Article

Note: The directors of a company issued a demand Guarantee to assure repayment of a banking facility given by BBMB to Jurumurni Sdn Bhd. The text of the Guarantee as quoted in the opinion follows this Note. Plaintiff (Transferee Beneficiary) acquired the rights to repayment of the loan and the Guarantee from BBMB "as per Vesting Certificate" which provides entitlement under a local statute, Section 14 of the Danaharta Act of 1998 according to counsel for Transferee Beneficiary. When Transferee Beneficiary demanded payment, Guarantors failed to pay, and Transferee Beneficiary brought this action against Guarantor for wrongful dishonor for M$7,151,127.09. Kang Hwee Gee, J. of the High Court (Kuala Lumpur) granted Transferee Beneficiary's motion for summary judgment.

Guarantors argued that Transferee Beneficiary's claim was time barred. It was claimed that oral demands were made on the guarantee beginning in 1997, which would have rendered an action on the Guarantee outside the six-year time limitation on such claims. The Guarantors asserted that the Guarantee did not exclude oral demands. Transferee Beneficiary responded that the written demand on the guarantee was made on 9 September 2006 and, so, the action fell within the six-year time limitation. The Judge found the Guarantee required notice of demand on the guarantee to be in writing and concluded that the oral demands did not constitute "demands" for purposes of the limitations period.

Guarantors also raised issues concerning the transaction that gave rise to the Guarantee, namely with respect to misrepresentation, failure to secure the assignment of the guarantee, the validity of the debenture charged over the principal borrower's fixed and floating charges and the failure of the Transferee Beneficiary to sell securities charged at a reasonable price. The Judge dismissed these other issues as irrelevant, stating that the defenses, "being merely issues arising from the underlying principal loan agreement, are therefore irrelevant in so far as they affect the defendants' liability under the demand guarantee."

As to the Guarantor's claim that the amount claimed was incorrect, the Judge noted that the Guarantee contained a "Conclusive Evidence Clause" was determinative as to the amount owed.

The Opinion contained the following excerpts from the Guarantee

1. PAYMENT ON DEMAND

1.1 The Guarantor/Guarantors hereby unconditionally and irrevocably guarantee as principal debtor(s), jointly and severally, and not merely as surety(ies) to pay and satisfy the Bank on demand:-

(a) in full all monies which are owing and payable by the Borrower(s) to the Bank under the Loan Agreement or such amount thereof as may be outstanding, whether certain or contingent now or hereafter owing as incurred to the Bank from or by the Borrower including all the interest, costs and charges described hereunder (hereinafter collectively referred to as "the Indebtedness");

(b) the charges above-referred to include all bank charges, commission, Bank may in the course of its business charge to the Borrower(s) and all costs, charges, disbursements, legal fees on a full indemnity basis which the Bank may incur in enforcing or seeking to obtain payment of all or any part of the sum owing to the Bank by the Borrower(s) in respect of the Facility and to make good any default by the Borrower(s) or its/his/her successors-in-[...]title in payment of the said commission, interest charges or any part thereof and all other charges and disbursements in the preparation stamping or creation of this Guarantee and Indemnity and in the enforcement of the same against the Guarantor/Guarantors;

(c) the interest payable above-referred shall include interest on outstanding sum calculated at the rate prescribed in the Loan Agreement or at such other rate as may be determined or varied by the Bank from time to time including additional interest on late payment and capitalised interest.

(d) all monies obtained from or liabilities incurred to the Bank notwithstanding that the borrowing or incurring such liabilities may be invalid or in excess of the powers of the Borrower or any directors, attorney, agent or other person purporting to borrow or act on behalf of the Borrower and notwithstanding any other irregularity in such borrowing or incurring such liabilities. (d) Notwithstanding the amount stipulated in the principal agreement our liability shall not be limited to the principal sum stipulated in the Loan Agreement but shall include all additional and/or further facilities granted to the Borrower.

1.2 The rights of the Bank to capitalise and charge interest as provided herein shall subsist and continue to subsists notwithstanding the issue and/or service of a demand for payment of any monies intended to be hereby secured and shall be applicable both before and after judgment and notwithstanding that the relationship of banker and customer between the Bank and the Borrower(s) and/or the Guarantor/Guarantors as the case may be shall have ceased for any reason or cause whatsoever.

1.3 For the purposes of this Guarantee and Indemnity a demand for the payment of the monies due hereunder shall be deemed to be made when the Bank gives to the Guarantor/ Guarantors or any of the Guarantors a notice in writing in accordance with Clause 4 hereof. "

Clause 4 states as follows:

4. NOTICE OF DEMAND

Any notice of demand or request permitted or required to be served made or given under this Guarantee and Indemnity shall be in writing, or if by a solicitor, signed by a solicitor or a firm of solicitors purporting to act on behalf of the Bank and shall be sufficiently served or made or given to the Guarantor/Guarantors or any of the Guarantor/Guarantors if left by hand or sent by telegram, telex or registered post to the Guarantor/Guarantors at his /her/their (respective) address(es) or at such other addresses as the Guarantor/Guarantors shall notify in writing to the Bank in accordance with this provision and/or alternatively the Borrower shall accept the notice of demand on behalf of the Guarantor/Guarantors. The Guarantor/ Guarantors shall be deemed to have notice of the demand when the same is acknowledged receipt by the Borrower(s) and/or where demand if effected by any other mode set out hereunder upon the proof of delivery, postage and/or transmission thereof.

The Guarantor/Guarantors agrees that upon a demand being made pursuant to this Clause, the Guarantor/ Guarantors shall make payment of the sum demanded within seven (7) days of the date of Letter of Demand and further agrees that in the event he/she/they fail to make payment within the said period, the Bank shall be entitled to enforce all its legal rights and remedies and may take all such action as it may deem fit to recover the outstanding sum due to them."

The following clause was set forth separately in the opinion as Conclusive Evidence Clause 2(p):

Conclusive Evidence That a written statement from the Bank as to the amount due an owing by the Borrower shall be accepted by the Guarantor/ Guarantors as conclusive evidence that the amount thereby appearing is due from the Borrower(s) to the Bank and payable on demand to the Bank by the Guarantor/Guarantors.

[JEB/sal]

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.