Nadefinco Ltd

- vs -

Kevin Corporation Sdn Bhd

Judgment

Suffian LP

1. The plaintiffs granted a mining company a sub-sublease under which the company was to pay the plaintiffs tribute. The company was in arrear to the tune of $130,000. 

2. By a contract in writing dated 20 December 1967, between (1) the plaintiffs, (2) the mining company and (3) the defendants and two others, the defendants and the two others acknowledged that the $130,000 was due from the company to the plaintiffs; the first three asked the plaintiffs to forbear enforcement of the payment of that money and to allow the company to pay it by monthly instalments, the first instalment to be paid on 20 January 1968; and the three jointly and severally guaranteed the repayment of the money to the plaintiffs.

3. The contract finally provided that in the event of any default in the payment of the said instalments or in the event of the winding up of the company the whole sum or the balance outstanding shall become immediately due and payable by the company and the other two.

4. The company did not pay a single instalment (the first instalment being due on 20 January 1968). On 1 November 1971 the company was wound up. The guarantee being limited to $125,000, the plaintiffs sued the defendants for that amount. The plaintiffs filed their claim on 19 June 1975.

5. The defendants deny liability and in the alternative plead that the action, having been brought after the expiration of six years from the date on which the cause of action accrued, is barred by s 6(i)(a) of the Limitation Ordinance No 4 of 1953, which reads:

   Save as hereinafter provided the following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued, that is to say — (a) actions founded on a contract or on tort;...

6. The plaintiffs applied under Ord. 14 to sign final judgment, but the learned Senior Assistant Registrar disallowed their application and allowed the defendants unconditional leave to defend. On appeal the learned judge gave leave to the plaintiffs to sign final judgment. The defendants have appealed to us.

7. The only issue before the learned judge and before us is limitation: when did time began to run against the plaintiffs? The plaintiffs say and the learned judge agreed that it began to run from the date on the winding up of the company and therefore this action is not barred by the Ordinance. The learned judge said that the amount claimed fell due on alternative dates, either in the event of any default in the payment of the instalments or in the event of the winding up of the company and that where plaintiffs have an alternative, as here, they can choose the later event as the date on which their cause of action accrued, and that is why their action is not time-barred.

8. The defendants on the other hand contend that here there is only one cause of action — founded on contract — not two; that the moment the defendants failed to pay the first instalment due the whole sum became immediately due and payable and that was the instant from when time began to run; and that to treat the date of the winding up of the company as the instant from when time began to run amounts to according the plaintiffs two causes of action. Otherwise, it is said, if the company is wound up 20 or so years after the date of first default, the plaintiffs can then still pursue the matter, despite the fact that during the previous two decades they had been sleeping and done nothing.

9. In my judgment, the cause of action accrued the instant the defendants failed to pay the first instalment and this appeal should therefore be allowed.

10. The general rule was stated by Willes J in the Court of Common Pleas in Wilkinson v Verity (1871) LR 6 CP 206 209 as follows:

    It is a general rule that where there has once been a complete cause of action arising out of contract or tort, the statute [of limitation] begins to run, and that subsequent circumstances which would but for the prior wrongful act or default have constituted a cause of action are disregarded. As, for instance, in the case of a bill of exchange drawn at so many months after sight, and refused acceptance, the cause of action is complete and the statute begins to run upon the refusal of acceptance, and no new cause of action arises upon refusal of payment.

    Mr. Ong for the defendants before us relies on the above passage.

11. Mr. Abraham for the plaintiffs on the other hand wishes us to apply the exception to the general rule stated in the paragraph immediately following the above passage. I need only reproduce its relevant part which is as follows:

    The rule that a cause of action arises once for all upon the first default is, however, not universal; for, in cases where a man undertakes to do an act upon a future day, and before the day arrives disables himself from performing the act, or positively and absolutely refuses to be bound by or perform his contract ... it is in the option of [the opposite party] at his election to treat that conduct as of itself a violation and breach of the contract, or to insist upon holding the repudiating party liable, and sue him for non-performance when the day arrives. The misconduct of the party who acts in fraud of the bargain in such cases gives the other party there to the election of suing either for the first violation or for nonperformance at the day; and it does not furnish the wrongdoer with any answer to the latter.

12. With respect I am of the opinion that the general rule above stated applies here, and not the exception.

13. A case twenty years later, Reeves v Butcher [1954] 3 All ER 556 supports me. There by an agreement in writing, under which the plaintiff lent a sum of money to the defendant, the defendant agreed to pay interest quarterly, and the plaintiff agreed not to call in the money for five years if the defendant should regularly pay the interest. It was further provided that if the defendant should make default in the payment of any quarterly payment of interest for 21 days, the plaintiff might immediately call in the principal. Nothing was ever paid by the defendant on account of interest or principal. Within six years from the end of the term of five years the plaintiff commence action to recover the principal and also the interest due thereon for the period within six years before the date of the issue of the writ. The Court of Appeal held that the cause of action arose at the expiration of 21 days from the date when the first instalment of interest became due, which was the earliest time at which the plaintiff could have brought the action, and, therefore, the plaintiffs claim was barred by the Statute of Limitations.

14. Lindley LJ succinctly stated at page 511 the principle applicable as follows:

    The right to bring an action may arise on various events; but it has always been held that the statute runs from the earliest time at which an action could be brought.

