Gopal Sri Ram JCA (majority):

[1] This appeal concerns the application of the doctrine of res judicata. It is a point of some importance. It gives rise to difficulty in particular cases from time to time. This is one such case. That is why we decided to reserve judgment at the close of argument.

[2] The facts relevant to this appeal are not in dispute and may be shortly stated.

[3] On 4 October 1988, the appellant (which I will refer to as 'the bank') commenced an action for the recovery of monies owed it. It was Civil Suit No:23-209-88. For convenience I shall call it "the first action". There were six defendants. The instant respondent was one of them. He was the third defendant. He was sued as guarantor. The guarantee he gave was enforceable on demand. In accordance with high authority a valid demand was essential before the bank could sue upon the guarantee. See, Mok Hin Wah & Ors v. United Malayan Banking Corp Bhd, [1987] 2 MLJ 610; [1987] CLJ 219.

[4] The bank obtained judgment against all the other defendants in the first action. The respondent however applied to strike out the bank's statement of claim. He moved on the ground that no proper demand had been made of him. He attacked the contents of the letter which made the demand. The bank resisted the application. The High Court however held the demand to be bad. The first action was accordingly struck out.

[5] On 26 March 1994 the bank made a fresh demand of the respondent. The respondent did not make payment. So the bank sued him again. I shall refer to it as "the second action".

[6] The respondent applied to strike out the second action as well. He did not question the validity of the new demand. But he argued that the decision in the earlier action had rendered the dispute res judicata so that the bank could not re-agitate its claim against him under the guarantee he had given. The judge agreed with this argument and struck out the second action. The bank has now appealed against that decision.

[7] The critical issue upon which this appeal turns is whether the bank, having given a demand, which, by judicial determination, was found to be defective, can issue a fresh demand in order to enforce the guarantee given it by the respondent.

[8] Counsel for the bank has argued that this question should receive an affirmative answer and should therefore be resolved in her client's favour. Counsel for the respondent has, however, argued that the question invites a negative response. He submitted that the position would have been different if the bank had withdrawn the first action with liberty to file afresh. He says that in such an event the bank could have brought the second action based upon a fresh letter of demand. It could not do so in the present circumstances since it went forward with its case in the first action.

[9] Having given the matter much anxious consideration, I have come to the conclusion that counsel for the appellant is correct in her argument both on principle and authority.

[10] So far as authority is concerned, the point is, I think, concluded against the appellant by the decision of the Saskatchewan Court of Appeal in Anglo- Canadian Mortgage Investment Corp v. Shaw [1921] 59 DLR 152 the headnote to which reads as follows:

If under the terms of an agreement for the purchase of land, a demand for payment is necessary before commencing action, and if prior to launching a first action the plaintiff has in fact made a demand for payment but at the trial of that action has failed to prove the demand and the action is dismissed, a subsequent action will not lie for the same cause, but if in fact no demand has been made, the dismissal of the first action is no bar to recovery in a second action, after demand has been made, because until a demand is made no cause of action exists and any action brought before demand is made is premature.

[11] Lamont, JA, when delivering the judgment of the Court said (at p 154):

I agree with the trial judge that if; prior to the