Small Medium Enterprise Development Bank Malaysia Berhad v 1. ) Prm Foods & Marketing Sdn Bhd (WA-22M-823-07/2024)

PRM FOODS & MARKETING SDN. BHD.

RAMLE BIN MUDA

CHE MINAH BINTI MOHD ALI

MOHD FIRDAUS BIN RAMLE (NO. K/P: 850513-11-5681) … DEFENDANTS GROUNDS OF JUDGMENT INTRODUCTION [1] Enclosure 22 concerns an application for summary judgment filed by the plaintiff bank in respect of banking facilities extended to the first defendant (“D1”). The basis of the plaintiff’s claim is the alleged default committed by D1 in its repayment obligations. In opposition, D1 and its guarantors, namely the second, third, and fourth defendants (“D2,” “D3,” and “D4”) resist the application, contending that there exists a bona fide triable issue necessitating a full hearing. The issue for the Court’s determination is whether the defendants have raised a genuine issue fit for trial or whether the plaintiff is entitled to summary judgment. Background facts [2] The plaintiff, a licensed Islamic financial institution, extended four Shariah-compliant facilities to D1 between 2013 and 2021, namely:

Bai’ Inah (BIN) Financing Facility in the sum of RM650,000.00, with Kafalah Bank Guarantee in the sum of RM3,000,000.00;

Ijarah Financing-i in the sum of RM246,135.94;

Commodity Murabahah Term Financing-i (CMTF-i) in the sum of RM492,458.41; and

Targeted Relief and Recovery Facility (CMTF-i) in the sum of RM500,000.00. (collectively referred to as the ‘Banking Facilities’) [3] The defendants defaulted on repayments. Notices of Demand dated 17 January 2024 and Termination dated 15 February 2024 were issued. As of 14 June 2024, the outstanding amount owed by D1, D2 & D3 stood at RM2,627,997.02. Whilst the sum owed by D4 stood at RM1,020,388.31. [4] The plaintiff filed Writ and Statement of Claim on 12 July 2024. By way of this application in Enclosure 22, the plaintiff filed for summary judgment against all defendants. After hearing the submissions from both parties, this Court allowed the plaintiff’s application on 4 March 2025, with costs fixed at RM6,000.00. Dissatisfied with the decision, the defendants subsequently filed a notice of appeal on 27 March 2025. ISSUES [5] The application in Enclosure 22 addresses the following issues: i) Whether the plaintiff has complied with the procedural requirement of summary judgment application (‘Procedural Requirement’); and ii) Whether the defendants have successfully raised genuine disputes of material fact that require a trial. (‘Defendants Showing Cause’). ISSUE 1: Procedural Requirement [6] The initial matter that the Court must deliberate upon is whether the prerequisites for summary judgment have been fulfilled. In National Company for Foreign Trade v Kayu Raya Sdn Bhd [1984] 2 MLJ 300 (FC), the Federal Court held that: “For the purpose of an application under Order 14 the preliminary requirements are: a) the defendant must have entered an appearance; b) the statement of claim must have been served on the defendant; and c) the affidavit in support of the application must comply with the requirements of Rule 2 of the Order 14. … If the Plaintiff fails to satisfy either of these considerations, the summons may be dismissed. If however, these considerations are satisfied, the plaintiff will have established a prima facie case and he becomes entitled to judgment. This burden then shifts to the defendant to satisfy the court why judgment should not be given against him…” [7] The Federal Court in Cempaka Finance Bhd v Ho Lai Ying (trading as KH Trading) & Anor [2006] 3 CLJ 544 (FC) held that: “[5] Quite clearly, the Court of Appeal has put the burden on the plaintiff to prove his case in an O14 application. With respect, that cannot be the correct proposition of law. In an application under O14, the burden is on the plaintiff to establish the following conditions: that the defendant must have entered appearance; that the statement of claim must have been served on the defendant; that the affidavit in support must comply with r 2 of O 14 in that it must verify the facts on which the claim is based and must state the deponent’s belief that there is no defence to the claim (see Supreme Leasing Sdn Bhd v Dior Enterprise & Ors [1990] 2 MLJ 36). Once those conditions are fulfilled, the burden then shifts to the defendant to raise triable issues. The law on this is trite.” [Emphasis added] [8] This is in line with the preconditions set out in Order 14 rule 1 of the Rules which read as follows:

Where in an action to which this rule applies a statement of claim has been served on a defendant and that defendant has entered an appearance in the action, the plaintiff may, on the ground that defendant has no defence to a claim included in the writ, or to a particular part of such a claim, or has no defence to such a claim or part except as to the amount of any damages claimed, apply to the court for judgment against that defendant.

Subject to paragraph (3), this rule applies to every action begun by writ other than one which includes —

a claim by the plaintiff for libel, slander, malicious prosecution, false imprisonment, seduction or breach of promise of marriage; or

a claim by the plaintiff based on an allegation of fraud.

