SIM CHENG YOUNG v DATUK WIRA RANJEET SINGH SIDHU

Case Significance

Confirms that a guarantor's liability under sections 79 to 81 of the Contracts Act 1950 is independent and co-extensive with the principal debtor's, that forbearance is valid consideration, and that a regularly obtained default judgment will not be set aside absent a bona fide defence on the merits.

This High Court decision concerns an application to set aside a judgment in default entered on a personal guarantee, and the extent of a guarantor's liability under the Contracts Act 1950. The plaintiff had obtained a consent judgment against a company for RM4,369,520.55. To forestall immediate enforcement of that consent judgment, the defendant, a director of the company, executed a personal guarantee for the same sum, and the plaintiff agreed to forbear from execution until a fixed date on the defendant's undertaking to pay by then. No payment was made, and the plaintiff sued on the guarantee and obtained judgment in default. The defendant applied under Order 13 rule 8 of the Rules of Court 2012 to set that judgment aside, contending that he had been unaware of the proceedings, that the judgment was irregular because of a defect in the affidavit of service, that a judgment debtor summons order obtained against the company had varied the consent judgment and precluded further enforcement, and that the guarantee lacked consideration and had been obtained in bad faith. The court examined each ground. It held that a typographical error in the affidavit of service caused no prejudice and did not render the judgment irregular, so that it had been regularly obtained; that the guarantor's obligation under sections 79 to 81 of the Contracts Act 1950 was independent and co-extensive with that of the principal debtor, so that the creditor could pursue concurrent remedies against both; that the judgment debtor summons order under section 8 of the Debtors Act 1957 did not discharge the guarantor's liability; and that the plaintiff's forbearance from enforcement was valid consideration for the guarantee. Finding that the defendant had shown no bona fide defence on the merits, the court declined to set aside the judgment in default. The judgment is a useful illustration of the co-extensive and independent nature of a guarantor's liability and of the limited grounds on which a regularly obtained default judgment will be set aside.