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2011 MarsdenLR 631
Jofa Hilmi bin Jaafar & Anor – Plaintiff
Versus
Abdul Hakam bin Abdul Hadi & Anor – Defendant
A party may be liable for breach of contract if it fails to fulfill its contractual obligations, and there exists a valid cause of action for resulting damages therein.
Headnote:(A) Banking and Financial Institutions Act 1989 - Islamic Banking Act 1983 - Evidence Act 1950 - Contract breach - The second defendant failed to procure a Kafalah bank guarantee for the second plaintiff leading to termination of the sale agreement with the supplier - Court held that the second plaintiff maintained a cause of action for breach of contract against the second defendant. (Paras 1, 35, 36)
(B) Misrepresentation - The first plaintiff's claim against the first defendant for misrepresenting the second defendant's financing capabilities was dismissed due to lack of fraud allegations - Claim allowed against the second defendant for limited damages resulting from its breach. (Paras 33, 43)
Facts of the case:
The plaintiffs entered into a joint venture agreement involving the purchase of high-speed diesel. The second defendant's failure to provide the required bank guarantee resulted in losses for the second plaintiff, including forfeiture of a deposit and a demand for compensation from the supplier.
Findings of Court:
The court allowed the second plaintiff's claim for the sum paid to the supplier and damages for financing costs, dismissing broader claims as too speculative.
Issues: The court considered the nature of the Kafalah bank guarantee, the interpretation of obligations under the joint venture agreement, and issues of damages for breach of contract.
Ratio Decidendi: The court emphasized the necessity of a bank guarantee as per the contractual obligations, rejecting non-compliance with Shariah interpretations that limited its issuance.
Result: The claim of the second plaintiff against the second defendant was allowed, while all other claims were dismissed.
| Table of Content |
|---|
| 1. parties and nature of agreement (Para 1 , 2 , 3 , 4) |
| 2. obligations under spa and financing (Para 5 , 8 , 10) |
| 3. issues of misinterpretation and default (Para 12 , 19 , 20) |
| 4. claims and damages for breach (Para 33 , 35) |
| 5. final judgment and cost order (Para 43 , 46) |
Case Summary
Contract — Breach — Obligation to procure — Failure of second defendant to procure bank guarantee — Second plaintiff’s agreement to buy diesel from supplier terminated as a result — Whether second plaintiff had cause of action against second defendant — Whether losses incurred by second plaintiff recoverable
The first plaintiff (‘P1’) was the founder-shareholder and director of the second plaintiff (‘P2’), a Labuan offshore company. The first defendant (‘D1’) was the managing director of the second defendant (‘D2’), which had a licence to provide financial services and to do moneylending. P1 and D1 entered into a shareholders and joint ventures agreement (‘SJVA’) under which P2 was incorporated to engage in international trading in high speed diesel sourced from Malaysia. Under the SJVA, D1 was obliged to secure banking facilities for P2 so as to allow P2 to arrange for either a bank guarantee or a standby letter of credit to be made in favour of P2’s supplier (‘Ceria’) with whom P2 had signed a sale and purchase agreement (‘SPA’) to buy RM15.2m worth of diesel. P2 was to pay for the purchase, inter alia, by providing, within seven days of the SPA, a RM10m bank guarantee issued by P2’s bank to Ceria’s bank as well as a deposit of RM2m. P2, which had earlier accepted D2’s letter of offer to finance the purchase, instructed D2 to issue the RM10m bank guarantee but D2 failed to provide the same. D2 attempted to justify its failure by informing P2 much later that in compliance with Shariah guidelines, the ‘Kafalah’ bank guarantee could only be issued in favour of Ceria itself and not to its bank. D2’s default made it unable for P2 to meet its financial commitments to Ceria resulting in Ceria terminating the SPA and forfeiting the RM2m deposit. Although Ceria did not sue P2, it claimed RM3,320,720 for losses and damages from P2 in a letter of demand. Towards settlement of that claim, P2 paid Ceria RM406,960. With regard to the RM2m deposit which P2 had paid, this amount was borrowed, with D2’s knowledge, from a Hong Kong company, for which P2 had paid RM296,400 as financing costs. Meanwhile, P1 terminated the SJVA after notifying D1 of his breach and giving him time to remedy the same. P1 then took over control of P2 and also took over the shares held by D1. In the suit, P1’s claim against D1 was for misrepresenting that D2 had financing facilities with Kuwait Finance House Bhd (KFH) that enabled it to procure [2012] 7 MLJ 636 at 637KFH to issue the bank guarantee for the SPA between P2 and Ceria. P2’s claim against D2 was for breach by D2 of its letter of offer.
Held, allowing P2’s claim and dismissing all other claims:
(1) Well before D2’s letter of offer to P2, P1 had emailed to D1 the format of the bank guarantee and the standby letter of credit that was required by the supplier. The format of the guarantee was to guarantee payment to Ceria’s bank (see para 17).
(2) D1 was putting a strained and strange interpretation to D2’s obligation to provide a ‘Kafalah’ bank guarantee to mean it was intended to provide the guarantee direct to Ceria. Whatever the meaning of ‘Kafalah’ as an adjective, it could not derogate from the fact that it was a bank guarantee that D2 was to procure for P2. It did not quite matter whether it was issued to Ceria or to its banker. The important thing was it had to be a bank guarantee (see paras 19–20).
(3) D2 did not consent to information being released or call relevant witnesses from KFH to dispel doubts about whether it had, at the relevant period, the capacity to procure KFH to issue the necessary bank guarantee (see para 29).
(4) As P1 had rescinded the SJVA and taken control of P2 and the shares held by D1, th
