JUDGMENT

Syed Ahmad Helmy JC:

The action herein by agreement of the parties was for the determination of the question whether the plaintiff is entitled to charge penalty interest and if so, the rate thereof, and whether the same can be increased after termination of the agreement.

There is no dispute whatsoever as to the principal amount owing and except for the question of penalty interest there is no dispute as to the validity of the loan agreement and assignment and the guarantee and also the parties as agreed as to the bundle of documents.

The plaintiff's case was canvassed through its Skudai Branch Assistant Manager, Puan Ngae Fang Fang (SP1) and though the defendants through their solicitors informed the Court that they will be adducing evidence through two witnesses, none was called and hence there is no evidence presented on behalf of the defendants in relation to the determination of the issue aforesaid.

The plaintiff through SP1 adduced evidence to the effect that the letter of offer stipulates the margin interest that is leviable which is 1% above the base interest rate, and the right of the plaintiff to levy such margin interest and base interest is found in cl. 4.05(1) of the loan agreement cum assignment at p. 40 of the bundle of documents. By cl. 4.06 at p. 50 of the bundle there is provision for the plaintiff to vary the interest rate aforesaid.

SP1 further states that upon default by the defendants and termination of the loan agreement cum assignment by the plaintiff, the plaintiff varied the interest rate of the margin interest from 1% to 4% and notified the defendants of the interest rate chargeable of 18.35%.

The increase of the margin interest to 4% is the maximum rate allowable by Bank Negara in relation to the margin interest and it is SP1's evidence that the maximum rate was imposed upon termination and recalling of the loan.

The defendants did not adduce any evidence in rebuttal to the evidence of the plaintiff as presented through SP1 and proceeded to submit that the increase in the margin interest rate can only be imposed upon default and the plaintiff has failed to adduce evidence that Bank Negara's ruling allows for the charging of the maximum increased rate of 4%. By levying maximum margin interest of 4% the defendants contend that levying and the variation thereof amounts to a penalty and is caught by the provisions of s. 75 of the Contracts Act 1950 which necessitates the plaintiff to prove its losses - and relies on the case of Selva Kumar a/l Murugiah v. Thiagarajah a/l Retnasamy [1995] 3 CLJ 375 and Dunlop Pneumatic Tyre Co. Ltd v. New Garage & Motor Co. Ltd[1915] AC 79. By reason thereof and in the absence of any express provision for the charging of 4% margin interest upon default, the plaintiff is not entitled to charge the same, more so in the absence of any proven losses.

The right of the plaintiff to charge margin interest and penalty interest is contractually provided for by cls. 4.05(1) and 4.07(2) respectively of the loan agreement cum assignment and hence since the agreement specifically provides for the imposition of such interest, it is my finding that the plaintiff has proven its contractual right to such interest.

From the unrebutted evidence of SP1 the rate of penalty interest of 1% as stipulated in the letter of offer remains unchanged and though the margin interest of 1% is also expressly stipulated in the letter of offer and the loan agreement, nevertheless in the light of cl. 4.06 enabling the plaintiff to vary, the plaintiff is clearly entitled to increase the same from 1% to 4% upon due notification, which notification was duly given and is not challenged by the defendants.

Since it is contractually provided for the defendants' contention that the increase would offend the provisions of s. 75 Contracts Act 1950 cannot be sustained. As was held in the case of Bumiputra Merchant Banker Berhad v. The Melewar Corporation Bhd & 2 Ors[1990] 2 CLJ 30; [1990] 1 CLJ (Rep) 693:

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