JUDGMENT

Clement Skinner J:

[1] This suit arose as a result of the financial crisis that affected the economies of the East Asian countries, including Malaysia, in 1997.

The Facts

[2] The following facts have either been agreed to or I have found them to be so from the evidence presented to the court.

[3] The plaintiff is a company incorporated and registered with limited liability in Malaysia under the Companies Act 1965.

[4] In 1997 the plaintiff wanted to develop a housing and commercial project on three parcels of land measuring in all some 23 acres ('the said lands') in Kuching, Sarawak. The said lands were registered in the name of a company called Pradom Development Sdn Bhd ('Pradom'), The evidence shows that the plaintiff had purchased the said lands from Pradom on 1 July 1997 but did not transfer the said lands into its own name. Pradom had also granted a power of attorney to the plaintiff in respect of the said lands. The housing project was initially to consist of some 15 units detached houses, 28 units semi-detached houses, 155 units terrace houses and seven units of shophouses ('the said project').

[5] The plaintiff through one of its directors Mr Pang Neng Ung ('Mr Pang') together with its lawyer Mr Raymond Kueh ('the plaintiffs lawyer') approached the branch office at Kuching of the defendant, a licensed bank incorporated in Malaysia with a registered address at Level 5, Wisma Hong Leong No 18, Jalan Perak, Kuala Lumpur, to obtain finance for a part only of the said project.

[6] By a letter of offer dated 8 September 1997 the defendant approved banking facilities of RM4,000,000 to the plaintiff which the plaintiff duly accepted, consisting of:

(a) Overdraft of RM2,000,000 and

(b) Term Loan of RM2,000,000.

The purpose of the facility was for the following:

Overdraft:

For working capital requirements and to redeem properties from Hock Hua Bank (Sabah) Berhad and to part finance preliminaries costs.

Term Loan:

To part finance earth filling, construction of retaining wall and infrastructure.

[7] As security for the banking facilities the defendant obtained the following; A memorandum of charge over the said lands and a facility agreement executed by the plaintiff ('the facility agreement'), both of which documents were dated 25 September 1999. The plaintiff also obtained a guarantee from two directors of the plaintiff, namely, Mr Pang Neng Ung and Mr Chua Yap Beng.

[8] By 17 October 1997 the overdraft facility of RM2,000,000 was fully disbursed to the plaintiff. No issue has arisen between the parties about this facility.

[9] The dispute between the parties centre around the term loan which, as I mentioned a moment ago, was to part finance the earth filling, construction of retaining wall and infrastructure works on the said lands.

[10] Some two months after the plaintiff was approved the banking facilities Bank Negara Malaysia, in December of 1997, put in place a raft of measures to restore macroeconomic stability to our economy against the financial storm that was then raging across the whole of the region. One such measure concerned tightening control of money lent by financial institutions to the property sector.

[11] On 16 December 1997 Bank Negara issued a guideline to all Banking Institutions ('the Bank Negara guideline'). Since this guideline lies at the heart of this case I will set it out here. It reads:

Lending to Property Sector

The Minister of Finance had on 5 December 1997 announced a package of measures to restore macroeconomic stability, including the policy stance on bank credit to the property sector.

2. The purpose of this circular is to elaborate on this policy stance for the guidance of banking institutions.

3. At a time when liquidity in the banking system is tight, the available liquidity must be used for purposes that maximise its benefit to the economy. To a large extent, the overall strength of the economy will be dependent on the continued growth of the productive and export sectors. Therefore, these sectors shou