Mohd Farid Bin Mohamed Sangido v Ace Credit (M) Sdn Bhd (WA-22NCC-547-08/2023)

CHOONG CHEE MENG DEFENDANTS GROUNDS OF JUDGMENT

This is one of many cases where the Defendants have been sued concerning the Investment Agreement entered between various individuals, the First Defendant and in this case was allegedly guaranteed by the Second and Third Defendants. S/N JJmfj6fdK0muzcwgj4JBIw B. Background Facts 2. The Plaintiff and the First Defendant did enter into the following agreement: - No Investment Agreement Investment Sum (RM) Investment Period Maturity Date Return Rate 1 Investment Agreement dated 23-9-2021 1,000,000 12 months 22-9- 2022 15%

Material terms of the said Investment Agreement are as follows: -

The Second and Third Defendants had also provided the Personal Guarantee dated 23-9-2021. The terms of the said Personal Guarantees are as follows: -

The First Defendant has since been wound up by an order of the High Court.

The Plaintiff claims he had received the memorandum dated 19-9- 2022 issued by the management of ACE Holdings Berhad. The Plaintiff also refers to the memorandum issued by the management of ACE Group dated 27-12-2022.

It is not disputed that the First Defendant did not pay the agreed investment return or the principal sum invested. The Defendants deny that they are indebted to the Plaintiff.

I also note that the Plaintiff had issued notice of defaults on the First Defendant and the other Defendants via letters dated 21-10-2022 and 28- 10-2022 notifying the said Defendants, that the First Defendant has failed to pay the sums due to the Plaintiff under the terms of the said Investment Agreement. Copies of the said letter were also issued to the Second and Third Defendants. The Defendants were notified that they were required to rectify the said default.

A response was issued by the Defendants via its solicitors’ letter dated 31-10-2022 on behalf of the First Defendant denying the existence of any form of breach. I also refer to the letter issues by Messrs Liza Khan on behalf of the Second and Third Defendants dated 22-11-2022.

The Plaintiff contends that the First Defendant did not comply with its obligations under the terms of the Investment Agreement.

The Defendants have filed their Defence and Counterclaim to the Plaintiff’s Claim.

12.

The Defendants contends: -

The Plaintiff had provided a loan to the First Defendant of his own free will and had offered to the First Defendant that the said loan is premised on an agreed interest at 15% per annum. This caused the 1st Defendant to agree to take the alleged loan from the Plaintiff as alleged above.

12.2. The said loan is an unlawful money lending transaction and should not be enforced by this Court. There is no investment but is merely an unlawful money lending transaction undertaken by the Plaintiff to the First Defendant.

12.3. The Plaintiff was aware of the risks involved in the said transaction as outlined in Section 4.03 and the First Defendant’s obligation to pay the sums under the said Investment Agreement is subject to the performance of the Company (First Defendant). The business that the First Defendant is involved in, is with substantial risk and the Plaintiff knew that the ability to pay is depends on the performance of the First Defendant.

12.4. The Plaintiff is not required to pay the said sums as the obligation to pay is subject to the risk involved under Section 4.03. As the First Defendant did suffer the consequences of the Covid-19 pandemic, it should not be required to pay the sums as alleged by the Plaintiff.

12.5. The Profit / Target Return is not guaranteed but is merely an estimation and dependent on the performance of the First Defendant.

12.6. The Plaintiff’s claim should be dismissed as it is an attempt to enforce an illegal money lending transaction perpetrated by the Plaintiff against the First Defendant. The liability against the other Defendants as guarantors should also not be entertained as there is no liability against the First Defendant.

12.7. The Second and Third Defendants also allege that they did not guarantee the performance of the obligation but only promised that the First Defendant would comply with their promises.

12.8. That since the said loan is unlawful the Second and Third Defendant are not bound by the terms of the guarantee.

12.9. That the Plaintiff has failed to prove that the First Defendant is liable and as such, Second and Third Defendants are not liable. The Plaintiff should first exhaust all remedies and claims against the First Defendant. Liability against the First Defendant should S/N JJmfj6fdK0muzcwgj4JBIw be proven before liability is imposed against the Second and Third Defendants. C. Trial 13. This claim was heard on 6-1-2024 and the following witnesses testified: -

The Plaintiff personally

The Second Defendant – on his behalf and on behalf of the Third Defendant.

Directions for submissions were given and parties have complied with the same. D. Decision of this Court 15. The following issues have been identified during the course of this trial and must be decided by this Court: -

15.1 Whether the Second and Third Defendants’ contention that the said profits and principal sum claimed are not due as the said S/N JJmfj6fdK0muzcwgj4JBIw sums will only be paid if the First Defendant is profitable. (Issue 1)

15.2 Whether the Second and Third Defendants contention that the said profits and principal sum claimed are not due as the Plaintiff had agreed to bear the risks of the said investments in accordance with Section 4.03 of the Investment Agreement. (Issue 2)

15.3 Whether the Second and Third contention that the Plaintiff need not be paid as the said Investment Agreement is void as the said transaction is unlawful due to the breach of the Moneylenders Act

(Issue 3)

15.4 Whether the Second and Third Defendants are not liable if they did not allegedly agree to guarantee the performance of the Firstt Defendant’s obligation to pay any sums outstanding but had only promised that the First Defendant will comply with the terms of the agreement i.e. it is a letter of comfort and not a guarantee. (Issue 4)

15.5 Whether the Second and Third Defendants are liable as the liability against the First Defendant was allegedly not established and that the Plaintiff should exhaust all claims against the First Defendant (Issue 5) S/N JJmfj6fdK0muzcwgj4JBIw Determination on Issue 1 and Issue 2 – Allegedly Sums are not due as they are dependent on the profits of the Company 16. I will first deal with Issue 1 and Issue 2 as identified above.

It is trite law that this Court is not entitled to rewrite the terms that have been agreed to by the litigants and must interpret the terms of the Contract based on the terms that have been agreed upon.

