Salleh Abas LP:

This is an appeal from the decision of Dr. Zakaria J confirming the decision of a Senior Assistant Registrar on the appellants' application for a final judgment under O. 27 r. 3, the ground being that the respondents had made admissions to the appellants' statement of claim.

The facts are as follows:

The appellants entered into an agreement on 30 January 1981 with the respondents to buy mawa coconut seeds from the latter at RM6.50 per seed. Under this agreement (hereinafter referred to as "the sale agreement") the respondents undertook to ship the seeds to any destination specified by the appellants and are entitled to be reimbursed for the costs and expenses in connection with the shipment. Subsequently, disputes arose between the parties and as a result the appellants commenced two civil suits against the respondents.

In the first suit No. C. 1063/82 the appellants alleged that the respondents had committed a breach of the sale agreement by supplying them with non-mawa seeds and they therefore claimed by way of damages a sum of RM7,982,251.50 under Clause 9 of the sale agreement which fixed such damages to be at the rate of RM10 for each seed. The respondents denied liability and contended that Clause 9 was a penalty and not a compensation. Attempts by the appellants to proceed to a summary judgment failed because the Court allowed the respondents an unconditional leave to defend. This suit (C. 1063/82) is thus still pending.

In the second suit C. 1270/82, which is the subject matter of the present appeal, the appellants asked for a refund of a total sum of RM350,000 which they on various occasions had given to the respondents in order to provide a bank guarantee required by the Royal Malaysian Customs in connection with the shipment of mawa seeds to the appellants. Under the sale agreement no provision was made requiring the appellants to make this amount to the respondents. Thus, the parties agreed as per the appellants' letters dated 9 February 25 March 5 May and 15 May 1981 (Exhibits TMH1, TMH2, THM3 and TMH4, attached to the affidavit of Tan Mee Hoi (f) sworn on 15 June 1983) that the money was paid as a deposit to meet the requirement of the Royal Malaysian Customs "in the performance of" the sale agreement and that it should be refunded "in full upon the cessation of the sale agreement or earlier if the parties mutually agree". For ease of reference these letters will be referred to in this judgment as "the guarantee agreement".

The respondents admitted receiving the sum but denied liability to refund the full amount. They justified withholding the sum by claiming a lien on it because the appellants did not pay them three sums of money which they alleged to have been due to them. Therefore, they pleaded a defence of set-off and added a counterclaim thereto. The three sums which they alleged were due to them are-

(1) RM223,756 being the balance of the price of mawa seeds supplied to the appellants which they had not paid;

(2) RM40,000 being the price of 2,000 bags of rock phosphate supplied to the appellants; and

(3) RM6,543.30 being the handling and other charges incurred by the respondents in shipping the seeds to the appellants.

In reply to the respondents' defence, the appellants contended that no such defence of set-off could be allowed in this suit (C. 1270/82) because the respondents had already admitted receiving the sum of RM350,000 as claimed and that if they wish to set up a defence of set-off, they should do so in the first suit (C. 1063/82) because the sums sought to be set-off by the respondents all relate to the performance of the sale agreement in respect of which the first suit was instituted.

The respondents' reply to this contention is that suit C. 1063/82 is not the proper place in which they could raise their plea of set-off and counterclaim, because in that suit they had completely denied liability.

The appellants' application for a final judgment under O. 27 r. 3 was hear