2026 MarsdenLR 1477

HIGH COURT MALAYA JOHOR BAHRU
NORADURA HAMZAH, JC
ACESIDE (MALAYSIA) SDN BHD – Appellant
Versus
SAINI ALI & ANOR – Respondent
[Civil Suit No: JA-22NCvC-25-02/2022]

Headnote:

(A) Contracts Act 1950 [Act 136] - Sections 81, 82, 92, and 94 - Guarantee - Surety's liability - Co-extensive liability of surety - Continuing guarantee - Discharge of surety. Contracts Act 1950 - Section 81 - Liability of surety co-extensive with that of principal debtor, unless contract otherwise provides. Contracts Act 1950 - Section 82 - Continuing guarantee defined as one extending to a series of transactions. Contracts Act 1950 - Sections 92 and 94 - Discharge of surety by variance in terms of contract or by release or discharge of principal debtor.

(B) Guarantee - Construction - Principles governing construction of a guarantee - Ordinary principles applicable to written contracts - Court seeks meaning words would convey to a reasonable person having background knowledge reasonably available to parties, giving words their ordinary and natural meaning, read in context of instrument as a whole and against relevant factual matrix and in manner that yields to business common sense - A guarantee is a secondary or accessory obligation and where its terms are genuinely ambiguous, they are construed strictly and in favour of the surety. (Paras 32-33)

(C) Guarantee - Condition precedent - Completion of works up to issuance of Certificate of Practical Completion (CPC) under main contract - The Guarantee did not stand alone; it secured the principal debtor's obligation to pay, and that obligation was itself conditional - The payment obligation that the defendants guaranteed was one that accrued, phase by phase, only upon the issuance of the relevant certificate - The completion of each phase up to CPC was thus a condition precedent to the accrual of the corresponding payment obligation, and hence to any liability under the Guarantee in respect of it. (Paras 39, 43)

(D) Guarantee - Certificates - Which contract's certificates can satisfy the condition - As at the date of the Guarantee, the only contract in contemplation was the main contract between the plaintiff and the principal debtor - A reasonable person with the parties' background knowledge at that time would have understood the CPC, the CCC and the MGC referred to in the Guarantee to be the certificates issued under the main contract - Certificates issued under a contract to which the principal debtor was not a party, conferring no benefit on the principal debtor and generating no payment obligation upon it, cannot satisfy a condition the purpose of which was to fix the point at which the principal debtor's own obligation to pay arose. (Paras 41-42) (E) Guarantee - Continuing guarantee - A 'continuing guarantee' simply means one that extends to a series of transactions; the label describes the temporal reach of the security across a running account, not its indefeasibility, and liability under it endures only until the contemplated transactions are exhausted or the guarantee is terminated in accordance with its terms - It does not immunise the Guarantee from the express terms that govern its cessation - The specific cessation provision in the Guarantee prevails over the general description, consistent with the maxim generalia specialibus non derogant. (Paras 47-48)

Facts of the case:
The plaintiff was the main contractor for a State privatisation housing project. The defendants guaranteed the payments owed to the plaintiff by the developer of that project, under a guarantee dated 31 July 2015. The project was carried out in phases. The works in issue concerned Phase 1, Phase 2 and Phase 3A. The original date for completion was not met. In or about July 2015 the plaintiff and the developer entered into further arrangements concerning payment and completion of the remaining works, tied to the issuance of the Certificate of Practical Completion (CPC) for each phase. It was against that background that the defendants executed the Guarantee. The developer was subsequently wound up. The plaintiff had earlier obtained judgment in respect of Phase 1. In the present action, the plaintiff claimed against the defendants under the Guarantee for the balance due from the developer for Phases 2 and 3A. The defendants' case was that the plaintiff failed to complete Phases 2 and 3A under the main contract, that the developer's contract was thereafter terminated, and that the project was completed only later, under a separate contract with entities associated with another entity, to which the plaintiff was re-engaged. The plaintiff's own Managing Director conceded in cross-examination that the plaintiff did not complete Phases 2 and 3A up to the issuance of the CPC.

Findings of Court:
The defendants are guarantors under the Guarantee. However, their liability was conditional upon completion of the works for Phases 2 and 3A up to the issuance of the CPC under the main contract, and upon the issuance of the CCC and MGC under that contract for the retention. On the facts, including the concession of the plaintiff's own Managing Director, those conditions were not satisfied. The certificates issued under the separate contract with the replacement developer do not satisfy them. The guaranteed payment obligations of the principal debtor did not accrue. The defendants, as sureties, cannot be liable where the principal debtor is not, and in any event the Guarantee ceased to be of effect under its own cessation clause. The plaintiff also failed to establish the quantum of the sums claimed to the requisite standard.

Issues: The main issues were (a) whether, and upon what terms, the defendants undertook liability as guarantors under the Guarantee, and whether the sums claimed fell within that liability; (b) whether the plaintiff's entitlement to enforce the Guarantee was conditional upon completion of the works for Phases 2 and 3A up to the issuance of the CPC (and, for the retention sum, the CCC and MGC) under the main contract; and if so, the consequences of any non-fulfilment of that condition, including whether the CPC, CCC and MGC contemplated by the Guarantee are confined to certificates issued under the main contract, or whether they may be satisfied by certificates subsequently issued under a separate contract with a replacement developer; and (c) whether the guarantee was discharged under sections 92 and/or 94 of the Contracts Act 1950.

Ratio Decidendi: The court ruled that the defendants' liability under the Guarantee was conditional upon completion of the works up to the issuance of the CPC under the main contract. The CPC, CCC, and MGC referred to in the Guarantee were confined to certificates issued under that main contract. Certificates issued under a separate, later contract with a different entity could not satisfy the condition. Where those conditions were not met, the guaranteed payment obligations of the principal debtor did not accrue, and the defendants as sureties could not be liable where the principal debtor was not. The court also held that the 'continuing guarantee' clause did not override the specific cessation provision in the Guarantee.

Result : The plaintiff's claim is dismissed with costs of RM100,000.00 subject to the allocatur. (Para 54)