United Overseas Bank (Malaysia) Bhd v 1. ) Tan Chong Whatt (WA-22NCC-510-10/2020)

TAN CHONG WHATT (NRIC No: 510512-01-5303)

TAN CHOR KHENG (NRIC No: 780922-01-6165)

GERALD YEO @ YEO AH KHE (Singapore ID Card No: S1334285G) … DEFENDANTS GROUNDS OF JUDGMENT Introduction [1] In this action, the Plaintiff seeks to recover the sum of RM 7,753,962.71 with interest at the rate of 3.5% per annum above the Plaintiff’s Base Lending rate on a monthly rest basis from 6.5.2018 (‘the outstanding sum’) from the Defendants under a joint and several guarantee, the said sum representing further interest on the outstanding debts accruing after the date of winding up of the borrower, one CHN Commodity Trade Centre Sdn Bhd (in liquidation) (‘CHN’ or ‘the Borrower’), the winding up constituting an event of default under a facility agreement dated 25.11.2014 (‘the Facility Agreement’). [2] It is not in dispute that on 27.10.2017, CHN or the Borrower paid the Plaintiff the sum of about RM 30.5 million representing the principal sum due together with accrued interest computed up to the date of its winding up on 4.12.2015 (‘Winding Up Date’). Interest against CHN was computed up to the Winding Up Date only because by section 8(2A) of the Bankruptcy Act 1967, the Plaintiff is barred from claiming interest beyond the said date as the security granted for the Facility Agreement was not realized within 6 months from the date of the receiving order. However, between the Winding Up Date and up till 5.5.2018, interest had continued to accrue and had accumulated to RM 7,753,962.71 as at 5.5.2018. This judgment explores the effect of the said section 8(2A) on the duty of a secured creditor to take prompt action to realise its security where the debtor has been wound up and the consequence for failing to do so on the guarantors’ obligations as principal debtors and indemnifiers under the Guarantee. [3] The Plaintiff claims that the Defendants are liable to pay this post Winding Up Date interest. The Plaintiff further claims that upon the redemption of the asset charged under a debenture as security for the Facility Agreement, the Plaintiff was entitled to re-assign and re-transfer the charged asset to the Borrower and had no duty to retain the excess sale proceeds from the charged asset for the benefit of the Guarantors. Reliance was also placed on the anti-discharge clause in the Guarantee directed at removing any defence based on the Holme v Brunskill doctrine. This judgment also considers the ‘purview’ doctrine in relation to the anti-discharge clause first considered in Trade Indemnity Company Limited v. Workington Harbour and Dock Board [1937] AC 1 and whether the Plaintiff by its conduct is estopped from claiming under the Guarantee. Background facts [4] At all material time, the Plaintiff is a licensed bank. The 1st and 2nd Defendants were the executive directors of CHN. The 3rd Defendant was a non-executive director of CHN. [5] On 25.11.2014, the Plaintiff and CHN entered into the Facility Agreement wherein the Plaintiff agreed to provide a loan amounting to RM 30 million to CHN. The loan was said to be for the purpose of financing the purchase of shop units, all of which were located within a shopping complex known as Pandan Safari Lagoon Shopping Complex and Water Theme Park (‘the Charged Asset’). The Charged Asset is situated on a land held under Master Title PM 3918, Lot 45614, Seksyen 15, Bandar Ampang, Daerah Hulu Langat, Negeri Selangor. The loan of RM 30 million was approximately only 30% of the then current market value of the Charged Asset. [6] The following securities were provided for together with the Facility

a debenture with power of attorney dated 25.11.2014 executed by CHN in favour of the Plaintiff which grants a fixed and floating charge over all the Charged Assets (‘Debenture’);

deed of assignment dated 25.11.2014 (‘Deed of Assignment’) executed between CHN and the Plaintiff whereby CHN assigned absolutely to the Plaintiff all its rights, titles and interests over the Charged Assets and an irrevocable power of attorney dated 25.11.2014 (‘Power of Attorney’) in favour of the Plaintiff in respect of the Charged Assets;

a Letter of Subordination where all the loans and advances granted by the shareholders of CHN are to be subordinated to the loans and advances granted by the Plaintiff (‘Letter of

An assignment of the rental proceeds (present and future) from certain properties; and

a joint and several guarantee dated 25.11.2014 (‘Guarantee’) executed by the 1st to 3rd Defendants and one, Wang YingDe. [7]

The liability under the Guarantee including interest is limited to RM 30 million only. Since more than RM 30 million had been paid vide the Redemption Sum, there can be no further liability payable;

In any case, the indebtedness of CHN has been fully settled when the Plaintiff accepted the Redemption Sum. The 1st to 3rd Defendants’ liabilities as guarantors cannot be more extensive than the indebtedness of the Borrower;

The Guarantee is not a Contract of Indemnity;

The Guarantee had been varied when Wang YingDe was discharged as a guarantor. By reason of the aforesaid, the 1st to 3rd Defendants as remaining guarantors are discharged of their obligations under the Guarantee due to this unilateral and material variation;

The Defendants are discharged as guarantors under sections 92 and 94 of the Contracts Act 1950 as their rights to the security had been impaired;

There was an inordinate delay by the Plaintiff to demand the outstanding sum as well as in appointing the R&M, hence discharging the Defendants from their obligations under the

The Plaintiff is estopped by its conduct from claiming under the Guarantee. [20] Quite apart from the defences raised above, the 3rd Defendant also filed a Counterclaim against the Plaintiff for, inter alia, negligence and breach of duty of care in failing to take timeous action to appoint the R&M over the Charged Asset, acting without diligence in discharging its duty in realising the Charged Asset and or wrongfully permitting the Liquidator to retain the balance proceeds of the Sale to the detriment of the Defendants. The 3rd Defendant claims that he is released from any obligations under the Guarantee by reason of the Plaintiff’s aforesaid breach of duties and or that the Plaintiff is estopped from making any claims thereunder. Court’s deliberations [21] To my mind, the determinative issues in this case are:

whether the Defendants had undertaken liability for the repayment of the loan sum and the interest thereto not merely as sureties but also as principal debtors and indemnifiers;

whether the Defendants remain liable to pay the further interest post the Winding Up Date notwithstanding that CHN had paid the Redemption Sum;

whether the Defendants’ obligations under the Guarantee are discharged by reason of sections 92 and 94 of the Contracts

