Small Medium Enterprise Development Bank Malaysia Berhad v 1. ) Al Shams Bread Manufacturing Sdn. Bhd. (JA-22M-107-12/2022)

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MOHD NASIR BIN MOHD ALI @ ADAM

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KAMISAH BINTI HARON … DEFENDANTS  GROUNDS OF JUDGMENT  INTRODUCTION [1] The core of the application by the First, Third, Fourth, Fifth and Sixth Defendants (hereinafter collectively referred to as “the Defendants”) (Enclosure 7) is to set aside the Judgment in Default (“JID”) entered against them. [2] After having read the Affidavits, written submissions by both the Plaintiff and the Defendants, and after having heard the oral submissions of the parties, I dismissed the Defendants’ application with costs of RM1,000.00 to be paid by each Defendant to the Plaintiff. [3] Below are the grounds of my decision. BRIEF BACKGROUND [4] By letter of offer dated 27.1.2014, the Plaintiff has granted the First Defendant (“D1”) financing facilities under Syariah principle of Bai' Bithaman Ajil (SBA) for the sum of RM432,000.00 with the selling price of RM1,599,685.77 and financing facilities under Syariah principle of Bai' lnah (BIN) for the sum of RM100,000.00 with the selling price of RM172,165.06 (hereinafter collectively referred to as “Financing Facilities 1"). The Plaintiff and the D1 has entered the Facilities Agreement on 7.3.2014 (“First Facilities Agreement”). [5] The Third Defendant (“D3”), Fourth Defendant (“D4”), Fifth Defendant (“D5”) and Sixth Defendant (“D6”) have executed the Joint and Several Guarantee and Indemnity Agreement dated 26.2.2014 to guarantee the repayment of the First Financing Facilities (“First Guarantee and Indemnity Agreement”). [6] By letter of offer dated 3.11.2014, the Plaintiff has granted the D1 the financial facilities under Syariah principle of ljarah Thummalbai (1TB) for the sum of RM967,000.00 with the rent price of RM1,291,550.74 and financial facilities under the Syariah principle of Bai' Bithaman Ajil (BBA) for the sum of RM168,000.00 with the selling price of RM224,223.96 (hereinafter collectively referred to as “Financing Facilities 2"). D1 has executed the Facilities Agreement dated 1.12.2014 between the Plaintiff and D1 ("Second Facilities Agreement”). The First Facilities Agreement and the Second Facilities Agreement will be collectively referred to as the “Facilities Agreements”. [7] D3, D4, D5 and D6 have executed the Joint and Several Guarantee and Indemnity Agreement dated 1.12.2014 for guarantee the repayment of the Second Financing Facilities (“Second Guarantee and Indemnity Agreement”). [8] The Plaintiff initiated a civil suit against the Defendants for the outstanding payment for Financing Facilities 1 and Financing Facilities 2 amounting to RM1,955,455.08 where the Defendants were claimed to be in default of the payment of the said sum. [9] The Plaintiff then obtained JID against the Defendants on 15.2.2023 after proving that the service to the Defendants were in accordance with the terms under the Facilities Agreements and subsequently proceeded to execute the JID by way of foreclosure proceeding via case No. JA-24MFC-74-01/2023. [10] The Defendants asserted that they were only informed about the JID against them upon receiving the documents related to the foreclosure proceeding initiated by the Plaintiff. Consequently, they filed this application to set aside the JID. ISSUES TO BE DETERMINED [11] The main issues for the determination of this Court are as follows:

whether there were any irregularities in the JID entered against the Defendants; and

whether there is merit in the Defendants’ defence to allow the JID to be set aside. COURT ANALYSIS AND FINDINGS Principles of law applicable on application to set aside judgment in default of appearance [12] Under Order 13 rule 8 of the Rules of Court, 2012 (“ROC 2012”), the court is vested with discretionary power to set aside or vary any judgment in default of appearance on such terms as it thinks fit. [13] As a general rule, regardless of whether the Defendant has raised a valid defence against the Plaintiff's claims, the JID which is irregular will be set aside as of right (ex debito justitiae) and without terms regardless of whether the Defendant has shown any defence on merits to the Plaintiff’s claims. [14] However, when such a JID is obtained regularly and in order to set it aside, there must be affidavits by the Defendant stating facts showing a defence on the merits. [15] Albeit the fact that there is a plethora of precedents which have provided the guiding principles on setting aside JID, suffice for me to quote the case of Lai Yoke Ngan & Anor v Chin Teck Kwee & Anor [1997] 2 MLJ 565 where the Federal Court, inter alia, held that— “The principle of setting aside a default judgment under O 13 r 8 has been well-established and needs no detailed repetition. What is important to observe is that a default judgment is not a judgment on the merits. Accordingly, when such judgment is obtained irregularly, such irregularity would be a sufficient ground by itself for setting it aside. But where the default judgment has been obtained regularly, in order to succeed, the defendant must file an affidavit of merits, ie the defendant must disclose by affidavit evidence that prima facie he has a defence on the merits. Put in another way, the affidavit must disclose that he has an arguable or triable issue on the merits (see Evans v Bartlam [1937] AC 473). The following judgment of Lee Hun Hoe CJ in Fira Development Sdn Bhd v Goldwin Sdn Bhd [1989] 1 MLJ 40 at p 41 is also instructive: Where judgment is entered on the failure of a defendant to take any of the procedural steps laid down under the Rules of the High Court 1980, the court has an absolute discretion to set aside the judgment, if necessary, on terms and allow the case to be heard on the merits. Lord Atkin stated clearly the principles in which the court should act in Evans v Bartlam [1937] AC 473 in these words: … The principle obviously is that unless and until the court has pronounced a judgment upon the merits or by consent, it is to have the power to revoke the expression of its coercive power where that has only been obtained by a failure to follow any of the rules of procedure.”. [Emphasis added] Whether there were any irregularities in the JID entered against the Defendants [16] The Defendants contended the tracking report from Pos Laju Malaysia showed the Plaintiff failed to serve Writ and Statement of Claim (“SOC”) on them as the cause papers were returned to the Plaintiff’s solicitor. Therefore, the JID obtained is irregular and as of right, it ought to be set aside. The Defendants cited the Court of Appeal’s decision in the case of Lau Pick Huong v Soh Huang Siah [2015] 7 MLJ 325 and Yap ke Huat & Ors v Pembangunan Warisan Murni Sejahtera & Anor [2008] 4CLJ 175 to support their arguments. [17] In order to rebut the Defendants’ argument, the Plaintiff has to prove that the JID entered against the Defendants is regular, the service of the Writ and SOC to the Defendants has to be proven regular. Thus, the Plaintiff bears the burden of proving due service of the Writ and SOC on the Defendants. Service on the D1 [18] In the present case, the Plaintiff has served the cause papers to D1 via certificate of posting and registered post to D1’s addresses as stated in the Facilities Agreements (page 223 of Enclosure 8) and verified by a search of the Companies Commission of Malaysia (page 59 of Enclosure 9) conducted by the Plaintiff on the D1’s company on 5.1.2023. [19] Clause 16.6 (b) of the Facilities Agreements in particular, as stated in page 30 of the Affidavit of Service (Enclosure 4) filed by the Plaintiff in regards to the service of the Writ and SOC to the Defendants, which provides as below: “The service of any legal process in respect of any action or proceeding may be effected on the Customer by forwarding a copy of the legal process by hand or by ordinary post with certificate of posting or ordinary post to the Customer's address given in this Agreement or at such other address as the Customer shall have notified to the Bank in writing and such Legal Process shall be deemed to have been served on the second (2nd) Business Day after posting and if delivered by hand, on the day it was delivered.”. [Emphasis added] [20] Further reference is made to the Order 10 Rule 3(1)(b) of the ROC 2012 which provides as follows:

“Service of writ in pursuance of contract (O. 10, r. 3)

Where—

a contract contains a term to the effect that the Court shall have jurisdiction to hear and determine any action in respect of a contract or, apart from any such term, the Court has jurisdiction to hear and determine any such action; and

the contract provides that, in the event of any action in respect of the contract being begun, the process by which it is begun may be served on the defendant, or on such other person on his behalf as may be specified in the contract, in such manner or at such place (whether within or out of the jurisdiction) as may be so specified, then, if an action in respect of the contract is begun in the Court and the writ by which it is begun is served in accordance with the contract, the writ shall, subject to paragraph (2), be deemed to have been duly served on the defendant.”. [Emphasis added] [21] Hence, the Writ and SOC were served on the D1 in accordance with Clause 16.6(b) of the Facilities Agreements and pursuant to Order 10 rule 3(1)(b) ROC 2012, the Writ and SOC are deemed to be served on D1 two (2) working days from the date of posting which was 10.1.2023. Service on the D3, D4, D5 and D6 [22] Clause 20 of the Second Guarantee and Indemnity Agreement (page 86 of Enclosure 4) provides that— “The service of notice and/or any legal process which includes pleadings, all forms of originating processes, interlocutory applications of whatever nature, affidavits, orders and such documents other than the aforesaid which are required to be served under the rules of Courts, the Companies Act, 1965 Bankruptcy Act, 1967 (includes any insolvency legislation enacted from time to time) and other relevant statutes and the rules made thereunder may be given by ordinary or registered post sent to the address as staled herein and shall be deemed to have been duly served and duly received upon the expiry of three (3) days after the same is posted. We further agree that no change of address of any of us shall be effective on you unless actual notice of the change of address have been given by us.”. [Emphasis added] [23] Consistently, the cause papers were sent to D3, D4, D5 and D6 via registered post to the addresses as stated in the Second Guarantee and Indemnity Agreement (page 83 of Enclosure 4) on 5.1.2023 and pursuant to Order 10 rule 3(1)(b) ROC 2012, the Writ and SOC are deemed to be served on 10.1.2023. The posting certificate was exhibited in page 8 of Enclosure 4. [24] Premised on this, it can be deduced that the Writ and SOC are deemed to be served to the Defendants after the posting of the documents to their respective addresses given under the Facilities Agreements or any other address notified to the Bank. This service is deemed effective if the posting was correctly addressed, prepaid and delivered to the post office and acknowledged for service by the postal authority and delivered, notwithstanding whether the Defendants have shown that the AR card has been returned duly acknowledged or not to constitute effective service of the cause papers (reference is made to the judgment of the Supreme Court in Amanah Merchant Bank Bhd. v Lim Tow Choon [1994] 1 MLJ 413). [25] Further, there was no evidence of notification of change of address had been served on the Plaintiff pursuant to Clause 20 of the Guarantee and Indemnity Agreement to enable D3, D4, D5 and D6 to complain of non-compliance with the contractual terms for service by the Plaintiff. [26] Reference is made to the case of CIMB Bank Berhad v Comsa Layers Farm Sdn. Bhd. & Anors [2011] 2 MLJ 118, where the High Court held that “when any service based on Order 10 rule 3(1)(b) of the RHC at the contractual address was also good. The first defendant had agreed to be served at the contractual address under section 19 of the facility agreement and there had been compliance with this contractual requirement of service of the writ on the first defendant.”. [27] In this context, the Plaintiff was acting within their contractual rights and thus, the Writ and SOC were deemed to be duly served to the Defendants. [28] In the case of TA Securities Bhd. v Ng Yen Ling [2000] 3 MLJ 743, the High Court held that— “[1] The writ in this case was sent by prepaid registered post to the proper address of the defendant and the deeming of para 23 and of O 10 R 3(1)(b) of the Rules of the High Court 1980 came into operation. The words 'shall be deemed' in para 23 meant 'shall be regarded as', meaning that the deeming was not meant to be a presumption and was therefore not something that was rebuttable. The court was bound by authorities to hold that the defendant was precluded from showing that she did not receive the writ. The court had to take it as conclusive that the writ was served on her. It was therefore not necessary for the court to consider the conduct of the defendant (seep 746C-F); Amanah Merchant Bank Bhd v Lim Tow Choon [1994] 1 MLJ 413 followed.”. [Emphasis added] [29] Applying the principle in the cases above, I find the arguments of the Defendants that they did not receive the Writ and SOC are devoid merits. The case of Lau Pick Houng v Soh Huang Siah (supra) cited by the Defendants is not applicable as the service of the JID was made under Order 62 Rule 6 ROC 2012 whereas in the present case, the service was done under Order 10 rule 3(1)(b) of ROC 2012 where the presumption is not rebuttable. [30] Therefore, I ruled that the service of the Writ and SOC on the Defendants were in accordance with Clause 16 Facilities Agreement and Clause 20 the Guarantee and Indemnity Agreement respectively. Hence, the Plaintiff has complied with Order 13 Rule 3(1)(b) of the ROC