I refer to the judgment of the Gopal Sri Ram FJ in the often-cited case of Berjaya Times Square Sdn. Bhd. v. M-Concept Sdn Bhd [2010] 1 CLJ 269: - “[42] Here it is important to bear in mind that a contract is to be interpreted in accordance with the following guidelines. First, a court interpreting a private contract is not confined to the four corners of the document. It is entitled to look at the factual matrix forming the background to the transaction. Second, the factual matrix which forms the background to the transaction includes all material that was reasonably available to the parties. Third, the interpreting court must disregard any part of the background that is declaratory of subjective intent only. Lastly, the court should adopt an objective approach when interpreting a private contract. S/N JJmfj6fdK0muzcwgj4JBIw See, Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 All ER 98. As Lord Clyde said in Bank of

Credit and Commerce International SA v. Munawar Ali [2001] 2 WLR ”

I refer to the decision of the Court of Appeal in Lau Ngiik Ping & Anor v. Bank Pertanian Malaysia [1992] 3 CLJ 1437 where the High Court held: - “In dealing with matters such as this, one cannot look at the issue in isolation just because the execution of the loan agreement, the release of the loan and the execution of the charge instrument affecting the lands took place on different dates or occasions. Azmi CJ (Malaya) (as he then was) in Yang Chin Lang V. Tan Chong & Sons Motor Co. Ltd [1968] CLJU 173; [1968] 1 LNS 173 at p. 10 has this to say: In my view on the authority of Oriental Bank of Malaya Ltd. v. Subramaniam, the Court in this case may consider the circumstances of the whole case in interpreting the intention of the parties.”

It is therefore trite that this Court must consider the following in deciding whether the argument put forth by the Second and Third Defendants are correct: - i. a Court interpreting a private contract must first look at the words that appear in the instrument and as a general rule it is bound by what parties agreed on. ii. a Court cannot rewrite the terms of the instrument. iii. however, if the terms of the contract are not clear and ambiguous, the Court may look beyond the four corners of the document and consider the background facts to determine the appropriate interpretation of what was agreed on. iv. this includes all material that was reasonably available to the parties. v. the interpreting court must disregard any part of the background that is declaratory of subjective intent only. vi. the court should adopt an objective approach when interpreting a private contract.

After considering the terms and conditions as they appear in the Investment Agreement, and the evidence of the witnesses appearing for the litigants, I find that there is no ambiguity in the terms of the agreement S/N JJmfj6fdK0muzcwgj4JBIw and this Court need not look beyond the four corners of the said instrument.

I find that the Plaintiff has proven that the First Defendant is obliged to pay the sums as claimed by the Plaintiff. The terms as they appear in the said Investment Agreement shows that the First Defendant had promised to pay a targeted return or profits at the rate of 15% per annum based on the amount invested and that the principal sum must be repaid in full on the maturity date of the said Agreement.

This agreed rate of return is not dependent on the profitability of the First Defendant. The parties agreed that the First Defendant will pay the targeted return of 15% per annum on the amount invested by the Plaintiff.

I have also considered Section 4.03 of the said Investment Agreement which indicates that the said investors are sophisticated investors and are aware of the financial risks when investing with the First Defendant.

This does not mean that the said targeted returns and payment of the principal sum invested will depend on the financial performance of the First1st Defendant. Section 2.01 and Section 2.03 state that the said Investment principal sum and the targeted return will be paid at the maturity date and in accordance to the investment target rate of return.

Furthermore, the said clauses did not state that the said payments are dependent on the performance of the First Defendant or its profitability as suggested by the Second and Third Defendants. If this was the case, then this should have been clearly stated in Section 2.01 and Section 2.03 of the said Investment Agreement.

The table attached to the said Investment Agreement also shows that the said principal sum and the targeted returns must be paid in accordance with Section 2.01 and Section 2.03 of the said Agreement.

I note that Section 4.03 (A) does say that “..the investment involves a substantial degree of risk as the return of the Investor is very much dependent on the performance of the Company’s investment” and Section 4.3 (F) does state “That the Investor is capable of bearing the high degree S/N JJmfj6fdK0muzcwgj4JBIw of economic risks and burdens of this venture including..the possibility of complete loss of investment and the lack of a public market which may make it impossible to readily liquidate the investment whenever desired.”

When I consider the relevant clauses, i.e. Section 2.01, Section 2.02, Section 2.03 and Section 4.03, and the terms of the agreement as a whole, I find that the obligation of the First Defendant is not dependent on the financial performance of the Company. The said obligation to pay the targeted investment return and the principal sum invested is payable at the agreed rate, at the agreed time, and the agreed sums as stated in Section 2.01 to Section 2.03.

I find that the obligation to pay the agreed return is not dependent on the performance of the First Defendant. The said sums are payable once the investment tenure has come to its full maturity. As I said earlier, if that was intended then it should be clearly provided in the terms of the said Agreement. This was not reflected clearly in Section 4.03 and the First Defendant did not make it clear that the payment of the principal sum and the investment return are only payable if the First Defendant was profitable or able to make payments of the sums due. Neither does it say that the obligation to pay at the agreed rate is subject to the performance S/N JJmfj6fdK0muzcwgj4JBIw of the Company and its profitability. If that had been the intention, then it should have been specified that Section 2.01 and Section 2.03 are subjected to Section 4.03. That intention was not reflected in the said Agreement.

Therefore, if the First Defendant wanted to ensure that the targeted returns were dependent on the performance of the Company, then this must be clearly stated in the said Investment Agreement.

Under those circumstances, I cannot and should not interpret the said clauses in accordance with the position suggested by the Second and Third Defendants. That will be contrary not only to the words that appear in the said Investment Agreement but also will allow the said Defendants to renege on what they have agreed to.

Even if there is such ambiguity as suggested by the said Defendants, I find that the said clauses must be construed adversely to the party who proffered it for execution. In this case, this would be the said Defendants. Furthermore, the Second and Third Defendants were senior S/N JJmfj6fdK0muzcwgj4JBIw management of the First Defendant and cannot feign ignorance of the First Defendant's obligations.

I refer to Kandasami v. Mohamed Mustafa [1983] 2 MLJ 85 where Lord Brightman in the Privy Council held: - “… there is a principle of construction that if a document inter partes contains an ambiguity which cannot otherwise be satisfactorily resolved, it is to be construed adversely to the party who proffered it for execution.”

I also refer to Malaysian Motor Insurance Pool v. Tirumeniyar Singara Veloo [2019] 10 CLJ 731 where Alizatul Khair Osman FCJ held: - “[98] Coming to the contra proferentum rule, it provides that where a term is ambiguous, such ambiguity ought to be construed against the party who prepared it. In general contracts, common law courts have been quick to apply against 'unfair terms' like exclusion or exemption clauses. But the rule sees particular application in insurance contracts. This point is aptly summarised in MacGillivray on Insurance Law (12th edn), at pp. 317-318: The common law rule of construction, that verba chartarum forties accipiuntur contra proferentum, means that ambiguity in the wording in S/N JJmfj6fdK0muzcwgj4JBIw a policy, or slip, is to be resolved against the party who prepared it. It has been said that a party who proffers an instrument cannot be permitted to use ambiguous words in the hopes that the other party understand them in a particular sense and that the court which has to construe them will give them a different meaning, but the ambiguity usually arises inadvertently from including conflicting standard printed clauses in the same policy.”

Therefore, I find that the terms of the Investment Agreement when considered as a whole do not fit within the interpretation suggested by the Defendants. I opine that the said principal sum and targeted return must be paid by the said First Defendant.

The sums are due and payable by the First Defendant. The Agreement has fully matured and must be paid by the First Defendant to the Plaintiff as claimed in this proceeding.

Even if I am wrong on the above, for the Defendants to successfully rely on Section 4.03 of the Agreement, they must show evidence that the First Defendant’s investment had failed or soured and they were unable S/N JJmfj6fdK0muzcwgj4JBIw to pay the targeted returns. The only evidence produced is the memorandum issued to the investors and the oral testimony of the Second Defendant.

I do note that the Defendants put substantial reliance on the Covid- 19 pandemic and the alleged inability of the First Defendant to collect on the debts owed to it. However, I do not accept such contention. There is no substantial evidence produced to this Court by the Defendants to substantiate the said allegation. To merely point the finger to the Covid-19 pandemic is not sufficient to enable the Defendants to escape liability.

For the above reasons, I find that Issue 1 and Issue 2 as identified earlier must be determined in favor of the Plaintiff. Therefore, I do not find that the said investment amount and the targeted returns are dependent on the performance of the Company and that the said sums are not payable. Determination on Issue 3 – Alleged Moneylending Transaction 41. On this issue, I find that the Plaintiff is not in the business of money lending and that the said Investment Agreement is not in breach of S/N JJmfj6fdK0muzcwgj4JBIw Section 15 of the Moneylenders Act 1951. I find that the Defendants have failed to show that the said Agreement is in breach of the Moneylenders Act and therefore the said Agreement is not unlawful as suggested by the Defendants.

I reproduce the relevant statutory provisos for ease of reference: -

No person shall carry on or advertise or announce himself or hold himself out in any way as carrying on the business of moneylending unless he is licensed under this Act. Section 15 No moneylending agreement in respect of money lent after the coming into force of this Act by an unlicensed moneylender shall be enforceable. Section 2 "moneylender" means any person who carries on or advertises or announces himself or holds himself out in any way as carrying on the S/N JJmfj6fdK0muzcwgj4JBIw business of moneylending, whether or not he carries on any other business. "moneylending" means the lending of money at interest, with or without security, by a moneylender to a borrower. "moneylending agreement" means an agreement made in writing between a moneylender and a borrower for the repayment, in lump sum or instalments, of money borrowed by the borrower from the moneylender. Section 10OA Where in any proceedings against any 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

I accept that if there is evidence of a single loan with interest as suggested by the Defendants, there will then be a presumption that the said person is in the business of moneylending. However, for the said presumption to be applicable, it must be established that there was a loan granted by the Plaintiff to the First Defendant with interest.

In this case, the Defendants claim that the said Investment Agreement is a sham instrument and that in reality, the said transaction was a loan granted with interest.

I find that the evidence before me produced by the Defendants does not prove that the said Investment Agreement was a sham instrument that was created to cloak what is allegedly a moneylending transaction.

Furthermore, this allegation is contrary to the letters and instruments issued by the Defendants. The Memorandums dated 27-12-2022 and 19- 9-2022 issued by the management of Ace Holdings Berhad and the ACE Group of companies, of whom included the First and Second Defendants, clearly show that they had repeatedly referred to this agreement as Investment Agreement. They were not referred to as loans granted by the Plaintiff to the companies. This shows that this is merely an afterthought created by the Defendants to prevent personal liability for what they have guaranteed to the Plaintiff.

Therefore, the Defendants reliance on the said statutory presumption and on the dicta of our Courts in Global Globe Property S/N JJmfj6fdK0muzcwgj4JBIw (Melawati) Sdn Bhd v. Jangka Prestasi Sdn Bhd [2020] 6 MLJ 333, Tiong Shiun San & Ors v. Lee Kim Jiung [2020] MLJU 765, Lee Kuang Gen v. Tan Sri Dato’ Seri Dr M Mahadevan a/l Mahalingam & other appeals [2024] 1 MLJ 825 and Sureshraj a/l Krishnan v PV Power Engineering Sdn Bhd & Ors [2021] MLJU 2504 are misplaced.

Even if I am wrong on the above, I find that even if the presumption is applicable in this case, the said legal presumption is not conclusive and may be rebutted by evidence produced at trial. If no such evidence is produced, then the presumption remains. See Triple Zest Trading & Suppliers & Ors v. Applied Business Technologies Sdn Bhd [2023]

In this case, the Plaintiff denies that he was in the business of moneylending. This is sufficient for this Court. The evidence before me shows that the Plaintiff had only agreed to invest in the First Defendant with a promise that the Plaintiff would receive returns at a fix rate of return. The investment sum invested will also be paid in full upon the maturity date of the said Agreement.

The Plaintiff has also credibly denied that he was in the business of moneylending or that the said Agreement was actually a money lending agreement. There is no credible evidence produced by the Defendants to prove otherwise.

