IN THE FEDERAL
COURT OF MALAYSIA
AT PUTRAJAYA
(APPELLATE
DIVISION)
CIVIL APPEAL NO. 03-1-2004(W)
CEMPAKA
FINANCE BERHAD … APPELLANT
1. HO LAI YING
(BERNIAGA ATAS NAMA K.H.
TRADING)
2. KOR TOONG KHOON … RESPONDENT
Coram: STEVE SHIM LIP KIONG, CJSS
ABDUL
HAMID BIN HJ. MOHAMAD, FCJ
PAJAN
SINGH GILL, FCJ
Leave
to prosecute this appeal was granted by this Court on 23rd March
2004 upon the following two questions:-
“1. Whether a certificate of indebtedness issued in accordance with the express provisions of the contract which provide that the certificate is final and conclusive of the matters stated therein is final and conclusive evidence of the amount in the absence of any manifest error on the certificate;
2. Whether apart from producing a certificate of indebtedness pursuant of the contract (sic) which provided that the certificate was final and conclusive of the matters stated therein, the appellant had a further obligation to produce statements of account to prove the debt in an application for summary judgment.”
As a
preliminary note, we should mention that by a vesting order dated 22nd
December 2000, the business of Cempaka Finance Bhd (the appellant herein) was
taken over by United Finance Bhd which in turn, on 25th June 2001,
changed its name to Southern Finance Bhd.
Under a loan agreement dated 17th July 1996, the appellant
agreed to grant the 1st respondent a fixed loan of RM1.5
million. In consideration, the 2nd
respondent signed a guarantee agreement on the same date. The 1st respondent defaulted. In consequence, the appellant filed a suit
against both respondents in the High Court on 29th May 1998. Thereafter, on 19th April 1999,
the appellant filed a summons in chambers under Order 14 Rules of the High
Court, 1980 for summary judgment. The
matter came before the Senior Assistant Registrar who, on 17th
August 1999, granted an order in terms of the application. The respondents then appealed to the judge in
chambers. The judge upheld the decision
of the Senior Assistant Registrar. On
further appeal by the respondents, the Court of Appeal reversed the decision of
the High Court.
It seems clear that the central issue canvassed before the judge in chambers relates to the questions now postulated for our consideration. The questions concern specifically the certificate of indebtedness found in clause 27 of the loan agreement and in clause 7.03 of the guarantee agreement. Now clause 27 stipulates:-
“If and when the loans shall be withdrawn or
revoked and/or the said account or accounts whatsoever in respect thereof shall
be closed, a statement by the Director, General Manager, Manager, Assistant
Manager, Sub-Manager, Secretary, Accountant or any other duly authorized
officer or agent of the Lender for the time being as to the amount of such
balance and the money and liabilities for the time being incurred or due to the
Lender by or from the Borrower(s) shall be accepted by the Borrower(s) and/or
any person or persons deriving title from the Borrower(s) and/or the successors
in title and assigns of the Borrower(s) as final and conclusive evidence for
all purposes whatsoever including for purposes of legal proceedings.”
“It is hereby agreed that any admission or acknowledgment in writing by the Borrower(s) or any authorized person on behalf of the Borrower(s) or a statement of account in writing showing the indebtedness of the Borrower(s) in relation to the subject matter of this Agreement duly certified by an authorized officer of the Lender shall be binding and conclusive against the Guarantor(s) and his heirs, executors, personal representatives and successors.”
“Thus, a plaintiff would be entitled to obtain summary judgment without trial if he can prove his case clearly which to us would mean that the plaintiff has to establish the existence of certain facts and must prove that those facts exist before the court can determine the issue as to whether the defendant has a defence or has raised an issue against the claim which ought to be tried.”
