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Federal Court clarifies liability of two or more judgment debtors where the words “joint and several” are not stated in the judgment

01 September 2021

“In summary therefore, unless a contrary intention is expressed in the contract, all joint contracts effectively impose a full liability for the debt on each of the promisors … Thus, where the debts are jointly incurred, each promisee is liable for the whole amount …” - Per Nallini Pathmanathan FCJ
 
 
The Federal Court in a unanimous decision delivered by Nallini Pathmanathan FCJ (Rohana Yusuf PCA and Azahar Mohamed CJM concurring) in Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian A/L Nagappan @ Marie [2021] 7 CLJ 823, allowed an appeal by the Employees’ Provident Fund Board (“EPF Board”) and reversed the decisions of the courts below which held that omission of the phrase ‘jointly and severally’ in a court order against two or more judgment debtors means that each debtor would only be liable for a portion of the judgment sum, proportionate to his share, interest or obligation. The decision is significant as it is the first reported case whereby the apex court cleared the air on the issue of liability between two or more judgment debtors.
 
Key Points
 
  1. The liability of the judgment debtors is both joint and several by operation of law under Section 44(1) of the Contracts Act 1950. The effect of Section 44(1) of the Contracts Act 1950 is that unless a contrary intention is expressed in the contract, all joint contracts effectively impose a full liability for the debt on each of the promisors.

  2. So long as a judgment debt remains unrealised, the judgment creditor is entitled to proceed against one or any number of judgment debtors to secure the performance of an obligation in its entirety.

  3. Merely inserting the word ‘jointly’ in a consent judgment would not suffice to halve liability as there must be express words to that effect to state that the liability of the joint promisors is to be borne in equal proportions.

Brief Facts
 
The dispute concerns a consent judgment entered between the parties, where each of the three defendants, comprising the company and its two directors, agreed to pay the EPF Board the arrears in employer contributions (“Consent Judgment”). However, the Consent Judgment did not include the phrase that the three defendants were ‘jointly and severally’ liable for the sum stated in the Consent Judgment. After the defendants failed to comply with the Consent Judgment, the EPF Board commenced bankruptcy proceedings against the Respondent alone. The Respondent applied to set aside the bankruptcy notice and the creditor’s petition.
 
Decisions of the Courts Below
 
The Respondent successfully set aside the bankruptcy notice and the creditor’s petition before the Senior Assistant Registrar (“SAR”). The SAR’s decision was affirmed by the High Court and subsequently the Court of Appeal.
 
Both the High Court and the Court of Appeal held that the bankruptcy notice and creditor’s petition were defective as they claimed the whole judgment sum instead of only the portion owed by the Respondent. The Courts below relied on the Court of Appeal case of Sumathy a/p Subramaniam v Subramaniam a/l Gunasegaran & Anor Appeal [2017] 6 MLJ 753 (“Sumathy”) and held that since the phrase ‘jointly and severally’ liable was not inserted into the Consent Judgment, the defendants were only liable to pay the judgment sum in equal proportions.
 
Federal Court
 
The Federal Court held that the Courts below had erred in invoking the presumption that joint liability means liability for only half the debt and not the full amount. As a starting point, the Federal Court addressed the misconception of the meaning of joint liability by drawing a distinction between joint liability, several liability and joint and several liability. Nallini Pathmanathan FCJ made the following distinctions:
 
  1. “Joint liability arises when two or more persons jointly promise to do the same thing. There is only one obligation or promise, and consequently, performance by one person discharges the others. In the case of a joint promise, the obligation is single and entire. It is extinguished by a judgment and decree in a suit against any one of the joint promisors: In Re Vallibhai Adamji 1933 Indlaw MUM 179, AIR 1933 BOM 407.”

  2. “Several liability, on the other hand, arises when two or more persons make separate promises to another, whether by the same instrument or by different instruments. There is more than one obligation or promise, as compared to joint liability where there is one obligation or promise.”

  3. “A joint and several promise is different from a joint promise. Joint and several liability arises when two or more persons in the same instrument jointly promise to do the same thing and also severally make separate promises to do the same thing. Joint and several liability gives rise to one joint obligation and to as many several obligations as there are joint and several promisors: In Re Vallibhai Adamji (supra).”

  4. “In all these instances, the promisor who has discharged the liability may then seek a proportionate share from each of the other debtors. The creditor however is at liberty to go against any one or all of the debtors.” 
 
After clarifying the concepts of joint, several and joint and several liability, the Federal Court held that the law with regard to a joint liability situation in Malaysia is governed by Section 44(1) of the Contracts Act 1950. This section provides that the creditor may proceed against one or any number of the joint promisors to perform the whole of the promise, unless the contract expresses otherwise. It therefore follows that so long as a judgment debt remains unrealised, a judgment creditor, i.e. the EPF Board, is entitled to proceed against one judgment debtor, or the other, or both to satisfy the entire judgment sum.
 
Critically, the Federal Court also held that the insertion of the term ‘joint liability’ in the judgment itself would not entitle the courts to conclude that liability is divided in equal proportions against each of the judgment debtors as it would be contrary to Section 44 of the Contracts Act 1950.
 
In cases where only one promisor has fully paid off the promised amount, that promisor is entitled to claim contribution from the other joint promisor for an equal contribution by virtue of Section 44(2) of the Contracts Act 1950. However, this is strictly a matter between the joint promisors inter-se and does not affect the rights of the creditor under Section 44(1) of the Contracts Act 1950.
 
Following the above, the Federal Court held that the Court of Appeal in Sumathy had erred in law by holding that the judgment creditor is only entitled to seek recovery in equal proportions against each of the defendants.
 
The EPF Act
 
The Federal Court also noted that Section 46 of the Employees Provident Fund Act 1991 (“EPF Act”) imposes joint and several liability on the directors of a company for unpaid contributions. The Federal Court held that the express wordings of Section 46 of the EPF Act prevails over the terms of the judgment.
 
Conclusion
 
This decision of our Federal Court is noteworthy in two respects. First, it clarifies that Sumathy was wrongly decided. Second, it confirms that liability of judgment debtors under a court judgment would in effect be joint and several unless the judgment expressly states that liability is to be borne in equal or other specified proportions.
 
Case commentary by Karen Tan (Associate) of the Dispute Resolution Division of Skrine.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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