PT Jaya Sumpiles Indonesia and Another v Kristle Trading Ltd and Another Appeal

Chan Sek Keong CJ (delivering the grounds of decision of the court):

[1] These two appeals arose from the decision of the High Court judge (“the Judge”) on 22 October 2008 in Suit No 12 of 2005 (“S 12/2005”), which was consolidated and heard together with Suit No 11 of 2005 (“S 11/2005”).

[2] In S 11/2005, International Coal Pte Ltd (“ICP”) sought (inter alia) an injunction against Kristle Trading Ltd (“Kristle”) and Kazushi Toyoshige (“KT”) to restrain them from disclosing confidential information relating to an arbitration between ICP and Kristle. The Judge dismissed the suit (see International Coal Pte Ltd v Kristle Trading Ltd [2009] 1 SLR 945 (“the Judgment”)) and ICP did not appeal against that decision. The present appeals thus concerned S 12/2005 only.

[3] In S 12/2005, PT Jaya Sumpiles Indonesia (“PTJS”), Low Tuck Kwong (“Low”) and ICP sought (inter alia) a declaration that PTJS and Low (collectively, “the Guarantors”) were not liable to Kristle under a guarantee dated 1 November 1995 (“the Guarantee”). The Guarantors had given the Guarantee to Kristle to secure ICP’s obligations under a novation agreement dated 1 November 1995 entered into between Kristle and ICP (“the Second Novation Agreement”), pursuant to which ICP took over a coal mining venture in Indonesia. Kristle counterclaimed against the Guarantors for the sum of US$3.5m which remained payable by ICP under the Second Novation Agreement (“the Outstanding Sum”), accrued interest thereon amounting to US$289,872.60 (“the Accrued Interest”), as well as all the other sums which had been awarded to it (“the Remaining Sums”) under an award made on 31 January 2001 (“the Award”) in an arbitration between it and ICP in relation to the latter’s rights and liabilities under the Second Novation Agreement. The Judge dismissed the Guarantors’ action and gave judgment to Kristle on its counterclaim for the Outstanding Sum and the Accrued Interest, but not for the Remaining Sums. Both the Guarantors and Kristle filed appeals against the Judge’s decision.

[5] The facts relevant to the present appeals are as follows. On 15 August 1994, PT Tambang Batubara Asam (Persero) (“PTBA”), a company owned by the Indonesian government, granted PT Gunung Bayan Prarama Coal (“GBPC”) the right (inter alia) to develop coal reserves in designated zones in Kalimantan, Indonesia (“the Designated Areas”). On 12 April 1995, GBPC entered into three agreements with Japan Overseas Coal Ltd (“JOC”), a Japanese company, to set up a joint venture company (“PMA”) to develop coal reserves and conduct coal mining operations in the Designated Areas. KT was the president-director and principal shareholder of JOC at the material time. Under these three agreements (“the Three Agreements”), JOC was to hold 65% of the shares of PMA for the first five years and 60% of the latter’s shares for the subsequent 25 years. JOC was also to have 100% of the selling rights for coal from the Designated Areas.

[6] By a novation agreement dated 31 October 1995 (“the First Novation Agreement”), JOC novated its rights and obligations under the Three Agreements to Kristle, which in turn novated its rights and obligations to ICP on 1 November 1995 via the Second Novation Agreement. Low was the managing director and majority shareholder of both ICP and PTJS at that time. As consideration for the novation by Kristle, ICP agreed to pay Kristle US$4.5m in five instalments at the times and in the manner set out in cl 3.1 of the Second Novation Agreement, namely:

It was also agreed that the Guarantors would execute “a deed of guarantee and indemnify [sic]” (see cl 9 of the Second Novation Agreement) in Kristle’s favour (this deed subsequently took the form of the Guarantee). The Second Novation Agreement contained the following arbitration clause (cl 13):

[7] ICP made the first two instalment payments, totalling US$1m, to Kristle. After paying the second instalment, ICP allegedly discovered (inter alia) that GBPC and JOC had failed to obtain approval from PTBA to enter into the Three Agreements. In ICP’s view, this meant that the transfer of rights from GBPC to JOC was not valid; this in turn meant that JOC did not transfer any rights to Kristle under the First Novation Agreement and that, consequently, ICP received no benefits from Kristle under the Second Novation Agreement. After negotiations with Indonesia’s Ministry of Mines and Energy, it was agreed that GBPC would be sold to Low and another partner(s) for US$2.5m. The sale was completed in November 1997. ICP later defaulted on the third instalment set out in the Second Novation Agreement, which was due on 20 December 1997.