Quite clearly, the Court of Appeal has put the
burden on the plaintiff to prove his case in an O.14 application. With respect, that cannot be the correct
proposition of law. In an application
under O.14, the burden is on the plaintiff to establish the following
conditions: that the defendant must have entered appearance; that the statement
of claim must have been served on the defendant; that the affidavit in support
must comply with r.2 of O.14 in that it must verify the facts on which the
claim is based and must state the deponent’s belief that there is no defence to
the claim. (See Supreme Leasing Sdn
Bhd v Dior Enterprises & Ors (1990) 2 MLJ 36.) Once those conditions are fulfilled, the
burden then shifts to the defendant to raise triable issues. The law on this is trite. In National Company for Foreign Trade v
Kayu Raya Sdn Bhd (1984) 2 MLJ 300, the Federal Court has stated thus:
“We think it appropriate to remind ourselves
once again that in every application under Order 14, the first considerations
are (a) whether the case comes within the Order and (b) whether the plaintiff
has satisfied the preliminary requirements for proceeding under Order 14. For the purposes of an application under
Order 14, the preliminary requirements are:-
(i)
the defendant
must have entered an appearance;
(ii)
the
statement of claim must have been served on the defendant; and
(iii)
the
affidavit in support of the application must comply with the requirements of
Rule 2 of the Order 14.
… If the plaintiff fails to
satisfy either of these considerations, the summons may be dismissed. If however, these considerations are
satisfied, the plaintiff will have established a prima facie case and he
becomes entitled to judgment. This
burden then shifts to the defendant to satisfy the Court why judgment should
not be given against him.”
The proposition of law enunciated by the Federal
Court in National Company (supra) has been applied in numerous
cases. We accept the correctness of that
proposition. In reversing the burden of
proof as the Court of Appeal in the instant case has done, it has, in our
respectful view, misapplied the relevant principles relating to an application
for summary judgment under O.14 Rules of the High Court, 1980.
WE now turn to the second broadside launched by the appellant. Here, the appellant contends that the Court of Appeal has erred in law in not giving effect to clause 27 of the loan agreement entered into between the appellant and the 1st respondent and clause 7.03 of the guarantee agreement between the appellant and the 2nd respondent, described as the conclusive evidence clauses. This relates to the following passage in the judgment of the Court of Appeal which states:-
“The sole question before us is whether the respondent had sufficiently
established their case against the appellants, namely, that the appellants as
at 29th November 1997 owed the respondent the said sum of
RM1,554,019.74. We do not think so. Exhibit P3 would only be conclusive evidence
if it had been illustrated in the respondent’s affidavit in support of their
application for summary judgment as to how the sum mentioned therein was
arrived at. It is our view that the mere
production of exhibit P.3 was insufficient to show that the respondent had
clearly established that the said sum was due and owing. The court cannot just assume that the amount
shown therein is correct. No documentary
evidence such as in the form of monthly statement of accounts and the amount of
interest imposed on the monies released were introduced by the respondent. Under the circumstances, we cannot come to
the conclusion that the respondent had clearly proven their case. … All the said documents showed is that the
said facility was granted to the first appellant with the second appellant as
the guarantor. What we were gravely
concerned with is whether the evidence introduced up to now is sufficient prima facie to establish the respondent’s case.
The law on the burden of proof is governed by the provisions found in
Chapter VII of Part III of the Evidence Act, 1950. In accordance with section 101 of the Act,
the legal burden of establishing that the said sum stated in exhibit P3 is
owing from the appellants to the respondent lie on the latter. The conclusiveness of exhibit P.3 is binding
only upon the parties. The court would
still have to determine whether sufficient evidence has been adduced to prove
the quantum and correctness of the amount claimed by the respondent.”
The Court of Appeal thereafter cited in support the
High Court case of Bank of Commerce (M) Bhd v Tan Boon Soon @ Tan Po Lo
trading as Messrs. Syarikat Soon Tatt Trading & Anor (1995) 1 AMR 156.
Although
the case of Chen Heng Ping & Ors
v Intradagang Merchant Bankers (M) Bhd (1995) 2 MLJ 363 (CA), was relied on
by the High Court in holding a certificate of indebtedness to be binding unless
manifest error on the face of it or fraud is shown, the Court of Appeal in the
instant case, seems to place no significance on this. Nor has it considered the fact that in Chen
Heng Ping the Court was able to distinguish the factual peculiarities in Bank
of Commerce. It was a case where an
error was manifested on the face of the certificate of indebtedness because the
guarantee agreement had limited the guarantor’s liability to RM140,000/-
whereas the suit had claimed for RM259,000/-.