[31] As a result, the JID entered is a regular judgment. Consequently, it is necessary to determine whether the Defendants have a meritorious defence in order to set aside the JID entered against them. Whether there is merit in the Defendants’ defence to allow the JID to be set aside [32] It is trite that in order to enter appearance and file their defence, the Defendants must prove to the Court that there are bona fide triable issues for the JID to be set aside (see Evans v. Bartlam [1937] AC 473). [33] In Hasil Bumi Perumahan Sdn.Bhd. v United Malayan Banking Corp Bhd [1994] 1 MLJ 312, the Supreme Court has ruled that— “…the guidelines in Evans v Bartlam should be accepted. In our view, in order to succeed in his application … the applicant must show that he has a defence which has some merits and which the court must try. To use common and plain language, the applicant must show that his defence is not a sham defence but one that is prima facie, raising serious issues as a bona fide reasonable defence.”. [Emphasis added] [34] Hence, the burden is on the Defendants to prove that they in fact have triable issues in their defence in order for them to succeed in this application. In that attempt, the Defendants have raised a few issues in supporting that contention where it will be discussed further below. The failure of the Plaintiff to serve Notice of Demand and Termination to the Defendants [35] The Defendants contended that they have not been served with the Notice of Demand and Termination before the Plaintiff filed this suit pursuant to Clause 10.1 (a) and (c) of the Facilities Agreements and relies on the case of RHB Bank Berhad v Fauzun bin Abdul Samad [2007] 8 MLJ 80 in support of the contention that it is mandatory for the Plaintiff to serve the notice, failing which is fatal to the Plaintiff’s claim. [36] Further, the Defendant has referred to the Federal Court decision in the case of Goh Teng Whoo & Anor. v Ample Objectives Sdn. Bhd. [2021] 3 MLJ 159 and argued that section 12 of the Interpretation Act 1948 and 1967 [Act 388] does not state the service by way of registered post is conclusive prove and the presumption can be rebutted. In the present case, the Defendants have denied receipt the same and the Plaintiff failed to produce the acknowledgment receipt of the Writ and SOC by the Defendants. Therefore, the presumption under section 12 of Act 388 is rebutted. [37] In rebutting this, the Plaintiff has proved the service of notice on 27.4.2022 to the Defendants as per the addresses as stated in the Facilities Agreements (for D1) and Guarantee and Indemnity Agreements (for D3, D4, D5 and D6) respectively. The proof of posting was exhibited as “Exhibit D-4” in page 45 of the Plaintiff’s Affidavit in Reply (Enclosure 9). This service is deemed to be effective as provided under Clause 16.6(a) of the Facilities Agreements and Clause 20 of the Guarantee and Indemnity Agreements respectively. [38] In this regard, reference is made to the case OCBC Bank (M) Bhd. v Otofin Power (KL) Sdn. Bhd. & Ors [2020] MLJU 1932, where the High Court ruled that it is irrelevant whether the notice of demand was actually delivered. It is sufficient for the Plaintiff to prove that the notice was properly addressed and posted. Even if the notice was subsequently returned undelivered by the postal authorities, the Plaintiff's contractual obligations regarding the service of the Notice of Demand and Termination are considered fulfilled. [39] The case cited by the Defendant, Lau Pick Huong v Soh Huang Siah (supra), is not applicable here. In that case, the parties had agreed that the Writ, SOC and JID would be served on the Defendant's solicitor before the Plaintiff initiated the action. The court in that case ruled that the presumption under section 12 of Act 388 was rebutted. In the present case, the service of the legal process is governed by Clause 16.6(a) of the Facilities Agreements and Clause 20 of the Guarantee and Indemnity Agreements, as agreed by the Parties. [40] Thus, I ruled this does not raise a triable issue. The consolidation of action based on Financing Facilities 1 and Financing Facilities 2 [41] The Plaintiff filed the action claiming the total outstanding amount against the Defendants under the Financing Facilities 1 and Financing Facilities 2 based on the Financial Agreements and Guarantee and Indemnity Agreements involved the same parties, same facts and same subject matters. [42] Clause 10.2 of the Facilities Agreements allow the Plaintiff to bring the action concurrently against the Defendants either under the Facilities Agreement or Guarantee and Indemnity Agreement for non-repayment of the Financing Facilities by D1. Therefore, the issue raised by the Defendants does not form an issue to be tried. The additional charge by the Plaintiff is ‘riba’ and is not allowed under Islamic Financing [43] The Defendant has contended that under Clause 11 of the Facilities Agreements and Clause 13 of the Guarantee and Indemnity Agreement, the Plaintiff is only allowed to charge costs and loss that are not exceeding the selling price and any additional charges would be amounting to riba which is not permitted under Islamic Financing. [44] In regards to this contention by the Defendants, I referred to Clause 11 of the Facilities Agreement (page 124 of Enclosure 8) and Clause 13 of Guarantee and Indemnity Agreement (page 15 of Enclosure 9) where it is reproduced below: “Clause 11 of the Facilities Agreement

