United Overseas Bank (Malaysia) Bhd v Tan Chong Whatt (W-02(NCC)(W)-1037-06/2022)

TAN CHONG WHATT (No. K/P: 510512-01-5303)

TAN CHOR KHENG (No. K/P: 780922-01-6165) RESPONDEN-RESPONDEN ``````````````````````````````````````````````` [Dalam Mahkamah Tinggi Di Kuala Lumpur Guaman Sivil No. WA-2NCC-510-10/2020 Antara United Overseas Bank (Malaysia) Bhd (No. Syarikat: 271809-K)

Tan Chong Whatt (No. K/P: 510512-01-5303)

Tan Chor Kheng (No. K/P: 780922-01-6165)

Gerald Yeo @ Yeo Ah Khe (No. ID Singapura: S1334285G) Defendan-Defendan] ````````````````````````````````` Page 2 of 19 CORAM S. NANTHA BALAN, JCA MOHD NAZLAN BIN MOHD GHAZALI, JCA CHOO KAH SING, JCA Decision delivered on 26.8.2024 Page 3 of 19 GROUNDS OF JUDGMENT Introduction [1] This appeal emanates from a High Court decision dated 10.5.2022 wherein the learned High Court judge dismissed the appellant’s claim. [2] The appellant, United Overseas Bank (Malaysia) Bhd (“UOB”), claimed against the respondents premised on a guarantee dated 25.11.2014 (“the Guarantee”). The Guarantee was executed by the respondents together with two others, namely Gerald Yeo @ Yeo Ah Khe and Wang YingDe, who agreed to be jointly and severally liable for a loan facility granted to one CHN Commodity Trade Centre Sdn. Bhd. (in Receivership / In Liquidation) (“Borrower”) for a sum of RM30,000,000.00 (“the loan sum”). The loan sum was to facilitate the Borrower to part finance the purchase of 170 shop units (“the Charged Assets”) in a shopping complex. [3] The heart of the contention in this appeal is whether the appellant could claim against the guarantors for the charges of accrued interest post winding-up of the Borrower. The claim was not the loan sum. In fact, the loan sum had been redeemed or paid off by the liquidator based on a redemption statement dated 30.10.2017 issued by UOB. (Note: This appeal (W-02(NCC)(W)-1037-06/2022 [“Appeal 1037”]) was heard together with another appeal W-02(NCC)(W)-1036-06/2022 (“Appeal 1036”) wherein the appellant there was UOB, and the respondent was Gerald Yeo @ Yeo Ah Khe. The facts and issues for the Page 4 of 19 two appeals were the same. On 26.8.2024, this Court delivered only one decision which was binding on both appeals) Brief Facts [4] The Borrower took a loan from UOB and secured it with several security documents, and one of them was the Guarantee. On 27.11.2014, UOB issued a Letter of Notification to inform, inter alia, that the joint and several Guarantee for the loan sum was to be executed by the respondents and Gerald Yeo @ Yeo Ah Khe only. Wang YingDe had been released or discharged from the Guarantee which he had signed earlier. [5] On 4.12.2015, the Borrower was wound-up by the High Court of Kuala Lumpur (in a Winding-Up suit No. 28NCC-812-09/2015). The Winding-up petition was filed by the Joint Management Body of Complex Pandan Safari Lagoon. Tharma Iswara a/l S. Subramaniam (“the Liquidator”) was appointed as the liquidator of the Borrower. [6] On 19.9.2016, UOB through its firm of solicitors Messrs. Skrine wrote to the Liquidator demanding the Borrower to pay a sum of RM30,539,923.60 as the outstanding loan sum as at 4.12.2015 (the date of the Winding-up Order). At the same time, UOB also demanded from the respondents (and Gerald Yeo @ Yeo Ah Khe) as guarantors to the Borrower the sum of RM32,934,735.33 as at 4.9.2016 with running interest thereon at the rate of 3.5% per annum above the Base Lending Rate (“BLR”) on monthly rests from 5.9.2016 until date of full payment. No payment was forthcoming from the Borrower or the guarantors. UOB then took further action by invoking its right to appoint a Receiver and/or Manager to deal with the Charged Assets. Page 5 of 19 [7]