For the said reason, I accept that the Plaintiff is not in the business of moneylending. The Defendants have failed to provide credible evidence to support their claim that the Plaintiff is involved in such business. Despite the Plaintiff's clear rejection of this claim, the burden was on the Defendants to prove it, which they have not done. Additionally, the Plaintiff's firm denial, supported by the evidence, convince me that he has not engaged in moneylending. Therefore, this Court reject the Defendants' contention and accept the Plaintiff’s position.

In addition to the above, I also find that the First Defendant is in the business of money lending and did utilize the said monies for its business. Surely, if the First Defendant finds that this transaction is unlawful it would not have entered into such transactions with the Plaintiff and other investors. I do not accept the Defendants’ contention and I find that this is merely an afterthought created by the said Defendants to defeat the Plaintiff’s claim.

I also refer to the maxim “equity will not permit statute to be used as an engine of fraud”. See Rasiah Manusamy v. Lim Tan & Sons Sdn Bhd [1985] CLJ Rep 266 and Sia Siew Hong & Ors v. Lim Gim Chian [1996] 3 CLJ 26. How the said maxim has been applied, varies and depend on the facts of each case. I am of the view that our Courts have relied on the said maxim when it finds that to allow a party to rely on a particular statute to defeat the claim of a litigant would be unconscionable due to the facts of each case.

I find that this maxim should be utilized in this case. The said Defendants are directors of the said Company and would have also been aware of the legal requirements of the law. To now allow them to resile on their obligations as promised to the Plaintiff and such investors alike will allow them to abuse the law to their own advantage.

Furthermore, I find it unlikely for a company, ACE Credit (M) Sdn Bhd and its directors, that is involved in the business of moneylending and licensed under the Moneylenders Act, to have agreed to an unlawful money-lending transaction. The said Company is a licensed moneylender and would have known the legality of such transactions. I find that it would have been unlikely for the said Company to have agreed to an unlawful S/N JJmfj6fdK0muzcwgj4JBIw transaction knowing fully well of the requirements of the applicable principles of law. This would apply to the Second and Third Defendants being directors of the said entity.

Therefore, I find that the said Investment Agreement is not a money-lending transaction as suggested by the Defendants. I reject the said defence.

Under those circumstances, I reject the contention raised by the Defendants and rule on Issue 3 in favor of the Plaintiff. Determination – Issue 4 and Issue 5 – Whether the Second and Third Defendants had guaranteed the obligations of the Plaintiff and should the liability of the First Defendant be proven first and exhausted 58. It is also clear to this Court that the Second and Third Defendants did provide a guarantee of the performance of the First Defendant of its obligations to the Plaintiff.

I refer to the Section 79 of the Contracts Act, 1950 which provides: “A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety"; the person in respect of which default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written.”

I refer to the judgment of the Court of Appeal in Lim Chon Jet & Ors v. Wee Ai Hua & Anor [2022] 10 CLJ 348 where Che Mohd Ruzima Ghazali JCA held: - “[39] Under s. 79 of the Contracts Act 1950 (CA 1950), a 'contract of guarantee' is defined as a contract to perform the promise or discharge the liability of a third person in the event of his default. The person who gives the guarantee is called the 'surety', the person in respect of which default the guarantee is given is called the 'principal debtor' and the person to whom the guarantee is given is called the 'creditor'. Therefore, there must be three parties involved under a contract of guarantee: the surety, the principal debtor and the creditor. It is an undertaking to guarantee the obligations of a named principal. A contract of guarantee is essentially a collateral contract by which a guarantor undertakes to S/N JJmfj6fdK0muzcwgj4JBIw answer for the default of the principal debtor to the creditor. As regards to the liability, the guarantor only owes a secondary obligation to the creditor to make good the particular defaults of the principal debtor. See the cases of Yeoman Credit Ltd v. Latter & Anor [1961] 2 All ER 294, South East Asia Insurance Bhd v. Nasir Ibrahim [1992] 4 CLJ 1801; [1992] 1 CLJ (Rep) 295 and Bank Pembangunan Malaysia Bhd v. Spring Hill

I note that the said Defendants argue that they have only agreed to provide a letter of comfort and not a guarantee or promise that they will comply with the performance of the promises made by the First Defendant. This is in line with the line of cases that arose after Kleinwort Benson Ltd v. Malaysia Mining Corporation Bhd [1989] 1 All ER 785.

I find that the said argument is contrary to the terms of the guarantee executed by the Defendants. I therefore reject the said contention. The words that appear in the said instruments clearly state that the Second and Third Defendants had agreed to provide a guarantee for the due performance of the First Defendant’s obligations. They are therefore bound to fulfil the promise or discharge the liability of the First Defendant as it has defaulted on its obligation to the Plaintiff.

I have taken the above position after considering the judgment of the Court of Appeal in OSK Trustees Berhad v Kerajaan Malaysia [2015] 1 LNS 1551 where Balia Yusof Wahi JCA held: - "[35] The effect to be attributed to each letter of awareness or letter of comfort is essentially a matter of construction and each case must be seen in the light of its own facts and circumstances. .... [37] A similar approach was adopted in HSBC Ltd v. Jurong Engineering Ltd & Ors (Supra): "However, the operation of the presumption does not detract the court from its fundamental task, which is to ascertain the true bargain between the parties, to seek the substance and reality of the transaction and to ascertain what common intentions should be ascribed to the parties. In carrying out this task of construction, the court is to have regard to the surrounding circumstances as well as the specific text of the Letter of Awareness" [38] This court, in North South Properties Sdn. Bhd. & Ors v. David Teh Teik Lim & Anor [2005] 2 CLJ 510, also stated that whether a letter of comfort is capable of giving rise to a legally binding undertaking will S/N JJmfj6fdK0muzcwgj4JBIw depend on the intention of the parties and the circumstances under which the same is given. [39] The burden of determining the true meaning of the document lies within the court. Lord Clyde in Bank of Credit and Commerce International SA v. Munawar Ali [2001] 1 ALL ER 961 at page 987 had this to say; "The knowledge reasonably available to them (that is to say the parties to the contract) must include matters of law as well as matters of fact. The problem is not resolved by asking the parties what they thought they intended. It is the imputed intention of the parties that the court is concerned to ascertain. The parties may well have never applied their minds to the particular eventuality which has subsequently arisen, so that they may never in fact have had required and a solution should be found which is both reasonable and realistic. The meaning of the agreement is to be discovered from the words which they have used read in the context of the circumstances in which they made the agreement. The exercise is not one where there are strict rules but one where the solution is to be found by considering the language used by the parties against the background of the surrounding circumstances". (emphasis added) .... S/N JJmfj6fdK0muzcwgj4JBIw [51] We are not unmindful of the fact that there is a presumption with commercial arrangements that parties intend to create legal relations and thus make a contract, and that courts will strive to give legal effect to such arrangements (Gate Gourmet Australia Pty Ltd (In liquidation) v. Gate Gourmet Holdings AG (Supra). The Federal Court had expressed a similar sentiment in Charles Grenier Sdn Bhd v. Lau Wing Hong [1997] 1 CLJ 625; [1996] 3 MLJ 327 stating that the law leans in favour of upholding bargains and not striking them down following the principle laid down in Hillas & Co v. Arcos Ltd [1932] All ER Rep 494. However, while the courts should strive to give effect to the express arrangements and expectations of those engaged in business, there can be no binding and enforceable obligation unless the term of the bargain, or at least its essential and critical terms, have been agreed upon (Atco Controls Pty Ltd (In Liquidation) v. Newtronics Pty Ltd [2009] VSCA 238)."

I note that the Defendants contend that the Second and Third Defendants are allegedly not liable as the obligation only lies with the First Defendant. They say that they are not made principal debtors of the sums due and that the said guarantee does not stated that the Second and Third Defendants are obliged to pay the full sums that are due from the First S/N JJmfj6fdK0muzcwgj4JBIw Defendant. They submit that they did not agree to indemnify the Plaintiff for its losses. I do not accept the said contention.

I agree that the said guarantee did not state that the Second and Third Defendants will be liable as principal debtors but that does not excuse the said Defendants from their obligations as guarantors under the terms of the said guarantee agreement. They have agreed that they will “guarantee and ensure full performance of all obligations and undertakings of” the First Defendant. Therefore, pursuant to Section 79 of the Contracts Act, the Second and Third Defendants agreed that they will perform the promise or discharge the liability of the First Defendant in the event of its default. As such, I reject the contention raised by the Defendants.

I further note that the Second and Third Defendants contend that the claim should first be made against the First Defendant. It is alleged that it is only when the said Defendant fails to make payment will the liability, if any, falls on them. I have considered the line authorities that make it clear that the guarantors’ liability is dependent on the obligations of the principal debtor as in Leong Weng Choon v. Consolidated Leasing (M) Sdn Bhd [1998] 3 CLJ 619. In this case, the liability of the S/N JJmfj6fdK0muzcwgj4JBIw First Defendant is crystal clear. The sums claimed against the said Defendant are now crystalized and are due. There is no clause either in the main agreement or the guarantee agreement that the liability of the Second and Third Defendants only arise once judgment is pursued in full against the Firstt Defendant. Therefore, I reject the said contention.

I refer to the decision of the Court of Appeal in Razshah Enterprise Sdn Bhd v. Arab Malaysian Finance Bhd [2010] 2 CLJ 457, where Abdul Malik Ishak JCA explained: - “[62] According to s. 79 of the Contracts Act 1950 (Act 136):

'Contract of guarantee', 'surety', 'principal debtor', and 'creditor' A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of which default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written. [63] And s. 80 of the Contracts Act 1950 (Act 136) talks about consideration for a guarantee and it is worded as follows: Consideration for guarantee

Anything done, or any promise made, for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee. [64] Illustrations (a) and (b) of s. 80 of the Contracts Act 1950 (Act 136) are relevant to the occasion at hand and they are worded as follows:

B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods, C promises to guarantee the payment in consideration of A's promise to deliver the goods. This is a sufficient consideration for C's promise.

