The plaintiff and the first defendant entered into a memorandum of agreement (MOA) whereby the plaintiff sold a vessel identified as "SK78" to the defendant. Subsequently, the plaintiff and the first defendant entered into addendum No. 1 to the MOA (addendum No. 1) which required the plaintiff and the first defendant to enter into a bareboat charter agreement (BCA). Pursuant to addendum No. 1, the plaintiff and the first defendant entered into a BCA and the plaintiff chartered the vessel to the defendant.
The charter period was extended multiple times, and the extensions were documented by additional addendums.
Addendums to the MOA declaring the extension | Corresponding addendums to the BCA declaring the extension |
Addendum No. 2 to the MOA | Addendum No. 1 to the BCA |
Addendum No. 3 to the MOA | Addendum No. 2 to the BCA |
Addendum No. 4 to the MOA | Addendum No. 3 to the BCA |
Addendum No. 5 to the MOA | Addendum No. 4 to the BCA |
In addendum No. 5 to the MOA, the second defendant agreed to be the corporate guarantor for the first defendant, and the third, fourth, fifth and sixth defendants agreed to be the personal guarantors for the first defendant.
The plaintiff's claim was based on the defendants' failure to pay the plaintiff pursuant to the MOA, the BCA and the addendums (collectively, the agreements).
The first defendant had been granted a stay pending arbitration. The plaintiff filed an application for summary judgment against the second, third, fourth, fifth and sixth defendants (collectively, the defendants) for the outstanding sum.
The High Court allowed the plaintiff's application for summary judgment.(1)
Whether plaintiff had failed to prove prima facie case
The defendants submitted that the plaintiff had failed to prove a prima facie case for several reasons:
- The plaintiff had failed to prove that the first defendant, who was not a party in the current suit, had defaulted in its obligation.
- The plaintiff had failed to prove that letters of demand were issued to the defendants.
- There were errors in the invoices exhibited by the plaintiff.
- The plaintiff had not satisfactorily fulfilled the preliminary requirements of order 14 of the Rules of Court 2012.
The Court held that these issues should be raised as triable issues, and that the plaintiff had satisfied the Court that it had a prima facie case.
Guarantees are not indemnities
The defendants submitted that the corporate and personal guarantees (the guarantee agreements) were not indemnities. They merely created a secondary or accessory liability, which was conditional upon the debtor's default. The use of the word "indemnity" in the guarantee agreements did not turn the guarantees into indemnities.
The defendants went on to submit that the clause in the guarantee agreements was contingent upon the plaintiff establishing that the first defendant had not performed its obligations. As the first defendant was not a party to this suit, and the dispute between the first defendant and the plaintiff was pending arbitration, it could not be said that the plaintiff had established the first defendant's default and consequently the defendants' liabilities.
The Court rejected the defendants' submissions. The issue of whether the guarantee agreements were guarantees or indemnities was not specifically raised in the defendants' affidavit in reply and ought to be disregarded. Even if the submissions were to be considered, the defendants had not sufficiently shown why the guarantee agreements were guarantees and not indemnities. The use of the words "guarantee to you" in the guarantee agreements did not make the guarantee agreement guarantees, as there were other words in the agreement which denoted that the guarantee agreements were indemnities.
Letters of demand
The defendants submitted that their obligations as guarantors only arose upon demand by the plaintiff. As there were no letters of demand exhibited by the plaintiff, the plaintiff had not proven the amount demanded.
This argument was rejected by the Court as it was not raised in their written submissions and affidavits. Further, a letter of demand was not a compulsory requirement to commence an action against the defendants as the liability of the defendants as a principal debtor was provided in the guarantee agreements.
Errors in invoices
The defendants submitted that the amount claimed by the plaintiff did not take into account the counterclaim by the defendants against the plaintiff. This consisted of an amount claimed by the plaintiff that did not take into consideration the payments made by the first defendant, which should amount to a set-off.
The Court rejected the defendants' submission and held that the counterclaim was a separate claim that did not absolve the defendants from their indebtedness and liability to pay the outstanding amount.
For further information on this topic please contact Rajasingam Gothandapani at Shearn Delamore & Co by telephone (+60 3 2027 2911) or email ([email protected]). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.
Endnotes
(1) Nam Cheong International Ltd v Time Liza International Ltd & Ors [2021] MLJU 2792.