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2010 MarsdenLR 4279
COURT OF APPEAL PUTRAJAYA
SIM AH HEE LIM AH HEE & ANOR – Appellant
Versus
AFFIN BANK BHD & ANOTHER APPEAL – Respondent
[Civil Appeal Nos: W-02-199-2005 & W-02-313-2005]
The terms of letters of indemnity, once clearly expressed, cannot be overridden by extrinsic evidence; parties are bound by their clear contractual words regarding indemnification.
Headnote:(A) Contracts Act 1950 - Section 77 - Evidence Act 1950 - Sections 91 and 92 - Breach of contract concerning letters of indemnity and guarantee - Appellants sought to avoid liability claiming premature release of funds and breach of conditions - Court found letters of indemnity were valid contracts, entitling the respondent to indemnification for losses sustained. (Paras 4, 5, 10, 12, 18, 20)
Facts of the case:
The appellants, as partners of a timber trading firm, were sued for breaching four letters of indemnity after the respondent paid amounts due under corresponding letters of guarantee to a third party at the request of the appellants. The appellants argued they were not liable due to alleged premature release of funds. (Paras 1-3)
Findings of Court:
The letters of indemnity were held to be valid, binding contracts, with the appellants are estopped from denying liability due to the benefits received from the guarantees, resulting in a judgment in favor of the respondent. (Paras 5, 6, 12)
Issues: Whether the appellants were liable under the letters of indemnity regarding the earlier issued letters of guarantee, particularly about the conditions stipulated therein. (Paras 2, 8, 20)
Ratio Decidendi: The court ruled that the terms of the letters of indemnity clearly provided for indemnification irrespective of the timing of payments, rendering any arguments of breach regarding the timing irrelevant. Estoppel applied as the appellants received benefits from the released guarantees. (Paras 12, 18)
Result: Appeals dismissed with costs, affirming the High Court's decision confirming the appellants' liability. (Paras 6, 21)
| Table of Content |
|---|
| 1. contractual liability related to indemnity agreements. (Para 1 , 2 , 3) |
| 2. findings on validity and enforceability of contracts. (Para 4 , 5) |
| 3. contentions on contract interpretation and breach. (Para 7 , 8 , 9) |
| 4. clarification on contract terms and evidentiary standards. (Para 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19) |
| 5. affirmation of trial court's decision. (Para 20) |
[1] The appellants were sued as partners of a timber trading firm Pembalakan Jerajat ('Jerajat') for breach of contract in respect of four letters of indemnity ('LIs') signed on behalf of Jerajat as security for four letters of guarantee ('LGs') issued by the respondent in favour of Yayasan Pahang ('Yayasan'). They are alleged to have failed to make good on the LIs after the respondent had paid all the sums due under the LGs to Yayasan at its request. The appellants contend that they are not liable as the respondent released the money prematurely in breach of the terms specified in the LGs.
[2] In the court below the parties agreed to settle their dispute under O 33 r 2 of the Rules of the High 1980 ('RHC') by seeking the court's determination on a legal issue based on the agreed facts set out and the interpretation of the documents listed. The appellants having conceded that the payment to Yayasan under LG for G001730 for logging area in Block 6B was not contrary to terms, the question posed was whether it was the term of the remaining three LIs and three LGs that payment should only be made by the respondent upon the issuance of a logging licence for each relevant logging area. And if such payments were made as had been done by the respondent whether the appellants are liable to the respondent under the said LIs.
[3] The agreed facts are briefly these. At the request of Jerajat the respondent issued four LGs No G001730 and No G001731 dated 1 August 1984 and No G001735 and No G001736 dated 14 September 1984. The said LGs were to secure payment by Jerajat to Yayasan for the extraction and purchase of timbers from four blocks of logging areas identified as Blocks 6B, 6C, 7B and 7C. All LGs were secured by four LIs signed by the appellants whereby they agreed to indemnify the respondent against all losses which the respondent might incur by reason of honouring the payment of the LGs. The respondent subsequently paid Yayasan at its request the total sum of money guaranteed under the LGs. The appellants however failed to repay the money to the respondent resulting in the filing of this suit.
[4] The learned trial judge with the benefit of written submissions of counsel found the LIs to be valid contracts of indemnity between the parties within the meaning of s 77 of the Contracts Act 1950 . Therein the appellants expressly agreed to indemnify the respondent for all losses sustained for having given the guarantees as consideration of the respondent issuing the LGs. The respondent issued the LGs in accordance with the appellants' request and instructions. The respondent having on its part given sufficient consideration for the appellants' undertaking as specifically agreed in the LIs was entitled to enforce its claim against the appellants under the contract.
[5] The learned judge also found that the appellants having obtained benefits out of the LGs as they had worked the logging areas after logging licences were issued upon release by the respondent of the money to Yayasan on the appellants representation that they would indemnify are estopped from denying their liability to the respondent under the LIs.
[6] Judgment was thus entered against the appellants for the amount claimed (RM44,788,368.03). The counter claims of the appellants were dismissed with costs. Hence these appeals.
[7] We heard both appeals together. The appellants agreed to a joint oral submission by En Mura Raju counsel for the appellant in the second appeal. He submitted that the LIs must be read together with the corresponding LGs which were incorporate
