Judgment

Gopal Sri Ram JCA

(delivered the judgment of the court)

1. This appeal arises from a decision of the High Court at Penang whereby judgment was entered against the appellant in the sum of RM1,638,520.04 together with interest and costs. Because the learned judge has, in his judgment, dealt admirably with the relevant facts and chronology, we are spared their regurgitation. Suffice that we restate, in a summary form, only those facts that are salient to the arguments raised before us in this appeal.

2. The respondent is a licensed bank. In August 1983, it lent RM1m to a company called Hipparion (M) Sdn Bhd (‘Hipparion’). The terms upon which the loan was to be repaid were set out in an agreement (‘the loan agreement’) entered into between the respondent and Hipparion. The loan was secured by two separate instruments. The first of these was a deed of assignment under which Hipparion absolutely assigned its right, title and interest in a floor of a building (‘the subject property’) to the respondent; the second, a guarantee executed by the appellant who is a director of Hipparion.

3. Hipparion failed to meet its obligations under the loan agreement. So, the respondent took steps to recover its money. It enforced the assignment by seeking a declaration of the sums due to it under the loan agreement as well as an order for vacant possession of the subject property and liberty to sell the subject property either by public auction or by private treaty. The High Court granted the relief claimed. Hipparion then appealed to the Supreme Court which affirmed the orders made by the court below and dismissed the appeal. The judgments of the High Court and the Supreme Court are reported (see [1988] 2 MLJ 62; [1989] 2 MLJ 149).

4. One of the arguments raised by Hipparion in support of its appeal was that for the purposes of s 4(3) of the Civil Law Act 1956, the deed of assignment was not absolute, but by way of charge only. That submission was rejected by a strongly constituted Bench of the Supreme Court which held that the deed of assignment of the subject property was absolute in nature.

5. The proceeds from the sale of the subject property were insufficient to meet Hipparion’s liability to the respondent in full. The respondent therefore sued the appellant upon his guarantee. That is the suit which forms the subject matter of the present appeal. In the High Court, the appellant raised a number of defences all of which failed before the judge who entered judgment for the respondent. We would, for completeness, mention that the appellant elected not to give evidence at the trial.

6. Of the arguments addressed to us, we find that only one merits consideration. It has to do with the effect of the deed of assignment. The argument runs thus.

7. On a proper construction of the loan agreement and the other contemporary documents, it is clear that the respondent took an assignment of the subject property as consideration for the loan. It was not a mere security because the Supreme Court had in the earlier proceedings between the respondent and Hipparion held the deed to be absolute. That finding was based upon a sustained submission by the respondent that the assignment of the subject property was absolute and not by way of charge only. The respondent cannot now argue that the deed was by way of security only. It would be unjust to permit such an argument to prevail. Applying the law governing consideration for contracts, the debt was extinguished by the assignment. The guarantee was therefore not extant and consequently not available for enforcement.

8. We must say at once that when we first heard it, we found this argument had the qualities of both attractiveness and ingenuity. However, having heard the carefully formulated response from Mr. Thomas of counsel for the respondent, we came to the conclusion that the appellant’s submission was, on closer examination, devoid of merit. Our reasons for rejecting the appellant’s argument are as follows.

9. It must be borne in mind that the subject property had no separate strata title. The appellant wished to borrow in order to purchase the subject property and the respondent was desirous of making the loan. The machinery of a registered charge under the National Land Code 1965 and the remedies provided therein to a chargee against a defaulting chargor were accordingly unavailable. Yet, it was essential for the respondent to be in a position to have recourse against the subject property in the event that Hipparion defaulted in making repayment of the loan. That is why the device of a deed of assignment was resorted to by the parties. Since the assignment was absolute by the terms of the relevant deed, no question of an equitable charge arose.

10. When Hipparion failed to meet its obligations under the loan agreement, the respondent had to take such steps as were necessary to recover the principal and interest. The procedure prescribed by O 83 of the Rules of the High Court 1980 (‘the RHC’) did not apply to the fact pattern because there was neither a registered nor an equitable charge. The appropriate procedure was that made available by O 31 of the RHC. And that is the procedure that was resorted to by the respondent and sanctioned by the Supreme Court.

11. The argument that the deed of assignment was absolute and therefore satisfied the loan in full upon its execution overlooks the fact that the point under discussion, namely whether the deed was absolute or by way of charge only, arose in the earlier proceedings between the respondent and Hipparion in a procedural context. It was never Hipparion’s case in the earlier proceedings that its debt had been extinguished upon the execution of the deed in question. A careful reading of the judgment of Edgar Joseph Jr J (as he then was) at first instance and that of C.T. Gunn SCJ (later CJ (Malaya) delivered on behalf of the Supreme Court make these matters plain. It therefore follows as a matter of principle that the finding by the courts at all levels in the Hipparion proceedings that the deed of assignment was absolute and not by way of charge only was made in the context of the procedure adopted by the instant respondent to effect a sale of the subject property.

