JUDGMENT

Mohd. Yusoff Mohamed SCJ:

This appeal is against the decision of the learned Judge granting an O. 14 judgment to the plaintiff/respondent and holding that there is no bona fide triable issue raised by the defendants/ appellants in their defence.

The claim arose from a loan agreement dated 4 September 1985 whereby the plaintiff agreed to lend RM6 million to the 1st defendant for the purpose of restructuring the borrowers' group borrowings and out of this sum, RM1.5 million was to be used for the purpose of working capital - Clause 5.01 (ii) of the agreement. The remaining defendants were the guarantors.

The amended statement of claim averred that in breach of the agreement the defendants failed to pay the interest due pursuant to Clause 7.01 of the agreement and whereupon on 13 May 1987 the plaintiff demanded repayment of the principal loan and interest thereon.

The relevant part of the letter of demand states:

In view of your default in the payment of interest and the bad conduct of your accounts with our clients, we are now instructed to terminate the loan agreement and demand the payment of loan disbursed and the interest due thereon amounting to RM5,766,963.10 due as at 11 May 1987 of which particulars are given below:

Particulars

Principal RM5,211,000.00

Interest RM 533,259.62

Penalty Interest RM 22,703.48

RM5,766,963.10

As in the Court below, the defendants argued before us that the loan granted by the plaintiff had two-fold objective - the initial drawdown of RM4.5 million for the purpose of restructuring the 1st defendant's group borrowings whilst the remaining RM1.5 million was to service the payment of interests when due. They maintained that there existed a collateral agreement between the parties with regard to the drawdown of the RM1.5 million as represented to them by the then chief general manager of the plaintiff named Kung Beng Hung that the sum would be used to service the interest accruing on a quarterly basis.

In support of this contention the defendants referred to Clause 5.01 (ii) of the agreement and their correspondence with the plaintiff dated 26 November 1985 and 29 November 1985.

On behalf of the plaintiff/respondent it was argued that Clause 5.01 of the agreement stipulated that RM1.5 million loan was to be used for working capital and that prior written consent of the plaintiff was required for any other purpose. In the circumstances, the plaintiff contended that the defendants could not lead evidence to vary or contradict Clause 5.01. In the alternative, the plaintiff contended that even if the defendants' contention that the RM1.5 million loan was to service interest of the first drawdown of RM4.5 million were admissible, the plaintiff was entitled to stop further disbursement of the RM1.5 million because overdues on certain existing accounts of the first defendants' group of companies had not been fully settled.

On these arguments the learned Judge ruled that:

Against this Kung Beng Hong (who is no more with the plaintiffs) has sworn an affidavit denying that he had been party to any such agreement.

Now, as has been seen, Clause 5.01 (ii) of the loan agreement sets out that the RM1.5 million was for the purpose of working capital and the clause goes on to provide that if the money was to be utilised for any other purpose the prior written consent of the lender is required.

In my judgment while it could very well be that there is nothing wrong with utilising working capital to pay interest that may be due, unless there is admissible evidence of a clear agreement to the effect that the drawdowns were to be utilised to pay off interest the defendants' contention in this respect is unacceptable.

The two letters that the defendants rely on do not state that the money is to be used to pay off interest. In any event the plaintiffs have rightly called to aid s. 92 of the Evidence Act to contend that the defendants are precluded from adducing evidence to contradict or vary the terms of the formal