A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year and promises that, if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C's promise. [65] Yeoman Credit Ltd. v. Latter And Another[1961] 1 WLR 828, CA; Sunbird Plaza Proprietary Limited v. Maloney and Another [1988] 166 CLR 245; Direct Acceptance Finance Ltd v. Cumberland Furnishing Pty Ltd [1965] NSWR 1504; Total Oil Products (Aust) Pty Ltd v. Robinson [1970] 1 NSWR 701; General Surety & Guarantee Co Ltd v. Francis Parker Ltd [1977] 6 Build LR 16; Re Richards Ex p Lloyd, Official Receiver [1935] 8 ABC 37; WC Angliss Co (Aust) Pty Ltd S/N JJmfj6fdK0muzcwgj4JBIw [1935] 8 ABC 37; Browing And Another, Assignees of Morgan, a Bankrupt v. Stallard [1814] 5 Taunt 450, 128 ER 764; Commercial Banking Co of Sydney Ltd v. Patrick Intermarine Acceptances Ltd (In Liq) And Another [1978] 52 ALJR 404, PC, at 406; and Western Dominion Investment Co. v. MacMillan [1925] 2 DLR 442 and affirmed and reported in [1925] 4 DLR 562, CA defined the meaning of the word "guarantee" as a binding promise of a person to be answerable for the present or future debt or obligation of another person when that other person defaults. [66] Lord Diplock in style described the guarantor's obligation in Moschi v. Lep Air Services Ltd. And Others [1973] AC 331 as nothing more than "to see to it that the debtor performed his own obligations to the creditor" (see p. 348 of the report). [67] It is quite easy to paraphrase what s. 79 of the Contracts Act 1950 (Act 136) says. It is this. That the person who makes the promise to be answerable for the debt or obligation of another is called the guarantor or the surety; while the person to whom the promise is made is called the creditor; and the person on whose behalf the promise is made is called the principal debtor. Here, the defendant was the guarantor or the surety. The borrower was the principal debtor while the plaintiff was the creditor. It was a tripartite relationship based on the loan agreement. The S/N JJmfj6fdK0muzcwgj4JBIw expressed intention of the parties as set out in the loan agreement must be given effect. [68] In criticising the doctrine of privity of contract, Steyn LJ's remarks in Darlington Borough Council v. Wiltshier Northern Ltd And Another [1995] 1 WLR 68 at p. 76 bear repetition. This was what his Lordship said: The case for recognising a contract for the benefit of a third party is simple and straightforward. The autonomy of the will of the parties should be respected. The law of contract should give effect to the reasonable expectations of contracting parties. Principle certainly requires that a burden should not be imposed on a third party without his consent. But there is no doctrinal, logical or policy reason why the law should deny effectiveness to a contract for the benefit of a third party where that is the expressed intention of the parties. [69] The loan agreement is in the nature of a contract of guarantee. The elements of a guarantee are certainly present here. I can do no better than to quote what Jordan CJ said Jowitt v. Callaghan [1938] 38 SR (NSW) 512, at 516: A contract of guarantee or suretyship is a contract between two persons which is intended by them to secure the performance of the obligation of a third person to one of them. The existence, present or future, of the obligation of a third person, and an intention in the parties S/N JJmfj6fdK0muzcwgj4JBIw to the contract to secure the performance of that obligation, are essential features of a contract of guarantee. If these elements are present, the contract is one of guarantee whether the promise be collateral to the promise of a principal obligor and in the nature of a distinct and separate promise to perform the principal obligation if he does not: Inland Revenue Commissioners v. Holder [1931] 2 K.B. 81 at 101-102, [1932] A.C. 624 at 634; Elder v. Northcott [1930] 2 Ch. 422 at 430; or whether it be a joint promise with the principal obligor by virtue of which an immediate obligation is assumed to the obligee which is joint with that of the principal obligor: Permanent Trustee Co. of N.S.W. Ltd. v. Hinks [1934] 34 S.R. (NSW) 130 (in which case, there is suretyship in equity though not at common law: Wauthier v. Wilson [1912] 28 T.L.R. 239); and whether the promise be a promise to be personally liable if the principal obligor does not perform the obligation, or a promise merely that certain property of the promisor shall be a security for the performance of the principal obligation: Re Conley, Ex parte The Trustee v. Barclays Bank Ltd. [1938] 2 All E.R. 127. [70] It is quite easy to ascertain whether a contract is one of guarantee or otherwise. Firstly, just look at the natural meaning to be attached to the words employed in the contract (Pearson v. Goldsbrough Mort & Co S/N JJmfj6fdK0muzcwgj4JBIw Ltd [1931] SASR 320 at 327; Edwards v. Lennon (a) [1866] 6 SCR (NSW) Eq 18; and A A Davison Pty Ltd v. Seabrook [1931] 37 ALR 156). Secondly, one must look at the substantial character of the contract itself (Seaton v. Heath, Seaton v. Burnand [1899] 1 QB 782, CA). Thirdly, the need to look at the nature of the transaction between the parties (Re Sudell Ex p Simpson [1834] 3 Deac & Ch 792). [71] There is no set formula to create a guarantee (Welford v. Beazely [1747] 3 Atk 504, 26 E.R. 1090; and Bradley Bros Ltd v. Scott [1923] NZLR 1050, SC).”

I also refer to the judgment of Shanghai Shipyard Co Ltd v Reignwood International (Group) Co [2021] EWCA Civ 1147 at paragraph 33 where Lord Justice Popplewell held: - ‘A traditional guarantee by way of suretyship is an undertaking by the guarantor to be answerable for the debt or obligation of another if that other defaults. Traditional guarantees by way of suretyship are sometimes called “see to it” guarantees, following the dictum of Lord Diplock in Lep Air Services Ltd v Rolloswin Investments Ltd [1973] AC 331, 348 that the nature of the guarantor’s obligation was “to see to it that the debtor performed its own obligation to the creditor”. Where the debt or performance obligation arises under a contract between the obligor/debtor S/N JJmfj6fdK0muzcwgj4JBIw and obligee/creditor, the essential feature of such a guarantee, for present purposes, is that the liability of the guarantor depends upon there being a liability of the obligor/debtor. The guarantor’s liability is secondary, in the sense that it is contingent upon the obligor’s continuing liability and default. …’’

I further refer to the Privy Council decision in Moschi v. Lep Air Services Limited [1973] AC 331. In that case the clause of the instrument of guarantee states:- "(XIII) In further consideration of the above Mr Moschi has personally guaranteed the performance by Roloswin Investments Limited of its obligation to make the payments at the rate of £6,000 per week together with the final payment of £4,000 and hereinbefore set out so however that Mr Moschi's total obligation under this guarantee shall not exceed the total sum of £40,000 of which approximately £3,820 has already been paid as aforesaid."

Lord Reid giving the leading speech said at pages 344 to 345 as follows: - S/N JJmfj6fdK0muzcwgj4JBIw "His next argument is more formidable. He says, look at clause (XIII). It merely guarantees that each instalment of £6,000 shall be duly paid. But by reason of the accepted repudiation the contract was brought to an end before the later instalments became payable. So they never did become payable. All that remained after the contract was terminated was a claim for damages. But I never guaranteed to pay damages. If the creditor chooses to act so that future instalments are not payable by the debtor he cannot recover them from me. To meet that argument I think that it is necessary to see what in fact the appellant did undertake to do. I would not proceed by saying this is a contract of guarantee and there is a general rule applicable to all guarantees. Parties are free to make any agreement they like and we must I think determine just what this agreement means. With regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms of agreement. A person might undertake no more than that if the principal debtor fails to pay any instalment he will pay it. That would be a conditional agreement. There would be no prestable obligation unless and until the debtor failed to pay. There would then on the debtor's failure arise an obligation to pay. S/N JJmfj6fdK0muzcwgj4JBIw If for any reason the debtor ceased to have any obligation to pay the instalment on the due date then he would not fail to pay it on that date. The condition attached to the undertaking would never be purified and the subsidiary obligation would never arise. On the other hand, the guarantor's obligation might be of a different kind. He might undertake that the principal debtor will carry out his contract. Then if at any time and for any reason the principal debtor acts of fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principal debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principal debtor having failed to do what the guarantor undertook that he would do. In my view, the appellant's contract is of the latter type. He "personally guaranteed the performance" by the company "of its obligation to make the payments at the rate of £6,000 per week." The rest of the clause does not alter that obligation. So he was in breach of his contract as soon as the company fell into arrears with its payment of the instalments. The S/N JJmfj6fdK0muzcwgj4JBIw guarantor, the appellant, then became liable to the creditor, the respondents, in damages. Those damages were the loss suffered by the creditor by reason of the company's breach. It is not and could not be suggested that by accepting the company's repudiation the creditor in any way increased his loss. The creditor lost more than the maximum which the appellant guaranteed and it appears to me that the whole loss was caused by the debtor having failed to carry out his contract. That being so, the appellant became liable to pay as damages for his breach of contract of guarantee the whole loss up to the maximum of £40,000."