10.1.7 any compromise, composition or arrangement which You [UOB] may make with the Customer [Borrower] and/or any other person, including Ourselves [the guarantors] and any party to any security document entered into with You whether or not You have given notice to Us or obtained Our consent; ….” [19] UOB relying on the above contentions further argued that it was entitled to claim against the guarantors for the outstanding interest accrued post winding-up of the Borrower. [20] The learned High Court judge accepted the respondents’ arguments. In essence, the learned High Court judge was of the opinion that the respondents, being the guarantors, had a right over the Charged Assets, and that right would extend to the proceeds of the sale of the Charged Assets. The respondents’ rights were compromised by the fact that the excess money from the proceeds of the sale was retained by the Liquidator for the benefit of other creditors of the Borrower, instead of being used to settle the remaining outstanding accrued interest calculated Page 9 of 19 from the date of winding-up until the date of full settlement. Therefore, the learned High Court judge dismissed UOB’s claim against the respondents (and Gerald Yeo @ Yeo Ah Khe). The learned High Court judge further allowed the counterclaim filed by Gerald Yeo @ Yeo Ah Khe, the 3rd defendant, in Appeal 1036. Mr. Gerald Yeo had sought for a declaration that the Guarantee be rescinded and for UOB to deliver the Guarantee to be cancelled. The Findings of this Court [21] The Borrower was wound-up on 4.12.2015, and based on the prevailing law at that time, s. 8(2A) of the Bankruptcy Act 1967 provided that “no secured creditor shall be entitled to any interest in respect of his debt after the making of a receiving order if he does not realize his security within six months from the date of the receiving order.” [22] As such, UOB, when issuing the redemption statement, could only calculate the accrued interest up to the date of winding-up of the Borrower because UOB did not realize the Charged Assets (security assets) within 6 months from the date of the winding-up order on 4.12.2015. The Charged Assets were not realized or sold, instead the Charged Assets were redeemed by the Liquidator. The Liquidator settled the outstanding amount as at the date of the winding-up order, i.e., as at 4.12.2015. [23] The question then is whether UOB could pursue a claim against the guarantors for the post winding-up accrued interest despite the provision in s. 8(2A) of the Bankruptcy Act 1967 for UOB’s entitlement to any accrued interest which ceased on the date of winding-up if the Charged Assets were not realized within six months from the date of winding-up. Page 10 of 19 [24] This question has been considered by the Federal Court in Andrew Lee Siew Ling v United Overseas Bank (M) Bhd [2013] 1 MLJ 449, 457. The question of law before the Federal Court was as follows: “Can a secured creditor in law, claim interest, inter alia, from a guarantor, and/or person whose liability is pursuant to a guarantee and/or indemnity, and/or a third party chargor, after the date of winding up of a borrower company or the receiving order if it does not realize its security within six months of the winding-up order or receiving order made against the borrower, as a consequence of s. 8(2A) of the Bankruptcy Act 1967 read together with s. 4(1) of the Civil Law Act 1956.” [25] The apex court answered the above question of law in the affirmative. The reasons for the decision are found in the following paragraphs of the Federal Court’s judgment as follows: “[14] It must be noted that s. 8 of the Act deals with the property or person of the debtor against whom a receiving order has been made. Section 8(2) and s. 8(2A) of the Act deal with what the secured creditor can and cannot do in respect of realizing or otherwise dealing with his security where the debtor is concerned. Nothing in these two sections suggests that they govern the properties or persons of parties against whom no receiving order is made. [15] It is our finding that the appellant is not the ‘debtor’ envisaged in s. 8(1) of the Act. In this regard, there is no receiving order made against the appellant. As such, s 8(2) does not apply to him. Thus, if s 8(2) is not applicable to the appellant, it follows too that the exception to that section, i.e. s 8(2A), will also not applicable to him. [16] We are further of the view that the appellant’s liability, being a person giving the indemnity is primarily separate and independent from any other person. He can be made liable for losses which the principal borrower (Monzo) could not have been Page 11 of 19 made liable. The intent and purpose of s 8(2A) of the Act is to clamp interest claimable by the secured creditor against the bankrupt debtor so as to afford protection to the unsecured creditors of the bankrupt debtor and the bankrupt debtor himself. This is to ensure that the level of debt would not increase, and the share that each unsecured creditor has on the assets of the debtor would not be diminished.” [26] Thus, applying the principle that was enunciated by the Federal Court in Andrew Lee (supra), this Court takes the view that the limitation set out in s. 8(2A) of the Bankruptcy Act 1967 does not extend to a guarantor’s liability. The guarantor’s liability is primarily separate and independent from the borrower/debtor. In that case, the Federal Court had explained that “the intent and purpose of s. 8(2A) of the Act is to clamp interest claimable by the secured creditor against the bankrupt debtor so as to afford protection to the unsecured creditors of the bankrupt debtor and the bankrupt debtor himself. This is to ensure that the level of debt would not increase, and the share that each unsecured creditor has on the assets of the debtor would not be diminished.” Hence, the underlying purpose of the section is to protect the unsecured creditors of the bankrupt debtor, not a guarantor or surety. [27] In coming to its decision the Federal Court had also considered the letter of guarantee and indemnity which was signed by the guarantor in that the contents of the guarantee clearly show the intention of the parties for the guarantor(s) to undertake the liability for the repayment of the term loan and interest therein not merely as sureties but also as a principal debtor(s) as well as indemnifier(s). Page 12 of 19 [28] In our present case, the respondents (and Gerald Yeo @ Yeo Ah Khe) were not just sureties in law. They were, contractually, principal debtors of UOB. This is clearly reflected in Clause 19 of the Guarantee which states as follows: “19