[8] The disputes between ICP and Kristle under the Second Novation Agreement were referred to arbitration under the auspices of the Singapore International Arbitration Centre (“SIAC”) in SIAC Arbitration No 78 of 1999, with ICP as the claimant and Kristle as the respondent. In the arbitration proceedings, ICP made several allegations against Kristle, including that of total failure of consideration and misrepresentation by Kristle. The arbitration tribunal made the Award on 31 January 2001 as follows:

We should point out that, although the quantum of the Accrued Interest was stated as US$289,972.60 in the Award (see item (II) of the quotation above), Kristle counterclaimed for a sum of only US$289,872.60 under this particular head (see [3] above).

[9] After the Award was made, there was an exchange of letters between the parties. On 23 February 2001, Kristle wrote to ICP asking for payment under the Award. On 27 February 2001, ICP replied requesting that Kristle work out a payment plan with it because of the economic situation in Indonesia as well as the financial problems of ICP and Low. Thereafter, there was a long exchange of letters, with ICP asking for meetings with Kristle to discuss an “amicable solution” and Kristle repeatedly demanding payment under the Award and refusing to meet ICP anywhere except in Tokyo.

[10] On 26 March 2001, Kristle made a formal demand on the Guarantors for payment, pursuant to the terms of the Guarantee, of the “amounts set out in the Award” with interest at 6% per annum with effect from 1 February 2001 to the date of payment. On 28 March 2001, Low made a proposal for ICP to pay a total of US$3m in settlement of all the sums set out in the Award, with a first payment of US$300,000 and subsequent instalments of US$100,000 per month over 27 months. Kristle rejected the proposal on the same day and counter-proposed a settlement amount of US$4m, with US$3.5m to be paid upfront as a lump sum within five days from 28 March 2001 and the remaining US$500,000 to be paid by 28 April 2001.

[11] Low replied to Kristle’s counter-proposal on 5 April 2001, stating that ICP was not able to make the payment. Again, there was an exchange of letters between ICP and Kristle, with ICP seeking to find an amicable solution involving “a reasonable discount and a payment period of … a few years” and Kristle continuing to demand payment. ICP claimed that it had no money, but Kristle pointed out that ICP was still operating the coal mines in the Designated Areas profitably. ICP and Kristle later arranged for a meeting, which was held in Tokyo on 28 June 2001.

[12] On the same day (ie, 28 June 2001) but after the meeting, ICP wrote a letter to Kristle (“the ICP Letter”) claiming that it had reached a settlement with the latter at the meeting. The letter read as follows:

The ICP Letter was signed by ICP’s director, Helen Ong.

[13] On 3 July 2001, ICP reminded Kristle to send the draft settlement agreement. On 6 July 2001, Kristle replied stating that the draft was being prepared by its lawyer. However, no settlement agreement was ever signed by the parties. Following its letter to ICP dated 6 July 2001, Kristle continued making demands for payment until the last letter (dated 30 December 2004) found in the records.

[14] On 5 January 2005, ICP commenced S 11/2005 against Kristle and KT. On the same date, the Guarantors and ICP commenced S 12/2005 against Kristle and KT.

[15] On 1 December 2006, Kristle applied ex parte to the High Court via Originating Summons No 2255 of 2006 for leave to enforce the Award in the same manner as a judgment pursuant to s 19 of the International Arbitration Act (Cap 143A, 2002 Rev Ed). Leave to enforce was granted on the same day. ICP later applied on 1 November 2007 (via Summons No 4903 of 2007) to set aside the order granting Kristle leave to enforce the Award, but its application was dismissed on 21 December 2007 by an assistant registrar. ICP’s appeal to the High Court against the assistant registrar’s decision was dismissed by Andrew Ang J (“Ang J”) on 28 January 2008. Judgment was entered against ICP for all the sums set out in the Award on 6 February 2008. ICP did not appeal against Ang J’s order.