This order shall not apply to an action to which O 81 applies. [Emphasis added] [9] The fundamental principle of summary judgment is to streamline litigation by resolving cases without the need for a full trial when no genuine disputes of material fact exist. Although summary judgment can greatly reduce time and costs, its improper use could jeopardize a party's constitutional right to due process and a fair trial. To prevent such potential prejudice, the Rules require strict compliance with notice requirements, ensuring the opposing party is given adequate opportunity to respond. Hashim Yeop Sani SCJ in Malayan Insurance (M) Sdn Bhd v Asia Hotel Sdn Bhd [1987] 2 MLJ 183 (SC) at page 183 state as follows: "(4) The underlying philosophy in the Order 14 provision is to prevent a plaintiff clearly entitled to the money from being delayed his judgment where there is no fairly arguable defence to the claim. The provision should only be applied to cases where there is no reasonable doubt that the plaintiff is entitled to the judgment. Order 14 is not intended to shut out the defendant. The jurisdiction should only be exercised in very clear cases". [10] Upon a thorough examination of the factual matrix of the case, it is my considered opinion that the plaintiff has successfully met all the stipulations prescribed under Order 14 of the Rules. The defendants entered appearance on 31 July 2024, and the deponent of the plaintiff’s Affidavit in Support dated 14 November 2024 has affirmed, and verily believes, that there is no defence to the plaintiff’s claim. As for the requirement of service of the Writ and Statement of Claim, the entry of appearance and the subsequent filing of Statement of Defence and Amended Statement of Defence on 22 August 2024 and 27 August 2024 respectively shows that the defendants were served with the Writ and Statement of Claim. The burden thus shifts to the defendants to show cause as to why judgment should not be entered against them. ISSUE 2: Defendants Showing Cause [11] Upon shifting of this burden, Order 14 rule 3 of the Rules requires the defendant satisfy the following:

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.