19.1 Although, as between Us [the respondents (including Gerald Yeo @ Yeo Ah Khe)] and the Customer [the Borrower], We are sureties, that is, persons who have agreed to be responsible for the liabilities and obligations of the Customer, We agree that, as between You [UOB] and Us, We are to be deemed and to be treated in every way as principal debtors in respect of all the moneys, liabilities and obligations guaranteed by this Guarantee. We therefore also agree that Our liability under this Guarantee shall not be discharged or affected in any way whatsoever by anything whatsoever which would not discharge Our liability if We had in fact been the principal debtors.” [29] The legal relationship that the respondents (and Gerald Yeo @ Yeo Ah Khe) had with UOB was not just as guarantors/sureties for the Borrower to repay any amount outstanding to UOB. Rather, the respondents (and Gerald Yeo @ Yeo Ah Khe) had also assumed the responsibility to repay the amount outstanding as principal debtors. Further, the respondents (and Gerald Yeo @ Yeo Ah Khe) were not protected under s. 8(2A) of the Bankruptcy Act 1967, as they do not fall within the meaning of “debtor” as envisaged under the law (see paragraph [15] of the apex court judgment in Andrew Lee (supra)). [30] Applying the above legal propositions as set down by the Federal Court and based on the plain meaning of the terms in the Guarantee, the Page 13 of 19 respondents (and Gerald Yeo @ Yeo Ah Khe), being principal debtors, could not disclaim their responsibilities and liabilities for the outstanding post winding-up accrued interest as claimed by UOB. [31] For the above reason alone, ss. 92 and/or 94 of the Contracts Act 1950 could not avail the respondents (and Gerald Yeo @ Yeo Ah Khe). This is because they were not just sureties for the Borrower, but were the principal debtors as well. [32] Sections 92 and 94 of the Contracts Act 1950 read as follows: “92. Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.”

Surety’s right to benefit of creditor’s securities A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract od suretyship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses or, without the consent of the surety, parts with the security, the surety is discharged to the extent of the value of the security.” [33] The above sections clearly protect only the interest of a surety; they do not protect the interest of a surety who has also assumed the responsibility as a principal debtor. Page 14 of 19 [34] Further, Clause 20.1 of the Guarantee fortifies the right of UOB to recover the post winding-up accrued interest against the respondents (and Gerald Yeo @ Yeo Ah Khe), particularly clause 20.1.4 which states as follows: “20.1 Independently of anything contained in this Guarantee, and as a separate promise to You [UOB], We [the respondents and Gerald Yeo @ Yeo Ah Khe] agree that any moneys which You may not be able to recover from Us on the basis of this Guarantee because of :- …