Lord Diplock in the same case had stated the following: - “It follows from the legal nature of the obligation of the guarantor to which a contract of guarantee gives rise that it is not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor, does something; and that the creditor's remedy for the guarantor's failure to perform it lies in damages for breach of contract only. That this was so, even where the debtor's own obligation that was the subject of the guarantee was to pay a sum of money, is clear from the fact that formerly the form of action against the guarantor which was available to the creditor was in special assumpsit and not in indebitatus assumpsit: Mines v. Sculthorpe (1809) 2 Camp. 215. S/N JJmfj6fdK0muzcwgj4JBIw The legal consequence of this is that whenever the debtor has failed voluntarily to perform an obligation which is the subject of the guarantee the creditor can recover from the guarantor as damages for breach of his contract of guarantee whatever sum the creditor could have recovered from the debtor himself as a consequence of that failure. The debtor's liability to the creditor is also the measure of the guarantor's. Whether any particular contractual promise is to be classified as a guarantee so as to attract all or any of the legal consequences to which I have referred depends upon the words in which the parties have expressed the promise. Even the use of the word "guarantee" is not in itself conclusive. It is often used loosely in commercial dealings to mean an ordinary warranty. It is sometimes used to mis-describe what is in law a contract of indemnity and not of guarantee. Where the contractual promise can be correctly classified as a guarantee it is open to the parties expressly to exclude or vary any of their mutual rights or obligations which would otherwise result from its being classifiable as a guarantee. Every case must depend upon the true construction of the actual words in which the promise is expressed."

The above remains good law as seen in McGuinness v Norwich and Peterborough Building Society [2011] EWCA Civ 1289 where Lord Justice Patten held: - “It is common ground that a guarantee of a loan may impose one or more of the following types of liability on the guarantor. These are: 1) a "see to it" obligation: i.e. an undertaking by the guarantor that the principal debtor will perform his own contract with the creditor; 2) a conditional payment obligation: i.e. a promise by the guarantor to pay the instalments of principal and interest which fall due if the principal debtor fails to make those payments; 3) an indemnity; and 4) a concurrent liability with the debtor for what is due under the contract of loan. The obligations in classes (2) and (4) create a liability in debt. But it is well established that an indemnity is enforceable by way of action for unliquidated damages: see Firma C-Trade SA v Newcastle Protection and Indemnity Association [1991] 2 AC 1 at pages 33-36. The liability arises from the failure of the indemnifier to prevent the person indemnified from suffering the type of loss specified in the contract. A guarantee of the "see to it" type has also been held by the House of Lords to create a liability in S/N JJmfj6fdK0muzcwgj4JBIw damages. The obligation undertaken by the guarantor is not one to pay the debt but consists of a promise that the debt will be paid by the principal debtor: see Moschi v Lep Air Services Ltd [1973] AC 331. Mr Moschi guaranteed the performance by a company of its obligation to discharge a pre-existing debt to the respondent at the rate of £6,000 per week subject to a cap on his liability of £40,000. When the company defaulted the creditor treated the contract as repudiated and proceeded to sue on the guarantee. Mr Moschi contended that as the contract had been brought to an end no further contractual instalments were payable and consequently there was no liability to make such payments under the guarantee. Lord Reid rejected this argument for the following reasons: "To meet that argument I think that it is necessary to see what in fact the appellant did undertake to do. I would not proceed by saying this is a contract of guarantee and there is a general rule applicable to all guarantees. Parties are free to make any agreement they like and we must I think determine just what this agreement means. With regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms of agreement. A person might undertake no more than if the principal debtor fails to pay any instalment he will pay it. That would be a conditional S/N JJmfj6fdK0muzcwgj4JBIw agreement. There would be no prestable obligation unless and until the debtor failed to pay. There would then on the debtor's failure arise an obligation to pay. If for any reason the debtor ceased to have any obligation to pay the instalment on the due date then he could not fail to pay it on that date. The condition attached to the undertaking would never be purified and the subsidiary obligation would never arise. On the other hand, the guarantor's obligation might be of a different kind. He might undertake that the principal debtor will carry out his contract. Then if at any time and for any reason the principal debtor acts or fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principal debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principal debtor having failed to do what the guarantor undertook that he would do. In my view, the appellant's contract is of the latter type. He "personally guaranteed the performance" by the company of its obligation to make the payments at the rate of £6,000 per week'. The rest of the clause S/N JJmfj6fdK0muzcwgj4JBIw does not alter that obligation. So he was in breach of his contract as soon as the company fell into arrears with its payment of the instalments. The guarantor, the appellant, then became liable to the creditor, the respondents, in damages. Those damages were the loss suffered by the respondents by reason of the company's breach. It is not and could not be suggested that by accepting the company's repudiation the respondents in any way increased their loss. The respondents lost more than the maximum which the appellant guaranteed and it appears to me that the whole loss was caused by the company having failed to carry out its contract. That being so, the appellant became liable to pay as damages for his breach of contract of guarantee the whole loss up to the maximum of £40,000." Lord Diplock reached the same conclusion. In his speech he traces the historical treatment of guarantees by the courts of common law not as obligations to pay a sum of money but as obligations to see to it that the debtor performs his own obligations to the creditor. Prior to the Common Law Procedure Acts this had procedural consequences. For a claim in debt the appropriate form of action was indebitatus assumpsit. But an action for compensation for breach of other types of contractual obligations had to be brought by way of special assumpsit: see page 347E-F. S/N JJmfj6fdK0muzcwgj4JBIw Lord Diplock's conclusions about the nature of a guarantor's liability are set out at pages 348H-349B: "It follows from the legal nature of the obligation of the guarantor to which a contract of guarantee gives rise that it is not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor, does something; and that the creditor's remedy for the guarantor's failure to perform it lies in damages for breach of contract only. That this was so, even where the debtor's own obligation that was the subject of the guarantee was to pay a sum of money, is clear from the fact that formerly the form of action against the guarantor which was available to the creditor was in special assumpsit and not in indebitatus assumpsit (Mines v Sculthorpe)." The legal consequence of this is that whenever the debtor has failed voluntarily to perform an obligation which is the subject of the guarantee the creditor can recover from the guarantor as damages for breach of his contract of guarantee, whatever sum the creditor could have recovered from the debtor himself as a consequence of that S/N JJmfj6fdK0muzcwgj4JBIw failure. The debtor's liability to the creditor is also the measure of the guarantor's."

