JUDGMENT

This is the defendants' appeal to the Judge in chambers against the decision by the learned Senior Assistant Registrar (SAR) given on 8.2.2002 allowing the plaintiff's application for summary judgment. The plaintiff is a financial institution, and its claim is based on a revolving credit facility in the sum of RM5,000,000/- granted to the 1st defendant and the 2nd defendant is the guarantor of the facility. Inter alia , the 1st defendant's main object was to operate a business in the "development of housing projects". The 2nd defendant was a shareholder and director of the 1st defendant. The 2nd defendant executed a Guarantee and Indemnity in favour of the plaintiff in consideration of the said revolving credit facility granted by the plaintiff to the 1st defendant at the request of, inter alia , the 2nd defendant.

As this appeal concerns an Order 14 application for summary judgment, it would not be necessary to discuss trite and well settled law governing such applications (for example, Ng Hee Thoong & Anor v. Public Bank Bhd, [1995] 1 CLJ 609 ; [1995] 1 MLJ 281 and Bank Negara Malaysia v. Mohd Ismail & Ors; [1992] 1 CLJ (Rep) 14 ; [1992] 1 MLJ 400). I shall thus confine my grounds to briefly only deal with the material and triable issues that were raised in the present case. After having read the pleadings which include the defendants' counterclaim, the nine (9) affidavits filed by both sides and the written submissions of their counsel, I am entirely satisfied that, of the several issues raised by the defendants; the following issues are clearly triable:-

(1) By a letter to the 1st defendant dated 27.2.98 the plaintiff gave notice of a change in the 'Prescribed Rate' of interest, in the following terms:-

"Please take note that the 'Prescribed Rate' definition in the said Agreement shall now be amended to read:-

'Interest at the rate of 4% per centum per annum above the Base Lending Rate on monthly rest OR interest at the rate of 4% per centum per annum above the effective Cost of Funds of ACF defined as the Kuala Lumpur Interbank Offer Rates (KLIBOR) to ACF plus ACF's costs of maintaining statutory reserves, liquidity requirements and any other costs, whichever is the HIGHER and which expression shall wherever the context so permits include any and such other rate which the Lender may at anytime and from time to time stipulate.' "

The defendants contended that the plaintiff had unilaterally imposed a variation of the "prescribed rate" in the loan agreement dated 15th November 1995 from the agreed interest rate of 2.5% per annum above the base lending rate (BLR) to the "effective cost of funds of the plaintiff" and other costs. And, that there was other unilateral change on the basis of charging interest rate. This according to the defendants was not only in breach of the loan agreement but was an illegal act, as nowhere in the agreement allows the plaintiff the right to do so. It is material to note that nowhere in the plaintiff's affidavits did it give any reason for the unilateral variation of interest other than the contention that it need not give such reasons.

I find that the issue concerning "cost of funds" is an eminently triable issue as the following questions need to be tried.

(i) What is the definition of effective cost of funds?

(ii) Who determines the rate of cost of funds?

(iii) Whether the said cost of funds is regulated by Bank Negara just like BLR is?

(iv) Whether it is lawful for a finance company to charge interest at the rate of cost of funds when the said rate has never been defined unlike BLR and not agreed upon by the parties?

(v) Whether such interest rates are in the nature of penalty and contrary to public policy?

Thus, I wholly agree with the views of the Judge expressed in Arab-Malaysian Bank Bhd v. Lian Yit Engineering Sdn Bhd, [2000] 1 CLJ 572 ; [2000] 2 MLJ 51 on the need for trial on the issue of cost of funds; and also the views of his Lordship Steve Shim J (as he then was) in OCBC Bank (Malay