Malaysian Technology Development Corporation Sdn. Bhd. v 1. ) Shaharudin Bin Ahmad (BA-22NCvC-335-08/2023)

SHAHARUDIN BIN AHMAD (No. K/P: 640507-10-5721 / 7308260)

SABARIAH BINTI AHMAD (No. K/P: 621209-01-5054 / 6981003) …DEFENDAN-DEFENDAN JUDGMENT Introduction [1] This case pertains to an allegation of a funding agency's mismanagement of public funds entrusted to it, as well as a beneficiary entity's squandering of the allocated funds. The funding agency aims to reclaim the funds provided to the said entity through the summary judgment process. In response, the guarantors of the said entity contend, 25/07/2024 12:18:41 BA-22NCvC-335-08/2023 Kand. 31 S/N e3exhqAHw06Vh2bzUsZvPA among other arguments, that witnesses must testify to elucidate why the funding agency did not halt or terminate funding when the beneficiary entity failed to meet set milestones. This, according to the guarantors, renders the summary judgment procedure unsuitable. The Core Issue [2] The fundamental issue in this instant matter is whether the Plaintiff is entitled to invoke the summary judgment procedure under Order 14 of the Rules of Court 2012. Central to this inquiry lies the determination of whether the Plaintiff's case is beyond dispute, and whether the Defendants have presented issues that necessitate a trial of the action. The Parties and the Background Facts [3] The Plaintiff in this action in the Malaysian Technology Development Corporation Sdn Bhd. It was set up to spearhead the technology development for SMEs in Malaysia via its venture capital and fund management activities. [4] The First Defendant is Shaharudin bin Ahmad and the Second Defendant is Sabariah binti Ahmad. [5] The Malaysian government has introduced the Commercialization of Research and Development Fund ("CRD Fund") for the purpose of enhancing the commercialization of research results and local development. The fund is managed by the Plaintiff. S/N e3exhqAHw06Vh2bzUsZvPA [6] Kejuruteraan Emas Sdn Bhd (“KESB”), a company involved in the manufacturing and trading of vehicle components had made a pitch for the CRD Fund from the Plaintiff for the purpose of commercializing asbestos-free brake pads. The First and the Second Defendants are the directors and guarantors for KESB. [7] By way of a Letter of Offer dated 24 February, 2012, the Plaintiff had offered the said CRD Fund amounting to RM2,564,200.00 to KESB for purposes of commercializing asbestos-free brake pads. [8] Following that, the Plaintiff and KESB entered into an agreement – the Commercialisation of Research & Development Fund Agreement – on 2 April, 2012. Generally, CRD Fund recipients are allowed to use the CRD Fund for specific purposes as agreed under the fund agreement. KESB is responsible for re-paying the CRD Fund to the Plaintiff based on the payment schedule and terms in the fund agreement. [9] The Defendants thereby entered into a “Guarantee and Indemnity – Commercialisation of Research and Development Fund Agreement” with the Plaintiff with Clause 3 providing as follows: Clause 3 As an inducement to MTDC disbursing the Funding Amount and in consideration of MTDC having agreed to the application made by the Company to make available the Funding Amount to the Company, the Guarantors hereby unconditionally, irrevocably and jointly and severally guarantee as principal debtors and not merely as sureties to MTDC, the due and punctual repayment of the Funding Amount or any part thereof, S/N e3exhqAHw06Vh2bzUsZvPA all interest accrued thereon (if any) and all fees, costs and charges, whatever monies due and outstanding (‘the Indebtedness”) arising from breach of the Fund Agreement and the due performance and observance of all the agreements, covenants and undertakings on the part of the Company contained in the Fund Agreement and/or in the event of discontinuation of the Fund by MTDC pursuant to Clause 13.1 of the Fund Agreement. [10] The other pertinent clauses, namely, Clauses 4, 6, 8, 13 and 18 read as follows: Clause 4 This Guarantee and Indemnity is a continuing guarantee and shall remain in full force and effect until the whole of the Indebtedness (if any) shall have been paid or satisfied in full by the Company. Clause 6 MTDC shall not be required to first proceed against the Company or exhaust any remedy it may have against the Company or enforce any agreement. MTDC shall be entitled to have recourse to this Guarantee and Indemnity and to demand and receive payment from the Guarantors when any payment is due under the Fund Agreement and, following demand, remains unpaid. Clause 8 The Guarantors hereby unconditionally, irrevocably and jointly and severally agree to fully indemnify MTDC from and against any expense, S/N e3exhqAHw06Vh2bzUsZvPA loss, damage or liability that MTDC may incur as a consequence of the occurrence of any Event of Default under the Fund Agreement … . Clause 13 The Guarantor shall not, whether or not the indebtedness shall have been paid or satisfied in full, call on MTDC to sue or take proceedings against the Company or raise a defence, set off or counterclaim in reduction of their liability hereunder … . Clause 18 The obligations of the Guarantors hereunder shall not be discharged except by performance. Such obligations shall not be subject to any prior notice of demand to the Guarantors with regard to any default of the Company and shall not be impaired by any extension of time, forbearance or concession given to the Company … . [11] As KESB had complied with Clause 8.1(u) of the Commercialisation of Research and Development Fund Agreement by providing the Plaintiff with the Guarantee and Indemnity signed by the Defendants, the Plaintiff thereby released a sum amounting to RM2,304,129.76 to KESB for the said project. [12] On or around October 2018, following a review conducted by the Plaintiff on the implementation of the Project by KESB, it was found that KESB had failed to comply with the terms and conditions in the Commercialisation of Research and Development Fund Agreement, particularly KESB's failure to reach the Project Milestone level as provided S/N e3exhqAHw06Vh2bzUsZvPA in the said Agreement. The Plaintiff then informed KESB on 11 April, 2019 of its decision to terminate the Project. [13] Notices of demand were then sent by the Plaintiff to KESB and the Defendants and this was followed by the filing of suit BA-22NCvC-67 – 02/2021 (“Suit 67”) to seek the amount owed under the said agreement. This led to further negotiations for settlement between the parties and an agreement for Suit 67 to be withdrawn with liberty for the Plaintiff to file afresh. KESB did make a payment for a sum of RM5,000.00 to the Plaintiff but KESB was wound up by the Kuala Lumpur High Court on 19 September, 2022. [14] Ultimately, the Plaintiff filed a new suit against the Defendants and the present concern of this Court relates to an application by the Plaintiff in Enclosure 12 to enter Summary Judgment against the Defendants pursuant to Order 14 of the Rules of Court, 2012. The Parties’ Contentions [15] In support of its application for summary judgment, the Plaintiff averred as follows:

Plaintif telah memasuki Perjanjian tersebut dengan Kejuruteraan Emas Sdn. Bhd. (“KESB”) di mana Plaintif bersetuju untuk menyalurkan dana berjumlah RM2,564,200.00 kepada KESB bagi tujuan mengkomersilkan pad brek bebas asbestos (commercialisation of asbestos-free brake pads) (“Projek tersebut”); S/N e3exhqAHw06Vh2bzUsZvPA

Selaku pengarah-pengarah KESB dan selaras dengan peruntukan Klausa 8.1(u) Perjanjian tersebut, Defendan-defendan telah menandatangani satu Jaminan dan Ganti Rugi (Guarantee and Indemnity – Commercialisation of Research and Development Fund) bertarikh 02.04.2012 (“Jaminan tersebut”) di mana Defendan-defendan telah memberikan jaminan tanpa syarat kepada Plaintif untuk membuat pembayaran jumlah tertunggak di bawah Perjanjian tersebut tepat pada masanya, sepertimana mereka adalah penghutang utama di bawah Perjanjian tersebut;

Plaintif telah menyalurkan 90% daripada dana tersebut, iaitu sebanyak RM2,304,129.76 (“Dana tersebut”) kepada KESB bagi menjalankan Projek tersebut;

Walau bagaimanapun, setelah Plaintif menjalankan semakan terhadap KESB, Plaintif mendapati bahawa KESB telah gagal untuk mematuhi terma-terma dan syarat-syarat Perjanjian tersebut berikutan kegagalan KESB untuk mencapai tahap Milestone Projek tersebut seperti yang diperuntukkan dalam Perjanjian tersebut. Pelanggaran Perjanjian tersebut oleh KESB tidak dipertikaikan oleh Defendan-defendan;

