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2011 MarsdenLR 4048
COURT OF APPEAL PUTRAJAYA
AMBANK (M) BERHAD – Appellant
Versus
LUQMAN KAMIL MOHAMMED DON – Respondent
[Civil Appeal No: W-02-2294-2009]
A guarantor is not liable for contingent debts if the debtor's obligation does not exist before the guarantee's revocation, reinforcing the importance of pleadings in determining liability.
Headnote:(A) Letter of Guarantee - Contingent liability - The appellant's claim against the respondent was dismissed as the letter of guarantee was effectively revoked before any contingent liability arose from the borrower’s letter of credit issued thereafter. The court found no debt owed by the borrower at the time of revocation of the guarantee effective on 25.6.1998. (Paras 4, 10, 17)
(B) Pleadings - The parties are bound by their own pleadings; the appellant's case was based on a trust receipt facility, which came into being after the respondent had been discharged from liability. (Paras 5, 10)
Facts of the case:
The respondent guaranteed banking facilities to a borrower. After the revocation of the guarantee, the borrower defaulted, prompting the appellant to claim the respondent. The court concluded that the respondent was no longer liable.
Findings of Court:
The learned judge was correct in determining that no applicable contingent liability existed at the time of the revocation.
Issues: Whether a contingent liability existed prior to the revocation of guarantee and the propriety of the appellant's claims.
Ratio Decidendi: The court reiterated that liability under a letter of guarantee only arises upon fulfillment of conditions set therein, which didn't occur before the revocation took effect.
Result: Appeal dismissed with costs.
| Table of Content |
|---|
| 1. overview of appellant's appeal and factual background. (Para 1 , 3) |
| 2. court's final decision and conclusion on appeal. (Para 2) |
| 3. arguments regarding liability under the guarantee. (Para 4 , 5 , 6) |
| 4. court's analysis of liability and interpretations of guarantee. (Para 7 , 10 , 11 , 13 , 14 , 17) |
| 5. definition of contingent liability under letter of credit. (Para 12 , 16) |
[1] This was an appeal by the appellant (the plaintiff in the High Court) against the decision of the learned judge of the Kuala Lumpur High Court given on 16.2.2009 dismissing the appellant's claim against the respondent (the defendant in the High Court).
[2] We heard the appeal on 17.2.2011, wherein at its conclusion we unanimously dismissed it with costs. We now give our reasons for so deciding.
[3] The brief antecedent facts of the case giving rise to this appeal are these. The respondent was a director of a company known as TEKNOELEKTRIK INDUSTRIES SDN BHD (the borrower). At the request and application of the borrower, the appellant offered to the borrower banking facilities. On 19.3.1997 the borrower signed a "General Agreement by Customers" (the facilities agreement) that contained the detailed terms and conditions for granting of the banking facilities. As a consideration of the appellant granting or continuing to grant the banking facilities to the borrower, the respondent and three others executed a letter of guarantee dated 19.3.1997 (the letter of guarantee) wherein the respondent and the three others jointly and severally guaranteed the repayment on demand of all monies or liability, whether actual, certain or contingent or incurred or due or unpaid to the appellant anywhere on any account whatsoever under the banking facilities and indemnifying the appellant for all losses suffered by the appellant arising out of the granting of the banking facilities to the borrower. On 1.6.1998 the borrower applied for a letter of credit for a sum of RM805,795.00 favouring one of its suppliers, MICROFOCUS (M) SDN BHD (the supplier) for the purchase of power optimisation tools and equipment. On 22.6.1998 the appellant issued a letter of credit to the supplier. Subsequently, on 1.7.1998 the supplier, through Maybank Berhad, claimed the sum of RM805,795.00 against the said letter of credit. Then on 2.7.2008 the borrower signed the trust receipt and a usance bill of exchange and collected the shipping documents wherein the borrower undertook to repay the appellant the said sum of RM805,795.00. On3.7. 1998 at the direction of the appellant, Maybank Berhad debited the appellant's account with the sum of RM805,795.00. In the meantime, on 25.3.1998 the respondent in exercise of clause 2 of the letter of guarantee served a letter dated 24.3.1998 to the appellant informing the appellant that he had resigned as a director of the borrower and also gave three months notice to discontinue and determine his liability under the letter of guarantee. We should mention here that it is not disputed the effective date of the revocation of the letter of guarantee would be 25.6.1998. As it turned out, the borrower failed to pay the appellant the outstanding sum on the due date. The outstanding sum owing by the borrower at the material time had stood at RM960,431.82. Later on the appellant had sued the respondent in his capacity as a guarantor for the borrower, to make good that amount. The respondent had denied liability under the letter of guarantee and had resisted the claim made against him.
[4] At the conclusion of the trial, the learned judge held that when the appellant issued the letter of credit to the supplier on 22.6.1998, no contingent liability was created that would have bound the respondent by virtue of clause 1(1) of the letter of guarantee. According to the learned judge, if any contingent liability was indeed created under the letter of guarantee it was so created on 3.7.1998 when the appellant released the monies related to the letter
