the 5th, 6th, 7th Defendants and Selvarajan A/L Maruthamuthu (“8th Defendant’s Guarantee). 9 [15] By the above guarantees, the 2nd Defendants to the 8th Defendants jointly and severally guaranteed to the Plaintiff not merely as sureties but also as principal debtors, for the payment on demand of all monies due and owing by the 1st Defendant to the Plaintiff under the Financing Facilities upon the terms therein contained. [16] In breach of its obligations under the Financing Agreements the 1st Defendant had defaulted in the monthly instalment payments and lease rentals to the Plaintiff bank in respect of the Financing Facilities on the due dates despite reminders. Guaman No. WA-22M-36-03/2016 [17] Pursuant to the 1st Defendant’s breach, on 18 March 2016 the Plaintiff bank instituted a writ action Guaman No. WA-22M-36-03/2016 (“Suit 36”) against inter alia the 1st Defendant to 8th Defendant herein for the payment of the outstanding sums due under the Financing Facilities as at 30 November 2015. [18] By a settlement letter dated 17 May 2016 (“Settlement Letter May 2016”) and settlement letter dated 1 June 2016 (“Settlement Letter June 2016”), the Bank entered into a settlement arrangement with the 1st 10 Defendant (“Settlement Arrangement”) for the full and final settlement of the 1st Defendant’s indebtedness under the Financing Facilities and the 1st Defendant’s guarantors’ indebtedness under their respective guarantees subject to the terms and conditions set out in the Settlement Letter May 2016 and Settlement Letter June 2016 (both are collectively referred to as “Settlement Letters”). [19] Pursuant to the terms of the Settlement Arrangement, it was agreed that the 1st Defendant pay to the Plaintiff bank, inter alia, as follows –

the sum of RM 28,000,000.00 (“Settlement Sum”) in 3 tranches, as follows: -

the first tranche of RM 16,000,000.00 shall be paid into an account nominated by the Bank (“said Account”) within 21 days from the date of the 1st Defendant’s acceptance of the Settlement Arrangement;

(ii) the second tranche of RM 2,000,000.00 shall be paid into the said Account within 60 days from the date of 1st Defendant’s acceptance of the Settlement Arrangement; and 11

(iii) the third tranche of RM 10,000,000.00 shall be paid into the said Account from the proceeds of sale of Frenz Hotel owned by one Wood Star Hotel Sdn. Bhd. not later than six (6) months from the date of issuance of the Bank’s undertaking to withdraw its caveat over the said property.

in the event of any default of the terms / payments as set out in the Settlement Letters, the Bank reserves the right to treat the Settlement Arrangement as terminated and of no effect, and the Bank shall be at liberty to exercise all of its rights and remedies including its right to continue with legal proceedings against the 1st Defendant and its guarantors to recover in full, the outstanding sums under the Financing Facilities and the said guarantees less such amounts as may have been received prior to the termination of the Settlement

time wherever mentioned in the Settlement Letters is of the essence; and 12

nothing contained in the Settlement Letters shall be construed as a waiver and / or forbearance on the part of the Bank to exercise any of its rights or remedies vis-a-vis any breach or default by the 1st Defendant and its guarantors, and nothing in the Settlement Letters shall be deemed as releasing or discharging the 1st Defendant and its guarantors’ respective obligations, liabilities and indebtedness to the Bank. [20] Suit 36 was withdrawn with liberty to file afresh and with no order as to costs on 18 July 2016. [21] In breach of the 1st Defendant’s obligations under the Settlement Arrangement, the 1st Defendant had defaulted in making payment of the remaining balance of the Settlement Sum amounting to RM 824,815.21 (“Balance Settlement Sum”). [22] Pursuant to the 1st Defendant’s default –

vide letter dated 20 December 2012 to the 1st Defendant, the Plaintiff terminated the Settlement Arrangement and 13 demanded for payment of the total outstanding sums under the Financing Facilities as at 26 November 2018; and