Plaintif kemudiannya telah menamatkan Perjanjian tersebut dan menuntut KESB untuk membayar kembali keseluruhan jumlah dana yang telah diberikan kepada KESB, iaitu sebanyak RM2,304,129.76; S/N e3exhqAHw06Vh2bzUsZvPA

Setakat tarikh pemfailan permohonan ini, KESB telah membuat bayaran sebanyak RM5,000.00 bagi jumlah tertunggak di bawah Perjanjian tersebut. Maka, KESB dan Defendan-defendan masih berhutang dengan Plaintif masing-masing di bawah Perjanjian tersebut dan Jaminan tersebut sebanyak RM2,299,129.76 (“Jumlah Tertunggak”);

Selaras dengan Klausa 6 Jaminan tersebut, Plaintif berhak untuk menuntut daripada Defendan-defendan kerana mereka mempunyai tanggungjawab untuk membayar jumlah tertunggak yang masih belum dibayar dan kekal terhutang oleh KESB terhadap Plaintif. Pada setiap masa material, Defendan-defendan tidak pernah mempertikaikan jumlah yang dituntut oleh Plaintif mahupun tanggungjawab mereka di bawah Jaminan tersebut untuk menjelaskan Jumlah Tertunggak; dan

Defendan-defendan tidak mempunyai pembelaan yang bermerit kepada tindakan ini dan tiada sebarang isu-isu yang harus dibicarakan (triable) dalam tindakan ini yang memerlukan perbicaraan penuh. [16] The Defendants conceded that the application is in order, that is, they are not raising any preliminary objections. [17] The crux of the Defendants’ defence is that the Plaintiff has failed to mitigate their losses. [18] The Defendants further argued that the following questions, namely: S/N e3exhqAHw06Vh2bzUsZvPA

Sama ada yang dikatakan kerugian yang dialami oleh Plaintif adalah hasil daripada tindakan mereka sendiri;

Sama ada Plaintif telah gagal mengambil tindakan sewajarnya untuk mengurangkan yang dikatakan kerugian; dan

Sama ada Defendan-Defendan wajar dipertanggungjawabkan ke atas yang dikatakan keberhutangan KESB are triable issues that disentitled the Plaintiff to the summary judgment sought. [19] The Defendants’ case is further premised on the fact that it was the Plaintiff that had failed to adhere to the terms of the Funding Agreement in that the Plaintiff should have stopped channelling the funds to KESB when KESB had failed to achieve the milestones. The Applicable Law and Principles [20] As the Defendants have conceded that the preliminary requirements of Order 14 have been complied with, what remains for this Court to consider is whether there is or are triable issue(s) within the meaning of Order 14 rule 3 of the Rules of Court 2012. [21] Order 14 rule 3(1) of the Rules of Court 2012 provides as follows: Judgment for plaintiff (O. 14, r. 3) S/N e3exhqAHw06Vh2bzUsZvPA

(1) Unless on the hearing of an application under rule 1 either the Court dismisses the application or the defendant satisfies the Court with respect to the claim, or the part of a claim, to which the application relates that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of that claim or part, the Court may give such judgment for the plaintiff against that defendant on that claim or part as may be just having regard to the nature of the remedy or relief claimed. [22] In terms of case law, the Plaintiff relied on KM Quarry Sdn Bhd v Ho Hup Construction Co Bhd [2006] CLJU 297; [2006] 7 MLJ 203; [2006] 5 MLRH 136 for the proposition that “whenever the existence of an indebtedness has been established and put in place, one should refrain from making a futile attempt to find, or worst still, create a triable issue, when there is none”. [23] The Plaintiff also cited the case of Yusni Bin Meon v Ipmuda Berhad [2017] AMEJ 0740; [2017] CLJU 935; [2017] MLJU 926; [2017] MLRHU 566 which expounded on the obligation of a guarantor. [24] Malayan Banking Bhd v Worthy Builders Sdn Bhd & Ors [2015] AMEJ 303; [2015] CLJU 84; [2015] 3 MLJ 791; [2015] 3 MLRA 309 was cited by the Plaintiff for the proposition that “any party disputing a sum ought to protest at the earliest opportunity, and remaining in silence will not permit him, in law, to escape liability”. In the instant case, it is the Plaintiff’s submission that the Defendants have never raised any objection nor disputed the sum claimed. S/N e3exhqAHw06Vh2bzUsZvPA [25] In support of their contention that it was the “kecuaian dan ketidakcekapan pentadbiran Plaintif sendiri menyumbang kepada yang dikatakan kerugian yang dialami Plaintif, dan oleh itu Plaintif tidak wajar menuntut gantirugi tersebut” and “bahawa Plaintif telah gagal mengambil tindakan sewajarnya untuk mengurangkan kerugian mereka (failed to mitigate their loss)”, the Defendants referred this Court to the case of Leong Hin Enterprise Sdn Bhd v Chevron Malaysia Ltd [2018] MLJU 1747. The relevant part of the judgment relied by the Defendants are as follows: It is established law that a party cannot recover damages for a loss, which he could have avoided or reduced, if he had acted reasonably. This principle was reiterated by the Supreme Court in Malaysia Rubber Development Corporation Berhad v Glove Seal Sdn Bhd, at page 792, as follows: It is settled principle that the plaintiff is under a duty to take reasonable steps to mitigate the loss consequent to the defendant’s wrong and he will not get any damages in respect of any part of the loss which is due to his neglect to take such steps … . The Decision of this Court [26] The evidence presented to this Court undeniably leads to the conclusion that the Defendants have acknowledged breaching the terms of the Commercialisation of Research and Development Fund Agreement by KESB. The Plaintiff's action against the Defendants is grounded in the explicit terms of the Guarantee and Indemnity – Commercialisation of Research and Development Fund Agreement. S/N e3exhqAHw06Vh2bzUsZvPA [27] The Defendants' assertions regarding Clauses 6, 8, 13, and 18 of the Guarantee and Indemnity – Commercialisation of Research and Development Fund Agreement, stating that they are "clearly biased and highly prejudicial to the Defendants, and should not be enforced against them" and that "there was an imbalance of negotiating power between the Plaintiff and Defendants when signing this Guarantee and Indemnity Agreement, with the Plaintiff clearly having a stronger negotiating position than the Defendants”, deserve due consideration by this Court. However, in the opinion of this Court, these assertions do not constitute as an issue or question in dispute that should be subjected to trial within the meaning of Order 14, Rule 3(1) of the Rules of Court 2012. [28] The Defendants' additional arguments, contending that the Plaintiff neglected its duty to mitigate losses and suggesting the need for witnesses to explain "why the Plaintiff continued to channel the funds despite KESB clearly not reaching any of the designated milestones outlined in the Agreement," while clever, do not qualify as an issue or question in dispute warranting trial under Order 14, Rule 3(1) of the Rules of Court 2012. [29] The principle to mitigate losses as enunciated in Leong Hin Enterprise Sdn Bhd v Chevron Malaysia Ltd and Malaysia Rubber Development Corporation Berhad v Glove Seal Sdn Bhd merits due consideration. [30] The mitigation of damages doctrine, also referred to as the doctrine of avoidable consequences, serves to prevent an injured party, such as the Plaintiff in this case, from recovering damages that could have been reasonably avoided. Primarily applied in tort and contract law contexts, S/N e3exhqAHw06Vh2bzUsZvPA the duty to mitigate damages typically arises when one party receives notice that the other party does not intend to fulfil its contractual obligations. However, in the present case, this doctrine is not applicable as there has been no indication of a breach of contract triggering the duty to mitigate damages. [31] In view of above findings, the Plaintiff’s application for summary judgment in Enclosure 12 is allowed with costs. [32] The Defendants to each pay costs of RM5,000.00 to the Plaintiff, subject to allocatur. Dated: 25 July, 2024 sgd [CHOONG YEOW CHOY] Judicial Commissioner High Court of Malaya Shah Alam Counsel: Khairunnajihah Aqila binti Mohd Sofian for the Plaintiff (Messrs. Azmi & Associates) Puteri Imee Zarilah binti Megat Abdullah for the Defendants (Messrs. Tarmizi Marzuki & Sulaiman) S/N e3exhqAHw06Vh2bzUsZvPA