11.1 The Customer shall fully indemnify the Bank from and against any expense including legal expenses on a solicitor and client basis, loss, damage or liability [as to the amount of which the certificate of the Bank (indicating how the total amount has been calculated) shall, in the absence of manifest error, be conclusive] they may incur as a consequence of any act deed or thing done by the Bank under the provisions or otherwise in relation to or in connection with this Agreement and the Security Documents and/or the documents related thereto. Without prejudice to its generality, the foregoing indemnity shall extend to any fees including legal expenses on a solicitor and client basis, or other sums whatsoever paid or payable in connection with the preservation or enforcement or attempted preservation or enforcement of any of the rights of the Bank under this Agreement, the Security Documents or related documents.

We agree and covenant that if the Customer shall in any respect fail to observe and perform to any of its obligations under the said Security Documents, or commits any breach of its obligations thereunder, then we shall indemnify you against all losses, damages, costs, expenses or otherwise which may be incurred by you by reason of any default on the part of the Customer in performing and observing the agreements, conditions, covenants and undertakings on its part therein contained.”. [Emphasis added] [45] The Plaintiff contended that the certificate issued by the authorized officer certified the outstanding amount shall be conclusive proof pursuant to Clause 16.2 Facilities Agreements and Clause 14 of First Guarantee and Indemnity Agreement and Clause 17 of the Second Guarantee and Indemnity Agreement respectively. [46] In this regard, I refer to the case of Cempaka Finance Bhd. v Ho Lai Ying & Anor [2006] 3 CLJ 544 where the Federal Court decided that the certificate of indebtedness issued under the express provision of the contract is final and conclusive evidence of the amount in the absence of any manifest error on the certificate, excusing the plaintiff from adducing the proof of debt and shifting the burden on to the defendant to disprove the amount claimed. [47] Furthermore, Clause 3.3 (c)(iii) dan (iv) of the Facilities Agreement provided that the Defendants will be given ibra' (rebate) if they settled the outstanding amount prior to the maturity date. However, in the present case, the Defendants were not entitled to any rebate. [48] Therefore, the Plaintiff is entitled to charge additional costs such as legal costs and expenses for enforcing the JID against the Defendants. Thus, this could not raise a valid defense on the Defendants’ part. Failure of the Plaintiff to deduct RM 51,324.23 from the owing sum [49] The Defendant contended that failure of the Plaintiff to deduct RM51,324.23 under the Bai' lnah (BIN) Facilities was unfair and not consistent with the Islamic banking principles. If the Plaintiff has deducted this amount, the D1 will be entitled to BIN under Clause 3.3 of the First Financing Facilities. Consequently, D1 is not required to pay the selling price of RM 622,399.67, as it is not yet due. [50] On this contention by the Defendants, the Plaintiff in the SOC itself had provided an answer to this issue. Paragraph 27 of the Plaintiff’s SOC is reproduced as follows: “27. Memandangkan Defendan-Defendan gagal, enggan dan atau cuai untuk mematuhi Notis Tuntutan dan Penamatan bertarikh 27.4.2022 maka Plaintif telah pada 20.10.2022 mencairkan cash collateral sejumlah RM51,324.23 dan menolak terhadap sebahagian daripada keberhutangan oleh Defendan-Defendan kepada Plaintif.”