Sia Siew Hong & Ors v Lim Gim Chian & Anor

[1996] 3 CLJ 26, Court of Appeal

Facts:

The appellants were the shareholders and directors of Siah Teong Loo & Sons Sdn Bhd (STLS S/B).The respondents were third party chargorsof a piece of land charged to Interfinance Bhd which granted a loan to STLS S/B. The appellants executed a document described as "guarantee"to secure the due performance by them of the terms of the loan agreement which they had with Interfinance Bhd.

STLS S/B defaulted in repayment of the loan sometime in September 1985. However, STLS S/B had made some paymentsin May 1992. Interfinance Bhd obtained an for saleof the charged land and the respondents' land was sold by public auctionin 9 August 1993. In July 1994, Interfinance Bhd demanded the outstanding debtof RM616,754.57 from the respondents.

In March 1994, the respondents sued the appellantsbased on the "guarantee".The appellants alleged that the claim was filed out of time, being more than six years from the breach of contracts and therefore attempted to raise a triable issue. On the hearing of the application for summary judgement, the learned Judicial Commissioner found that STLS S/Bhad breached the terms of the loan agreementin May 1992 and therefore, the respondents' claim was not filed out of time.There was therefore no triable issue and summary judgementwas entered against the appellants. The appellants appealed to the Court of Appeal.

The main issuebefore the Court of Appeal was whether the respondents' action had been commenced within the period of limitation. The main question was when time begun to run. If the document was a guarantee then time began to run from the date of the breach of the contract (September 1985); but if the document was anindemnity, then time begun to run only from the date on which that loss was suffered, that is, at the sale by auction (9 August 1993).

Held, dismissing the appeal, inter alia:

(1) in the construction of contracts, the Court is not bound by the labels that the parties choose to affix onto the particular document. The duty of the Court is to construe the document as a whole and todetermine from its language and any other admissible evidence its true nature and purport. In the present case the document executed by the appellants,when properly construed, appears to come within the definition contained in section 77 of the Contracts Act 1950. In the circumstances, the said document must be construed to be an indemnity rather than a guarantee.

(2) Since the promise made by the appellants to the respondents was to indemnifythe latter against the loss of the charged property, time begun to run only from the date that loss was suffered; that is, at the sale of the land by auction on 9 August 1993. As the writ was filed within six years from that date, the respondents' action was not barred by limitation.

Question :

The loan defaulted in September 1985 and STLS & SB made some payments in May 1992.Explain why the land was still auctioned by the chargee.

Explain if it is legally right for Interfinace Bhd to sue the chargor for the balance of the outstanding loanof RM616,754.57