JUDGMENT

Abu Mansor Ali FCJ:

This appeal was argued before us in this court, sitting in Kuching on 23 February 2000. After having heard arguments from counsel both for the appellant and the respondent, we were invited by both counsel to properly consider the important point raised in this appeal. We then reserved our decision to write our grounds. This is our judgment.

It is not disputed that the appeal only raised one short issue of law and, according to counsel for the appellant, this is the first time this issue is before this court for decision. Hence this court granted the required leave to appeal. The short issue raised is whether s. 86 of the Contracts Act 1950 is only applicable to guarantor and not applicable to a contract of indemnity.

It is not necessary that we state the facts of this appeal. The facts had been clearly and admirably stated in the judgment of the Court of Appeal. In this appeal, we also proceeded on the basis that the appellant, as well as the respondent, were not disputing the terms guarantors and indemnity used in the judgment of both the High Court and Court of Appeal. It may well be stated that the contracts entered between the appellant and the respondent in the form of two letters were, in fact, not disputed to be a contract of indemnity.

The appellant, who was defendant, in the High Court and whose appeal was dismissed by the Court of Appeal, contended before us, that the Court of Appeal committed an error of law when it held at p. 23 of its judgment as follows:

With that we now turn to the appeal of the second and third appellants. The only point pursued before us by their counsel was that the contract between the respondent and the Company had been varied without his clients' consent in consequence of which the second and third appellants were discharged from their obligation under the letters of indemnity.

This argument is based on section 86 of the Contracts Act, 1950 ("the Act") which provides as follows:

Any variance, made without the surety's consent, in the terms of contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.

The appellant submitted that the Court of Appeal erred when it concluded that s. 86 of the Contracts Act governs only guarantees because it refers to the tripartite relationship of surety, creditor and principal debtor which expressions, so the Court of Appeal held subsist under a contract of guarantee. The appellant contended that the Court of Appeal erred when it held that s. 86 of the Contracts Act 1950 had no application whatsoever to contract of indemnity. The appellant also contended that the Court of Appeal erred in its application of the case South East Asia Insurance Bhd. V. Nasir Ibrahim [1992] 1 CLJ 295 which counsel said referred to the point that past consideration is no consideration.

The appellant further submitted that the Court of Appeal in its consideration of the appellant's appeal failed to apply s. 17A of the Interpretation Acts 1948 and 1967 by which Parliament had intended that in construing statutes courts should apply the purposive approach. If the Court of Appeal had done so it would have come to a finding that there is no case which states that s. 86 of the Contracts Act does not apply to contracts of indemnity. Counsel submitted that the decision of the Court of Appeal in that way affects the existing thousand of cases of indemnities in the country and has far reaching effect in law.

The appellant, in particular referred us to the letter of indemnity dated 7 April 1989 at p. 311B of the Appeal Record. Counsel for the appellant contended that vide item (7) thereof, going by its terms, payment was against presentation of bill of lading which duly provided for pay on demand but according to PW1 (see p. 108B Appeal Record) 30 days credit was given for payment thus varying the terms of payment. Such variation was negligence by the holder of the indemnity and the appell