A real demand must be established to trigger liability under a guarantee; failure to effectively serve a demand negates obligations, and excessive claims do not invalidate the demand.

[1] This is an appeal against the decision of the High COURT in which the learned Judge dismissed the Appellant's application for summary judgment premised on a guarantee agreement given by the Respondent in respect of a loan granted by the Appellant to one Diam Ubi Sdn Bhd (Diam Ubi).

[2] We heard the appeal and after due consideration of the respective submissions of counsel, we allowed the appeal and now give our reasons.

Background Facts

[3] Diam Ubi was granted a banking facility in the form of an overdraft in the sum of RM3,000,000.00. As part of the securities, the Appellant required guarantees from the directors of Diam Ubi. The Respondent being one of the directors executed a letter of guarantee dated 17 December 1979 (the letter of guarantee).

[4] The overdraft facility was terminated by the Appellant sometime in 1985 whereupon demands were made for the payment of the outstanding sum from Diam Ubi and the Respondent. The subject matter of dispute in this appeal is the letter of demand dated 30 May 1986 (1986 demand) issued to the Respondent. Premised on the 1986 demand, the Appellant initiated a legal suit against the Respondent, Diam Ubi, the chargor and three other directors in Suit No C23-1931-86 (86 suit) on or about 2 July 1986.

[5] The Respondent is the 5^th Defendant in the 86 suit. The Appellant took out an application for summary judgment against all the Defendants there but was not successful with the COURT ordering the same for trial.

[6] The defence of the Respondent in the 86 suit was that he never received the 1986 demand and hence pleaded that there was no demand as required by the letter of guarantee to effect any liability to pay. In short the cause of action under the letter of guarantee has not 'kicked in' so to speak. He also pleaded that the demand was ineffective as the same had claimed for an amount in excess of the guarantee limit.

[7] The 86 suit was set down for trial on 4 May 1998 and on that day the same was withdrawn with liberty to file afresh. The circumstances in which the 86 suit was withdrawn can be seen from the notes of proceedings of the COURT and they are as follows:

4 May 98

Coram: YA Dato Ariffin Hj Jaka, CES for P1. Teh & Justin Voon for the 2^nd and 3^rd Defendants, 1^st - 5^th , 3^rd Parties. MS Murthy for 5^th & 6^th Defendants (Sarjeet Sidhu with him)

In chambers Judge asked Teh to withdraw SIC dated 24 April 98 (E 106 & 109) as he was of the opinion that 2^nd & 3^rd Defendants can still raise a preliminary issue on whether there was proper demand at the trial. At this juncture, the Judge enquired whether P1 wished to withdraw action with liberty to file afresh.

In open COURT, Judge asked whether P1 wishes to withdraw action, if the P1 proceeds with the claim & the P1 cannot prove its demand against the 2^nd, 3^rd & 5^th Defendants, the P1 may be prevented from proceeding with a new action on the ground of res judicata.

CES asked for an adjournment to 10.30 am to obtain instruction from client. COURT allowed further adjournment pending further instruction from client. Instructed to withdraw action (confirmed with Liew Kee Lim & YCK).

COURT allowed action as against D2, D3 & D5 be withdrawn with liberty".

[8] In the subsequent month of the withdrawal of the 86 suit, the Appellant issued another letter of demand on 11 June 1998 (1998 demand) and premised on that demand the Appellant took out this suit (98 suit) against the Respondent under the letter of guarantee