Article

Note: To assure repayment of a "Bridging Loan" of RM5 million made to Silver Joy Development Sdn Bhd (Developer/Borrower) by Malaysia Building Society Berhad (Lender/Beneficiary), Borrower's Director, Song Ah Tu, (Guarantor) granted a "Deed of Guarantee and Indemnity" dated 19 July 1994 in favor of Lender/Beneficiary. Although the loan had been disbursed, the project was abandoned at an early stage. On 5 October 1996, Lender demanded payment from Guarantor which it failed to do.

On 14 January 2003, Lender/Beneficiary sued Guarantor for failure to pay on its demand guarantee. Guarantor moved to strike the complaint for failure to meet the applicable time limit of the Limitation Act. The High Court (Alor Setar), See Mee Chun, JC, denied Guarantor's Motion.

Guarantor argued that the time to bring an action on a demand guarantee begins to run with the demand and that the applicable six year period had run before the action was filed, causing the suit to be time barred.

Lender/Beneficiary responded that the undertaking was a "continuing guarantee" "where the general rule that in actions for breach of contract time runs from the date of its breach can be excluded by the true nature of the contract."

The Judge noted that, read as a whole, the guarantee was "a continuing security" "where the words of the guarantee show an intention to depart from the general rule as to when time starts to run." The Judge also noted that Guarantor "bound himself not to raise limitation as a defense to an action brought to enforce the contract" because it provided that Beneficiary could take action at any time.

Guarantor also had argued that Lender/Beneficiary had wrongfully delivered funds to Developer/Borrower without an architect's certificate as required and that the funds were misused for purposes such as a golf tournament. The Judge, however, found that there was no variation of the agreement by Lender/Beneficiary.

TEXT: The relevant clauses in the guarantee are as follows -

"(2) GUARANTEE AND INDEMNITY In consideration of [Lender/Beneficiary] having agreed at the request inter-alia of the Guarantors to grant the Facility to the Borrower...the Guarantors HEREBY JOINTLY AND SEVERALLY AND INCONDITIONALLY AND IRREVOCABLY GUARANTEE, AGREE. UNDERTAKE AND COVENANT with [Lender/Beneficiary]...that they will pay to [Lender/Beneficiary] on demand the Indebtedness...

(3) GUARANTOR'S COVENANTS The Guarantors hereby jointly and severally agree, undertake and covenant with [Lender/Beneficiary] ... as follows -

(3.2) that the liability of the Guarantors under the guarantee and indemnity herein shall subsist whether or not [Lender/Beneficiary] has a legal right to claim against the Borrower or any other surety or against any security which [Lender/Beneficiary] may now or at any time hereafter or from time to time or against the Borrower or any other person for any sums, loss or damage or whether or not [Lender/Beneficiary] has availed itself of its legal remedies against the Borrower...;

(3.8) that the guarantee and indemnity shall not be considered satisfied by any intermediate payment or satisfaction of the whole or any part of any sum or sums of money owing as aforesaid but shall be continuing security...;

(3.9) that the guarantee and indemnity of the Guarantors herein shall be a continuing guarantee and security for all monies whatsoever now or hereafter from time to time owing to [Lender/Beneficiary] by the Borrower whether alone...,

(3.11) that all sums of monies not recovered or recoverable from the Guarantors or any of them on the basis of a guarantee whether by reason of any legal limitation, ... and, whether known or not to [Lender/Beneficiary] shall nonetheless be recoverable from the Guarantors or any of them as principle debtors in respect hereof and shall be repaid by the Guarantors and each of them upon demand made by [Lender/Beneficiary]...;

(3.21) that [Lender/Beneficiary] shall be entitled to recover from the Guarantors or any of them, all sums payable by the Guarantors hereunder without first availing itself or themselves of its or their legal remedies against the Borrower...

(6) INDEMNITY As a separate, additional and continuing obligation, the Guarantors unconditionally and irrevocably undertake with [Lender/Beneficiary] that should the Indebtedness amounts not be recoverable from the Guarantors under clause 2 for any reason...each of the Guarantors will, as a sole, original and independent obligor, upon first written demand by [Lender/Beneficiary] under clause 2, make any payment of the Indebtedness by way of full indemnity in such manner...".

[JEB/so]

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