[16] ICP and the Guarantors raised numerous issues at the consolidated trial of S 11/2005 and S 12/2005 in the court below. For the purposes of the present appeals, the pertinent issues before the Judge turned entirely on whether the Guarantors were liable under the Guarantee and, if so, the extent of their liability. Broadly, these issues were as follows:

(a) whether Kristle’s claim under the Guarantee was barred by limitation; and

(b) if Kristle’s claim was not time-barred, whether the Guarantors were liable to pay all the sums awarded to Kristle under the Award.

In determining these two issues, the Judge had to construe the terms of the Second Novation Agreement, the Guarantee as well as the ICP Letter, which Kristle relied on in this court (but not in the court below) as an acknowledgment by Low of his liability under the Guarantee.

[17] The Judge made the following findings:

(a) No settlement agreement was reached on 28 June 2001 or at anytime thereafter vis-à-vis the sums payable under the Award, contrary to what ICP and the Guarantors alleged (see the Judgment at [108]).

(b) In respect of Kristle’s counterclaim against the Guarantors, time started to run on 20 December 1997 when ICP defaulted on the third instalment due under the Second Novation Agreement. As a result, Kristle’s counterclaim should have become time-barred on 20 December 2003 (id at [117]). However, Kristle’s counterclaim did not become time-barred on that date because the ICP Letter was “an open acknowledgement that ICP (and the [G]uarantors) owed Kristle [the sums due under] the Award which ICP alleged had been compromised and reduced to US$3.5m” (id at [119]). Therefore, time started to run afresh on 28 June 2001 (ie, the date of the ICP Letter) under s 26(2) of the Limitation Act (Cap 163, 1996 Rev Ed) (ibid).

(c) The Award was converted into a judgment that was enforceable on 30 January 2008 (see the Judgment at [119]), thereby extending the limitation period to 12 years from that date under s 6(3) of the Limitation Act. This was because Kristle’s counterclaim against (inter alia) Low was based on the Award (which ICP had failed to honour), and not the Second Novation Agreement (id at [119]–[120]). For this reason too, Kristle’s counterclaim against Low was not time-barred (id at [120]). We pause to note that the Award was actually converted into an enforceable judgment only on 6 February 2008 (and not 30 January 2008 as stated at [119] of the Judgment), but this error is inconsequential to the outcome of the present appeals.

(d) As the Guarantors had pleaded in their statement of claim that they had been discharged from all liability as guarantors on the ground that the Second Novation Agreement was void and unenforceable for total failure of consideration and/or misrepresentation, they had implicitly accepted that “the Guarantee was valid but not enforceable” [emphasis added] (id at [120]). In claiming limitation as a defence to Kristle’s counterclaim, Low was approbating and reprobating at the same time, and this could not be allowed in law (ibid).

(e) Low’s liability as a guarantor was “limited to cl 3.1 [of the Second Novation Agreement]” (see the Judgment at [122]); ie, Low only had to pay “the outstanding sum owed by ICP of US$3.5m” (ibid). He was not liable to pay the other sums set out in the Award as “there was no reference to arbitration or any award arising out of arbitration proceedings” (ibid) in the Guarantee.

In the result, the Judge allowed Kristle’s counterclaim against the Guarantors for the Outstanding Sum and the Accrued Interest, together with interest on those two sums and costs.

[18] In their notice of appeal filed on 17 November 2008 for CA 185/2008 (“the original Notice of Appeal”), the Guarantors had originally relied on two grounds of appeal, viz:

The Guarantors later applied (via Summons No 452 of 2009) for leave to amend the original Notice of Appeal by deleting the second ground of appeal (ie, ground (b) of the quotation set out above) and replacing it with two separate grounds, viz:

[20] The parties raised only two main issues before us, which were also the issues raised before the Judge (see [16] above), namely:

(a) whether Kristle’s counterclaim against the Guarantors was barred by limitation (“the First Main Issue”); and

(b) if Kristle’s counterclaim was not time-barred, whether the Guarantors were liable for only the Outstanding Sum (ie, US$3.5m) and interest thereon, or for all the amounts payable by ICP under the Award (“the Second Main Issue”).