The Court may by order, and subject to such conditions, if any, as may be just, stay the execution of any judgment given against a defendant under this rule until after the trial of any counterclaim made or raised by the defendant in the action. (Emphasis added) [12] The burden which is shifted to the defendant is a tactical one. This is succinctly described in the Singapore High Court case of Ritzland Investment Pte Ltd v Grace Management & Consultancy Services Pte Ltd [2014] 2 SLR 1342 (HC) at paragraphs [45] to [47], wherein Vinodh Coomaraswamy J held as follows: “[45] I should point out, however, that the burden which shifts to the defendant upon a prima facie case being shown is the burden on the application or a tactical burden, not the legal or even an evidential burden of proof. It would be anomalous for a defendant to bear the legal burden of proof on a summary judgment application when at trial, that burden explicitly rests on the plaintiff. And the fact that it is for the plaintiff first to show a prima facie case with knowledge of and in light of the defences raised makes clear that no evidential burden rests on the plaintiff. It is no part of the policy underlying summary judgment to reverse a plaintiff’s burden of proof. [46] The policy underlying summary judgment is twofold and comprises a private and a public element. First, summary judgment enables a plaintiff with a strong claim to secure a judgment in a period of time and at an expense which is proportionate to the dispute. Second, summary judgment proceedings enables the court to conserve scarce public resources where there is no reasonable or fair probability that deploying those resources in a full trial would make a difference to the just determination of the dispute. [47] Thus, although it is useful shorthand to speak in terms of the burden of proof shifting to the defendant, the fact remains that the court will grant summary judgment if the plaintiff shows after all the evidence is in that the there is no fair or reasonable probability that the defendant has a real or bona fide defence and (only if the defendant raises this point) that there is no other reason why there ought to be a trial.” [Emphasis added] [13] In Bank Negara Malaysia v Mohd Ismail & Ors [1992] 1 MLJ 400 (FC), the Federal Court held that where an assertion, denial or dispute is equivocal, or lacking precision or is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable in itself, then such assertion or denial will be rejected, thereby rendering the issue not triable. In other words, leave to defend will not be granted based upon "mere assertions" by defendant; instead, the Court will look at the whole situation critically to examine whether the defence is credible. [14] In the Privy Council case of Eng Mee Yong & Ors v Letchumanan [1979] 2 MLJ 212 (PC), at page 217, Lord Diplock explained it as thus: "Although in the normal way it is not appropriate for a judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be. In making such order on the application as 'he may think just' the judge is vested with a discretion which he must exercise judicially. It is for him to determine in the first instance whether statements contained in affidavits that are relied upon as raising a conflict of evidence upon a relevant fact have sufficient prima facie plausibility to merit further investigation as to their truth". [15] It is trite that the affidavit in opposition to the summary judgment must condescend upon particulars and directly address the claimant's claims and supporting affidavit. In short, it should clearly outline what the defendant's defence is as well as the factual basis for it. The affidavit must contain sufficient information to demonstrate a genuine dispute requiring a trial. A general denial of the plaintiff's claims will not suffice. [16] Based on the above, we shall now examine the issues raised by the defendants in their opposition to the plaintiff’s summary judgment application: i) Whether the Banking Facilities Contradicts Shariah Principles. [17] The defendants’ learned counsel, Fozi Addhwa bin Mohamad Fozi, asserts that the Banking Facilities extended by the plaintiff contravene the Shariah principles as stipulated by the Shariah Advisory Council (SAC) of Bank Negara Malaysia, rendering them invalid and non-binding. [18] Specifically, for the first facility based on Bai’ Al-Inah, counsel argues that the defendants were not informed about the specific commodity or asset involved, leading to an element of uncertainty ("gharar"). The commodity or asset is argued to be non-existent at the time the facility was signed, and there was no actual transfer of ownership or delivery of the commodity or asset between the parties. Additionally, the Asset Sales Agreement and Asset Purchase Agreement were executed simultaneously, which is against Shariah principles. [19] Regarding the second facility based on Al-Ijarah, learned counsel for the defendants argue that such facility lacked essential elements of Shariah compliance, such as clear asset specificity and proper transfer of ownership. These deficiencies, according to the defendants, render the facilities invalid under Islamic finance principles, a position supported by precedent in the case of Bank Muamalat Malaysia Bhd v Wellcom Communications [2020] MLJU 1966 (HC) per Atan Mustaffa Yussof Ahmad JC (as His Lordship then was), where similar issues of asset identification and ownership were deemed critical to upholding Shariah standards. [20] For the third and fourth facilities based on Murabahah, counsel argues that the defendants were not informed about the specific commodity or asset involved, leading to an element of uncertainty ("gharar"). It is also argued that the commodity or asset did not exist at the time the facility was signed, and there was no actual transfer of ownership or delivery of the commodity or asset from the plaintiff to the defendants. Plaintiff is alleged to have failed to provide evidence of the transfer of ownership of the commodity from the seller to the defendants, which is a fundamental principle in a Murabahah contract. Learned counsel for the defendants relies on the mandatory provisions of the Bank Negara Malaysia’s Policy on Murabahah-based financing, published on 23 December 2013 (Ref: BNM/RH/STD 028-4), which requires the description and quantity of the asset, the estimated purchase price, and the proposed supplier of the asset. These non- compliances with Shariah principles is argued to have rendered the facilities invalid and not binding on the defendants. [21] Learned counsel for the plaintiff, Nor Shahadah Binti Saari rebuts the defendants' contentions regarding non-compliance with Islamic principles by asserting that the Islamic facilities provided to the defendants were in full compliance with Shariah principles as outlined by the SAC of Bank Negara Malaysia. [22] Counsel for the plaintiff argues that the defendants voluntarily signed the agreements and are therefore bound by their terms. Counsel further highlights that the underlying assets for the facilities were clearly identified and documented, and that the transactions were structured in accordance with recognized Islamic finance principles such as Bai' Inah, Ijarah, and Murabahah. Counsel further contends that the commodity transactions are conclusively established by the issuance of e-certificate No. CPO25MAR21- 0001875-000 by Bursa Malaysia Islamic Services Sdn Bhd (‘BMIS’) (See pages 133-138 of Enclosure 24). [23] Learned counsel for the plaintiff further contends that the defendants' challenge to the validity of the agreements after benefiting from the facilities is an attempt to renege on voluntarily agreed contractual obligations. The plaintiff supports their position with principles in the case of Maybank Islamic Bhd v M-IO Builders Sdn Bhd & Anor [2017] 2 MLJ 69 (CA) per Rohana Yusuf JCA (as Her Ladyship then was), emphasizing that the validity of Islamic finance contracts should be assessed under the general law of contracts, and that non-compliance with Shariah principles does not automatically render a contract illegal or unenforceable. [24] At the outset, it is noteworthy that no complaint has been lodged, nor has any enforcement action been undertaken by Bank Negara Malaysia against the plaintiff in respect of the alleged breach of Shariah principles. It is also of particular significance that the defendants’ objections surfaced only after the plaintiff initiated legal proceedings against them. [25] Regarding the Bai’ Al-Inah facility, I am of the view that the SAC rulings do not prohibit the execution of sale and purchase contracts on the same day, provided they are carried out at distinct times. The requirement centers on temporal separation of the transactions, not the physical signing date. If we are to carefully compare both agreements, the attestation clauses in confirm this temporal distinction: the Asset Sale Agreement was signed by D2 and D3 at 12:25 PM (page 131 of Enclosure 23), while the Asset Purchase Agreement was executed by them 15 minutes later at 12:40 PM (page 137 of Enclosure 23). The clear time-stamp disparity demonstrates compliance with the SAC’s requirement for sequential execution, further validating the legitimacy of the agreements under Shariah principles. [26] In relation to the asset underpinning the Bai’ Al-Inah facility, both agreements unequivocally designate the plaintiff’s factory lot in Kuala Terengganu as the specific asset for the transaction. The identification of this tangible and real property not only affirms the legitimacy of the arrangement but also reinforces its enforceability. In this context, the factory lot serves as the pivotal transactional asset through which the plaintiff obtains financing under the Bai’ Al-Inah structure. [27] With regard to the Ijarah facility, I am of the view that it is duly and properly documented, beginning with the Letter of Offer dated 24 July 2015, which clearly sets out the underlying assets; namely, the machinery and equipment listed in Appendix 1 of the said letter (at pages 172 to 174 of Enclosure 23). This is subsequently formalised through a series of agreements dated 9 September 2015, including the Ijarah Agreement, the Sale Agreement (Ijarah), and the Asset Purchase Agreement. Further supporting documentation includes the Sale Undertaking, Purchase Undertaking, Letter of Agency, Purchase Request & Undertaking, and Service Agency Agreement, all dated 28 September 2015. Upon review, I find no irregularity or non-compliance with Shariah principles as alleged by the defendants. [28] To analyze the argument on Shariah compliance towards the 2 murabahah-based facilities, Clauses 11.2, 13.1, 13.5, 13.6, 13.7, 13.8, 13.9,