. [51] The Plaintiff in the SOC has provided full disclosure on the Defendants’ account, including after deducting the said sum. As such, this does not give rise to a triable issue as a defence for the Defendants. The Plaintiff should have filed the action against the D1 first before filing action against the D3, D4, D5 and D6 [52] Clause 10.2 of the Facilities Agreement allow the Plaintiff to take concurrent action against the Defendants under the Facilities Agreement or Guarantee and Indemnity Agreement when D1 failed to pay back the Financing Facilities 1 and Financing Facilities 2. [53] Furthermore, Clause 1 of the First Guarantee and Indemnity Agreement and Clause 1 of the Second Guarantee and Indemnity Agreement respectively provided that D3, D4, D5 and D6 are the principal obligators and are obligated to pay and indemnify the Plaintiff for the amount owing under the Financing Facilities by the D1. Therefore, the argument by the Defendants was baseless. [54] Apart from that, Clause 3 of the First Guarantee and Indemnity Agreement allows the Plaintiff to initiate action against D3, D4, D5 and D6 without acting against the D1 (see page 14 of Enclosure 9). [55] I therefore rule that the Plaintiff can pursue the action against D3, D4, D5 and D6 as the guarantors for D1 under the Financing Facilities since the Guarantee and Indemnity Agreement does not contain a condition that the Plaintiff must recover from the D1 first before demand can be made on them. Further, D3, D4, D5 and D6 as principal obligators had irrevocably and unconditionally guaranteed jointly and severally to the Plaintiff the payment of all sums of money owing to the Plaintiff from D1. CONCLUSION [56] Based on the reasons above, I did not find any irregularities in the JID entered against the Defendants. Further, I find that the Defendants have failed to establish any triable issues, let alone any defence on merits in support of their application to set aside the JID entered against them. [57] As such, I dismissed Enclosure 7 with costs of RM1,000.00, subject to allocator fees, to be paid by each Defendant (D1, D3, D4, D5 and D6) to the Plaintiff. Dated 2 July 2024 Signed by: ………………….. Wong Mee Ling Judicial Commissioner High Court of Malaya Johor Bahru Johor Darul Ta’zim. Counsel/Solicitor: For the Plaintiff Datuk Ganesan Karuppannan with Ms. Subashini Messrs Ganesan & Irmohizam B-8-2, Megan Avenue 1, 189, Jln Tun Razak, 50400 Wilayah Persekutuan Kuala Lumpur For the Defendants Mr. Rishee A/L S Muruganatham Messrs Munawar & Associates Wisma CKL, 7-1, Jalan 22a/70a, Desa Sri Hartamas, 50480 Wilayah Persekutuan Kuala Lumpur Cases referred to:

Lai Yoke Ngan & Anor v Chin Teck Kwee & Anor [1997] 2 MLJ 565

Lau Pick Huong v Soh Huang Siah [2015] 7 MLJ 325

Yap Ke Huat & Ors v Pembangunan Warisan Murni

Amanah Merchant Bank Bhd. v Lim Tow Choon [1994] 1 MLJ 413

CIMB Bank Berhad v Comsa Layers Farm Sdn. Bhd. & Anors [2011] 2 MLJ 118

TA Securities Bhd. v Ng Yen Ling [2000] 3 MLJ 743

Evans v. Bartlam [1937] AC 473

Hasil Bumi Perumahan Sdn.Bhd. v United Malayan Banking Corp

RHB Bank Berhad v Fauzun bin Abdul Samad [2007] 8 MLJ 80

Goh Teng Whoo & Anor. v Ample Objectives Sdn. Bhd. [2021] 3

OCBC Bank (M) Bhd. v Otofin Power (KL) Sdn. Bhd. & Ors [2020]

Cempaka Finance Bhd. v Ho Lai Ying & Anor [2006] 3 CLJ 544 Legislation referred to:

Rules of Court 2012 2.