20.1.4 any legal or other limitation, disability or incapacity on the part of the Customer [Borrower]; … will still be capable of being recovered from Us as Your only or principal debtor and will be paid by Us on demand. We now give You Our unconditional undertaking to indemnify You in full and to keep you fully indemnified against all loss, damage, liabilities, costs and expenses whatsoever which You may suffer or incur as a result of or arising from the Banking Facilities which You are now, or at any time later, granting to the Customer; We agree We will not revoke or recall this Undertaking of Ours under any circumstances.” [35] Clearly, based on the above clause, in the event UOB could not recover from the respondents on the basis of the Guarantee for the reason of any legal or other limitation, disability or incapacity on the part of the borrower, UOB could still recover from the respondents (and Gerald Yeo @ Yeo Ah Khe) as UOB’s principal debtors and they had to pay UOB on demand. Therefore, the respondents (and Gerald Yeo @ Yeo Ah Khe) are liable for the post winding-up accrued interest. Page 15 of 19 [36] With regard to the issue raised by the respondents (and Gerald Yeo @ Yeo Ah Khe) that the respondents’ subrogation rights to claim against the balance of the proceeds had been deprived under s. 94 of the Contracts Act 1950, we are of the considered view that s. 94 could not avail the respondents for the reason that they are not merely sureties for the Borrower, but were also principal debtors who stood side-by-side with the Borrower. The application of s. 94 is purely to safeguard the interest of a surety, not a surety who held himself to be a principal debtor as well. [37] Further, when UOB released the Charged Assets, it was by way of a redemption. UOB did not lose or part with the Charged Assets as security, but rather UOB re-assigned or “returned” the Charged Assets to the Borrower when the Borrower paid the redemption amount. [38] UOB did not have any right to retain or claim interest over the excess money from the proceeds of the sale, because UOB was not the party involved in the sale, it was the Liquidator who carried out the sale. The learned High Court judge relied on Fisar Hj Abdullah v MBB [2015] 1 MLJ 867 and other authorities to find that UOB’s action in releasing the Charged Assets by way of redemption was clearly inconsistent with the rights of the respondents under s. 92 and 94 of the Contracts Act. [39] This Court has examined all the cases and is of the considered view that those cases relied on by the learned High Court judge can be distinguished. The respondents (and Gerald Yeo @ Yeo Ah Khe) in the present case were not just sureties, they were principal debtors. On this score, This Court could not agree with the finding of the learned High Court Judge. Page 16 of 19 [40] In short, once it is established that a guarantor is no longer just a surety for a borrower, but also a principal debtor of the bank, the protections afforded to a surety under the Contracts Act, 1950 would not apply. [41] In relation to the legal principle enunciated in the Federal Court decision in Pilecon Realty Sdn Bhd v Public Bank Bhd [2013] 3 MLJ 1, this Court finds that the apex court did not extend the limitation of the enforcement of post winding-up accrued interest to a guarantor who had assumed responsibility as a principal debtor. As such, the learned High Court judge’s finding that UOB’s delay in the appointment of the R&Ms and UOB’s failure to dispose of the Charged Assets constituted a breach of the duty owed to the respondents (and Gerald Yeo @ Yeo Ah Khe) was misconceived. [42] Based on the above reasons, this Court is of the view that the learned High Court Judge had erred in law in holding that UOB’s delay in appointing the R&Ms, UOB’s failure to dispose of the Charged Assets, and UOB’s failure to retain the excess of the proceeds of the sale had resulted in the respondents’ interests being compromised and prejudiced, which thereby discharged the respondents’ duties and responsibilities as guarantors. [43] The learned counsel(s) for the respondents (and Gerald Yeo @ Yeo Ah Khe) had raised issues concerning the conduct of UOB and the R&Ms prior to and after the redemption of the Charged Assets. [44] This Court finds those issues raised do not deal with the heart of the UOB’s claim, and that those issue raised were outside the parties’ Page 17 of 19 contractual obligations. For example, the respondents (and Gerald Yeo @ Yeo Ah Khe) asserted that UOB was in breach of its duty for failure to retain the balance of the proceeds of the sale of the Charged Assets. This Court could not agree with the respondents’ assertion simply because UOB was not a party to the sale of the Charged Assets. [45] UOB had no right to the proceeds of the sale of the Charged Assets. The Liquidator on behalf of the Borrower was the recipient of the sale proceeds as well as the balance of the proceeds after settling the Redemption sum. UOB could not in any manner be in breach of any contractual obligation with respect to the sale proceeds in the given circumstances. [46] The respondents (and Gerald Yeo @ Yeo Ah Khe) could seek indemnity from the Liquidator under s. 98 of the Contracts Act, 1950, because the relationship between the respondents (and Gerald Yeo @ Yeo Ah Khe) and the Borrower remains as surety and principal debtor. Conclusion [47] For the reasons stated above, we allowed UOB’s appeals (i.e., Appeal 1036 and Appeal 2037) and set aside the High Court order dated 10.5.2022. Further, we dismissed the cross-appeal in Appeal 1036. [48] We made the following consequential orders:

UOB’s claim per paragraph 17(a) and (b) of the Amended Statement of Claim dated 21.8.2018 is allowed and judgment is Page 18 of 19 entered accordingly against D1, D2 and D3. D3’s counterclaim is dismissed;

costs of RM125,000.00 (subject to allocatur) against the respondent (Gerald Yeo @ Yeo Ah Khe) in Appeal 1036 as costs here and below;

costs of RM100,000.00 (subject to allocatur) against the respondents in Appeal 1037 as costs here and below;

the costs ordered by the High Court and which have been paid by UOB to the Respondents in the respective appeals are to be refunded to UOB by 26.9.2024. -sgd- (CHOO KAH SING)

7.4.2025 Page 19 of 19 For the appellants in Appeal 1036 and Appeal 1037: Vijay Raj (Ratna Govindasamy with him) Messrs. Skrine For the respondents in Appeal 1037: Datuk Ringo Low Kim Leng (Brandon Lim Zhung Wy with him) Messrs. Ringo Low & Associates For the respondent in Appeal 1036: Dato’ Prem Rama Chandran (Craig Ho Wai Ping with him)