A. Introduction
When a judgment creditor obtains a judgment sum against several judgment debtors, the judgment creditor would typically recover the entire judgment sum against each of the judgment debtors.
Throughout these years, we have seen some judgment debtors who sought to limit their liability to equal proportions of the judgment sum on the ground that the judgment does not expressly impose joint and several liability but only joint liability instead.
This then boils down to the issue of whether there is a real distinction between a judgment which imposes joint liability, as compared to a judgment for joint and several liability. The Federal Court in its recent decision of Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian A/L Nagappan @ Marie (“Edwin Cassian“) resolved this issue.
In this article, we analyse the Federal Court’s reasoning in Edwin Cassian as well as the diverging Court of Appeal authorities before this.
B. Background Facts of Edwin Cassian
In Edwin Cassian, the Appellant and one other, were made personally liable as directors for the failure of their company to make EPF payments to the employees of the company. The High Court at first instance found the Appellant and the other director liable. However, the judgment did not expressly specify the type of liability imposed upon the both of them.
Section 46(1) of the Employees Provident Fund Act 1991 (“EPF Act“) reads:
"Where any contributions remaining unpaid by a company, a firm or an association of persons, then, notwithstanding anything to the contrary in this Act or any other written law, the directors of such company including any persons who were directors of such company during such period in which contributions were liable to be paid, or the partners of such firm, including any persons who were partners of such firm during such period in which contributions were liable to be paid, or the office-bearers of such association of persons, including any persons who were office-bearers of such association during such period in which contributions were liable to be paid, as the case may be, shall together with the company, firm or association of persons liable to pay the said contributions, be jointly and severally liable for the contributions due and payable to the Fund." (emphasis ours)
The issue before the Courts below was whether the Appellant and the other director were jointly or jointly and severally liable for the judgment sum. Both the High Court and Court of Appeal took the view that since the High Court did not expressly state that the Appellant and the other director were liable jointly and severally, they could only be held liable jointly i.e for a portion of the judgment sum, proportionate to their share, interest or obligation.
The sole leave question posed before the Federal Court reads:
"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".
The Federal Court answered the above leave question in the affirmative and reversed the decisions of the High Court and Court of Appeal. Before we analyse the Federal Court’s reasoning in Edwin Cassian, we first turn to the diverging Court of Appeal authorities prior to the Federal Court case of Edwin Cassian.
C. Diverging Court of Appeal Authorities Prior to Edwin Cassian
There were two diverging Court of Appeal authorities prior to the Federal Court case of Edwin Cassian, namely Sumathy and Kejuruteraan Bintai.
We first turn to the Court of Appeal decision of Sumathy. In Sumathy, the appellants were sued as the principal borrower and guarantor respectively for monies outstanding under a friendly loan agreement with the respondent. Judgment was obtained by the respondent. The respondent filed two separate bankruptcy notices against the appellants.
The appellants applied to set aside the bankruptcy notice on the same ground, in that the sum specified in the bankruptcy notices was more than what the respondent was entitled under the judgment. The appellants contended that as the judgment did not specify that the appellants were jointly and severally liable, they are only liable for an equal portion of the judgment sum.
The Court of Appeal held that the bankruptcy notices ought to be set aside as the appellants’ liability cannot be said to be joint and several in the absence of such an express term in the judgment.
There was another policy reasoning advanced by the Court of Appeal Sumathy in reaching its decision. The Court of Appeal held that:
"The existence of the two bankruptcy notices with similar terms and the same amount drives home the appellants' contention that these notices are indeed, invalid. If both appellants were to pay up the same amount as they are required to do under the bankruptcy notices, the respondent would effectively be very much overpaid." (emphasis ours)
We next turn to the Court of Appeal decision of Kejuruteraan Bintai, where the Court of Appeal differed with the reasoning in Sumathy.
In Kejuruteraan Bintai, the appellant was awarded costs of RM50,000 against five petitioners. The respondent was one of the petitioners. The costs of RM50,000 was never paid. A bankruptcy notice for the sum of RM50,000 was filed. The respondent applied to set aside the bankruptcy notice on among others, the ground that the respondent was not indebted for RM50,000. The respondent argued that the order for costs of RM50,000 did not specify that the liability was joint and several and that could only mean that the respondent is only liable for an equal portion of the sum with four other petitioners.
The Court of Appeal in Kejuruteraan Bintai explored a plethora of authorities prior to its decision in Sumathy and held that:
"... the preponderance of judicial view for over a century has been quite the opposite. Judgment debtors are regarded as jointly and severally liable under a judgment or order, unless stated otherwise."
The Court of Appeal held that when a judgment is entered against two or more parties, it simply means that the judgment’s debtors’ liability are joint and several, unless stated otherwise. The Court of Appeal further held that what should not be done is to read into and qualify the judgment as only creating a joint liability which has the effect of limiting the liability of each judgment debtor to an equal portion of the judgment sum.
Despite disagreeing with its previous reasoning in Sumathy, the Court of Appeal in Kejuruteraan Bintai held that it is bound by its previous decision in Sumathy due to the doctrine of stare decisis. As such, the Court of Appeal in Kejuruteraan Bintai was constrained to hold that the bankruptcy notice should be set aside.
D. Analysis in Edwin Cassian
First, the definitive approach. The Federal Court drew a distinction between joint liability, several liability and joint and several liability. The Federal Court held as follows:
- 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“.
- Several liability: “arises when two or more persons make separate promises to another.“
- 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“.
The Federal Court held that the doctrine of joint liability as opposed to the doctrine of joint and several liability “relates to the number of promises made, and not the number of promisors who made a particular promise“.
Critically, the Federal Court held that if the effect of the judgment is for liability to be borne in equal proportions, there must be express words to that effect. The term ‘joint liability’ in a judgment does not mean that liability of each of the judgment debtors would be halved or divided into equal portion against each of them.
Following the above, the Federal Court held that the Court of Appeal erred in Sumathy by stating that the judgment creditor for joint liability is only entitled to claim for the judgment sum in equal portion against each of the defendants.
Second, the common law approach. The Federal Court held that a judgment for joint and several liability does not bar the judgment creditor from bringing several actions against the judgment debtors separately.
However, the right of a judgment creditor to bring an action against the judgment debtors is necessarily extinguished if any one of the judgment debtor satisfies the entire judgment sum. It then naturally follows that the policy reasoning advanced by the Court of Appeal in Sumathy on how a judgment creditor would be overpaid does not stand.
Third, the statutory approach. The Federal Court made reference to section 46 of the EPF Act as well as section 44 of the Contracts Act 1950 (“Contracts Act“).
On section 46 of the EPF Act, the Federal Court held that it prevails over the terms of the judgment The express wordings of section 46 of the EPF Act which imposes joint and several liability must be given full effect.
On section 44 of the Contracts Act, the Federal Court held that the liability of the judgment debtors in the present appeal is both joint and several by way of operation of law. For ease of reference, section 44 of the Contracts Act is reproduced below:
"(1) When 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." (emphasis ours)
The Federal Court held that just like how a joint contract imposes a full liability for the debt on each of the promisor under section 44 of the Contracts Act, a joint judgment imposes full liability on each of the judgment debtor so long as the judgment debt remains unrealised.
E. Conclusion
Although the leave question in Edwin Cassian was drafted in the context of the EPF Act, it is arguable that unless a judgment explicitly states that liability of the judgment debtors is to be halved or divided into equal portions, a judgment creditor has the liberty to recover the entire judgment sum against any of the defendants, so long as the judgment sum remains unsatisfied.
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