whether by reason of the Plaintiff’s delay in enforcing and realizing the Charged Asset, the Defendant are discharged of their obligations under the Guarantee or that the Plaintiff is otherwise estopped by its conduct from making any claim thereunder. [22] Accordingly, I shall first examine whether based on the construction of the Guarantee, the Defendants have agreed to act only as sureties to CHN’s liabilities such that their obligations are only secondary or whether the Defendants have assumed the primary obligations to bear all monies due to the Plaintiff under the Facility Agreement. Whether the Guarantee is a Contract of Indemnity [23] The Defendants contended that the Guarantee is not an indemnity agreement. Learned counsel for the Defendants referred this Court to the Supreme Court case of South East Asia Insurance Bhd v Nasir Ibrahim [1992] 2 MLJ 355. In South East Asia Insurance (ibid), Gunn Chit Tuan SCJ explained both section 77 and 79 of the Contracts Act 1950 as follow: We found in the first place that the difference between a contract of indemnity and a contract of guarantee appears to have been overlooked. A contract of indemnity is defined in s 77 of our Contracts Act 1950 as 'a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person'. A contract of guarantee, according to s 79 of the Contracts Act 1950 'is a contract to perform the promise, or discharge the liability, of a third person in case of his default'. The person who gives the guarantee is called the 'surety'; the person in respect of which default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. In a contract of indemnity, the promisor undertakes an original and independent obligation to indemnify, as distinct from a contract of guarantee which is a collateral contract by which the promisor undertakes to answer for the default of another person who is to be primarily liable to the promisee’. [24] Learned counsel for the Defendants argued that Clause 19.1 of the Guarantee which carries the heading “Principal Debtor” does not in itself ‘transform’ the Guarantee into a contract of indemnity. Clause 19.1 states: [25] Learned counsel for the Defendants argued that this Clause 19.1 should be construed objectively and its mere existence does not indicate that the Defendants are automatically liable to indemnify the Plaintiff. In light of this, the following passage from James O’Donovan and John Philips in The Modern Contract of Guarantee was quoted by the learned counsels: ‘A guarantee which contains clauses preserving the liability of the guarantor in certain circumstances when the principal is no longer liable will invariably also contain a ‘principal debtor’ clause, whereby the creditor is ‘given liberty to act as though the guarantor was a principal debtor’ (an example from Fletcher Organisation Pty Ltd v Crocus). It is clear that the effect of such clause, even standing alone, may be to preserve the guarantor’s liability in circumstances in which he or she would otherwise be discharged, for example, where the creditor improperly releases a security; or grants the principal an extension of time to repay the debt. Depending on its precise construction, the clause may also obviate the necessity for a demand to be made upon the guarantor before issuing proceedings. The dominant view however, is that the incorporation of a “principal debtor” clause does not convert what would otherwise be interpreted as a contract of guarantee into a contract of indemnity.’ [emphasis added] [26] In a similar fashion, learned counsel for the Defendants submitted that Clause 20.1 of the Guarantee also cannot be relied upon by the Plaintiff to recover the further interest. Clause 20.1 stipulates thus: [27] According to the Defendants, based on its heading, “Lack of Power/Capacity”, Clause 20.1 is intended to be for the limited purposes set out in events stated in sub-clauses 20.1.1 to 20.1.5, i.e. where monies are not recoverable due only to, for example, any defect in or any lack of authority/powers on the part of CHN or for the circumstances expressly stipulated thereto. The mere presence of the word “indemnity” in this Clause 20.1 does not mean that it is a contract of indemnity. [28] Reliance was placed on the case of Huat Hing Rubberwood Sdn Bhd v Goodnite Sdn Bhd & Ors [2018] MLJU 1650 where Court held: ‘[106] The cases show that the use of the word “indemnity” itself is not enough to turn what is in essence a guarantee into an indemnity. … [118] Despite the fact that Clause 2 of the guarantee in Re Taylor was significantly well drafted compared to the present Guarantee, Burcheit J, concluded that the instrument in question was a guarantee and not an indemnity: ‘The word “Indemnify” is used, but the obligation is only to attach in the event of a failure by South Pacific to discharge its obligations. This looks very like the language of a collateral contract to answer for the default of another, who is contemplated as liable in the first place to the promise. It does not appear to express a primary obligation undertaken by the guarantors.’ [29] More specifically, learned counsel for the 1st and 2nd Defendants argued that the Plaintiff had failed to specify which of the 5 circumstances in Clause 20 they are relying on against the Defendants. According to the learned counsel, Clause 20 will only be able to assist the Plaintiff when they can show that the money is not recoverable due to one of the 5 circumstances under the Clause. Thus, the claim on the outstanding sum was made against the Defendants as guarantors only (as opposed to principal debtors) since the claim does not fall within any of the 5 situations as envisaged under Clause 20. [30] For completeness, it was also contended that Clause 23.1 which provides that ‘… the liability arising under the Guarantee shall be deemed to be joint and several liability of such persons’ does not assist the Plaintiff. This is because it did not use the word “indemnify”, but “guarantee”. Accordingly, this suggests that the Guarantee is not an indemnity agreement: [31] According to the Defendants, the words “guarantee” or “guarantor” were in fact being used almost 93 times in the Guarantee, whereas “indemnify” only appears 2 times in the entire document. This can only support the argument that the intention of the parties at all material times was for the agreement to be a contract of Guarantee, and not an Indemnity. [32] With respect, I disagree with the Defendants’ contentions. [33] Clause 19 of the Guarantee is entitled the “principal debtor clause”. The language of the clause is clear and unambiguous. It states that “… as between You and us”, namely as between the Plaintiff and the 1st to 3rd Defendants “… 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…”. [34] In fact, the last sentence in Clause 19.1 makes it clear that the 1st to 3rd Defendants’ liability under the Guarantee shall not be discharged or affected in any way whatsoever by anything whatsoever which would not discharge their liability if they had in fact been the principal debtors. This means that even in circumstances where the Defendants would not have been liable as guarantors, they would nevertheless assume liabilities as principal debtors. [35] I also respectfully disagree that Clause 20 does not apply to the circumstances in the instant case. Clause 20.1.5 expressly repeats the Defendants’ obligations as principal debtor. In particular, it provides that “[I]ndependently of anything contained in this Guarantee and as a separate promise to You, We agree that any money which You may not be able to recover from Us on the basis of this Guarantee because of … any other fact or circumstance whether known to You or not ,,, will still be capable of being recovered from Us as … principal debtor and will be paid by Us on demand”. [36] As if to put the duty as indemnifier beyond doubt, the Clause 20.1 proceeds further to state that “[W]e now give to You Our unconditional undertaking to indemnify You in full and to keep you 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”. [37] In fact, the Clauses 19.1 and 20.1 are very similar to the clauses that were considered by the Federal Court in the case of Andrew Lee Siew Ling v. United Overseas Bank (M) Bhd [2013] 1 MLJ 449 where the then Chief Judge of Malaya, Justice Zulkefli found that such wordings show an intention by the guarantors to also act as principal debtors. The relevant passages of his judgment are reproduced below: ‘[22] It is our finding that the letter of guarantee and indemnity contained several clauses which clearly show the intention of both guarantors to undertake the liability for the repayment of the term loan and interest therein not merely as sureties but also as principal debtors as well as indemnifiers. The relevant cll 9, 17 and 21 of the letter of guarantee and indemnity are reproduced as follows: Clause 9 Though as between us and the Customer we are sureties only for the Customer, yet as between you and us we shall be deemed to be principal debtors for all the monies the payment of which is hereby guaranteed and accordingly we shall not be discharged nor shall our liability be affected in any way by any fact circumstance act omission or means whatsoever whether known to you or not whereby our liability hereunder would have been discharged if we had not been principal debtors. … Clause 17 As a separate and independent stipulation we hereby agree that in the event the monies hereby guaranteed may not be recoverable on the footing of a guarantee, whether by reason of any legal limitation, disability or incapacity on the part of the Customer or any other fact or circumstance, and whether known to you or us or not, shall nevertheless be recoverable from us as sole or principal debtor in respect of it and shall be paid by us on demand. Clause 21 For the consideration aforesaid and as a separate and independent stipulation in addition to and not in derogation of the guarantee herein given we hereby irrevocably and unconditionally undertake to indemnify you and keep you indemnified fully and completely against all claims and demands actions and proceedings losses damages costs and expenses including legal costs as between a solicitor and client and all other liabilities of whatsoever nature or description which may be made taken incurred or suffered by you in connection with or in any manner arising out of the Facilities. [23] It is our considered view that in the present case the appellant, being a person who has given a guarantee and more importantly an indemnity, is primarily liable for losses which the principal borrower could not have been made liable. His liability is not dependent or secondary to the liability of the principal borrower. He is a principal debtor himself. The liability under a contract of indemnity does not depend on whether the principal debt is enforceable. It has no reference in law to the obligation of any third person. In essence, the liability of the person who has given an indemnity can be more extensive than that of the liability of the principal borrower.’ [38] Applying the reasonings by the learned Chief Judge of Malaya, I find that in the present case, the Defendants have actually undertaken the liability not merely as sureties, but as principal debtors as well as indemnifiers. This means that the Guarantee executed in the present case is not merely a contract of Guarantee, but is also a contract of Indemnity. [39] Having concluded that the Guarantee is also a contract of Indemnity, I shall now deal with the contention that the Defendants cannot be liable for the interest accruing post the Winding Up Date as CHN had paid the Redemption Sum to the Plaintiff. The indebtedness of CHN has been fully settled [40] As alluded to in the background facts above, pursuant to the Sale of the Charged Asset, the Plaintiff had, at the request of the Liquidator, issued the Redemption Statement to the Liquidator and on 4.10.2017, the Redemption Sum thereto was paid to the Plaintiff and accepted by the Plaintiff on 27.10.2017 in discharge of the indebtedness of CHN as at the Winding Up Date. [41] Accordingly, it is contended by the Defendants that the Plaintiff’s acceptance of the Redemption Sum constituted a full and final settlement of CHN’s indebtedness. More specifically, the excerpt of the letter of Plaintiff’s solicitor dated 16.10.2017 is reproduced: [42] Pursuant to the letter, the Defendants contended that by the phrase “in order for him to settle the abovenamed Borrower’s indebtedness to our Client”, the Plaintiff must necessarily accept that by accepting the Redemption Sum, CHN’s indebtedness to the Plaintiff under the Facility Agreement would have been fully satisfied. [43] Premised on the aforesaid, learned counsel for the Defendants in reliance on section 87 of the Contracts Act 1950, submitted that as sureties, the Defendants are discharged from any further obligations under the Guarantee. Section 87 of the Contracts Act 1950 stipulates thus: ‘Section 87: Discharge of surety by release or discharge of principal debtor The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor’. [44] Again, I am unable to agree. [45] With the Plaintiff’s acceptance of the Redemption Sum, whilst the same may have the legal effect of discharging the indebtedness due from CHN to the Plaintiff, it does not mean the Defendants are also fully discharged from its liability under the Guarantee. This is because the Redemption Sum was calculated based on the amount owed by CHN standing as at the Winding Up Date i.e. 4.12.2015 only. The Plaintiff is prohibited by law from recovering any interest accruing under the Facility Agreement post the Winding Up Date against CHN. However, no such prohibition is imposed by law for the Plaintiff to recover such post winding up interest from the Defendants who had agreed to act as principal debtors and indemnifiers under the Guarantee. [46] Again, this exact issue was brought before the Federal Court in Andrew Lee Siew Ling v United Overseas Bank (M) Bhd (supra) and the Federal Court found no merits to the similar contentions raised. More specifically, the Federal Court held as follows: “[13] As an exception to s 8(2), s 8(2A) provides a limitation as to the entitlement of interest by a secured creditor. It states that the secured creditor shall not be entitled to any interest in respect of his debt after the making of the receiving order, if he does not realize his security within six months from the date of the order. [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 deals 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… [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 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.” [47] Based on the judgment of the Federal Court above and applying the reasonings to the present facts of this case, what this means is that when CHN went into liquidation which gave rise to an event of default, the Plaintiff’s right to recover from CHN in respect of the indebtedness for the loan under the Facility Agreement was limited by law only to interest accruing up to the Winding Up Date unless the security is realised within 6 months from the date of the receiving order. As the Charged Asset in this case was not realised within 6 months from the Winding Up Date, the Plaintiff was no longer able to claim against CHN for any interest accruing post the Winding Up Date. [48] However, the inability to claim against CHN does not mean that the Plaintiff cannot made a claim against the Defendants who had agreed to act as principal debtors and indemnifiers for all the obligations in respect of the loan under the Facility Agreement. This would include being liable for all the charges and interest accruing post the Winding-Up Date. In other words, in accepting the Redemption Sum, only the indebtedness of CHN had been fully discharged but the Defendants’ obligations as principal debtors and indemnifiers continued in respect of the interest accruing post the Winding Up Date. However, it is significant that in Andrew Lee Siew Ling v United Overseas Bank (M) Bhd (supra), there was no claims made relating to the impairment of the guarantors’ rights against the security as in this case, which I will address next. Plaintiff’s conduct of impairing surety’s remedy [49] Notwithstanding that the Defendants may be liable for the interest post the Winding Up Date under the Guarantee as principal debtors and indemnifiers, it is nevertheless contended, particularly by the 3rd Defendant, that the Plaintiff cannot claim the interest post Winding Up because the Plaintiff had impaired the guarantors’ eventual remedy as a surety against the securities held by the Plaintiff. According to this argument, when the Plaintiff:

permitted the Liquidator to sell the Charged Asset (at an undervalue);

re-assigned and discharged the Charged Asset to the Liquidator upon receipt of the Redemption Sum; and

allowed the Liquidator to retain the balance proceed from the Sale amounting to a sum in excess of RM 20 million, the Plaintiff had acted contrary to sections 92 and 94 of the Contracts Act 1950 which provide thus: Section 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. Section 94: 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 of 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. [50] Learned counsel for the 3rd Defendant referred to the following passage in Fisar bin Hj Abdullah v Malayan Banking Bhd [2015] 1 MLJ 867 where the Court of Appeal explained the governing principles of section 94 as follow: ‘[31] Disposal of the 25 units of properties charged to it by the respondent through the liquidator of the borrower is not a matter that the appellant may be concerned about. Though the right to disposal is a right in rem in the hands of the respondent, it does not mean the respondent can dispose of it directly only. The evidence shows that the respondent was credited with the redemption amount. In accepting to release its in rem security for disposal by the liquidator, the respondent had willingly allowed the excess, if any, over the redemption amount to be retained by the liquidator to satisfy other creditors. We accept that the respondent is at liberty to be generous with its security. But it is inequitable where that generosity affects the rights of the guarantor, where the respondent’s generosity to the liquidator results in the guarantor being exposed to a claim from the respondent for an amount greater than if the respondent had utilised the in rem security entirely to reduce the amount owed by the borrower to the respondent. Section 94 of the Contracts Act 1950 provides that: A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of 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. [32] It is not the evidence of the respondent that the redemption sum received is the entire net proceeds from the disposal of the 25 units, and that the liquidator it allowed to auction the properties did not keep any part of the proceeds. But certainly its own evidence that it received only the redemption sum does raise the obvious conclusion the liquidator would be wasting his time to sell the properties without receiving any benefit from the disposal. To that extent the respondent failed to reduce the loss, and s 94 does not allow a claim, see Kabatasan Timber Extraction Co v Chong Fah Shing [1969] 2 MLJ 6 (FC).” [51] The Court of Appeal case of Tan Poh Khiang v Malayan Banking Berhad [2014] MLJU 970 was also referred to where the learned counsel argued that the liability of 3rd Defendant as guarantor for CHN is discharged pursuant to the legal principles in section 92: ‘[25] We therefore found that the 2nd Defendant was discharged from liability under the Guarantee upon the Plaintiff's acceptance of the settlement proposal and the release of the 13 pieces of charged lands under the provisions of sections 87 and 88 of the Contracts Act without the consent of the 2nd Defendant. [See Lee Wah Bank Limited v Joseph Eu [1981] 1 MLJ 11 at paragraph C-D, right]. [26] We also found that by releasing the 13 pieces of charged lands without the consent of the 2nd Defendant under the Plaintiff's letter dated 16.5.2003, which were charged to the Plaintiff to guarantee the full payment of Novel Villa's debts to the Plaintiff, the Plaintiff had acted in a way which was inconsistent with the right of 2nd Defendant, as a guarantor. We therefore agreed with the submission of the 2nd Defendant that he was also discharged as a guarantor under the provisions of section 92 of the Contracts Act which provides as follows: … [27] In short, we found that there was a full and final settlement of the debt due from Novel Villa to the Plaintiff which in law discharged the 2nd Defendant as a guarantor.’ [52] Accordingly, when the Charged Asset was re-assigned and released and the balance of the proceeds of Sale was allowed to be retained by the Liquidator without the consent of 3rd Defendant, his liability is thereby discharged. This is because the guarantors have been deprived of their subrogation rights to claim against the balance proceeds. The aforesaid impairment to the guarantors’ subrogation claims resulted in the guarantors’ obligations under the Guarantee to be discharged and the Plaintiff’s claim not maintainable. [53] There is merit to the submission by learned counsel for the 3rd Defendant. [54] In the instant case, the Charged Asset is a “security” referred to in section 94 of the Contracts Act 1950. The word "security" was defined in the Indian case of States of Madhya Pradesh v Kaluram

