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Issue 2 (Malaysian Position) Script-Eunice

Adrian entered into a second contract as a guarantor for Hector's pre-existing debts due to undue influence from Hector. Under Malaysian law, if a party can establish 1) dominion over the other party and 2) a fiduciary relationship, the burden shifts to prove there was no undue influence. Here, Adrian has established these two elements against Hector. Additionally, Adrian was pestered by constant phone calls and messages showing undue influence. Therefore, Adrian is not liable to the bank under the guarantee agreement due to the undue influence by Hector in getting him to sign as guarantor.

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Eunice Lee Sin Yee
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33 views

Issue 2 (Malaysian Position) Script-Eunice

Adrian entered into a second contract as a guarantor for Hector's pre-existing debts due to undue influence from Hector. Under Malaysian law, if a party can establish 1) dominion over the other party and 2) a fiduciary relationship, the burden shifts to prove there was no undue influence. Here, Adrian has established these two elements against Hector. Additionally, Adrian was pestered by constant phone calls and messages showing undue influence. Therefore, Adrian is not liable to the bank under the guarantee agreement due to the undue influence by Hector in getting him to sign as guarantor.

Uploaded by

Eunice Lee Sin Yee
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Thank you Jodie, hi I'm Eunice and I will be following up on the Malaysian position of

undue influence, which plays a part in the second contract entered by Adrian in this case. As
we know, Malaysian law has not placed much emphasis on whether undue influence is
actual or presumed. Similar to common law, s.16 of the Contract Act 1950 has been utilised
in the Malaysian position in which the section has highlighted the elements that constitute
undue influence. However, it differs from common law in s16(3) of the Contract Act
1950where it is stated that the burden shifts to the influencer himself to prove that there
was no undue influence after the 2 limbs have been successfully established by the innocent
party. Issues were raised on whether Adrian would be liable to bank on the grounds of third
party influence. 

As what Jodie has stated, the 2 elements have been established under s.16(2) between
Adrian and Hector considering that there's dominion and fiduciary relationship as to being a
guarantor of Hector's pre-existing liabilities, thus it can be said that Adrian’s entry into the
contract was induced by undue influence. At the same time, the fact that Adrian was
pestered by phone calls and messages has clearly shown the presence of undue influence. A
case that can be referred to is Saw Gaik Beow v Cheong Yew Weng & Ors [1989 1]. In this
case, the elements to establish undue influence have been highlighted. It was stated that to
rely on undue influence, the party must show that (a) the other party had the capacity to
influence him; (b) the influence was exercised; (c) its exercise was undue; and (d) that its
exercise brought about the transaction. Additionally, in the case of Tara Rajaratnam v Datuk
jagindr Singh & Ors [1983], 2both dominion and unfair advantage were proven on the basis
of the client and solicitor relationship, therefore the court held that there was undue
influence. Applying s.16(3), the burden will shift to Hector to prove that there was no undue
influence since 2 limbs have been established by Adrian.

Now looking at the guarantee agreement that has been entered into by Adrian and
the bank, the same application used in common law is applied in the Malaysian position
under third-party undue influence. Thus, Adrian is not liable to the bank. In the context of a
loan by a bank to its customer, that banker-customer relationship is that of a debtor and

1
Saw Gaik Beow v Cheong Yew Weng & Ors [1989] 3 MLJ 301
2
Tara Rajaratnam v Datuk jagindr Singh & Ors [1983] 2 MLJ 196
creditor. However, guarantees are contracts with significant legal and financial implications
and guarantors are third parties to the loan contract, might as well as "strangers" to the
contract, who are likely to have limited information concerning the events leading to the
borrowing arrangement, and the financial details of the primary transaction they are
guaranteeing. Therefore, the legal systems are deemed to protect guarantors as far as they
reasonably can, especially from unfair conduct of lenders and borrowers.

To support my statement, the journal article Halsbury's Laws of Malaysia -


Guarantees and Indemnity3 has made clear the principle of the guarantee agreement. It
was stated that an ordinary contract of guarantee, unlike a contract of insurance, is not a
contract uberrimae fidei, requiring full disclosure of all material facts by the contracting
parties. A creditor is obliged to disclose to an intending surety the existence of an
agreement that part of the advance to be secured by the guarantee was to be applied to
repay a pre-existing debt. In the case of Hong Kong and Shanghai Banking Corporation v
Syarikat United Leong Enterprise Sdn Bhd & Anors [1993], 4the court's judgment illustrated
that the enforceability of a guarantee agreement will only be enforced when it was of the
desire of the guarantor its own. Referring to the English case of Cornish v Midland Bank plc
[1985], 5there is a duty on the part of the bank to exercise care in giving such explanation if
the bank knows or ought to know that the proposed surety is relying upon the explanation.
Furthermore, the bank is obliged to take reasonable steps and are to be imposed to a public
duty to safeguard the guarantor by disclosing the relevant intending risks and terms to
Adrian, especially when there is a possibility that the guarantor might be affected by undue
influence in being a guarantor repaying pre-existing debts of Hector. Lastly, the defense of
constructive notice that the bank may raise can be defeated on the grounds that there is a
public duty imposed on the bank to take reasonable steps in disclosing the risks involved in
a guarantee agreement.

3
Halsbury's Laws of Malaysia, ‘Guarantees and Indemnity’ volume 2 (2)
4
Hong Kong and Shanghai Banking Corporation v Syarikat United Leong Enterprise Sdn Bhd & Anors [1993] 2
MLJ 449
5
Cornish v Midland Bank plc [1985] 3 All ER

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