[21] These two main issues gave rise to a number of sub-issues. In relation to the First Main Issue, the sub-issues were:

(a) whether the Guarantee was a guarantee payable on demand;

(b) whether cl 4 of the Guarantee was an acceleration clause;

(c) whether the ICP Letter was an acknowledgment of liability for the purposes of s 26(2) of the Limitation Act;

(d) whether the Guarantors approbated and reprobated in their pleadings;

(e) whether the conversion of the Award into an enforceable judgment on 6 February 2008 extended the limitation period to 12 years from that date pursuant to s 6(3) of the Limitation Act; and

(f) whether the Guarantors had waived the defence of limitation by virtue of cl 8 of the Guarantee.

[22] In relation to the Second Main Issue, the sub-issues were:

(a) whether the principle laid down in Ex parte Young; In re Kitchin (1881) 17 Ch D 668 (“Re Kitchin”) (see further [39]–[42] below) was applicable to Kristle’s counterclaim against the Guarantors;

(b) whether the Guarantee had the effect of an indemnity because of the “primary obligor” provision in cl 1 thereof; and

(c) whether the Guarantee was a “performance guarantee” or a “payment guarantee”.

We shall deal with the above issues seriatim.

[23] In the court below, Kristle argued that the Guarantee was a guarantee payable on demand and that the limitation period for its counterclaim had started to run only when it made a demand on the Guarantors on 26 March 2001 for payment (see [10] above). The Judge implicitly rejected this argument in holding that time had started to run on 20 December 1997 when ICP defaulted on the third instalment of US$1m due under cl 3.1(c) of the Second Novation Agreement (see sub-para (b) of [17] above). She accepted the Guarantors’ argument (as set out at [112] of the Judgment) that a demand for payment was not necessary because of cl 2 of the Guarantee. She further held that cl 4 of the Guarantee operated as an acceleration clause such that all outstanding instalments payable under the Second Novation Agreement became due once ICP defaulted on the third instalment.

[24] With respect, we disagreed with the Judge’s construction of cl 2 and cl 4 of the Guarantee. In our view, the Guarantee was, as Kristle contended, a guarantee payable on demand. The relevant terms of the Guarantee were as follows:

[25] Clause 1 of the Guarantee referred to cl 3.1 and cl 7.1 of the Second Novation Agreement (the latter of which was not relevant in the present appeals). Clause 3.1 of the Second Novation Agreement (which is also reproduced at [6] above) was as follows:

[27] Our decision that the Guarantee was a guarantee payable on demand and that time did not start to run until 26 March 2001 vis-à-vis Kristle’s counterclaim in S 12/2005 would have been sufficient to dispose of the First Main Issue. However, as we disagreed with the Judge’s decision on the other sub-issues relating to the First Main Issue, we think it is desirable that we also set out our views on those sub-issues.