vide letter dated 8 January 2019 to the 1st Defendant to the 8th Defendants, the Plaintiff demanded for payment of the total outstanding sums under the Financing Facilities as at 26 November 2018 Contentions of the 1st Defendant and 2nd Defendant [23] The grounds forwarded by the 1st Defendant and 2nd Defendant to resist the summary judgment application may be summarized as follows –

the Financing Facilities have been terminated and replaced by the Settlement Arrangement. Under the Settlement Arrangement the 1st Defendant still has time to pay the Balance Settlement Sum given that time is no longer of the essence; 14

the former officer of the Bank had represented to D1 that its indebtedness to the Bank under the Financing Facilities would be settled upon payment of the Settlement Sum;

the Bank’s termination of the Murabahah Facilities is premature because the tenure of the same is until 30 June 2016;

the 1st Defendant did not receive the Plaintiff’s demands;

as the Bank did not revive the transactions under the Financing Facilities, the Bank is not entitled to further compensation fee from 26 March 2019 onwards;

the Bank’s claim is for interest which is forbidden in Islamic banking and the Plaintiff has failed to grant to the 1st Defendant ibra under the Ijarah facilities; and

the Bank has overclaimed by RM 10,864,028.64 as the Bank should have been paid USD 4,040,040.04 by Agritrade International Pte. Ltd. instead of RM 16,000,000.00. 15 8th Defendant’s contentions [24] The 8th Defendant basically denies the claim made by the Plaintiff against him. Further arguments may be summarized as follows –

the 8th Defendant’s obligation and liability under the 8th Defendant’s Guarantee has been released upon payment made to the Plaintiff of the sum RM 10,000,000.00 from the proceeds of the sale of Frenz Hotel;

the Corporate Guarantee provided by Agritrade International Pte Ltd and the 8th Defendant’s Guarantee is for the purpose of securing the 1st Defendant’s indebtedness under the Ijarah Facilities. Since Agritrade International is not named as a party in this instant action, the 8th Defendant ought not to have been named a party;

the Plaintiff is estopped from claiming the full outstanding indebtedness under the Financing Facilities as the Settlement Arrangement entered between the Plaintiff and the 1st Defendant had superseded all prior arrangements and the default (if any) by the 1st Defendant at the material time; 16

the Plaintiff’s termination of the Settlement Arrangement on 20 December 2018 is unlawful, unreasonable and / or invalid as there has been substantial performance by the 1st

any default on the part of the 1st Defendant under the Settlement Arrangement to pay RM 824,815.21 was caused by the Plaintiff’s negligence. The alleged negligence is particularised at paragraph 25 (a) of the 8th Defendant’s Statement of Defence and of significance is the Plaintiff’s release of the charge over the Perak Land without first ensuring that the 1st Defendant has paid all the settlement sum of RM 2 million to the Plaintiff;

the 8th Defendant’s obligation and liability under the 8th Defendant’s Guarantee is limited to the Ijarah facilities and does not include the Murabahah and Murabahah Tawarruq

the balance under the Settlement Arrangement is RM 767,687.60 and not RM 824,815.21; and 17

whether the Bank may file this action when the Bank did not pray for liberty to file afresh under Suit 36. The law [25] Pursuant to Order 14 rules 1 and 2 of the Rules of Court 2012 (“RoC 2012”), in an application for summary judgment, it is incumbent on an applicant seeking the same to prove the following –

the statement of claim has been served on the defendant;