Indeed, the Court of Appeal in Chen Heng Ping cited with approval
the observation expressed by V.C. George J. in D. & C. Nomura Merchant
Bankers Bhd v Gunung Kuari Sdn Bhd (1990) 2 CLJ 58 when he said at page
60:-
“… it was agreed that a certificate of indebtedness by an authorised officer of the plaintiff shall be binding and conclusive against the guarantors of the amount payable by the 1st defendant.
In the instant case, there is such a certificate of indebtedness under
the hand of an authorised officer of the plaintiff bank. The judgment of Shankar J. in MIMB v G
& C Securities (unreported) and the judgment of Bank Bumiputra
Malayisa Bhd v Doric Development Sdn Bhd [1988] 1 MLJ 462, 463 provided
authority for the proposition that such a certificate is indeed binding unless
there is manifest error.”
This observation appeared to have escaped the
attention of the Court of Appeal in the present case. In the result, the Court of Appeal took the
position that the conclusiveness of the certificate of indebtedness exhibit P3
was binding only upon the parties and that the court would still have to
determine whether sufficient evidence had been adduced to prove quantum and the
correctness of the amount claimed. With
respect, such a proposition goes against the entrenched principles enunciated
by Raja Azlan Shah CJ (Malaya) (as His Highness then was) in Citibank N.A.
v. Ooi Boon Leong & Ors (1981) 1 MLJ 282 when he said inter alia:-
“We have often said in this court many a time that where the issues are clear and the matter of substance can be decided once and for all without going to trial there is no reason why the Assistant Registrar or the judge in chambers, or, for that matter, this court shall not deal with the whole matter under the R.S.C. Order 14 procedure. In the present case, the guarantee contains a clause which enables the bank by producing a certificate of indebtedness by its officer to dispense with legal proof of the actual indebtedness of the respondents. … It means that, for the purpose of fixing liability of the respondents, the company’s indebtedness may be ascertained conclusively by a certificate.”
The above dictum establishes firmly the conclusive
nature and extent of a certificate of indebtedness. A certificate of indebtedness operates in the
field of adjectival law. It excuses the
plaintiff from adducing proof of debt.
Such a certificate shifts the burden onto the defendant to disprove the
amount claim.
In
the instant case, the relevant clauses 27 and 7.03 of the loan agreement and
guarantee agreement respectively are sufficiently clear. A clause of this nature has been described as
a conclusive evidence clause. Such a
clause has been held to be binding and valid by courts in Australia and
England. In Dobbs v National Bank of
Australiasia (1953) 53 CLR 643, the Australian Court made the following
observation which we think is instructive:-
“… The bank could recover without the production of a certificate if, by ordinary legal evidence, it proved the actual indebtedness of the customer. But the (conclusive evidence) clause, if valid, enables the bank by producing a certificate to dispense with such proof. It means that for the purpose of fixing the liability of a surety, the customer’s indebtedness may be ascertained conclusively by a certificate. … But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness.”
The certificate of indebtedness, exhibit P3, issued
in accordance with clauses 27 and 7.03 aforesaid, are lucid enough. There is nothing to indicate or suggest any
manifest error on the face of the said certificate nor is any fraud shown. In the circumstances and given the
authorities cited, we take the firm view that the answer to the first question
must be in the affirmative whereas the second question has to be answered in
the negative. Having considered the
questions in the context of the established facts, it is appropriate, we think,
to allow this appeal with costs. Deposit
to the appellant to account of taxed costs.
(STEVE SHIM
LIP KIONG)
Hakim Besar
Sabah & Sarawak
Date of delivery of judgment: 7.3.2005
Date of Hearing: 25.10.2004
Counsel for the Appellant: K. Anantham
Chee Yoke Yung
Nadrah bt. Mohamed
Messrs Shatar Tan & Chee Advocates & Solicitors
Selangor
Counsel for the Respondent: S.L. Tan
Messrs S.L. Tan & Associates
Kuala Lumpur