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2009 MarsdenLR 2593
K ANANTHAM
AFFIN BANK BERHAD – Appellant
Versus
ORIEN ASLI HOLDINGS SDN BHD – Respondent
A counter-offer constitutes a rejection of the original offer, and the guarantor's obligations remain enforceable despite claims of settlement when the debtor defaults.
Headnote:(A) Banking and Financial Institutions Act - Section 50 - Guarantee Law - A guarantee constitutes a continuing obligation; the Plaintiff holds the right to the debt owed following the transfer of rights from the original lender - Defendants’ default on agreed terms to pay the owed amount resulted in the Plaintiff's entitlement to enforce the loan obligations against them. (Paras 5, 20, 28)
(B) Contract Law - A counter-offer constitutes a rejection of the original offer. The acceptance of terms must be clearly defined and agreed upon by both parties; the terms proposed by the Plaintiff were different from those originally suggested by the Defendants. (Paras 22, 27)
Facts of the case:
The Plaintiff acquired the rights to the debts of the Defendants following a transfer of rights from the original lender. The 1st Defendant defaulted on loan agreements, leading to Plaintiff’s claim. The Defendants contended there was a settlement agreement not honored by the Plaintiff due to bankruptcy proceedings against the 2nd Defendant that hindered the completion of negotiations for the sale of shares. (Paras 3, 4, 10)
Findings of Court:
The Plaintiff's letter amounted to a counter-offer, and the actions taken by the Plaintiff were justified based on the Defendants' default. The Defendants' counter-claim was dismissed, affirming the enforcement of the original loan obligations. (Paras 19, 30)
Issues: Whether the Plaintiff's conduct in commencing bankruptcy proceedings amounted to a breach of agreement and whether a valid global settlement had been established. (Paras 10, 12)
Ratio Decidendi: The Plaintiff’s actions were determined to be within their rights based on the terms agreed upon in the settlement, especially given the Defendants' failure to meet their obligations, and the existence of the debt justified further action. (Paras 26, 29)
Result: The Plaintiff's claim allowed, and the Defendants ordered to pay costs due to the dismissal of the counter-claim.
BSN Commercial Bank (Malaysia) Berhad ("BSN Bank") granted diverse banking facilities to the 1st Defendant vide 2 loan agreements dated 3rd December 1996 and 8th August 1997. As a result of the 1st Defendant's default in complying with the terms and conditions of the 2 loan agreements, the 1st Defendant was indebted to the lenders in the sum of RM2,906,936.20 in respect of the term loan as at 31st March 2002 together with interest at 1.5% per annum above BLR with monthly arrears from 1st April 2002 to the date of payment. The 1st Defendant was also indebted to the lenders in the sum of RM3,563,815.25 under the overdraft account as at 31st March 2002 together with interest at 2.5% per annum above BLR with monthly arrears from 1st April 2002 to the date of payment.
Under a guarantee dated 8th August 1997, the 2nd and 3rd Defendants as Directors of the 1st Defendant agreed to pay on demand all monies due and owing from the 1st Defendant in respect of facilities granted to the 1st Defendant under the 2 loan agreements and generally agreed to pay to the lenders all monies due in the account operated by the 1st Defendant. By Clause 5 of the Guarantee, the parties to the guarantee agreement acknowledged this guarantee to be a continuing guarantee for all monies due and owing from the 1st Defendant to the lenders up to the extent of RM8.2 million.
Pursuant to Section 50 of Banking and Financial Institution Act and Order of Court dated 18th December 2000, all of, inter alia, the assets, rights and remedies of BSN Bank have been vested and transferred to the Plaintiff from 1st January 2001. It was also ordered thereunder that all contracts to which BSN Bank is a party, will be effective as if the Plaintiff is a party thereto in place of BSN Bank.
The Plaintiff having acquired the rights of BSN Bank to the debt of the Defendants filed this claim on 24th July 2003. The Plaintiff did not proceed against the 1st Defendant as the 1st Defendant has been wound up. The 2nd and 3rd Defendants filed their defence on 16th September 2003 and the defence included a counter claim. The thrust of the defence was that the parties had concluded a 'global settlement' along the lines of the contents of the 2nd and 3rd Defendants letters of 25th April 2001 and 18th May 2001 (see paragraph 25 of statements of defence). According to the Defendants, pursuant to this global settlement, the Plaintiffs were to liquidate a fixed deposit of RM2.2 million and utilise the proceeds to settle monies due from the 2nd Defendant on his personal overdraft; use the proceeds amounting to RM160,000 to settle the account of API System Development Sdn. Bhd. and thereafter utilise the balance to settle other accounts. The debts of the 1st Defendant were to be settled by utilising the proceeds from the sale of the equity of Salutary Vision, to one CAV Private Equity Management Sdn. Bhd. According to the 2nd Defendant, tentative agreement had been reached with CAV Private Equity for the sale of these shares and the proceeds of sale were more than sufficient to satisfy the 1st Defendant's indebtedness to the Plaintiff (see answers to questions 8-11 of WSDW 1). The foundation of the Counter-claim is that even before the agreement evidenced in these two letters could be implemented, the Plaintiff commenced bankruptcy proceedings against the 2nd Defendant, thereby precluding the 1st Defendant from completing the sale of its shares in Salutary Vision to CAV Private Equity Sdn. Bhd. This, in turn, caused the Defendants to suffer losses.
Although Counsel for both parties had informed the Court during case management that there were several issues for the determination of the Court during the trial, it emerged during the trial that there was only one issue in respect of the Plaintiff's claim. Similarly there was also one issue arising out of the Defendant's Counter-claim. The only issue arising from the Plaintiff's claim was whether the Plaintiff's letter of 7th June 2001