the defendant has entered appearance; and

the applicant has affirmed an affidavit verifying the facts on which the statement of claim is based. The applicant is also required to affirm his belief that the defendant has no defence to the statement of claim. [26] Upon the fulfilment of the above preliminary requirements the burden is on the defendant to prove under Order 14 rules 3 and 4 of the RoC 2012 that there is an issue or question in dispute which ought to be tried (National Company For Foreign Trade v. Kayu Raya Sdn Bhd [1984] 1 CLJ (Rep) 283, [1984] 2 MLJ 300; Cempaka Finance Bhd v. Ho Lai Ying & Anor [2006] 3 CLJ 544, [2006] 2 MLJ 685). An application for 18 summary judgement may also be dismissed by the court if the defendant satisfies the court that there ought for some other reason to be a trial namely there are circumstances that ought to be investigated by the court (United Merchant Finance Bhd v. Majlis Agama Islam Negeri Johor [1999] 2 CLJ 151, [1999] 1 MLJ 657). [27] As what amount to triable issue, the Supreme Court in Bank Negara Malaysia v Mohd Ismail & Ors [1992] 1 MLJ 400; [1992] 2 CLJ Rep 186; [1992] 1 CLJ 653 held – In our view, basic to the application of all those legal propositions, is the requirement under O 14 for the court to be satisfied on affidavit evidence that the defence has not only raised an issue but also that the said issue is triable. The determination of whether an issue is or is not triable must necessarily depend on the facts or the law arising from each case as disclosed in the affidavit evidence before the court… 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 in an 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 not triable. In our opinion, unless this principle is adhered to, a judge is in no position to exercise his discretion judicially in an O 14 application. Thus, apart from identifying the issues of fact or law, the court must go one step further and determine whether they are triable. This principle is sometimes expressed by the statement 19 that a complete defence need not be shown. The defence set up need only show that there is a triable issue. Findings of the court Preliminary requirements [28] There is no dispute that the Plaintiff’s Statement of Claim was served on the 1st Defendant, 2nd Defendant and 8th Defendant. The 1st Defendant and 2nd Defendant had entered their appearances vide Memorandum of Appearance at enclosures 7 and 4 respectively. While the 8th Defendant’s Memorandum of Appearance is at enclosure 5. [29] The Plaintiff has set out in their affidavit in support (enclosure 12) of the summary judgment application adequate facts including the salient terms upon which the Financing Facilities was granted and the relevant contemporaneous documents in relation to the Financing Facilities in particular the Murabahah Facilities, Murabahah Tawarruq Facilities, Ijarah Facilities and the Financing Agreements. With regards to the securities for the Financing Facilities, the 1st Defendant and 2nd Defendant vide the Individual Guarantees and 8th Defendant vide the 8th Defendant’s Guarantee has agreed to jointly and severally guaranteed to the Plaintiff not merely as sureties but also as principal debtors the 20 payment on demand of all monies due and owing by the 1st Defendant to the Plaintiff under the Financing Facilities. [30] The Plaintiff has also deposed that the 1st Defendant, 2nd Defendant and 8th Defendant are justly and truly indebted to the Plaintiff the sums claim as particularised in paragraph 5 of the Plaintiff’s affidavit enclosure 12 and that the said sums is still due and owing. It is further averred by the Plaintiff the 1st Defendant, 2nd Defendant and 8th Defendant has no defence to their claim. [31] Base on the aforesaid, this court finds the Plaintiff has fulfilled the preliminary requirements. Thus the Plaintiff has established a prima facie case in respect of its claim against the 1st Defendant, 2nd Defendant and 8th Defendant. [32] The burden therefore shifts on the said Defendants to prove that there are issue or question in dispute which ought to be tried or there ought for some other reason to be a trial, namely, there are circumstances that ought to be investigated by the court. 