Joint and several liability – what is the implication?
When a party has obtained a judgment in its favor against several judgment debtors, but there is no mention in the judgment that the debtors are jointly and severally liable for the sum of the judgment, what is the party’s right against the judgment? debtors with regard to the execution of the judgment? This was the question before the Federal Court in Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian Nagappan.
The Board of the Employee Provident Fund (EPF Board) filed a complaint against a company and its directors, Edwin and Bernard, for the company’s failure to pay employer contributions on behalf of its employees. In the high court, the parties registered a judgment by consent where the defendants agreed to pay the Board of Directors of the EPF, among other things, the arrears of employer contributions.
When the defendants failed to settle the judgment in its entirety in accordance with the consent judgment, the EPF Board of Directors initiated bankruptcy proceedings against Edwin alone for the full amount of the outstanding judgment.
Edwin requested that the notice of bankruptcy and the creditor’s petition be set aside on the grounds that he could not be held liable for the full amount of the judgment because the consent judgment did not include the sentence that the defendants would be âjointly and severallyâ responsible for the sum judgment.
The request for annulment was first heard and granted by the Principal Deputy Registrar (SAR) of the District Court. On appeal to the chambers judge, the High Court judge upheld the RAD’s decision and ordered the defendants to pay the sum in equal proportions. It was decided that if the words “jointly and severally liable” are not included in the consent judgment, the court cannot look behind the judgment.
Court of Appeal
The Court of Appeal accepted the decision of the High Court and found that the bankruptcy notice and the creditor’s petition filed by the EPF Board of Directors were defective because they had claimed the full amount of the debt. judgment instead of just the portion owed by Edwin.
Understanding âjoint and severalâ and âjoint and severalâ liability
The Federal Court clarified that it is wrong 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.
âJoint responsibilityâ simply means that there is only one and the same promise / obligation jointly made by two or more persons. If one person fulfills the promise, the other people will be released accordingly.
On the other hand, âjoint and several liabilityâ means that, in the same instrument, two or more persons jointly undertake to do the same thing and separately undertake to do the same thing.
The Federal Court has mentioned and ruled that section 44 of the Contracts Act 1950 (CA) provides for joint liability and reads as follows:
When two or more persons make a joint promise, the promise may, unless expressly agreed otherwise, compel one or more of the spouses to perform the promise in full.
Thus, if there are two or more debtors jointly and severally liable to pay a judicial debt, each of them is liable for the full amount. The judgment creditor has the right to sue any of them to recover the full amount of the judgment. It is a separate issue between judgment debtors to claim contribution from each other for equal contribution, but this does not affect the rights of the creditor under section 44 of the LC.
What if the judgment is silent on the type of liability?
The Federal Court took the opportunity to review two Court of Appeal decisions that offer divergent views on a similar topic. In Sumathy Subramaniam vs. Subramaniam Gunasegaran, 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, indicating that the defendant was required to pay the plaintiff the sum of the judgment.
Subsequently, the respondent filed two separate notices of bankruptcy against the two appellants for the entire sum of the judgment. In requesting the quashing of the bankruptcy notices, the appellants argued that the terms of the summary judgment did not specify that the liability was joint and several; therefore, appellants were to be equally liable when each of them was liable for only half of the amount of the judgment.
The Court of Appeal of Sumathy held that when the judgment does not specify that the responsibility is joint and several, the responsibility is necessarily joint and several. Thus, each of the judgment debtors will share the responsibility equally. If the judgment creditor chooses to go against one of the judgment debtors, the latter is only required to pay its share and not the entire sum of the judgment. The Court cannot interpret or infer that the appellants’ liability is joint and several in the absence of such terms in the judgment.
In Kejuruteraan Bintai Kindenko Sdn Bhd vs. Fong Soon Leong, the appellant and 13 others were awarded costs of 50,000 ringgit in an oppression claim filed by the respondent and four other claimants. The appellant subsequently initiated bankruptcy proceedings against the respondent in order to recover costs. In requesting the quashing of the notice of bankruptcy and the creditor’s petition, the respondent argued that its liability for costs was joint, which meant that the respondent and the other four petitioners were not required to pay only an equal portion of the 50,000 ringgit. Therefore, it was argued that the Respondent was only required to pay the Appellant an amount of 10,000 Ringgits.
The Court of Appeal of Kejuruteraan Bintai ruled that judgment debtors are considered jointly and severally liable to honor the full amount of the judgment, unless otherwise specified. In other words, the liability of judgment debtors is not divided and divided equally, but each of them is responsible for all of the judgment debt. Thus, it is not necessary to interpret the concept of joint and several liability in a judgment.
Although we come to a different reasoning with Sumathy, the Court of Appeal of Kejuruteraan Bintai did not allow the appellant’s appeal as he was bound by the doctrine of watch decisis follow the decision in Sumathy.
In this case, the Federal Court agreed with the reasoning of Kejuruteraan Bintai. It further considered that the reasoning of the Court of Appeal in Sumathy that “joint responsibility” meant equal and shared responsibility was flawed.
Based on the above discussions, it follows that the right of a creditor will not be limited by the fact that the nature of the debtors’ liability is not explicitly stated in the judgment. Unless otherwise specified that the liability of the debtors is to be borne in equal proportions, the judgment creditor has the right to go against one or more of the debtors for the full sum of the judgment as long as the judgment debt remains unfulfilled.
Legal provision prevails over court order
The relevant question of law before the Federal Court in this case is as follows:
Should this Court give effect to the liability on a “joint and several” basis under section 46 of the Employees’ Provident Fund Act 1991 in a situation where the words “joint and several” were not not specifically set out in the court judgment?
As noted above, the consent judgment entered into between the parties did not provide for the type of liability. The EPF Board of Directors argued that its action had been filed under Article 46 of the Employees Provident Fund Act 1991 (EPF Act) which provides that when contributions remain unpaid by a company, the directors of the company must, with the company, be jointly responsible for the contributions.
On this issue, the Federal Court ruled in favor of the EPF Board of Directors and ruled that:
- the EPF law prevails over the terms of the judgment. Thus, the courts must give full effect to article 46 of the EPF law, which imposes joint liability on directors for unpaid contributions; and
- although the consent judgment is silent on the type of liability, the directors’ liability for unpaid contributions is both joint and several under the law.
The Federal Court decision clarified the failure to recognize the concept of joint and several liability. From the perspective of a judgment creditor, the liability of two or more judgment debtors is not shared equally. Thus, the judgment creditor is free to enforce the judgment against one or more of the debtors for the full sum of the judgment.
If a judgment debtor has executed the judgment in its entirety, the judgment creditor naturally cannot sue the other debtors for that judgment. However, if only part of the payment is recovered, the judgment creditor can still go to another judgment debtor for the outstanding amount.