12. With respect, we do not see the decision of the Supreme Court in the Hipparion proceedings as facilitating the argument that the debt owed by Hipparion had been extinguished by the absolute assignment it gave the respondent. Both principle and policy lie against the opposite conclusion. The principle we have already adverted to. As far as policy is concerned, countenancing the appellant’s argument would have the effect of frustrating the recovery of loans in all cases where a financial institution takes an absolute assignment because there is unavailable a title capable of being subject to a registered charge. The construction and sale of multi-storey residential and commercial premises would grind to a halt because no financier will ever lend money if the law were to declare all sums due under a loan agreement irrecoverable because a deed of assignment absolute of particular premises has the effect of extinguishing the debt. We are unable to countenance a proposition that would produce so radical an effect.

13. The second reason for rejecting the appellant’s argument is to be found in the doctrine of estoppel. What in effect the appellant says is this. In the Hipparion proceedings, the respondent claimed that the deed created an absolute assignment. Now, in the action against the appellant guarantor, it is claiming that the purpose of the deed was only to seek recovery of the loan in the event of a default. In other words, it is a security document and not a deed of absolute assignment. It is unjust to permit the respondent to succeed by blowing both hot and cold. The respondent should therefore be estopped from deviating from the stand it took in the Hipparion proceedings.

14. Now, of the doctrines invented by the Court of Chancery, estoppel is surely the most flexible. It is a rule by which a court does justice between parties to a litigation according to the facts and substantial merits of the case. The only question at issue where estoppel is relied upon is whether it is just that the party sought to be estopped ought to succeed upon a particular issue or in the action generally, as the case may be (see Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331).

15. However, despite its flexibility, the doctrine has, woven into its basic fabric, certain requirements that constitute its hallmarks. One such hallmark is the requirement that an estoppel, whether procedural or substantive, must be mutual (see Low Lee Lian v Ban Hin Lee Bank Bhd [1997] 1 MLJ 77). We are here concerned with estoppel in the procedural realm.

16. The appellant was not a party to the Hipparion proceedings. Neither is he, as a director of Hipparion, its representative in interest. He is therefore a stranger to the Hipparion proceedings. The determination of the issues in those proceedings did not in any way affect his rights. The proceedings now taken against him to enforce the guarantee are separate and distinct from the Hipparion proceedings. Accordingly, there is no mutuality between the parties or interest. Another way of stating the proposition is to say that an estoppel only binds the parties thereto. In the realm of equity, form is irrelevant: it is substance that matters. So it does not matter what form of words are used to state the proposition. The effect is all that matters.

17. The view which we take of the law is supported by the following passage from Spencer Bower & Turner on Res Judicata (2nd Ed) at p 212:

    But there may be a type of question which when asked of one litigant as regards A is identical with the same question asked of him as regards B. An example is the construction of a document or a statute as it affects [say] trustees and a beneficiary A, and of the same passage in the same document or statute affecting the same trustees as against beneficiary B, where A and B are mentioned in the document or statute, not by name, but as members of a class between whom no distinction is made. It would seem here that an interpretation of a document or statute contained in a judgment to which A and not B, is a party, will not bind B, who may thereafter, in other proceedings, contend for a different and more favourable construction as regards himself.

    The footnote cites Re Waring [1948] Ch 221 as illustrating the proposition stated in the passage above quoted.

18. Absent mutuality, the appellant’s argument cannot stand. Hence, there is no injustice done to him if the respondent goes behind the four corners of the deed of assignment to show the true purpose for its creation. In this, we are entirely in agreement with Mr. Thomas.

19. It is trite that a creditor is entitled to pursue all the remedies available to him in law and in equity for the purpose of recovering money due to him from the debtor and his surety. As observed by Lord Templeman when delivering the advice of the Privy Council in China & South Sea Bank Ltd v Tan [1989] 3 All ER 839 at p 842:

    The creditor could sue the debtor, sell the mortgage securities or sue the surety. All these remedies could be exercised at any time or times simultaneously or contemporaneously or successively or not at all.

20. We consider the instant appeal as merely illustrative of this principle.

21. An examination of the learned judge’s judgment discloses no error or misdirection on his part. Indeed, we are entirely satisfied that the learned judge sufficiently appreciated the evidence before him and correctly directed himself upon the applicable law.

22. Having come to the conclusion that the appeal lacked merit, we dismissed it and made those orders that are usually consequent upon a dismissal.

Cases

Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331

China & South Sea Bank Ltd v Tan [1989] 3 All ER 839

Low Lee Lian v Ban Hin Lee Bank Bhd [1997] 1 MLJ 77

Waring, Re [1948] Ch 221

Legislations

Civil Law Act 1956: s.4 

Rules of the High Court 1980: Ord. 31, Ord. 83

Authors and other references

Spencer Bower & Turner on Res Judicata (2nd Ed)

Representations

KS Narayanan (Saranjit Singh and S Murthi with him) (Jayaraman Ong & Co) for the appellant.

Tommy Thomas (V Arivanandhan with him) (Cheong Wai Meng & Van Buerle) for the respondent.

Notes:-

This decision is also reported at [1997] 2 MLJ 590.