13.11, 13.13, 13.14 and 23.4 of Bank Negara Malaysia’s Policy on Murabahah-based financing (supra) are relevant in assessing what is required to be proven in respect of Commodity Murabahah transactions: “11.2 The specific inherent nature of the contract of murabahah is the sale contract which is based on the element of trust in disclosing the cost and mark-up. The common inherent nature of a sale contract is the transfer of ownership of the asset from the seller to the purchaser. …

13.1 Asset to be traded in a murabahah contract shall meet the following conditions:

the asset is recognised by the Shariah, valuable, identifiable and deliverable; and

the asset is already in existence and owned by the seller. …

13.5 The ownership in the murabahah asset must be effectively transferred from the seller to the purchaser.

13.6 The transfer of ownership is effected upon entering into a valid sale and purchase contract even though there is no legal registration of the ownership, provided that the sale and purchase is supported by evidence of transaction.”

13.7 The transfer of ownership shall take effect by the seller disposing of the right of ownership (takhliyah) resulting in the purchaser having access to the asset (tamkin) and assuming its risk through any mechanism permitted by the Shariah and generally accepted by customary business practices (‘urf tijari).

13.8 Possession of the asset shall either be in the form of physical possession (qabd haqiqi) or constructive possession (qabd hukmi).

13.9 Pursuant to paragraph 13.8, the rights and liabilities of the purchaser as the owner of the asset shall be established upon his possession of the asset.

13.11 Multiple murabahah contracts shall not be entered into simultaneously on the same asset.

13.13 Any defect in the asset which is discovered and consented to by the purchaser at the time of entering into the contract shall disqualify the purchaser from entitlement to the defect option (khiyar al-`ayb) with respect to the defect.

13.14 Any defect in the asset which occurred before entering into the contract but is discovered after entering into the contract shall entitle the purchaser to the defect option (khiyar al-`ayb).” …

23.4 IFI shall ensure that the order or application by the customer for the purchase of asset is supported by a written document. At minimum, the document shall outline the following:

description and quantity of the asset to be acquired;

estimated purchase price; and

proposed supplier of the asset (if applicable).” [Emphasis added] [29] On the issue of certainty and avoidance of gharar, this Court is of the view that there is certainty in the subject matter as the e-certificate was issued by BMIS which is a Commodity Murabahah House (‘CMH’) approved by Bank Negara Malaysia which specifies the commodity’s location, quantity, and quality. In essence, BMIS is a commodity trading platform specifically established to facilitate Islamic liquidity management and financing for Islamic financial institutions. Conceived as a national project, BMIS represents the collaborative efforts of Bank Negara Malaysia, the Securities Commission of Malaysia, Bursa Malaysia Berhad, and key industry stakeholders, in support of an initiative spearheaded by the Malaysia International Islamic Financial Centre. [30] Specific to its role in the Islamic finance, the relevant ruling of the Bank Negara Malaysia’s Shariah Advisory Council pertaining to such online commodity platform would be the ruling issued during its 78th Meeting held on 30 July 2008 have resolved that the operational structure of a CMH is permissible on the condition that the traded crude palm oil shall be identifiable and precisely determinable in terms of its location, quantity and quality. (See: Shariah Resolutions in Islamic Finance, 2nd Edition, Bank Negara Malaysia (2010)). [31] According to Shariah Resolutions in Islamic Finance, Bank Negara Malaysia (supra), commodity murabahah is characterized as a mu'amalah comprising two stages of transaction. In the first stage, the buyer purchases an asset on credit from the original seller. In the second stage, the buyer sells the asset on a cash basis to a third party. This arrangement is termed Commodity Murabahah because the buyer acquires the asset on credit not with the intention of utilizing or benefiting from it, but with the objective of selling it to obtain liquidity. [32] It is to be noted that this method of obtaining liquidity or financing is explicitly outlined in Clause B(1) of Schedule 2 (Standard Terms and Conditions) of the Letter of Offer dated 4 October 2017 (at pages 251 - 252 of Enclosure). [33] Further, based on Clause 3.2 of the Facility Agreements dated 15 November 2017 and 22 March 2021, D1 have made the required purchase request, and appointed the plaintiff as agents to transact the said commodity (pages 281-282 and pages 379-380 of Enclosure 24). [34] Therefore, I am of the view that D1 had expressly consented to the commodity transaction, and the appointment of the plaintiff as agent. Further to this, it is important to emphasize that D1 as the purchaser of the commodity retained the right to terminate the contract under Clause 13.15 of Bank Negara Malaysia’s Policy on Murabahah-based financing (supra) which expressly provides that:

13.15 Pursuant to 13.14, the purchaser has the right to terminate the contract. Alternatively, the purchaser may choose to continue with the contract as it is or with any mutually agreed variations of the terms of the contract.” [35] D1’s inaction, particularly their silence after receiving the funds under Banking Facility duly raised through the Commodity Murabahah financing arrangement, can only be construed as an implicit acknowledgment of the transaction’s validity. D1 cannot now seek to challenge the very transaction from which they have benefited without having exercised their right to terminate as provided under Clause 13.15. [36] There is likewise no evidence before this Court to indicate that D1 ever requested delivery of the underlying commodity, either prior to or following the transaction. To place the matter in perspective, had D1 insisted on taking possession of the crude palm oil instead of receiving the proceeds from its sale, it would have entailed handling approximately 112.85 metric tonnes, requiring transportation by around 5 tanker lorries, each with a capacity of 25 tonnes. The sheer logistical impracticality of such an undertaking highlights the implausibility of D1’s claim to rights over the physical commodity. It defies commercial rationale and undermines the fundamental objective of the murabahah transaction, which was clearly structured to facilitate liquidity through the sale of the commodity, not its physical transfer. [37] In light of the foregoing, and upon careful examination of the particulars contained in the e-certificate No. CPO25MAR21-0001875-000, I am satisfied that the Commodity Murabahah transaction was fully disclosed, with all necessary details duly provided. There is no evidence of any concealment or omission on the part of the plaintiff in informing D1 of its rights or the material aspects of the transaction. Given D1’s failure to exercise its rights under the relevant contractual provisions, including the right to request delivery or to terminate the transaction, the arrangement must be regarded as valid and binding. Accordingly, the matter does not give rise to any genuine issue requiring a trial. [38] Should any of the SAC rulings are not adhered to and therefore deemed Shariah non-compliant, I am of the considered view that such a provision, forming financial institution’s duty to comply with Shariah principle and the rulings of SAC under Section 28 of Islamic Financial Services Act 2013 (‘IFSA 2013’), does not operate to nullify the contractual terms agreed upon between the plaintiff and D1. This is so as laws relating to finance and banking matters are included under item 7(j) of the Federal List (List I) in the Ninth Schedule to the Federal Constitution, which is to be governed by statute law and common law (including English law). [39] Furthermore, Section 281 of the IFSA upholds the sanctity of contracts, even where, on its face, such enforcement appears to be at odds with the guidelines and regulatory framework established under the IFSA: “Breach or contravention not to affect contract, agreement or arrangement

Except as otherwise provided in this Act, or in pursuance of any provision of this Act, no contract, agreement or arrangement, entered into in breach or contravention of any provision of this Act shall be void solely by reason of such breach or contravention: Provided that nothing contained in this section shall affect any liability of any person for any administrative, civil or criminal actions under this Act in respect of such breach or contravention.” [40] Specific to summary judgment application, the Court of Appeal in Maybank Islamic Berhad v Golden Base Construction Sdn Bhd & 2 Ors (W-02(IM)(MUA)-1035-06/2019) (CA) have held that, applying Section 281 of IFSA 2013, a breach of Shariah principle alone does not render the existence of a triable issue in a summary judgment application. [41] Applying this principle to the present case, the primary purpose of the Islamic based Banking Facilities was to generate cash for disbursement to the borrower. Given that the aggregate sum of about RM4.8 million was successfully raised and made available to D1, any alleged non-compliance with Shariah principles in the manner of raising the funds does not, in itself, vitiate the validity of the contract. Fundamentally, under the applicable laws governing financial and banking transactions, the method by which a bank secures funds for its customers does not affect the legal enforceability of the facility agreement. ii) Whether the Banking Facilities and Guarantees Bind the Defendants [42] Learned counsel for the defendants contends that the Banking Facilities and Guarantees are invalid, unenforceable, and not binding upon D1, on the basis that the directors were never duly authorised to execute the said Facilities and/or Letters of Offer with the plaintiff. In advancing this submission, counsel points to the absence of a Board Resolution from D1 conferring such authority. It is further argued that the Facilities and/or Letters of Offer were not executed by all members of D1’s Board of Directors, namely D2, D3, and D4. Consequently, it is asserted that the purported invalidity of the Banking Facilities necessarily renders the guarantees equally defective. [43] In response to this contention, learned counsel for the plaintiff submits that the relevant Board Resolutions have been duly exhibited in plaintiff’s affidavit in reply in Enclosure 26, and that the defendants are bound by the agreements into which they have entered. In support of this position, reliance is placed on the decisions in Polygram Records Sdn Bhd v Hillary Ang & Ors (Collectively Known as “The Search”) & Anor [1994] 3 CLJ 806 (HC) and Serangoon Garden Estate Ltd v Marian Chye [1940] 1 MLJ 113 (Singapore’s District Court), among others, to assert the well-established principle that a party who executes a written contract is bound by its terms. [44] From the evidence, I am satisfied that the necessary Board Resolutions in respect of the four facilities are duly exhibited at pages 20 to 29 of Enclosure 26. As such, the plaintiff has sufficiently demonstrated that the execution of the facilities was properly authorised by D1. This effectively disposes of the defendants’ challenge on the ground of lack of authority. [45] I am also of the view that the plaintiff’s reliance on the authorities of Polygram Records Sdn Bhd v Hillary Ang & Ors (Collectively Known as “The Search”) & Anor (supra) and Serangoon Garden Estate Ltd v Marian Chye (supra) is well founded. In short, absent any element of fraud or misrepresentation, such a party is held to the agreement regardless of whether they have read or fully understood its contents. [46] Furthermore, pursuant to the Joint and Several Guarantees, D2, D3, and D4 undertook liability to the plaintiff not merely in the capacity of sureties, but also as principal debtors and indemnitors. Their obligation extended to the payment on demand of all sums of money due and payable by D1 to the plaintiff under the Banking Facilities. This undertaking is clearly reflected in Clause 4 of each of the Guarantees, which provides as follows: "4. Principal Debtor