15. Three years later a similar problem arose in the Court of Appeal in In Re McHenry McDermott v Boyd [1894] 3 Ch 290. There a man borrowed money. First, he undertook to pay the lender in February 1883. Secondly, he deposited securities which the lender was authorized to sell if the loan was not paid, and undertook to pay the difference if the proceeds of the sale were not enough to pay the debt. The borrower paid one amount in February 1884, and nothing thereafter. In 1889 the lender sold the securities. The proceeds were not enough to pay the debt. So he sued to recover the difference. The court held that he was barred by the Statute of Limitation. It was argued on behalf of the lender that time began to run against the lender only from 1889, when the securities were sold and the actual amount payable by the borrower was ascertained; that the contract between the two was severable; that it was its second part that gave rise to the claim, namely for the difference between the proceeds of sale and the original advance; and that that difference, and consequently the cause of action, was not ascertainable until 1889.

    Lord Herschell LC rejected this argument, saying at page 293:

    I cannot say that that right of realization gave a new, separate, and independent cause of action, so that the statute did not begin to run until from that date. The truth is that the debt is one debt only.

16. Lindley LJ was also a member of the court then, and he said at page 295:

    The realization of the security does not add to the cause of action; the cause of action accrued long before.

17. Similarly, in my judgment, here too there is only one cause of action and it accrued as soon as the defendants failed to pay the first instalment due.

18. I do not think that the Privy Council case of Lakshmijit v Faiz Mohamed Khan Sherani [1877] WN 198 cited by Mr. Abraham helps in the determination of this appeal.

19. As the appellant succeeds, the next question that arises is: what is the proper order that should be made? I think that we should set aside the order made by the learned judge and substitute therefore an order disallowing the plaintiffs’ application to sign final judgment and allowing the defendants unconditional leave to defend.

    HH Lee CJ (Borneo)

20. I have the advantage of reading the judgment of the Lord President with which I agree. I wish merely to add a few words. I need not refer to the facts as they have been set out by the Lord President in his judgment.

21. This appeal is against the decision of the learned judge in setting aside the order of the Senior Assistant Registrar disallowing plaintiffs to sign final judgment under Ord. 14 and allowing defendants unconditional leave to defend. The power to dismiss an action summarily without permitting a party to proceed to trial is a very drastic power and should be exercised with utmost caution. Had the matter depended merely upon the question of election I would be loath to differ from the opinion of the Iearned judge.

22. The only issue is limitation. The question is whether time runs from the date of default of payment, that is, 20 January 1968 when the action would be time-barred or from the date of winding up, that is, 1 November 1971 when it would not be time-barred. The contention of the plaintiffs is that where the right to sue arises either in the event of default or event of winding up, they are entitled to an election. They had elected the date of winding up as the date on which the right of action accrued. The learned judge was of the view that plaintiffs were entitled to so elect.

23. Section 6(1)(a) of the Limitation Ordinance, 1953 states that: —

    Save as hereinafter provided the following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued, that is to say— (a) actions founded on a contract or on tort;

24. It is the contention of defendants that there is only one cause of action founded on contract and that time runs from the moment of the default of the first instalment. In support they cited Reeves v Butcher (1871) LR 6 CP 206,209 where Lindley LJ observed that: —

    This expression ‘cause of action’, has been repeatedly the subject of decision and it has been held particularly in Hemp v Garland, 4 QB 519 decided in 1843, that the cause of action arises at the time when the debt could first have been recovered by action. The right to bring an action may arise on various events, but it has always been held that the statute runs from the earliest time at which an action could be brought.

25. Halsbury’s Laws of England, 3rd Ed, Vol 24, page 195, para 347 reads: —

    Where there has once been a complete cause of action arising out of contract or tort, time begins to run, and subsequent circumstances which would, but for the prior wrongful act of default, have constituted a cause of action are disregarded.

26. In the present case the right to bring an action may arise either on default of payment or winding up But, the cause of action would arise on whichever of the two events occurred first. As default of payment happened first, time began to run from that moment. The winding up occurring subsequently would have to be disregarded since time had begun to run earlier. There is only one cause of action and the case of Lakshmijit Bhai Suchit v Faiz Mohamed Khan Sherani [1891] 2 QB 509 does not assist defendants. There the question was whether the vendor’s action was barred by limitation. In dismissing the appeal the Privy Council (Viscount Dilhorne dissenting) held that under the agreements the purchasers were only under an obligation to pay the whole purchase price on default on payment of the instalments if the vendor elected to demand such payment, and likewise the right to possession only accrued to the vendor if he elected to rescind the contract; and that, therefore, the purchaser’s possession of the land was not adverse to the vendor until he exercised the right to rescind and accordingly the action was not statute-barred. That case was concerned with the contract for the sale of land under which the vendor was expressly given the right to rescind the contract. The right to possession did not arise until the vendor had elected to rescind.

    As Lord Cross of Chelsea said at page 616: —

    An election by the vendor to exercise a remedy of rescission alters the rights and obligations of both parties to the sale agreement, since it puts an end to the purchaser’s right to possession of the land and prevents any further instalment of the purchase price becoming due.

27. Also, it was a case where the vendor could elect between inconsistent remedies. This is not so in the present case so that the question of election does not arise. There was only one cause of action which accrued upon the event of default of payment and not upon the event of winding up.

    Wan Suleiman FJ

28. There are two judgments in this case, written by the LP and the CJ Borneo, and I agree with both of them.

Cases

Wilkinson v Verity [1871] LR 6 CP 206; Reeves v Butcher [1891] 2 QB 509; McHenry McDermott v Boyd [1894] 3 Ch 290; Lakshmijit v Faiz Mohamed Khan Sherani [1974] AC 606; Hemp v Garland 4 QB 519

Legislations

Limitation Ordinance, 1953: s 6(1)(a)

Authors and other references

Halsbury’s Laws of England, 3rd Ed, Vol 24

Representation

BK Ong for the appellants.

C Abraham for the respondents.