The appellant, as a surety under the standby letter of credit, is entitled to dividends related to shares due to their compliance with the terms of the credit.

The facts in respect of this appeal are as follows.

On 29 September 1985, Malayan United Bank Berhad (now known as Hong Leong Bank Berhad) (the first respondent) and Malayan United Finance Berhad (the second respondent) granted a syndicated term loan of RM30 million to Nadinusa Sdn Bhd (the fourth respondent). In consideration of the facility given by the first and second respondents, the fourth respondent pledged its 4,050,000 Supreme Finance (M) Bhd shares (hereinafter referred to as "the shares") to the second respondent which was subsequently transferred to MUBB Nominees Sdn Bhd (the third respondent). In addition, Supreme Corporation Berhad pledged another 4,050,000 Supreme Finance (M) Bhd shares to the second respondent. The Minister of Finance gave his consent to the first pledge, but refused consent to the pledge by Supreme Corporation Berhad. Due to this refusal the charge by Supreme Corporation Berhad never took place. As a result of this the fourth respondent on 24 January 1986 applied from Ka Wah Bank (the appellant) an irrevocable standby letter of credit. As a consideration for that facility the fourth respondent executed a letter of indemnity and counter guarantee in favour of the appellant on 24 January 1986.

On 31 January 1986 the appellant issued the letter of credit in favour of the first respondent. This letter of credit was subjected to Uniform Customs and Practice for Documentary Credits 1983, Revision.

The fourth respondent defaulted on the loan facility given by the first respondent. The first respondent then demanded from the appellant payment for the sum as stated in the letter of credit. On 24 July 1986 the appellant paid the sum demanded. In making the payment the appellant informed the first respondent that the appellant now stood in the position of a surety and as such was entitled to the shares subjected to the first and second respondents' rights against Nadinusa. This was not disputed. On 24 September 1986 the first respondent wrote to the fourth respondent stating that it had received dividends amounting to RM607,500 paid by Supreme Finance (M) Bhd on the shares (hereinafter referred to as "the dividends") which were paid on 20 August 1986. A copy of the letter was extended to the appellant. On 21 October 1986 the appellant demanded from the first respondent that the dividends be paid to them. When the first respondent failed to comply with the said demand the appellant took the present originating summons seeking the following:

(1) A declaration that the appellant stands in the position of a surety or alternatively, in a position analogous to that of a surety under the standby letter of credit No. HOSLC 860001 for the sum of RM31,250,000 (hereinafter referred to as "the said letter of credit") issued by the appellant in favour of the first respondent as security for a term loan of RM30,000,000 granted by the first and second respondents in favour of the fourth respondent.

(2) A declaration that the appellant as a surety or alternatively, standing in the position analogous to that of a surety is entitled upon honouring the said letter of credit by effecting payment in full to the first and second respondents, to be subrogated to the rights of the first and second respondents under the principal loan agreement dated 20 September 1985 entered into between the fourth respondent and the first and second respondents.

(3) A declaration that the appellant as subrogatee is entitled to the benefit of the securities deposited and/or listed under said principal loan agreement namely: (a) the 4,050,000 shares in Supreme Finance (M) Berhad respondent;

(b) the 4,050,000 shares in Supreme Finance (M) Berhad pledged by Supreme Corporation Berhad;

(c) a corporate guarantee by Supreme Corporation Berhad; and

(d) the guarantee and/or guarantees executed by Hashbudin bin Hashim (NRIC No. 4174400), Megat Majid b