If you have obtained a judgment in your favour against several judgment debtors but there is no mention in the judgment that they are liable jointly and severally for the judgment sum, what are your rights against the debtors when it comes to enforcement of the judgment? This was the issue canvassed before the Federal Court in Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian Nagappan(1).
Facts
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 whereby 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 stating that the defendants would be “jointly and severally” liable for the judgment sum.
High Court
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” were not included in the consent judgment, the court could not look behind the judgment.
Court of Appeal
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 were defective because they claimed the entire judgment sum instead of only the portion owed by Edwin.
Federal Court
Understanding “Joint” and “Joint and Several” Liability
The Federal Court clarified that it is a misconception to say that in a joint liability situation, the liability of two or more debtors is shared and that the creditor can only recover in equal proportions against each of the debtors.
“Joint liability” simply means there is only one and the same promise or obligation jointly made by two or more persons. If one person performs the promise, the others are accordingly 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, which reads as follows:
“Where two or more persons make a joint promise, the promisee 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 contribution from one another for an equal share, but this does not affect the rights of the creditor under Section 44 of the CA.
What Happens If a Judgment Is Silent on the Type of Liability?
The Federal Court took the opportunity to examine two Court of Appeal decisions that offered divergent views on a similar subject:
In Sumathy Subramaniam v Subramaniam Gunasegaran & Another Appeal(2), the respondent sued the principal borrower and the guarantor (the appellants) and obtained two separate summary judgments against them. The terms of both judgments stated that the defendant was liable to pay 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 because the judgments did not specify joint and several liability, each of them was only liable for half of the judgment sum.
The Court of Appeal in Sumathy (supra) held that where a judgment does not specify that liability is joint and several, the liability is necessarily joint. As such, each of the judgment debtors shares the liability equally. If the judgment creditor proceeds against one of the debtors, the latter is only required to pay his own portion and not the entire judgment sum. The Court cannot read or infer joint and several liability in the absence of express 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 RM50,000.00 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. The respondent argued that the liability for costs was joint, meaning the five petitioners were each liable to pay only an equal portion of RM10,000.00.
The Court of Appeal in Kejuruteraan Bintai (supra) held that judgment debtors are regarded as jointly and severally liable for the entire judgment sum unless stated otherwise. In other words, the liability of the judgment debtors is not split equally; 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 preferring this reasoning, the Court of Appeal in Kejuruteraan Bintai (supra) did not allow the appellant’s appeal as it was bound by the doctrine of stare decisis to follow Sumathy (supra).
The Federal Court in the present case concurred with the reasoning in Kejuruteraan Bintai (supra). It held that the reasoning in Sumathy (supra) — that joint liability meant equal and shared liability — was flawed.
Accordingly, a creditor’s rights will not be limited merely because the type of liability is not expressly stated in the judgment. Unless it is stated otherwise, where the debtors’ liability is to be borne in equal proportions, the judgment creditor is entitled to pursue one or any number of the debtors for the entire judgment sum, so long as the debt remains unsatisfied.
Statutory Provision Prevails Over a Court Order
The pertinent question of law before the Federal Court was as follows:
“Whether this Court should give effect to 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 between the parties did not specify the type of liability. The EPF Board argued that its action was 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 such company shall, together with the company, be jointly and severally liable for the contributions.
The Federal Court agreed with the EPF Board and held that:
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The EPF Act prevails over the terms of the judgment. Thus, the Courts must give full effect to Section 46 of the EPF Act, which imposes joint and several liability on the directors for unpaid contributions.
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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.
Conclusion
The Federal Court’s decision clarifies 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. 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, the creditor cannot pursue the others for that same debt. However, if only part payment is recovered, the creditor may still proceed against another debtor for the remaining outstanding sum.
Any enquiries, please contact the authors:
Gan Khong Aik FCIArb
Partner
Gan Partnership
E: khongaik@ganlaw.my
Lee Sze Ching, Ashley
Senior Associate
Gan Partnership
E: szeching@ganlaw.my
(1) Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian Nagappan [2021] 7 CLJ 823.
(2) Sumathy Subramaniam v Subramaniam Gunasegaran & Another Appeal [2018] 2 CLJ 305 (Court of Appeal).
(3) Kejuruteraan Bintai Kindenko Sdn Bhd v Fong Soon Leong [2021] 5 CLJ 1 (Court of Appeal).
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice. The position stated herein is as at the date of publication on 27 September 2021.
