Malaysia Federal Court holds directors jointly and severally liable for failure of company to make employer contributions to statutory fund

30 August 2021

Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian Nagappan Marie [2021] 1 LNS 928

The matter before the Malaysia Federal Court in Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian Nagappan Marie concerned the filing of a suit in the Sessions Court by the Employees’ Provident Fund Board (“EPF Board”) against the defendants, a company and its two directors, due to the company’s failure to make employer contributions on behalf of its employees. A consent judgment was recorded in which the defendants agreed to pay the EPF Board the arrears amounting to RM133,697 for the period October 2010 to January 2012 in instalments, together with dividends, interest, and legal fees.

The Malaysia Federal Court noted that the issue before the courts below concerned the nature of the liability against each of the two directors (that is, the debtors), given that the order of the trial court adjudging liability against them did not expressly specify whether each debtor was liable for the full quantum or not. The courts below were of the view that the failure to include the phrase “jointly and severally” in a court order would mean that each debtor would be only liable for a portion of the judgment sum, proportionate to his share/interest/obligation.

The Federal Court reversed the decisions of the courts below and held as follows:

• Section 44 of the Malaysia Contracts Act 1950 statutorily provides that when two or more persons make a joint promise, the promisee may proceed against one or both of the joint promisors. As such, the EPF Board (being the promisee) is at liberty to go against one, or the other, or both. 
• Section 46 of the Malaysia Employees Provident Act 1991, which imposes joint and several liability on the directors of a company for unpaid contributions, prevails over the terms of the consent judgment and must be given full effect as it is statutory law. 
• The courts below had erred in law in invoking the presumption that joint liability means liability for only half the debt and not the full amount. Halved liability should take root from the original promise whereby the liability of a promisor for a debt owed to a creditor is expressly stated to be only half of the debt. 
• If the premise that “joint and several liability” cannot be read into the judgment due to an absence of such words is accepted, it would similarly follow that a silent judgment cannot automatically be inferred to impose “joint” liability where there is no such mention. This is especially so when the liability that arises is explicitly stipulated by statute.
• In the circumstances, liability under the consent judgment must necessarily be both joint and several.