We shall be deemed to be a principal debtor for all the Indebtedness and accordingly we shall not be discharged by any fact, circumstance, act, omission, whatsoever whether known to you or not whereby the liability of us hereunder would have been discharged if we had not been a principal debtor.

We agree that if any liabilities of the Customer is not or ceases to be valid or enforceable on any ground whatsoever whether or not known to you (including, without limitation due to any disability, incapacity, lack of authority, breach of duty by any person purporting to act on behalf of the Customer or any legal or other limitation), we shall nevertheless be liable to you as principal debtor in respect thereof. We hereby agree to keep you indemnified on demand and on full indemnity basis for and against all losses arising from any failure of the Customer to perform or discharge any such purported liability. [Emphasis added] [47] In South East Asia Insurance Bhd v Nasir Ibrahim [1992] 2 MLJ 355 (SC) (per Gunn Chit Tuan SCJ), the Supreme Court clarified the distinction between a contract of indemnity and a contract of guarantee. In a contract of indemnity, the promisor assumes an original and independent obligation to indemnify the promisee. This stands in contrast to a contract of guarantee, which is a collateral undertaking whereby the promisor agrees to be answerable for the default of another party who bears the primary liability. This principle is applied in Bank Pembangunan Malaysia Bhd v Ketheeswaran a/l M Kanagaratnam [2022] 5 MLJ 393 (CA) (per Azizah Nawawi JCA). [48] Further, the Federal Court in the case of Andrew Lee Siew Ling v United Overseas Bank (M) Bhd [2013] 1 MLJ 449 (FC) held that the effect of a principal debtor clause means the principal debtor is primarily liable or the principal borrower’s indebtedness to a lender and as such a liability is not dependent or secondary to the liability of the principal borrower. [49] In light of the foregoing, I am of the considered view that the issues raised by the defendants do not give rise to any genuine triable issues. The plaintiff has adduced clear and cogent evidence of the necessary Board Resolutions authorising the execution of the Banking Facilities. The defendants, having signed the relevant agreements, are bound by their terms, and in the absence of any allegation or evidence of fraud or misrepresentation, they cannot now evade liability. Moreover, the guarantees executed by D2, D3, and D4 contain unequivocal principal debtor clauses, which render them independently liable for the sums due, irrespective of D1’s position. iii) Whether the Claim is Premature [50] The defendants’ learned counsel asserts that that the plaintiff’s claim is premature as the defendants did not receive the required notice of demand and termination. On the contrary the plaintiff’s learned counsel argues that the plaintiff is entitled to rely on the deeming provision within the Banking Facilities and that such notices were deemed served 3 working days upon posting via registered post. [51] From the facts, it is evident that D1 was unable to service the Banking Facilities which is a breach of Clause 10.1(a) of the Facility Agreements. Based on the said default clause, I find that the plaintiff is entitled to terminate and recall the Banking Facilities by issuing a letter of demand and termination dated 15 February 2024 (Exhibit D-27 of Enclosure 24), which were duly posted on 16 February 2024, and file this suit against the defendants for the overdue sum. [52] The relevant notices were issued to the defendants in compliance of Clause 16.6(a)(ii) of the Facility Agreements and Clause 30(a) of the Guarantees, all of which were deemed served 3 business days after issuance via registered post i.e. on 21 February 2024. This principle is supported by the decisions in Amanah Merchant Bank Bhd v Lim Tow Choon [1994] 1 MLJ 413 (SC) (per Mohamed Dzaiddin SCJ) and Goh Kein Hooi v OCBC Bank (M) Bhd and Another Appeal [2014] 1 MLJ 516 (CA) (per Abdul Malik Ishak JCA), which recognise the validity of contractual service of notice via registered post. [53] Furthermore, based on the authorities of PECD Construction Sdn Bhd v Freehold Point Sdn Bhd [2008] 3 CLJ 215 (HC) (per Vincent Ng Kim Khoay J, as His Lordship then was), Small Medium Enterprise Development Bank Malaysia v Lim Woon Katt [2016] MLJU 390 (CA) (per Hamid Sultan Bin Abu Backer JCA), and Mohd Zin Bin Omar & Anor v Jentayu Padu Sdn Bhd [2017] MLJU 407 (CA) (per Prasad Sandosham Abraham JCA) , which establish that a party’s failure to respond to a notice of demand or termination may be construed as an admission of the debt owing. iv) Whether the Plaintiff's Certificate of Indebtedness is Conclusive and Unchallenged. [54] On the issue of correctness of the amount claimed, the defendant simply argues that the amount is uncertain as it is wrongly computed and confusing. [55] Plaintiff on the other hand argues for the application of conclusive evidence clauses within the Banking Facilities and Individual Guarantees entered between parties. Proof of quantum has been agreed to be based on a certificate of indebtedness issued on 4 October 2024 (Exhibit D-28 of Enclosure 23), which in absence of manifest error would be deemed conclusive evidence of the amount stated to be due. Reliance is made on the case of Cempaka Finance Bhd v Ho Lai Ying (trading as KH Trading) & Anor (supra) wherein it is an accepted legal principle that once the plaintiff had exhibited the certificate of indebtedness the burden then shifted to the defendants to show by way of evidence that the calculation arrived by the plaintiff was wrong and/or that there was manifest error in the certificate of indebtedness. As such the plaintiff argues that they are entitled to terminate and recall the Facility by issuing a letter of demand dated 15 February 2024 (Exhibit D-27 of Enclosure 23) and file this suit against the defendants for the overdue sum. [56] On this issue of quantum, I find that the Facility Agreements and the Joint and Several Guarantees contain conclusive evidence clause pertaining to the bank’s statement and certification. This can be seen in Clause 16.2 of the Facility Agreements which states as follows: “16.2 Certificate of Indebtedness