1 SCR 266 in relation to Section 141 of the Indian Contracts Act (which is in pari materia to our Section 94) where the Court held at 272 E-G: ‘(i) The expression "security" in s. 141 of the Indian Contract Act is not used in any technical sense: it includes all rights which the creditor has against the property at the date of the contract. The surety is entitled on payment of the debt or performance of all that he is liable for to the benefit of the rights of the creditor against the principal debtor which arise out of the transaction which given rise to the right or liability: he is therefore on payment of the amount due by the principal debtor entitled to be put in the same position in which the creditor stood in relation to the principal debtor. If the creditor has lost or parted with the security without the consent of the surety, the latter is by the express provision contained in s. 141, discharged to the extent of the value of the security lost or parted with.’ [emphasis added] [55] The aforesaid passage was referred to with approval by our Court in Abdul Hamid bin Mahmood & Anor v. Oriental Bank Berhad [2002] MLJU 704. [56] In the present case, after the Redemption Sum was paid over to the Plaintiff, it must have been clear to the Plaintiff that the Liquidator of CHN had sold the Charged Asset. No steps were taken by the Plaintiff to preserve the guarantors’ rights to the Charged Asset even though the Plaintiff was still pursuing against them for the further interest post the Winding Up Date. No steps were taken by the Plaintiff to preserve the balance proceeds from the Sale of the Charged Asset for the benefit of the guarantors who are entitled to the same under section 94 of the Contracts Act 1950. The Plaintiff was aware at all times that the value of the Charged Asset was more than sufficient to cover all the indebtedness including the further interest post the Winding Up Date. [57] By reason of the Plaintiff’s action in permitting the Charged Asset to be re-assigned and discharged and or the balance proceeds from the Sale of the Charged Asset to be paid over to or retained by the Liquidator who had thereafter applied the same for the benefit of other unsecured creditors of CHN, the Defendants’ rights against the Charged Asset and or the balance proceeds are lost and his remedy against the same impaired. [58] The effect of this breach of the duty by the Plaintiff to the Defendants to protect and or preserve the security aforesaid, in my judgment, means that the Defendants are discharged from their obligations to the Plaintiff to the extent of the balance of the proceeds from the Sale. [59] In Fisar bin Hj Abdullah v Malayan Banking Bhd (supra), the respondent bank had failed to accurately compute the correct outstanding amount due from the borrower. The redemption statement that was issued to the liquidator of the borrower was for a lesser sum from the actual figure due from the borrower to the respondent bank. This resulted in the guarantors’ right to the assets of the borrower being impaired which under section 92 of the Contracts Act 1950 would discharge the guarantors. [60] In Tan Poh Khiang v Malayan Banking Berhad (supra), the respondent bank had fully settled with the borrower and had, without the consent of the guarantor, caused to be released 13 pieces of charged lands. The aforesaid actions were clearly inconsistent with the rights of the guarantor under section 92 of the Contracts Act 1950. [61] Similarly, in this case, the re-assignment and discharged of the Charged Asset without preserving the guarantors’ right and or the conduct in allowing the balance proceeds of the Sale from the Charged Asset to be paid over to or retained by the Liquidator is inconsistent with the right of the guarantors and or in breach of the Plaintiff’s duty to the guarantors. This has led to the guarantors’ remedy against the Charged Asset and or the balance proceed of the Sale to be impaired and or lost. [62] The aforesaid is based on the Holme v. Brunskill (1878) 3 QBD 495 (CA) doctrine where a material variation to a guaranteed contract without a guarantor’s consent may lead to the discharge of a guarantee. In this case, the material variation was the release of the security in the form of the Charged Asset and or the balance proceeds of the Sale without the guarantors’ consent. [63] I am of the view that the Holme v. Brunskill doctrine will still be applicable even in the present case where the Guarantee provides that the guarantors accepted primary liability as principal debtors. I find support for this position from Cresswell J in Marubeni & South China Ltd v. Government of Mongolia [2004] EWHC 472 (Comm) [2004] 2 Lloyd’s Rep 198. Sir Bernard Rix LJ in CIMC Raffles Offshore (Singapore) Pte Ltd & Anor v. Schahin Holding S.A [2013] EWCA Civ 644 also approved of Cresswell J’s view. [64] Not surprisingly, learned counsel for the Plaintiff referred this Court to the terms of the Guarantee, in particular, Clause 10.1 where according to the Plaintiff, liberty is given to the Plaintiff to re-assign/release the Charged Assets to CHN without requiring the consent of the Defendants and that this would not have any effect on the Defendants’ liability under the Guarantee. This would include the release of the balance proceeds for the Sale. Clause 10.1 of the Guarantee provides:

10.

MODIFICATION AND INDULGENCE 1 This Guarantee will not be affected in any way and we will not be released or excused from any of Our liabilities or obligations under this Guarantee by any of the following:

10.1.3 any variation, exchange, renewal, release or modification of any security whatsoever, including other guarantees, which You may now or at any time after this hold in respect of the Customer;

10.1.10 …whether or not You have been given notice to Us or obtained Our consent. [65] Clause 10.1 is what is typically referred to as the ‘anti-discharge’ clause and is a ubiquitous feature in most guarantee documents nowadays. Such clauses are inserted with the object of removing any defence based on the Holme v. Brunskill doctrine that I have alluded to above. [66] Learned counsel for the Plaintiff contended that notwithstanding that the Holme v. Brunskill doctrine has been statutorily codified in our Contracts Act 1950, nevertheless, it is trite that parties can “contract out” of sections 92 and 94 of the Contracts Act 1950. [67] This was held in the Privy Council case of Ooi Boon Leong & Ors v Citibank NA [1984] 1 MLJ 222: ‘The argument founded on a comparison between (i) sections 86, 92 and 94 and (ii) certain other sections of the Act which are expressed to be "subject to a contrary intention" or the like also fails. Random recognition in certain sections of the Act of the fundamental principle that contracting parties are at liberty to express their intentions their contracts as they please is quite insufficient to support the contrary proposition that the absence of such recognition in another section implies the absence of freedom to contract. If freedom to contract is to be curtailed in relation to a particular subject matter, their Lordships would expect the prohibition to be expressed in the statute, and not left by the legislature to be picked up by the reader as an implication based upon sections dealing with different subject matters. Furthermore, it may be noticed that when the Contracts Act intends to render an agreement void, it says so in express terms…’ [68] Further, the case of Malayan Banking Bhd v Mawai Products Sdn Bhd & Ors [1995] 1 BLJ 43 (applying Ooi Boon Leong) held that:- ‘The next point raised by the 4th defendant is, whether Clause 6

(ii) amounted to the 4th defendant bargaining away his right preserved under sections 92 and 94 of the Act and for that reason Clause 6 (ii) is void. It is settled law that parties to a contract are free to contract out of sections 92 and 94 of the Act. See Ooi Boon Leong & Ors. v. Citibank & Ors. (1984) 1 MLJ 222; D & C Nomura Merchant Bankers Bhd. v. Gunung Kuari Sdn. Bhd & 3 Ors.