[28] The Guarantors argued that, under cl 4 of the Guarantee, ICP’s default on the third instalment due under the Second Novation Agreement had the effect of accelerating the due date of the remaining instalments (ie, the fourth and the fifth instalments), such that, for the purposes of limitation, time started to run on 20 December 1997; as a result, Kristle’s counterclaim for the outstanding moneys payable under the Second Novation Agreement became time-barred on 20 December 2003. The Guarantors’ argument placed strong emphasis on the phrase “pay all the money balance payable under the [Second Novation] Agreement” [emphasis added] in cl 4 of the Guarantee. In our view, cl 4 of the Guarantee could not have the effect of accelerating (upon ICP’s default on the third instalment on 20 December 1997) the liability of the Guarantors for the fourth and the fifth instalments due under the Second Novation Agreement. If cl 4 did indeed have such an effect, the Guarantors’ liability (which was secondary in nature) as at 20 December 1997 would have exceeded ICP’s liability on that same date under the Second Novation Agreement, which did not contain an acceleration clause. This would be contrary to the principle of co-extensiveness, which provides that the guarantor’s liability is co-extensive with the principal debtor’s liability, such that, “as a general rule, the [guarantor’s] liability is no greater and no less than that of the principal [debtor] … in terms of [the] amount, [the] time for payment and the conditions under which the principal [debtor] is liable” (see Geraldine Mary Andrews & Richard Millett, Law of Guarantees (Sweet & Maxwell, 5th Ed, 2008) (“Andrews & Millett”) at para 6-002; see also id at para 4-014). We did not consider whether, conceptually, it is legally permissible for a guarantee to “contradict” the primary obligation to which it relates (in terms of rendering the guarantor’s liability more extensive than the principal debtor’s liability) as that question did not arise in the present appeals. In view of the principle of co-extensiveness, the result is that, even assuming that the Guarantee required the Guarantors to make payment without any demand being made on them after ICP defaulted on the third instalment due under the Second Novation Agreement, the Guarantors would have been obliged to pay only the particular instalment due on 20 December 1997. The Guarantors would not have been obliged to pay the fourth and the fifth instalments until 20 December 1998 and 30 June 1999 respectively. As such, Kristle’s counterclaim for the last instalment of US$1m (which was due on 30 June 1999), at least, was not time-barred at the time ICP and the Guarantors commenced S 12/2005 against Kristle on 5 January 2005. (That date, ie, 5 January 2005, was the date on which Kristle’s counterclaim was deemed to have been commenced because, under s 31 of the Limitation Act, “any claim by way of set-off or counterclaim shall be deemed … to have been commenced on the same date as the action in which the set-off or counterclaim is pleaded” [emphasis added].)

[29] The Judge held that the ICP Letter was an acknowledgment by (inter alia) Low of his liability under the Guarantee (see sub-para (b) of [17] above). Before this court, the Guarantors argued that the Judge’s decision was wrong and should be reversed on the following grounds, namely:

(a) the issue of acknowledgment of liability came as a complete surprise to the Guarantors as it was not pleaded by Kristle or raised by either Kristle or the Judge during the trial; and

(b) in any case, the ICP Letter was not an acknowledgment of liability by Low because it was signed by Helen Ong on ICP’s behalf and not by Low or on his behalf.

[30] In relation to the first ground, the Guarantors argued that, if the issue of acknowledgment of liability had been pleaded, they would have been able to call evidence in the court below to rebut it. It was argued that the Judge’s approach in unilaterally considering the issue of acknowledgment of liability and relying on it (among other grounds) to find that Kristle’s counterclaim in S 12/2005 was not time-barred was wrong in law, and that the Judge should not have made any finding on acknowledgment of liability. In this regard, the observations of Scrutton LJ in Blay v Pollard and Morris [1930] 1 KB 628 (at 634) are apposite:

We agree with this statement, which reflects a principle of fairness and transparency that has been approved by this court on numerous occasions (see, for instance, The Ohm Mariana [1993] 2 SLR 698 at 714–715, [49]–[53] and Yap Chwee Khim v American Home Assurance Co [2001] 2 SLR 421 at [27]).

[31] We note, however, that although Kristle had not pleaded the issue of acknowledgment of liability in its counterclaim against the Guarantors in S 12/2005, the Guarantors and ICP had pleaded the ICP Letter (in its entirety) in their statement of claim for that suit, albeit in relation to a different argument (namely, that ICP and Kristle had reached a settlement on 28 June 2001). The ICP Letter stated that “[w]ith this settlement, there shall be no further claims by either party against … the [G]uarantors”. For this reason, it was not entirely unreasonable for the Judge, having found that there was no such settlement, to regard the ICP Letter as evidence that the Guarantors must have considered themselves as still being liable under the Guarantee. In this connection, we observe that, in Murakami Takako v Wiryadi Louise Maria [2007] 4 SLR 565, this court held that (at [36]):