In any proceedings relating to this Agreement a statement as to any amount due to the Bank under this Agreement that is certified as being correct by an authorized officer of the Bank shall unless otherwise provided in this Agreement, and save for manifest error, be conclusive and binding on the Customer for whatever purpose including as being conclusive evidence of indebtedness in the court of law.

The statement referred to above may be in the form of a computer generated statement or notice which requires no signature or which contains a printed or facsimile signature, as the case may be, at the discretion of the Bank and IT IS HEREBY EXPRESSLY AGREED that such a statement or notice shall be a valid and binding statement or notice to the Customer pursuant to the terms herein. [57] Whereas clauses 16 and 26 of the Joint and Several Guarantees stipulate as follows: “16. Statement Conclusive Save and unless if there is evidence of manifest error, ta’addi (misconduct), taqsir (negligence) or mukhalafah as-shurul (breach of specified terms) on your part:

any accounts settled or stated by or between you and the Customer or admitted by or on behalf of the Customer may be adduced by you and shall in the case be accepted by us and our representatives as conclusive evidence, that the balance or amount thereby appearing is due from the Customer to you; and

it shall not be necessary for you to advise us of any details relating to the administration of the Customer’s account with you or of any default thereunder of which you may have knowledge. We further agree that any admission or acknowledgement in writing by the Customer or any authorized person on the Customer’s behalf or a statement of account in writing showing the indebtedness of the Customer signed on your behalf by any of your officers shall be conclusive evidence and binding on us or any of us as the amount due to you by the Customer. …

Certificate of Indebtedness Notwithstanding Clause 25 above, a certificate issued by you or your agents as to the indebtedness for the time being due and owing to you from the Customer shall be binding upon us and shall be accepted by us as conclusive evidence against us that the amount appearing thereon is due and owing to you from the Customer. [Emphasis added] [58] Based on the effect of these clauses, the defendants had acknowledged that a statement of account or certificate signed by an officer of the plaintiff as to the money and liabilities for the time being due and incurred to the bank shall be final and conclusive proof of the indebtedness of the defendants, save for manifest error. [59] Lord Denning MR in Bache & Co (London) Ltd v Banque Vernes Et Commerciale De Paris SA [1973] 2 Lloyd's Rep 437 (CA) had this to say at page 440: "[t]hat, as a matter of principle, the conclusive evidence clause was binding according to its terms and, if notice of default was given in pursuance of the conclusive evidence clause it was binding according to its terms, the clause was not contrary to public policy." [60] The Federal Court in Cempaka Finance Bhd v Ho Lai Ying (trading as KH Trading) & Anor (supra) through the judgment of Steve Shim CJSS quoted with approval of the case of Dobbs v National Bank of Australasia [1953] 53 CLR 643 (HC), where the High Court of Australia made the following observation: "... The bank could recover without the production of a certificate if, by ordinary legal evidence, it proved the actual indebtedness of the customer. But the (conclusive evidence) clause, if valid, enables the bank by producing a certificate to dispense with such proof. It means that for the purpose of fixing the liability of a surety, the customer's indebtedness may be ascertained conclusively by a certificate.... But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness". [61] Steve Shim CJSS in Cempaka Finance Bhd case also held that "a certificate of indebtedness operates in the field of adjective law. It excuses the plaintiff from adducing proof of debt. Such a certificate shifts the burden onto the defendant to disapprove the amount claimed". (at paragraph 11). [62] The reference to “manifest error” nevertheless would allow a comeback if there is a material mistake in the calculations. In the case of Amey Birmingham Highways Ltd v Birmingham City Council [2018] EWCA Civ 264 (CA), the English Court of Appeal held as follows: “83. Is this a case of manifest error? There are two helpful recent authorities on this issue, namely IIG Capital LLC v Van Der Merwe [2008] EWCA Civ 542; [2008] 2 All ER (Comm) 1173 and North Shore Ventures Ltd v Anstead Holdings Inc [2011] EWCA Civ 230; [2012] Ch 31.