2 CLJ 58. I need not say anything more on this except that Clause 6 (ii) is a standard clause normally found in a contract for guarantee to safeguard the interest of the creditor. The 4th defendant had agreed to the terms contained in Clause 6 (ii) and therefore it is bound by it. It is on those terms that the plaintiff had agreed to grant financial facilities to the 1st defendant; the 4th defendant cannot now resile from those terms.’ [69] The proposition that parties may ‘contract out’ of the Contracts Act 1950 and the fact that anti-discharge clause is an accepted tool to avoid the repercussions of the Holme v. Brunskill doctrine can no longer be challenged. They are trite and established. [70] However, the Plaintiff’s reliance on Clause 10.1 seems inconsistent with its own position as canvassed in their written submission in reply that the present case does not involve a ‘release’ of the security. To quote the Plaintiff: ‘… this is a case of redemption. The Borrower through its Liquidator had redeemed the Charged Assets from the Plaintiff, which it was legally entitled to do. This is not a case of discharge/release, or even of settlement’. [71] In other words, according to the Plaintiff, the present circumstances do not come within the “modification and indulgence” provided for in Clause 10.1 since the redemption of the Charged Asset was not a “release”. Thus, by extension, the retention of the balance proceeds from the Sale was nothing more than a natural consequent of the redemption of the Charged Asset. The issue of release simply does not arise. [72] With respect to learned counsel for the Plaintiff, I am unable to accept that in the present case, the Borrower was merely seeking to ‘redeem’ the Charged Asset simpliciter. The transaction was in truth a sale of the Charged Asset that had been secured to the Plaintiff by way of the Debenture for the payment of CHN’s indebtedness under the Facility Agreement. The power of sale ought to have been exercised by the R&M appointed by the Plaintiff. Had the Plaintiff’s R&M exercised the power of sale, they would have had control over the balance proceeds of the Sale and would be duty bound to retain the balance proceeds for the benefit of the guarantors. It owed a duty to do so. It has breached that duty to the Defendants’ detriment. This entitled the Defendants to claim that the Guarantee has been discharged. [73] The Plaintiff was fully aware that the Liquidator of CHN had intended to ‘redeem’ the Charged Asset. By the Redemption Sum, the Plaintiff was also aware that the amount would not be sufficient to settle the further interest post the Winding Up Date. Without doubt, the Plaintiff had intended to pursue the post Winding Up interest against the Defendants under the Guarantee as letters of demand in respect of the same were issued even prior to the ‘redemption’ of the Charged Asset. Hence, the Plaintiff owed a duty to the Defendants to ensure that their rights to the Charged Asset would not be impaired. As guarantors, the Defendants were entitled to be put in the same position as the Plaintiff as against the securities upon the settlement of their debts to the Plaintiff. Instead, the Plaintiff had allowed the Charged Asset to be re-assigned and transferred to the Liquidator and for the balance proceeds of Sale to be kept by the Liquidator without safeguarding the guarantors’ interest. [74] Learned counsel for the Plaintiff contended that the guarantors’ right of subrogation, if any, does not have any relevance/bearing on the Borrower’s right of redemption (as opposed to the Plaintiff’s exercise of the power of sale). However, no authorities have been cited in support of this proposition. Whilst it may be true that in the case of a redemption of a charged asset simpliciter, the creditor would be obliged in law to re-assign and execute a discharge of the charged asset to the borrower, the position is not the same where the creditor intends to continue to further pursue the guarantors, as in this case, where the Plaintiff was seeking to recover interest post the Winding Up Date. In such a case, the creditor is under a duty to safeguard the guarantor’s right of subrogation against the charged asset. [75] At all times, the Plaintiff knew or at least had taken the position that the Charged Asset was worth more RM 54 million. In fact, based on the valuation report commissioned by its R&M, the Charged Asset had a market value of approximately 87 million. Notwithstanding the aforesaid, the Plaintiff had agreed, wrongfully in my view, to the release of all securities to the Liquidator upon receipt of the full Redemption Sum without regards to the guarantors’ rights of subrogation. The letter of 16.10.2017 by the Plaintiff’s solicitors to the Liquidator expressly states: ‘5. We are further instructed to place on record that our Client is unable to accede to your request to release all the original security documents and to execute the Deed of Receipt & Reassignment in respect of the Borrower’s loan in the manner as alluded in Your Letter unless our Client confirm receipt of the full Redemption Sum from the Liquidator on behalf of the Borrower before the stipulated deadline on 31/10/2017, before 2:00 pm’. [76] In fact, I have already concluded that this was not a case of a redemption simpliciter but in truth a sale of the Charged Asset. From the various affidavits that were filed by the R&M in the Winding Up Court in No. 28NCC-812-09/2015, the Plaintiff was plainly aware that the Liquidator had accepted an offer from Paradise Boulevard to purchase the Charged Asset at RM 54 million and was seeking the ‘redemption sum’ from the R&M for the purpose of the Sale. The Plaintiff had made strenuous objection to the Sale citing gross undervalue and even mala fide in the Sale. Yet, sometime on 3.10.2017, for reasons unknown, the Plaintiff was quite happy to issue its Redemption Statement to the Liquidator and carefully qualifying the issuance of the Redemption Statement with the following: ‘The issuance of this redemption statement to you is solely for the purpose of facilitating your request for redemption of the abovementioned property(s), and the same shall not extend to include assisting you in the disposal and/or sub-sale of the Property to any third party. We shall not in any way be bound or held liable for your actions and/or failure and/or omission in the discharge of your duties as liquidator for the Borrower when dealing with the abovementioned property(s)’. [77] What had happened in this case was that the Plaintiff had ‘relinquished’ their power of sale over the Charged Asset to the Liquidator. The Plaintiff had not exercised its powers under the Debenture to appoint the R&M promptly and by their delay had allowed the Liquidator to seize the initiatives. Even after the R&M was appointed, whilst security guards were placed to secure the Charged Asset, the power of sale was being exercised by the Liquidator instead of the R&M for reasons only known to the Plaintiff. Hence, to my mind, notwithstanding the contention by learned counsel for the Plaintiff that this was not a case of ‘sale’ of the Charged Asset but a ‘redemption’, with respect, I beg to differ. The Liquidator’s request for the Redemption Statement was nothing more than an acknowledgment by the Liquidator that the proceeds of the Sale from the Charged Asset must be applied first to clear the indebtedness of CHN to the Plaintiff. But this does not mean that the Plaintiff owed no duty to the guarantors (whom the Plaintiff was still seeking to recover the interest post the Winding Up Date), not to take steps to ensure that the guarantors’ rights to the Charged Asset and or the balance proceeds are not impaired. This was aptly stated by the 3rd Defendant during his cross examination: ‘MRG Now, you said in question 22, you said that the Bank could have kept the excess proceeds of the sale of the RM 23 million to settle the balance outstanding amount, correct? GYEO Yes MRG So, when you refer to balance outstanding amount, are you referring to the post winding up interest that the Bank is claiming from you? GYEO Yes, yes. I mean CHN is not a case that they cannot pay. They can pay. MRG Okay, alright. Now, I refer to question 23 of your Witness statement. Now, there you also say that if the R & Ms had concluded the sale, instead of the liquidator. Now, you are saying that the excess proceeds of the sale could have been kept by the R & M of the Bank, that is your evidence, ya Mr Yeo? GYEO Yes’ [78] The peculiarity of the present case lies with the fact that the liabilities of the Defendants as guarantors had turned out to be more extensive than the principal borrower due to the combined effect of the Defendants assuming responsibilities as principal debtors and indemnifiers together with the operation of section 8(2A) of the Bankruptcy Act clamping the interest claimable by the Plaintiff against the bankrupt Borrower to the Winding Up Date. [79] When the Defendants agreed to act as guarantors under the Guarantee, they were comforted by the fact that CHN had made available to the Plaintiff other securities in the form of the Debenture over the Charged Asset, an assignment of rental proceeds and a Letter of Subordination. The Guarantee was in regard to the indebtedness of CHN under the Facility Agreement and the securities, in particular, the Charged Asset was to cover CHN’s said indebtedness. The value of the Charged Asset was substantially in excess of the loan sum under the Facility Agreement. [80] What had happened was that the Borrower, CHN was wound up on 4.12.2015 based on a Winding Up petition that was presented on 30.9.2015. However, the Plaintiff only issued demands sometime on 19.6.2016, some 9 months after the presentation of the Winding Up petition. By this time, a sum of RM 2.4 million had accrued as post winding up interest under the Facility Agreement. The Plaintiff exercised its powers under the Debenture and appointed the R&M only on 23.11.2016, some 14 months after the presentation of the Winding Up petition. By this time, the Liquidator had taken possession of the Charged Asset and was negotiating with potential purchasers for the sale of the same. The Redemption Sum of some RM 30.5 million was paid on 27.10.2017. As at the date of the payment, the total amount due and owing from CHN to the Plaintiff had increased to some RM 37 million. When the further demand was made on 5.5.2018, the further interest post Winding Up had ballooned to RM 7,753,962.71. [81] When the Charged Asset were being sold, it was clear that the sale price would exceed the entire indebtedness of CHN to the Plaintiff including the interest post the Winding Up Date. This is notwithstanding that the Defendants had claimed that the Charged Asset was sold at an undervalue. Accordingly, as testified by the 3rd Defendant, the guarantors had proceeded on the assumption that the Plaintiff would be repaid the entire indebtedness under the Facility Agreement through the sale proceeds from the Charged Asset and the Letter of Subordination. This was what the 3rd Defendant said: ‘My Lord, you see, my understanding of receiving all these notices from UOB’s lawyer is that they are the sole secured creditor. So, they have every right to so anything, they have stepped into our shoes basically of the Charged Assets that we charged to them, and they have a power of attorney, they can dispose of, and they can get themselves repaid, as they deem fit that they’re claiming all this sums…’ [82] Accordingly, the guarantors were comforted by the fact that their exposure under the Guarantee would only ‘kick in’ in the event that the proceeds from the Charged Asset were insufficient to cover the total indebtedness due under the Facility Agreement. Even if, for any reasons, the guarantors had to pay the Plaintiff directly, at the very least, they would be able to look to the Charged Asset to recoup their losses. [83] If, as contended by learned counsel for the Plaintiff, the position is such that all the securities provided to the Plaintiff (including the Charged Asset and or the balance proceeds from the Sale) could be released to CHN with no right to the guarantors to seek their remedies against these securities on account of the fact that these securities are limited and available only for such indebtedness of CHN that can only be lawfully recovered by the Plaintiff i.e excluding interest post the Winding Up Date, then it seems to me that such ‘release’ could not be said to have come within the contemplation of the Defendants when they agreed to sign the Guarantee. In other words, the ‘release’ in the present case would not have come within the purview of the Clause 10.1 of the Guarantee to permit the Plaintiff to avoid the defence under the Holme v. Brunskill doctrine. This was clear from the testimony of the 3rd Defendant which was not challenged: ‘GYEO This issue of indemnity, what it covers, is never discussed. At no point of time, even though the lawyer which we appointed … At no point of time, there is a lawyer tell us if, there’s this indemnity clause, you might be liable in case CHN can pay but the Bank cannot claim, even though CHN can pay, you are still liable. No. My point is that, at that point in time, there was no discussion at all. What happened when we enter into the contract, there was no discussion, no highlighting over this…’ [84] The judicial basis for the ‘purview doctrine’ that even very wide words in a guarantee’s anti-discharge clause may not cover something that goes beyond the parties’ reasonable contemplation was first introduced by Mr Sidney Rowlatt in his book (1898) on the Law of Principal and Surety when he said: ‘… it is apprehended that assent, whether previous or subsequent to a variation, only renders the surety liable for the contract as varied, where it remains a contract within the general purview of the original guarantee … Of a new contract is to be secured there must be a new guarantee’. [85] The doctrine was then adopted by Lord Atkin in Trade Indemnity Co Ltd v. Workington Harbour and Dock Board [1937] AC 1, [1936] 1 All ER 454 with the concurrence of the other members of the House of Lords. The oft-cited passage by Lord Atkin relied upon as the judicial basis for the doctrine is reproduced below: ‘The words “any arrangement … for any alteration in or to the said works or the contract” are very wide. Probably they would have to be cut down so as not to include such changes as have been suggested as substituting a cathedral for a dock, or the construction of a dock elsewhere, or possibly such enlargement of the works as would double the financial liability. An author of great authority [Rowlatt on Principal and Surety, 2nd ed. (1926), p. 118], happily still with us, suggests that such words only relate to alterations “within the general purview of the original guarantee”.’ [86] The doctrine was considered in The Nefeli [1986] 1 Lloyds Rep 339 at 345 by Bingham J and in modern times by the English Court of Appeal in Triodos Bank NV v. Dobbs [2005] EWCA Civ 630 and CIMC Raffles Offshore (Singapore) Pte Ltd & Anor v. Schahin Holding S.A [2013] EWCA Civ 644. [87] In Trisdos Bank NV v. Dobbs (supra), Longmore LJ held that the amendment or variation made to the original facility had so transformed the original 2 loan agreements that they could not be considered as coming within the purview of the guarantee. In paragraph [19] of the judgment, His Lordship said: ‘[19] In the light of all these authorities, the question that has to be answered is whether the new 1999 Facility is an amendment or variation of the original loan agreement which is within the purview of that original loan agreement. The fact that the intermediate 1998 agreements were “replacement” of the 1996 agreements is not conclusive of that matter since a replacement could be contemplated by a original agreement ( as the 1998 rescheduling was) or a replacement might be so similar to the original agreement that it can truly be said to be a variation of it, as in the British Motor case. In this case, however, the 1999 facility was substantially different from the original two loan agreements, and even if it could be said to be , on one view, a variation or amendment of those original 1996 agreements, it is certainly not a variation or amendment within the purview of the 1996 agreements.’ [88] In CIMC Raffles Offshore (Singapore) Pte Ltd & Anor v. Schahin Holding S.A (supra), Sir Bernard Rix LJ elaborated the purview doctrine in this manner: ’52. There is the still further possibility, which is reflected in the intricate submissions in the current case, where an “anti-discharge” provision (section 2) may have both a protective and an aggressive aspect. It may seek protectively to defend the creditor from the danger of future events discharging his guarantor in the absence of the guarantor’s subsequent consent; and it may seek additionally and aggressively to bind the guarantor to an enhanced liability without taking a further guarantee.’ [89] Although the aforesaid case was a decision made in considering a summary judgment application, what is of relevant for our purpose is the fact that the Court of Appeal had refused to grant summary judgment on the ground that the variations that were made to the payment obligations post the guarantee had so substantially increased the sums payable from the original contract, that such variations may not come within the purview of the anti-discharge clause. The relevant passage of the judgment aptly conveyed the casus belli for the case: ’62. … On the builder’s case, the post-guarantee amendments have increased the amount covered by the guarantee by tens of millions of dollars. On any view, the delaying of substantial milestone payments which should all have been paid by the buyers prior to delivery, have by reason of the post guarantee amendments been added to milestone payments 19 and 21 due on and after delivery. Although by a slight of draftsmanship, these accumulated and delayed milestone payments have all been dubbed ‘adjusted milestone payments 19 and 21”, which was the language adopted in the pre-guarantee amendments, this development was, so far as we know at present, an entirely unexpected event. It was quite unlike, for instance, some mere slippage in the delivery dates (although that happened as well) or some rescheduling in the payment of the original post-delivery instalments. What happened was that rigs which should have been paid for, subject to the deferred instalments under the pre-guarantee amendments, were no longer paid for. That reduced the buyer’s equity in the rigs and put considerably greater pressure on the generation of post-delivery earnings from Petrobras. Moreover, because of the further delayed delivery dates and the complaints of further defects in construction which had not been compensated in the liquidated damages for which allowance had already been made, a situation has been arrived at where, at any rate, on cases made by the buyers and Petrobras respectively, substantial damages are claimed for which the buyers seek to hold the builder responsible. That is the situation in which there is a significant increase in the amount due n delivery and unpaid by the buyers’. [90] Thus, in our present case, the ‘release’ in Clause 10.1 could not have possibly included the release of the Charged Asset by way of the re-assignment and discharge and or the balance proceed from the Sale without taking steps to preserve the guarantors’ right of subrogation after the Plaintiff has effectively enjoyed the fruits of the security through the payment of the Redemption Sum. [91] Accordingly, I find that the Defendants are discharged as guarantors by reason of Sections 92 and 94 of the Contracts Act 1950 and are released from any liabilities under the Guarantee. Inordinate delay to demand, appoint R&M and enforce security [92] There is another reason why the Plaintiff’s claim cannot be sustained. [93] Learned counsel for the 3rd Defendant argued that there was a delay of 11 months by the Plaintiff to demand the sum owed by CHN. According to learned counsel for the 3rd Defendant, an event of default had occurred when the Winding-Up petition was presented on 30.9.2015. This was provided under clause 24.2.7 of the Facility Agreement: [94] In spite of the default, the demand for the debts owed by CHN was only made on 19.9.2016, which was approximately 11 months after the presentation of Winding-Up petition. The consequence of the delay meant that additional interest was payable. During the cross-examination, PW2 duly conceded: [95] In addition, learned counsel for the 3rd Defendant contended that there was an inordinate delay of 14 months on the part of Plaintiff to appoint the R&M. According to learned counsel for the 3rd Defendant, the Plaintiff had failed to exercise its rights under clause 11.3.1 and 11.3.4 of the Debenture to take possession of the Charged Asset and to sell the same upon the presentation of Winding-Up petition. This has thus resulted in the Liquidator taking control of the Charged Asset, which subsequently sold the same at an alleged undervalue price. The wordings of clause 11.3.1 and 11.3.4 of the Debenture are as follow: [96] Learned counsel for the Plaintiff, on the other hand, contended that Clause 11.3 of the Debenture does not stipulate the time frame for the Plaintiff to appoint the R&M. Thus, the Plaintiff is at liberty to exercise its rights under the Debenture and to appoint R&M at any time upon the occurrence of default under the Facility Agreement. In fact, the opening words of the clause 11.3 expressly state “at any time” which in their natural and ordinary meaning suggest that there is no specific time for the Plaintiff to appoint an R&M over the Charged Assets of CHN after the default has occurred. Reference was made to the 3rd Defendant’s candid acknowledgement during cross examination that the Plaintiff is at liberty to enforce its right under the Debenture at any time: [97] Learned counsel for Plaintiff further submitted that Clause 70.1 of the Facility Agreement provides that any failure by the Plaintiff to exercise its available remedies immediately would not mean that the Plaintiff had acquiesced to the default. This clause provides: [98] Now, the Federal Court in Pilecon Realty Sdn Bhd v. Public Bank Bhd & Ors and Other Appeals [2013] 2 CLJ 893 has held that a secured creditor is not entitled to any interest in respect of its debts after the making of a winding up order against its debtor if it did not realize its security within 6 months from the winding up of its debtor. In particular, Zaleha Zahari FCJ stated as follows: ‘Thus, although a secured creditor under s.8(2) of the BA was free to deal with his security, with insertion of the sub-s(2A) into s.8, the chargee must realize their security promptly within six months of the receiving order failing which the charge cannot claim any interest. The provisions of the BA in relation to the debts of a bankrupt are clearly applicable to an insolvent company by virtue of ss 291(1) and 291(2) of the Companies Act. Section 8, and in particular, sub-s(2A) of the BA, are clear and unambiguous. In the absence of an express provision limiting its application, there is no reason to limit its application only against a bankrupt and not to wound up debtor’. [99] The Federal Court further stated: ‘Based on our reading of s.8(2A), a secured creditor is given a timeline of six months to sell the charged property failing which they are not entitled to interest. Since the charged property was realized some two years six months after the winding up of Transbay, the bank had failed to meet the statutory limit of six months under s.8(2A) of the BA. As such, the bank should not be entitled to any interest.’ [100] The reason for s.8(2A) was to address the delay by secured creditors in realizing the security which would result in their debtors having to continue to bear interest until the date of satisfaction. This would result in the security unfairly expanding the share of the secured creditors in the debtors’ assets and therefore prejudicial to the rights of their debtors and the unsecured creditors. [101] In the instant case, had the Plaintiff taken prompt actions to realize the Charged Asset within 6 months from the Winding Up Date, it would have recovered not only the outstanding sum as at the date of the Winding Up Date but also any interest accruing after the Winding Up Date since the proceeds of sale from the Charged Asset were sufficient to cover the full amount due and the Plaintiff would not have to prove for any shortfall amount at all. [102] More significantly for the Defendants who are also principal debtors and indemnifiers, if the Plaintiff had realized the Charged Asset within 6 months from the Winding Up Date, their liabilities to the Plaintiff in such a case would not have been more extensive than that of the Borrower and would in such event have been discharged from the Guarantee upon the sale of the Charged Asset with the proceeds therefrom utilized to pay the Plaintiff. [103] In fact, this was expressly considered by the Federal Court in Pilecon Realty Sdn Bhd v. Public Bank Bhd & Ors and Other Appeals (supra) in paragraphs 36 to 38 of the judgment: [36] Thus, prior to the insertion of sub-s (2A) into s 8 of the BA, a secured creditor who delays in realising his security and continues to charge interest on the amount due to him may cause unfairness to unsecured creditors. There is a possibility that the value of the security when realised would be insufficient to meet the repayment of the outstanding amount due and no balance left over from the proceeds of realisation to go into the pool of assets to be shared by unsecured creditors. If the proceeds were insufficient to pay the amount due to the secured creditor and he participates in the balance of the debtor’s assets, there will be more creditors sharing the pool of the remainder of the debtor’s assets. The net effect of this would be that the dividend payable to each creditor would be smaller thus reducing the likelihood of the debtor’s application for discharge later being favorably considered. [37] If however a secured creditor acts promptly and realises the security upon which the receiving order was made, no further interest will be payable. The proceeds obtained upon the realisation of the property may be sufficient to meet the full amount due to the secured creditor, and the secured creditor will have no need to prove for the balance of the amount due to him. Should the proceeds be insufficient to meet the full amount due to the secured creditor, the balance amount may be small enough so as not to substantially affect the shares of the unsecured creditors in the remaining assets of the debtor, should the secured creditor choose to prove for the balance due to him. [38] When the Legislature amended the BA to include (2A) into s 8, it was fully aware of the effect of the provisions of the law that was then in force. Based on the pre-amended provisions Malaysian courts had consistently taken the view that a secured creditor who choose not to prove in the bankruptcy of the debtor should not be deprived of the interest which the contract allows.’ [104] Thus, it is my judgment that notwithstanding Clause 11.3 of the Debenture, the Plaintiff owed a duty in this case to the Defendants to promptly realize its security in the Charged Asset within 6 months from the Winding Up Date. No reasons have been proffered by the Plaintiff for the delay in the appointment of the R&M and in realizing the Charged Asset at all. It is to be noted that the Plaintiff was granted the Power of Attorney under the Debenture to sell the Charged Asset. This was not a case where the security was charged under the National Land Code 1965 where time would be needed to auction the Charged Asset. [105] To my mind, section 8(2A) of the Bankruptcy Act 1967 is intended not only to protect the debtors and other unsecured creditors but it is also to protect persons like the Defendants herein who have also assumed the responsibilities as principal debtors and indemnifiers under the Guarantee in the event the debtor is wound up and where the security is sufficient to meet all the outstanding debts. Otherwise, any secured creditor may stay idle or drag their feet in taking actions against such guarantors, thus allowing the post winding up interest to continue mounting against them. In fact, the debtors and other unsecured creditors are also protected as the guarantors would inevitably look to the balance proceeds from the sale of the security to recoup their payments to the secured creditor. Hence by requiring the secured creditor to realize the charged asset within 6 months from the receiving order, it would also increase the pool available for the debtor and other unsecured creditors. [106] Accordingly, because of the Plaintiff’s failure and or delay in realizing its security in the Charged Asset, it is my judgment that the Defendants are discharged from their obligations under the Guarantee. Alternatively, the Plaintiff is estopped from making any claims against the Defendants under the Guarantee by reasons of their aforesaid conduct. Other Remaining Defences [107] Having concluded that the Defendants are discharged of any obligations under the Guarantee, there is really no need to consider the other defences that have been raised. However, since the parties have addressed these issues in their respective written submissions, for the sake of completeness, I shall also deal with them as the issues may be helpful for similar cases in the future. The Guarantee is only limited to RM 30 million [108] It is contended that the Guarantee executed by the Defendants is a limited guarantee. Clause 2.1 of the Guarantee states: [109] Based on the wordings of this clause, the Defendants contended that the extent of liability of Defendants inclusive of interest as guarantors is limited to the sum of RM 30 million. This is because clause 2.1, when read together with its heading “Limit of Guarantee” expressly states that ‘the total amount recoverable’ shall be limited to the principal sum of RM 30 million. [110]The words “together with” in clause 2.1, according to the Defendants, must be given their natural and ordinary meaning which would mean “inclusive of”. Hence, the Defendants argued that the Plaintiff is only entitled to the maximum amount of RM 30 million, and this amount is inclusive of all interests, costs, charges and expenses. Thus, the Guarantee only guarantees CHN’s indebtedness to the extent of RM 30 million. [111] To further support this contention, the Defendants referred to the Letter of Offer entitled “Application for Banking Facility” which had provided for the execution of the Guarantee. According to the Defendants, this Letter of Offer stated that the loan shall be granted upon CHN executing various securities, which for our present purpose included the Guarantee. Since the loan sum was for RM 30 million, the Guarantee was therefore intended to be limited to the aggregate sum of RM 30 million only. Thus, the attempt to read the words “together with” as “in addition to” and thereby allowing the accrued interest/charges to be claimable would render the contract of Guarantee otiose. [112] Regrettably, I am unable to accept the Defendants’ aforesaid contention. [113] In the case of Hong Leong Bank Bhd v M Muthiah @ Nagappan & Anor and another appeal [2014] 1 MLJ 1, in an almost identical clause, the words “together with” in clause 2.1 of the guarantee were interpreted by the Court to mean “in addition to” and not “inclusive of”. I see no reason to depart from taking a similar construction. [114] The interpretation of the words “together with” in clause 2.1 to mean “inclusive of” as contended will be inconsistent with common sense because at the time when the Guarantee was executed, no one could have foreseen how much interest and other charges would actually be incurred under the Facility Agreement. The only amount that could be ascertained at the time of the execution of the Guarantee was the loan sum of RM 30 million which would naturally constitute the principal sum claimable under to the Facility Agreement. The other sums comprising interest, commission, charges, legal fees and other costs and expenses charges can only mean further sums incurred under the Loan Facility that are payable in additional to the principal sum. [115] I can do no better than to echo the view Arifin Zakaria CJ in M Muthiah (supra): [34] In this regard, we agree with the learned High Court judge that the approach to be adopted in interpreting the proviso to cl 1 is to read the guarantee agreement as a whole. The proviso cannot be read in isolation. Taking that approach, it becomes clear what was the intention of parties to the agreement. All the three guarantees were similarly worded. Therefore, suffice for our purpose to consider one of the guarantees. Take the guarantee in pp 45–48 in the appellant's core bundle. It opens with the words, 'In consideration of you, EON BANK BERHAD … making or continuing advances or otherwise giving credit or affording banking facilities and accommodation … to SRI TANJUNG TRAVEL SDN BHD …' the defendants '… jointly and severally guarantee payment on demand upon us of all monies and liabilities … owing or incurred to the Bank from or by the customer …'. The proviso to cl 1 reads: Provided that the total sum recoverable from us hereunder is limited to the sum of [RM3,665,000.00 + RM 2,000,000.00 = RM5,665,000.00] owing or incurred to the Bank as aforesaid at the date of demand for the same is made by the Bank or discontinuance by any means of this guarantee by any of us or by the executors administrators or legal representatives of any of us howsoever such sum is arrived at together with such further sum for interest thereon and other commission banking charges and legal and other costs charges and expenses whether incurred in enforcing or seeking to enforce any security for or obtaining or seeking to obtain payment of all or any part of the money hereby guaranteed or otherwise howsoever as shall accrue due to the Bank within twelve months before or any time after the date of demand or discontinuance as aforesaid. (emphasis added.) [35] The expression 'together with such further sum for interest …' in the proviso clearly indicates that the extent of the defendants' liabilities are not limited to the sum of RM5,665,000 but should also include other sums comprising of interest on the loan, commission or other charges named therein. [36] Apart from that, cl 4 stipulates that the guarantee is a continuing guarantee upon each of the guarantors. As a continuing guarantee generally, the liabilities of the guarantors is not confined to the principal sum alone but should include interest arising from the loan plus other charges. This is further fortified by the provision in cl 1 to the effect that 'the guarantors shall for the purpose of the debt be deemed to be principal debtors'. As principal debtors the defendants liability is not restricted to sum of RM5,665,000 but for the whole sum due and owing to creditor by the principal debtor (the borrower). Considering the above provisions it is clear beyond doubt that the liabilities of the defendants could not be limited to the sum of RM5,665,000 as contended by the defendants.’ [emphasis added] [116] Accordingly, I find that the words “together with” in clause 2.1 of the Guarantee mean “in addition to” and by reason thereof, the extent of liabilities of the Defendants in the present case are not limited to the principal sum of RM 30 million but it includes other sums such as interest, commission, charges, legal fees and other costs as well. Thus, the liabilities of the Defendants could not be said to be limited to only RM 30 million sum as contended. [117] In any case, the current sum demanded by the Plaintiff in the present action under the Guarantee against the Defendants is well under the RM 30 million threshold. The Plaintiff is claiming against the Defendants a sum of approximately RM 7.7 million. Therefore, pursuant to the Guarantee, it cannot be said that the sum claimed exceeds the limit of RM 30 million as contended. The Guarantee had been varied and thereby discharging the Defendants as guarantors of CHN [118] This is a defence raised only by learned counsel for the 3rd Defendant. Specifically, the 3rd Defendant contended that there was a material variation on the Guarantee. According to the 3rd Defendant, the Guarantee was initially executed by the 3 Defendants as well as one Mr. Wang YingDe on 25.11.2014 on a joint and several basis. This means that upon executing the Guarantee, Wang YingDe was also one of the guarantors who shares co-existing liability with the Defendants. [119] The 3rd Defendant testified that Wang YingDe is a very crucial part of the guarantee: [120] Learned counsel for the 3rd Defendant contended that when the Plaintiff released Mr. Wang YingDe from the Guarantee via Letter of Notification dated 27.11.2014, this amounted to a unilateral and material variation of the Guarantee. The 3rd Defendant submitted that this variation on the duly executed and stamped Guarantee was done without his consent. As such, it discharged him as the guarantor of CHN. Learned counsel for 3rd Defendant relied on section 86 Contracts Act 1950 as well as illustration (d) therein which stipulates: Discharge of surety by variance in terms of contract Any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.

