VC George J:

This is the 3rd defendant's appeal against the Senior Assistant Registrar granting O. 14 judgment against him.

The plaintiff bank had granted certain banking facilities to the 1st defendant company which facilities were secured by a debenture dated 11 April 1983 by which all the assets of the 1st defendant including all moveable and immoveable property and undertakings of the company "both present and future" were charged to the bank.

The 2nd and 3rd defendants guaranteed the payment on demand of the monies owing by the 1st defendant.

Due demand was made for payment and on the failure to receive any payments the instant writ was caused to be issued. The 1st and 2nd defendants allowed judgment to be entered against them. The 3rd defendant resisted the claim. He filed a defence and opposed the O. 14 application.

Two aspects of the suggested defence merit consideration. First there is the contention that there was an implied warranty that the bank was obliged to enforce the charge under the debenture before proceeding to enforce the guarantee. The second contention is that the bank not crystalising the debenture and appointing receivers was negligent on its part and also that the omission of the bank to appoint receivers amounts to the bank being guilty of a breach of an implied warranty or of a duty it owed to the guarantors. It was contended, that as a result, the security provided by the debenture had been impaired.Section 92 and 94 of the Contracts Act were invoked:

92. If the creditor does any act which is inconsistent with the rights of the surety. or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.

93 ...

94. A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into. whether the surety knows of the existence of such security or not; and, if the creditor loses or, without the consent of the surety, parts with the security, the security is discharged to the extent of the value of the security.

Bank Bumiputra Malaysia Bhd. v. Esah bt. Abdul Ghani [1985] CLJ (Rep) 41 is authority for the proposition that the guarantor has no special right to demand that the bank should call upon the principal debtor to pay off the debt. In that case Ng Yik Seng & Anor. v. Perwira Habib Bank [1980] 2 MLJ 83 was not followed and Duncan, Fox & Co. v. North & South Wales Bank [1880] LR 7 HL 348 was referred to with approval in support of the proposition that a guarantor cannot decline to pay till the creditor has exhausted securities placed in his hands by the principal debtor.

However, that does not dispose of the invocation of those two sections of the Contracts Act in respect of which Pollock & Mulla (10th Edn. at p. 753) says in respect of the Indian ss. 139 and 141 which are equipollent to our ss. 92 and 94, that:

Where due to negligence of the creditor the security given by the principal debtor is lost and the right of the surety against, the principal debtor is impaired due to any action or inaction of the creditor, the surety is discharged to that extent under the combined effect of ss. 139 and 141 of the Act.

For the bank Clause 17 of the document of guarantee is relied upon.

17. The bank shall be under no liability to marshall in our favour any securities or any of the funds or assets which the bank may be entitled to receive or upon which the bank has a claim.

The question that arises is whether Clause 17 does away with the ss. 92 and 94 of the Act and in any event does it or any other provision in the document of guarantee have the effect of exempting the plaintiffs from the alleged negligence and alleged acts of breach of warranty and duty and if not, was there in fact negligence or the said breaches that has resulted in impairment of the security.

In Standard Charte