IIG was a claim for payment against guarantors. The defendants had bound themselves to pay on demand, absent manifest error. Lewison J, the trial judge, rejected the suggestion that there was manifest error. He said that a manifest error was "one that is obvious or easily demonstrable without extensive investigation". The Court of Appeal approved the judge's approach to that issue and upheld his decision: see the judgment of Waller LJ at [33] to [35]. Lawrence Collins and Rimer LJJ agreed.

North Shore was an action by a lender against the two guarantors of the loan. Clause 3.4 of the guarantee stated that a certificate signed by the claimant for the amount of the indebtedness was conclusive evidence against the guarantors, unless manifestly incorrect. The Court of Appeal approved the test for manifest error formulated by Lewison J in IIG. The court held that the certificate was invalidated by manifest error, because it did not take into account an agreed variation in the rate of interest.

At [61] Smith LJ said: "On reflection I have come to the conclusion that for a party to rely on a manifest error in a certificate does not depend upon his ability to demonstrate the error immediately and conclusively. In the present case, the guarantors were able to recognise immediately that the certificate was based upon the interest rates as set out in the original loan agreement and not as varied in November 2004. They could see that it was manifestly incorrect. They could not immediately demonstrate that conclusively; they could not do so until the court had determined the issue of variation. But they were right, as this court has now held. I would hold that the certificate was manifestly incorrect and was of no effect."

Finally, in relation to the law, I should refer to IG Index v Colley [2013] EWHC 748 (QB). In a very thorough judgment Stadlen J reviewed the authorities on manifest error. At [813] to [814] he held that the court could have regard to extrinsic evidence.” [63] This principle is reaffirmed in the recent judgment of Flowgroup Plc v Co-Operative Energy Ltd [2021] EWHC 344 (Comm) (HC), wherein the English High Court held that for a challenge based on a manifest error clause to succeed, there must be a plain and obvious mistake. However, whether such an error has indeed occurred is a matter of fact and need not be glaringly apparent from the face of the certificates themselves. In the Flowgroup case, the error in issuing the certificates only came to light once the underlying contractual obligation was properly scrutinized. [64] In applying these authorities, it is clear that in determining the existence of a manifest error, consideration must be given to the fact that certain errors may only come to light upon the court reaching a specific legal conclusion. Although it may not be feasible to demonstrate the errors as “immediately and conclusively” incorrect at first glance, they may nevertheless still amount to manifest errors. In the guarantee, further to manifest error, the guarantors may also challenge the certificate based on the existence of ta’addi (misconduct), taqsir (negligence) or mukhalafah as-shurul (breach of specified terms). [65] In the present case, neither the principal borrower nor the guarantors raised any objections to the quantification of the debt. Nevertheless, guided by the authorities cited earlier, it is incumbent upon this Court to scrutinize the certificates issued with due care, ensuring not only that they are free from manifest errors but also that the calculation of such charges free from the element of misconduct, negligence and/or breach of the terms and conditions outlined in the Facility Agreements. [66] In the present case, I am of the considered view that the respective profit rates applicable to the Bai’ al-‘Inah, Ijarah, and Murabahah facilities, as well as the provision for ta’widh, were mutually agreed upon by the parties and ought therefore to be given effect. With regard to the issue of ibra’, Clause 3.3 of the Facility Agreements expressly provides for a rebate in the event of early settlement, that is, payment made prior to the maturity date. In the present case, as the matter pertains to a default, the applicability of Clause 3.3 is beyond question. It follows that the plaintiff’s duty to grant ibra’ arises only upon the full settlement of the outstanding sum by D1 or its guarantors, D2, D3, & D4. Consequently, the contention that ibra’ should have been factored into the current calculation of the amount due is without merit, as the precondition for such a rebate has not been satisfied. [67] Upon a thorough review of the certificate of indebtedness, and after comparing it with the amounts claimed during the demand for arrears and upon termination, I find no manifest errors, or the occurrence of negligence, misconduct or breaches of terms on the plaintiff’s part. Accordingly, I conclude that this issue does not raise any triable matter warranting further judicial scrutiny.

[68] Based on the aforementioned grounds, this Court have granted order in terms of the plaintiff's application for summary judgment in Enclosure 22 with costs of RM6,000.00. ……………………………………. (YUSRIN FAIDZ BIN YUSOFF) Judicial Commissioner High Court of Malaya Kuala Lumpur Dated: 28th May 2025 COUNSEL: For the Plaintiff: Nor Shahadah Saari Messrs. Shukor Baljit & Partners No. 14-2, Wisma Shukor Baljit, Jalan 13/48A, Sentul Raya Boulevard, Off Jalan Sentul, 51100 Kuala Lumpur. For Defendants: Fozi Addhwa bin Mohamad Fozi Messrs. Nordin Kassim & Aziz 134-L, 2nd Floor, Jalan Sultan Zainal Abidin, 20000 Kuala Terengganu Terengganu. CASE REFERENCE:

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