A notice of demand for payment on a guarantee does not require specifying the precise amount due; guarantors' liability may encompass additional sums like interest and charges, affirming the binding nature of a certificate of indebtedness.

[1] This is an appeal against the decision of the Court of Appeal dated 4 December 2012 in allowing the respondents' appeal with costs. Leave to appeal was granted by this Court on 11 March 2013 on the following questions:

Question 1

Where a guarantee is made payable "on demand", whether a notice of demand issued to a surety there under:

(i) to be a valid and effective to crystallise that surety's liability to pay on the guarantee; and

(ii) accordingly, to crystallise the "creditor's" cause of action against that surety;

must state the precise amount due and owed by the surety to the creditor?

Question 2

In the event the answer to question 1 above is in the negative and the notice of demand does not state the precise amount due and owed by a surety, "whether the precise amount due and payable by a surety can be subsequently adjudicated upon in Court proceedings and the surety be made liable to pay the amount adjudicated to be due and owed under the guarantee?"

In this judgment, the appellant will be referred to as plaintiff, and the respondents will be referred to as defendants as in the trial Court.

The Facts

[2] The facts relevant to this appeal are as follows:

These two appeals, namely Civil Appeal No 02(i)-8-03-2013(W) and Civil Appeal No 02(f)-9-03-2013(W) (hereafter referred to as "the first and second appeal respectively") arose out of the same suit, ie High Court Kuala Lumpur Civil Suit No D1-22-283-2006 and with agreement of parties were heard together.

[3] The plantiff, a bank, granted three banking facilities to Sri Tanjung Travel Sdn Bhd (1st defendant in the High Court proceeding/"the borrower") upon terms as contained in two separate letters of offer dated 13 and 16 August 1996. The facilities comprised of a bank guarantee of RM100,000.00, a term loan of RM565,000.00 and an overdraft facility of RM3 million.

[4] Subsequently, the 2nd defendant gave a personal guarantee for a sum of RM500,000.00 through a letter dated 15 August 1996. At the same time, all defendants stood as guarantors vide two separate guarantees dated 9 April 1997 and 28 February 1998 for the sum of RM3,665,000.00 and RM 2 million, respectively. The terms in both guarantees are similar. The 4th defendant also executed two separate charges in favour of the plaintiff in respect of properties held under HS(M)14851 No PT 21339 and HS(M)14852 No PT 21340 both in Mukim Kapar, Bukit Raja, Selangor as security for the banking facilities granted.

[5] It should also be noted that 2nd defendant was at the material time a director of the borrower, while the 3rd and 4th defendants were the shareholders of the borrower.

[6] The borrower defaulted in repayment of the banking facilities. The plaintiff issued separate notices of demand dated 9 November 2005 to the borrower and the defendants. The borrower and the defendants failed to make any settlement.

[7] For ease of reference, we reproduce below the relevant provisions of the guarantees:

"... jointly and severally guarantee payment on demand upon us of all monies and liabilities ...

together with interest on all such debts and liabilities to the date of payment ....

Provided that the total sum recoverable from us hereunder is limited to the sum of (RM3,665,000.00 + RM2,000,000.00 = RM5,665,000.00) owing or incurred to the bank as aforesaid at the date of demand for the same is made by the bank or discontinuance by any means of this guarantee by any of us ...." [the emphasis is ours]

Proceedings In The High Court

[8] The plaintiff commenced civil proceeding against all parties involved. The claims were for: