The legal principle asserts that a surety's cause of action accrues simultaneously with the borrower's upon default, governed by co-extensive liabilities, thereby harmonizing limitation periods across both liabilities.

Azizul Azmi Adnan J:

Introduction

[1] The appellant's claim against the respondent was struck out by the Sessions Court. It appealed against this decision. The appellant was the plaintiff in the Court below, and the respondent the defendant. They will be referred to here as they were there.

Background

[2] The plaintiff case was as follows. It supplied concrete mix to a company known as MBN Consortium Sdn Bhd ("MBN Consortium"). MBN Consortium failed to settle debts owed to the plaintiff arising from the sale of those goods. The plaintiff commenced a suit against MBN Consortium in 2018 and obtained a judgment in default of appearance in October 2018.

[3] That judgment remained unsatisfied.

[4] The defendant had signed a Guarantee and Indemnity with the plaintiff in connection with the payment obligations of the MBN Consortium. The terms of this Guarantee and Indemnity provided, among others, that the defendant would guarantee the payment obligations of the MBN Consortium to the plaintiff and that it would indemnify the plaintiff against all liabilities arising from the supply of goods by the plaintiff to MBN Consortium.

[5] Having failed to obtain satisfaction of its judgment against MBN Consortium, the plaintiff then commenced a writ action at the Sessions Court on 4 September 2019 against the defendant, premised upon the Guarantee and Indemnity. The outstanding judgment debt together with interest stood at more than RM786,000.

[6] The defendant applied to strike out the plaintiff's claim under O 18 r 19(1)(a), (b) and/or (d) of the Rules of 2012 on grounds that the plaintiff was barred by limitation. The Sessions Court judge hearing the matter allowed the striking out, on the basis that the plaintiff's cause of action had accrued against the defendant on 19 March 2013 and hence limitation had set in by 20 March 2019, some six months prior to the commencement of the suit.

[7] Having heard submissions and considered the applicable principles, I was of the view that the learned Sessions Court judge was entirely correct to have struck out the case, and I dismissed the plaintiff's appeal. The key and determinative question in this case was when the right to sue a surety or indemnity provider accrues, and the effect that a clause providing for the co-extensiveness of the liabilities of the surety or indemnity provider, and those of the borrower/obligor, on the reckoning of time for the purposes of limitation.

[8] The legal principles applicable to the present case are considered in the following paragraphs.

The Applicable Principles

[9] The accrual of the cause of action of a lender (or, more accurately, an obligee) against a guarantor (referred to in the Contracts Act 1950 as a "surety") or an indemnity provider depends on the proper construction of the guarantee or indemnity.

[10] In AmBank (M) Bhd v. Glorious Holidays Sdn Bhd, the plaintiff bank sued its borrower and a director of the borrower, who had provided a guarantee to the bank in respect of the repayment obligations of the borrower. The bank obtained a judgment in default against the borrower, and summary judgment against the guarantor. The guarantor appealed to the Court of Appeal, which allowed his appeal and remitted the case for retrial. In so doing, the Court of Appeal posed two questions for determination by the High Court:

(a) in a situation where there is a principal debtor clause, when does the cause of action arise?;

(b) where payment is made after the sale of property charged on security, whether the cause of action against a guarantor as opposed to a chargor starts to run afresh after the sale.