Mohd Noor Ahmad JCA:

In Civil Appeal, No. S-02-296-1996, the 2nd defendant appealed against the decision of the learned judge who dismissed his appeal to judge-in-chambers against the decision of the learned deputy registrar who dismissed his application to strike out the plaintiffs' action pursuant to O.18 r. 19(1) of the Rules of the High Court 1980(the Rules), and the 4th defendant appealed against the decision of the leaned judge who allowed the plaintiffs' appeal to judge-in-chambers against the decision of the learned deputy registrar who allowed the 4th defendant's application to strike out the plaintiffs' action under to O. 18 r. 19(1) of the Rules. In Civil Appeal No. S-02-297-1996, the 3rd defendant appealed against the decision of the learned judge who allowed the plaintiffs' appeal to judge-in chambers against the decision of the learned deputy registrar who allowed the 3rd defendants' application to strike out the plaintiffs' action in accordance with O. 18 r. 19(1) of the Rules. In respect of the former, we dismissed their appeals and with regard to the latter, we also dismissed his appeal.

In a summary, the facts giving rise to the claim by the plaintiffs against the defendants are:

(1) Under a contract of sale dated 28 October 1980 (the CS), the plaintiffs sold some heavy machineries to the 1st defendant for a sum of RM8,092,000. At that time, the 2nd and the 3rd defendants were the directors of both the 1st and the 4th defendants.

(2) The 1st defendant required financing for the purpose of the purchase. The plaintiffs assisted to arrange for it. In December 1980, the 1st defendant secured a loan of US$3,820,000 from Armco Pacific Ltd (the Armco), a company operating in Singapore. In relation to the said financing, the following agreements were, inter alia, entered into:

(i) a debenture (the debenture) made between the Armco and the 1st defendant dated 26 March 1981 whereby the Armco agreed to lend to the 1st defendant a loan of US$3,820,000 (the loan);

(ii) pursuant to the debenture, a recourse agreement was made between the Armco and the plaintiffs dated 1 June 1981 (the RA) whereby the plaintiffs agreed to reimburse the Armco for any loss sustained by it in respect of the loan to the 1st defendant up to 20% of the outstanding balance from the date of the drawdown (July 1981 or thereabout) to the expiration of 24 months thereafter (July 1983 or thereabout);

(iii) a Credit Extension Agreement made between the plaintiffs and the 1st defendant dated 6 June 1981 (the CEA) whereby the plaintiffs agreed to extend credit to the 1st defendant to pay a sum of US$382,000 from the balance of the purchase price under the CS, so that the same amount from the loan could then be used as Cash Collateral Deposit (the CCD) to be deposited with the Armco by the 1st defendant, to secure the loan pursuant to the debenture. By cl. 4 of the CEA, the balance sum of US$382,000 due from the 1st defendant to the plaintiffs under the CS would be paid to the plaintiffs from the CCD when the loan had been fully settled. This is the subject-matter of the plaintiffs' claim against the defendants in the action.

(iv) Pursuant to the CEA, an indemnity was given by the 2nd and the 3rd defendants jointly and the 4th defendant separately, dated 6 June 1981 (the indemnity) whereby they agreed to indemnify the plaintiffs for its loss, if any, arising out of or pursuant to the RA but not as a security for the CEA.

(3) The 1st defendant failed to pay punctually the interests due and the repayments of the loan to the Armco. Hence, the Armco instead used the interests or some of the interests due to the 1st defendant on the CCD to settle some of the 1st defendant's outstanding interests and part repayment of the loan. In January 1984 the Armco duly informed the plaintiffs of the use. In fact, the said interests, as instructed earlier by the 1st defendant, ought to be paid over to the plaintiffs by the Armco towards settlement of the balance of