A gives to C a continuing guarantee to the extent of RM 3,000 for any oil supplied by C to B on credit. Afterwards, B becomes embarrassed, and, without the knowledge of A, B and C contract that C shall continue to supply B with oil for ready money, and that the payments shall be applied to the then existing debts between B and C. A is not liable on his guarantee for any goods supplied after this new arrangement. [121] Learned counsel for the 3rd Defendant argued that illustration (d) above resembles an identical situation as in the present case. The variation by the Plaintiff excluding Wang YingDe was material and one which was contrary to the intention of the parties who executed the Guarantee. More importantly, the variation was done without his consent. He referred to the following passage in the Supreme Court case of Kidurong Land Sdn Bhd v Lim Gaik Hua [1990] 1 MLJ 485: “…The guarantors only guaranteed the due performance of a part of the whole project involving houses to be transferred to the respondents. We agree with the learned judge that the variations were material but we differ with him on the consequence of the variations. We consider that the effect of the variations were such as to discharge the third appellant Ling from his obligations in respect of Taman Fairway and the Taman Hilltop guarantees…” [122] With respect, I do not agree with the 3rd Defendant’s contention. [123] Clause 10.1.10 of the Guarantee expressly provides that the release or discharge of a co-guarantor would not release or discharge the other guarantors of CHN. Clause 10.1.10 is reproduced in verbatim: [124] As such, the Letter of Notification dated 27.11.2014 concerning the discharge of Wang YingDe did not, in any way, release or discharge the Defendants, including the 3rd Defendant at all. [125] In fact, Clause 10.1.10 does not require the Plaintiff to obtain the consent of the other co-guarantors when discharging Wang YingDe. During the trial, the 3rd Defendant candidly acknowledged the same: [126] Therefore, with respect, I find the arguments of 3rd Defendant bereft of any merits. Conclusion [127] Hence, based on all of the foregoing, and after careful scrutiny and judicious consideration of all the evidence before this Court, it is my judgment that the Plaintiff’s action is dismissed. [128] The 3rd Defendant’s Counterclaim is also allowed as regards prayers (1) and (2) only (seeking declaration for the Guarantee to be rescinded and for the Plaintiff to deliver the Guarantee to be cancelled). [129] The Plaintiff is to pay the 3rd Defendant costs fixed at RM 100,000.00 subject to allocator. The Plaintiff is also to pay the 1st and 2nd Defendants costs fixed at RM 60,000.00 subject to allocator. Dated on the 17th day of May 2022. Ong Chee Kwan Judge of the High Court of Malaya Kuala Lumpur, Commercial Division NCC2 COUNSEL:

Ms. Ratha Govindasamy together with Ms. Ng Kar Man for the

Messrs. Skrine (Kuala Lumpur) Mr. C. T. Lee Ms. Rosalind Chong for the 1st and 2nd Defendants

Messrs. Soo Hoo & Co. (Johor Bahru) Dato' Prem Ramachandran together with Mr. Lee Shoue Jie and Mr. Craig Ho Wai Ping for the 3rd Defendant Messrs. Kumar Partnership (Kuala Lumpur)

Holme v. Brunskill (1878) 3 QBD 495 (CA)

Trade Indemnity Company Limited v. Workington Harbour and Dock Board [1937] AC 1 3. South East Asia Insurance Bhd v Nasir Ibrahim [1992] 2 MLJ 355 4. Huat Hing Rubberwood Sdn Bhd v Goodnite Sdn Bhd & Ors [2018] MLJU 1650 5. Andrew Lee Siew Ling v. United Overseas Bank (M) Bhd [2013] 1 MLJ 449 6. Fisar bin Hj Abdullah v Malayan Banking Bhd [2015] 1 MLJ 867 7. Tan Poh Khiang v Malayan Banking Berhad [2014] MLJU 970 8. States of Madhya Pradesh v Kaluram (1967) 1 SCR 266 9. Abdul Hamid bin Mahmood & Anor v. Oriental Bank Berhad [2002]

MLJU 704 Marubeni & South China Ltd v. Government of Mongolia [2004]

CIMC Raffles Offshore (Singapore) Pte Ltd & Anor v. Schahin

Holding S.A [2013] EWCA Civ 644

Ooi Boon Leong & Ors v Citibank NA [1984] 1 MLJ 222 Malayan Banking Bhd v Mawai Products Sdn Bhd & Ors [1995] 1

BLJ 43 Trade Indemnity Co Ltd v. Workington Harbour and Dock Board [1937] AC 1, [1936] 1 All ER 454

The Nefeli [1986] 1 Lloyds Rep 339

Triodos Bank NV v. Dobbs [2005] EWCA Civ 630

Pilecon Realty Sdn Bhd v. Public Bank Bhd & Ors and Other

Appeals [2013] 2 CLJ 893 Hong Leong Bank Bhd v M Muthiah @ Nagappan & Anor and another appeal [2014] 1 MLJ 1

Kidurong Land Sdn Bhd v Lim Gaik Hua [1990] 1 MLJ 485

Section 8(2A) of the Bankruptcy Act 1967 2. Sections 77, 79, 86, 87, 92 and 94 of the Contracts Act 1950 3.