Court of Appeal
Where a party has obtained a judgment in its favour against several judgment debtors, but there is no mention in the judgment that the debtors are jointly and severally liable for the judgment sum, what is the party's right against the debtors when it comes to enforcement of the judgment? This was the issue before the Federal Court in Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian Nagappan.(1)
The Employees' Provident Fund Board (EPF Board) filed a suit against a company and its directors, Edwin and Bernard, for the company's failure to make employer contributions on behalf of its employees. At the high court, the parties recorded a consent judgment where the defendants agreed to pay the EPF Board, among others, the arrears of the employer contributions.
When the defendants failed to settle the judgment in full in accordance with the consent judgment, the EPF Board commenced bankruptcy proceedings against Edwin alone for the entire outstanding judgment sum.
Edwin applied to set aside the bankruptcy notice and the creditor's petition on the ground that he could not be held liable for the whole judgment sum because the consent judgment did not include the phrase that the defendants would be "jointly and severally" liable for the judgment sum.
The setting-aside application was first heard and allowed by the senior assistant registrar (SAR) of the high court. Upon appeal to the judge-in-chambers, the high court judge affirmed the SAR's decision and ordered the defendants to pay the sum in equal proportions. It was held that if the words "jointly and severally" liable are not included in the consent judgment, the court cannot look behind the judgment.
The Court of Appeal agreed with the high court's decision and held that the bankruptcy notice and the creditor's petition filed by the EPF Board had been defective because they had claimed for the entire judgment sum instead of only the portion owed by Edwin.
Understanding "joint" and "joint and several" liability
The Federal Court has clarified that it is a misconception to say that in a joint liability situation, the liability of two or more debtors is shared and the creditor can only recover in equal proportions against each of the debtors.
"Joint liability" simply means that there is only one and the same promise/obligation jointly made by two or more persons. If one person performs the promise, the other persons will accordingly be discharged.
On the other hand, "joint and several liability" means that, in the same instrument, two or more persons jointly promise to do the same thing and severally make separate promises to do the same thing.
The Federal Court referred to and held that section 44 of the Contracts Act 1950 (CA) provides for joint liability, and reads as follows:
Where two or more persons make a joint promise, the promise may, in the absence of express agreement to the contrary, compel any one or more of the joint promisors to perform the whole of the promise.
As such, if there are two or more debtors jointly liable to pay a judgment debt, each of them is liable for the whole amount. The judgment creditor is entitled to proceed against any of them to recover the entire judgment sum. It is a separate matter between the judgment debtors to claim a contribution from one another for an equal contribution, but this does not affect the rights of the creditor under section 44 of the CA.
What if the judgment is silent on the type of liability?
The Federal Court took the opportunity to examine two Court of Appeal decisions that offer differing views on a similar subject. In Sumathy Subramaniam v Subramaniam Gunasegaran,(2) the respondent sued the principal borrower and the guarantor (the appellants) and entered two separate summary judgments against them. The terms of the summary judgments were the same, stating that the defendant was liable to pay to the plaintiff the judgment sum.
Subsequently, the respondent filed two separate bankruptcy notices against both appellants for the entire judgment sum. In applying to set aside the bankruptcy notices, the appellants argued that the terms of the summary judgment did not specify that the liability was joint and several; therefore, the appellants had to be equally liable where each of them was liable for only half of the judgment sum.
The Court of Appeal in Sumathy held that where the judgment does not specify that liability is joint and several, the liability is necessarily joint. As such, each of the judgment debtors will share the liability equally. If the judgment creditor chooses to go against one of the judgment debtors, the latter is required to pay only their own portion and not the entire judgment sum. The Court cannot read or infer the appellants' liability to be joint and several in the absence of such terms in the judgment.
In Kejuruteraan Bintai Kindenko Sdn Bhd v Fong Soon Leong,(3) the appellant and 13 others were each awarded costs of 50,000 ringgit in an oppression action filed by the respondent and four other petitioners. The appellant subsequently commenced bankruptcy proceedings against the respondent to recover the costs. In applying to set aside the bankruptcy notice and creditor's petition, the respondent argued that its liability for the costs was joint and this meant that the respondent and the other four petitioners were each liable to pay only an equal portion of the 50,000 ringgit. Accordingly, it was argued that the respondent was liable to pay the appellant only a sum of 10,000 ringgit.
The Court of Appeal in Kejuruteraan Bintai held that judgment debtors are regarded as jointly and severally liable to honour the entire judgment sum, unless it is stated otherwise. In other words, the liability of the judgment debtors is not split and divided equally but each of them is liable for the entire judgment debt. Thus, there is no need to read into a judgment the idea of joint and several liability.
Despite coming to a different reasoning with Sumathy, the Court of Appeal in Kejuruteraan Bintai did not allow the appellant's appeal, as it was bound by the doctrine of stare decisis to follow the decision in Sumathy.
The Federal Court in the present case concurred with the reasoning in Kejuruteraan Bintai. It further held that the Court of Appeal's reasoning in Sumathy that "joint liability" meant equal and shared liability was flawed.
Based on the above discussions, it follows that a creditor's right will not be circumscribed by not having the nature of the liability of the debtors explicitly spelt out in the judgment. Unless it is stated otherwise that the liability of the debtors is to be borne in equal proportions, the judgment creditor is entitled to go against one or any number of the debtors for the entire judgment sum so long as the judgment debt remains unrealised.
Statutory provision prevails over court order
The pertinent question of law before the Federal Court in the present case is as follows:
Whether this Court should give effect to the liability on a 'joint and several' basis as provided under section 46 of the Employees Provident Fund Act 1991 in a situation where the words "joint and several" were not specifically stated in the court judgment?
As stated above, the consent judgment entered into between the parties did not provide for the type of liability. The EPF Board argued that its action had been filed pursuant to section 46 of the Employees Provident Fund Act 1991 (EPF Act) which provides that where any contributions remain unpaid by a company, the directors of the company shall, together with the company, be jointly and severally liable for the contributions.
On this issue, the Federal Court agreed with the EPF Board and held that:
- the EPF Act prevails over the terms of the judgment. Thus, courts must give full effect to section 46 of the EPF Act, which imposes joint and several liability on the directors for unpaid contributions; and
- although the consent judgment is silent on the type of liability, the liability of the directors for unpaid contributions is both joint and several by operation of law.
The Federal Court's decision has clarified the misunderstanding of the concept of joint liability. From the perspective of a judgment creditor, the liability of two or more judgment debtors is not shared in equal proportions. Thus, the judgment creditor is at liberty to enforce the judgment against one or any number of the debtors for the entire judgment sum.
If one judgment debtor has satisfied the judgment in full, naturally the judgment creditor cannot pursue the other debtors for that judgment. However, if only part payment is recovered, the judgment creditor can still go after another judgment debtor for the remaining outstanding sum.
For further information on this topic please contact Lee Sze Ching (Ashley) or Gan Khong Aik at Gan Partnership by telephone (+603 7931 7060) or email ([email protected] or [email protected]). The Gan Partnership website can be accessed at www.ganlaw.my.
(2)  2 CLJ 305 (Court of Appeal).