21 Purported triable issues raised by the 1st Defendant, 2nd Defendant and 8th Defendant (hereinafter collectively referred to as “the Defendants’) Settlement Arrangement [33] It is a common defence of the Defendants that the Plaintiff is estop from claiming under the Financing Facilities as the said facilities has been terminated and replaced by the Settlement Arrangement. It is further contended by the Defendants that the Plaintiff therefore can only claim the balance outstanding under the Settlement Arrangement and not the outstanding sum under the Financing Facilities. [34] It is not disputed that the Settlement Arrangement was agreed between the Plaintiff and the 1st Defendant as evident from the Settlement Letters. Vide paragraph 2 of Settlement Letter June 2016 it was agreed that the settlement sum of RM 28 million was to be paid in 3 tranches and at the time stated therein. [35] Importantly, the 1st Defendant in its affidavit enclosure 34 did not dispute the Settlement Arrangement. The 1st Defendant also did not dispute that the manner of payment is as agreed in Settlement Letter June 2016 and they have defaulted in complying with the payment 22 arrangement. Thus the 1st Defendant is bound by the terms of the Settlement Letters. [36] Paragraph 2 (h) of the Settlement Letter May 2016 (which is to be read with paragraph 4 of Settlement Letter June 2016) states as follows – h. in the event of any default of the terms / payments as set out in the Settlement Letters, the Bank reserves the right to treat the Settlement Arrangement as terminated and of no effect, and the Bank shall be at liberty to exercise all of its rights and remedies including its right to continue with legal proceedings against you [1st Defendant] and Individual Guarantors …. to recover in full, your outstanding indebtedness under your financing facilities with the bank and the outstanding indebtedness of the abovenamed 2nd to 9th Defendants [in Suit 36] under their respective guarantees (less such amounts as may have been received and retained by the bank pursuant to the settlement arrangement herein prior to the termination of the same) without any further reference to you. [37] In view of the above express provision, the Defendants’ contentions that the Settlement Arrangement has replaced the Financing Facilities and / or the Financing Agreements is untenable. This is especially so when the 1st Defendant has defaulted in complying with the terms of payment. Since there is no allegation of fraud in the execution of the Settlement Letters, the Defendants are therefore bound by the above provision. As there is a default in payment by the 1st Defendant, 23 the Plaintiff has the right to terminate the Settlement Arrangement (which they had done so vide letter dated 20 December 2018 at Exhibit KFH-10 of enclosure 12) and whether the 1st Defendant has substantially performed the Settlement Arrangement is irrelevant. Thus termination of the Settlement Arrangement is lawful and the Plaintiff is entitle to enforce the Financing Agreements in respect of the Financing Facilities. [38] Thus the contentions by the Defendants that they were not notified by the Plaintiff of the Plaintiff’s intention to claim the full outstanding sums under the Financing Facilities and as stated in the Plaintiff’s Statement of Claim is a non-issue. It follows the contentions that the Plaintiff is only entitle to claim the balance settlement sum under the Settlement Arrangement and not the 1st Defendant’s indebtedness under the Financing Facilities is flawed. [39] Due to the termination of the Settlement Arrangement the 1st Defendant’s contentions that they still have time to pay the balance settlement sum of RM 767,687.60 is unfounded. [40] As stated above, the 1st Defendant did not dispute that the terms of the Settlement Arrangement in respect of payment of the Settlement 24 Sum (RM 28 million) was not paid in full. Hence the 1st Defendant cannot rely on the purported representation by the Plaintiff’s officer that the 1st Defendant’s indebtedness under the Financing Facilities would be settled upon payment of the Settlement Sum. As the Settlement Arrangement had been terminated due to default by the 1st Defendant, the 1st Defendant’s indebtedness and that of the 2nd Defendant and 8th Defendant in relation to the Financing Facilities remain unextinguished. In any event it is not the pleaded case of the Defendants that the Settlement Arrangement was concluded premised on the Plaintiff’s misrepresentation as there were no specific particulars of such misrepresentation set out in their pleadings. Financing Facilities / Financing Agreements [41] It is argued by the 2nd Defendant that she did not receive the Plaintiff’s demand in respect of the Financing Facilities. The Plaintiff’s demand were sent via letter dated 8 January 2019 to the 2nd Defendant (Exhibit KFH-11 page 1864 of enclosure 12). As can be seen from the proof of posting, the letters were sent by ordinary post and not registered post. 25 [42] The 2nd Defendant relies on clause 4 of the Individual Guarantees which provides any notice of demand under the guarantee shall be in writing and shall be sufficiently served to the Guarantors if sent by telegram, telex or registered post. If effected by registered post the notice shall be deemed to have been duly served in 3 days of posting.