Based on the above, after considering all the evidence before me and the applicable law, I find that the Second and Third Defendants did provide a guarantee to the Plaintiff and that they will perform the obligation of the First Defendant if the said Company fails to pay the sums that are due under the terms of the Investment Agreement. It is not merely a letter of comfort as suggested by the Defendants. I also do not find that the Plaintiff has not proven any liability against the First Defendant.

The sums were not paid and the terms of the Investment were not complied with. Furthermore, the First Defendant has since been wound up. These are all events of the defaults in the terms of the Investment Agreement and the necessary notices requiring remedy of the same have been issued.

When I read the Guarantee Agreement, it shows that the Second and Third Defendants had agreed to: -

provide a guarantee and ensure full performance of all obligations and undertaking of the First Defendant under the Investment Agreement.

(ii) that this guarantee will be for the Investment Sum and the Investment Target Return.

(iii) that they shall be jointly and severally liable for the sums due from the First Defendant. This is beyond the scope of what would be normally expected in a letter of comfort as claimed by the Defendants. That defence is erroneous and is rejected by this Court.

In these circumstances, I find that the Second and Third Defendants are liable to the Plaintiff and that judgment should be entered against the Defendants.

For purposes of clarity I find that the Defendants did breach the terms of the agreement. As I said earlier, the First Defendant has since been wound up and failed to pay the sums as agreed as stated in the terms of the agreement and did commit events of default as provided in Section 8.01 of the Agreement. I also find that the Second and Third S/N JJmfj6fdK0muzcwgj4JBIw Defendants are liable as guarantors and must pay the sums that are due from the First Defendant.

The Defendant has also placed reliance on Section 5(3) of the Insolvency Act, 1967 the decision of the Court in Yuri Zaharin bin Wahab v. Ann Joo Metal Sdn Bhd [2024] MLJU 2387 and the fact that the Plaintiff did file his proof of debt with the liquidator of the First Defendant.

I find that the Defendants’ arguments are wrong. The said issue concerning the exhaustion of mode of execution is only applicable when dealing with the issue of any proposed bankruptcy of a guarantor. This appears in the section relied on by the Defendants: - “(1) A creditor shall not be entitled to present a bankruptcy petition against a debtor unless-

the debt owing by the debtor to the petitioning creditor, or if two or more creditors join in the petition the aggregate amount of debts owing to the several petitioning creditors, amounts to one hundred thousand ringgit; …

A petitioning creditor shall not be entitled to commence any bankruptcy action-

against a social guarantor; and

against a guarantor other than a social guarantor unless the petitioning creditor has obtained leave from the court.

Before granting leave referred to in paragraph (3)(b), the court shall satisfy itself that the petitioning creditor has exhausted all modes of execution and enforcement to recover debts owed to him by the debtor.”

The above statutory provisos do not restrict the right of debtors to institute proceedings against guarantors. For the above reasons, I reject the said contention.

I also state herein that I prefer the evidence of the testimony of the Plaintiff’s witness to that of the Defendants. I find that the Plaintiff testimony is consistent with the documentary evidence before this Court and reflects the real intention of the parties.

I find that the evidence of the Defendants’ witness is merely an afterthought created to defend the Plaintiff’s claim. I therefore reject the evidence of the Defendants’ witness.

For the Defendants’ to now deny the liability on the grounds that they

did not agree to pay the targeted returns and the principal sums invested on the dates agreed upon and to (ii) claim that they bear no liability as guarantors show that they have not been honest and that, this Court cannot accept their defences. F. Defendants’ Counterclaim 84. The Defendants have also filed a Counterclaim against the Plaintiff seeking the following reliefs: -

Declaration that the said agreements are void, illegal and not enforceable.

(ii) General Damages.

(iii) Exemplary Damages.

(iv) Interest S/N JJmfj6fdK0muzcwgj4JBIw

The grounds for the said Counterclaim are premised on the same defences as the Plaintiff’s claim.

I also find that the said Counterclaim is without merit and should be dismissed by this Court G. Orders of this Court 87. For the above reasons, I enter judgment in favor of the Plaintiff as claimed in the Statement of Claim and costs of RM 15,000.00 to be paid by the said Defendants jointly and severally subject to allocator.

I also dismiss the Counterclaim by the Defendants. Dated 18 February 2025 Dato’ Indera Mohd Arief Emran bin Arifin Judge High Court of Malaya at Kuala Lumpur NCC5 S/N JJmfj6fdK0muzcwgj4JBIw Counsel: Razin Syakir for the Plaintiff Emir Mahmud & Co. Advocates & Solicitors Hilwa Nazifa & Sheena Stephanie for 2nd & 3rd Defendants