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Note: United Malayan Banking Corporation Berhard (Guarantor) and Melewar Leisure Sdn Bhd (Principal) entered into a Facility Agreement whereby Guarantor assured repayment of a ten-year term loan for US$10 million by Danaharta Managers Ltd. (Beneficiary). Principal secured the Facility Agreement with land (Charged Property) and guarantees from two other parties. As permitted, Principal converted US$9,650,859.83 of the term loan into a Malaysian Ringgit Term Loan for RM36,676,162.61 and Beneficiary demanded payment on the guarantee for that amount. Guarantor honored the demand paying Beneficiary and indebting Principal to Guarantor under the Facility Agreement.

When Principal defaulted in reimbursing Guarantor, it sued Principal and the two guarantors under the Facility Agreement. Guarantor also exercised its rights against the Charged Property to realize RM38.008 million. Guarantor moved for summary judgment against Principal and the two guarantors under the Facility Agreement for the remaining RM10,960,008.90. The Senior Assistant Registrar granted Guarantor's motion. On appeal by Principal, but not by Principal's two guarantors, Chambers, J. affirmed. On appeal, the Court of Appeal affirmed in an opinion by Nihrumala Segara M.K. Pillay, J. with which Sulong Matjeraie and Jeffrey Tan Kok Wha, JJ. agreed.

Principal argued that it had accepted the exchange rate under duress when the guarantee was converted from U.S. Dollars to a Malaysian Ringgit Term Loan. The Judge found that Principal had instructed that the loan to be converted at this rate in a letter to Guarantor, that the Guarantor paid its Guarantee at the rate instructed by Principal, and that Principal never objected to the exchange rate at either time. The court stated, "[w]e are unanimous that the High Court Judge was right, in such circumstances, to hold that [Principal] was estopped from contending that it had not agreed to such a rate. The attempt to raise "duress" as an issue by the [Principal] is manifestly flawed and is totally unsubstantiated. The defence must be rejected outright."

Principal also argued that the Guarantor converted the wrong amount, namely that it only authorized Guarantor to convert US$7.5 million, but Guarantor converted and paid US$9,650,859.83 to Beneficiary. The court found that the amount paid to Beneficiary consisted of USD$7.5 million plus interest and other charges owed by Principal. The court also found that Guarantor notified Principal of the amount being paid, and Principal did not object. The Judge ruled that "the amount owed by the [Principal] to the [Guarantor] was the amount that was honoured by the [Guarantor] under the Bank Guarantee upon [Beneficiary]'s demand. The alleged conversion of the wrong amount is without merit."

[JEB/sws]

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