James Foong FCJ:

Introduction

[1] In this instant appeal, the respondent, a housing developer, has sued its banker, the appellant, for breach of contract. This suit was dismissed by the High Court. On appeal, the Court of Appeal (by majority) overturned the decision of the High Court and ordered damages to be assessed. Dissatisfied, the appellant sought leave from this Court to refer two questions of law (which we shall disclose in due course) to this Court. Leave was granted.

[2] As this appeal is substantially fact sensitive, we shall begin by setting out the chronology of the events that transpired between the parties.

[3] The respondent was the registered owner of a piece of property in Kuala Pilah, Negeri Sembilan. This said property was subdivided into 40 lots with individual document of title issued to each of them. Though there were 40 lots, only 36 houses were to be built in this housing estate to be known as Taman Dangi.

[4] Initially on 28 December 1983, the respondent was granted an overdraft facility of RM250,000 by the appellant. This facility was secured by a first legal charge over the 40 titles to the said property. The repayment of this loan was to be within two years from the time of drawdown. On 14 April 1984, the respondent was granted a further overdraft of RM150,000. The repayment of this was again to be two years from date of drawdown. As security of this loan, a second legal charge was created over the same 40 titles of the said property. The total loan given to the respondent as at 14 April 1984 was therefore RM400,000.

[5] At the request of the respondent for a temporary loan to pay for the construction of certain works and drainage in Taman Dangi, the appellant on 27 August 1984 granted a temporary overdraft facility of RM150,000 to the respondent. This temporary overdraft was only for a short period of approximately four months and had to be repaid by 31 December 1984. It was a term and condition of this temporary facility that any drawdown must be against presentation by the respondent of an architect's certificate for completion of the works carried out in Taman Dangi for which this loan was intended. By 31 December 1984, only a sum of RM120,000 was released.

[6] As at 5 February 1985, the respondent's account stood at minus RM544,587.86. This means the respondent had overdrawn by RM24,587.86 against the total loan of RM520,000 given by the appellant.

[7] By November 1985, the respondent's financial position worsened with declining sales and diversion of funds from Taman Dangi to other projects elsewhere undertaken by the respondent's associated companies. By this time, the respondent's account stood at RM618,421.17 against an approved limit of only RM400,000 (the temporary overdraft of RM150,000 with only RM120,000 drawndown not taken into consideration the reason that this facility had expired).

[8] To regularize and reschedule the loans granted to the respondent, the appellant on 23 September 1986, informed the respondent that its overdraft facilities stood at RM520,000 being the total original overdraft of RM400,000 and RM120,000 drawndown from the temporary facility. It was agreed that this entire rescheduled loan was to be repaid within a year or by way of redemption of the 40 titles charged to the appellant fixed at the rate of RM30,000 per title.

[9] By the same instrument regularizing the above loan, the appellant also offered to the respondent an end-finance facility of up to RM1 million for purchasers of the houses in Taman Dangi but the agreement for this end-financing was only executed on 30 March 1987.

[10] As at 21 August 1987, there were only nine purchasers who had sought end-financing from the appellant but their loans were not released into the accounts of the respondent. This was one of the grounds for the alleged breach by the appellant.

[11] The explanation given by the appellant was that it was due to the failure of the respondent to confirm that each of these nine end-financin