[32] Indeed, Kristle argued before this court that the Judge had sufficient material before her to find that there had been an acknowledgment of liability by Low even though the issue had not been pleaded. To support this argument, Kristle cited the Malaysian case of KEP Mohamed Ali v KEP Mohamed Ismail [1981] 2 MLJ 10 (“KEP Mohamed Ali”). In KEP Mohamed Ali, the plaintiff sought to recover a sum of money due to him under a deed of compromise which he and the defendant had entered into on 24 April 1967. In response to the defendant’s plea of limitation, the plaintiff adduced evidence during the trial that the parties had entered into a later agreement on 23 March 1976 under which the defendant had acknowledged his liability for the sum stated in the deed of compromise. However, the plaintiff did not plead the material facts relating to the defendant’s alleged acknowledgment of liability. The court took the view that the material facts of and the circumstances relating to the alleged acknowledgment of liability should have been pleaded (id at 11), but held that (id at 11–12):

[33] A similar pragmatic approach was taken in Oversea-Chinese Banking Corporation Ltd v Philip Wee Kee Puan [1984] 2 MLJ 1 (“OCBC v Philip Wee”), a decision of the Privy Council on an appeal from Malaysia. There, the appellant bank, which was seeking to recover a debt from the respondent, did not plead any acknowledgment of debt by the latter. In the course of the trial, the sole witness for the bank tendered in evidence a letter from the respondent dated 14 January 1974 which constituted an acknowledgment of debt. No objection was raised by the respondent to the admission of that letter in evidence, despite the respondent’s counsel being asked by the trial judge if he wanted to put any questions concerning the letter to the bank’s witness. The Privy Council held that (id at 3):

[34] In both KEP Mohamed Ali ([32] supra) and OCBC v Philip Wee ([33] supra), the issue of acknowledgment of liability, although not pleaded by the respective plaintiffs, was raised during the course of the trial and therefore did not take any party to the proceedings by surprise. In the present appeals, however, the issue of acknowledgment of liability was neither pleaded nor raised at the trial. Accordingly, in our view, the Judge should have given the Guarantors an opportunity to address this issue before relying on it to make a finding on limitation against their favour. Such an opportunity could have been given at any time before judgment was delivered. If the Judge had heard arguments from counsel for the Guarantors, she might not have held that the ICP Letter constituted an acknowledgment of liability for the purposes of s 26(2) of the Limitation Act. Indeed, we were of the view that the ICP Letter was not an acknowledgment of liability because the Limitation Act requires every acknowledgment referred to in s 26 thereof to be signed by either the person making the acknowledgment (see s 27(1)) or his agent (see s 27(2)). Here, ICP’s letterhead appeared on the ICP Letter, and the letter was signed by Helen Ong as ICP’s director. The letter referred to a meeting in Tokyo between ICP’s representatives and Kristle’s representatives. While it was possible that Low, who was one of ICP’s representatives at the meeting, had also represented himself qua guarantor at that meeting, the fact remained that he did not sign the ICP Letter; neither did the letter, on its face, authorise Helen Ong to sign that document on his behalf. There was also no evidence showing that Helen Ong had signed the ICP Letter under Low’s authority. The fact that Low testified that he had instructed Helen Ong to prepare the ICP Letter was neither here nor there as it shed no light on whether Helen Ong had been acting as an agent for Low qua guarantor when she signed the letter. In our view, the Guarantors’ argument was correct. The ICP Letter, which spoke for itself by its terms and by the signature that appeared on it, was not an acknowledgment of liability by Low.

[35] With respect to the Judge’s ruling that the Guarantors should not be allowed to approbate and reprobate at the same time in their pleadings (see sub-para (d) of [17] above), we were of the view, on the facts of the present appeals, that this was an inapt application of the principle prohibiting approbation and reprobation. ICP’s and the Guarantors’ attempt to challenge the Second Novation Agreement on the ground of misrepresentation and/or total failure of consideration was not a contradiction of the Guarantors’ defence of limitation vis-à-vis Kristle’s counterclaim. The allegations of misrepresentation and total failure of consideration, if accepted by the Judge, would have invalidated the Second Novation Agreement, with the result that there would have been nothing which the Guarantors could be held liable for under the Guarantee (see Andrews & Millett ([28] supra) at para 6-020). The argument relating to limitation, if accepted by the Judge, would have resulted in Kristle’s counterclaim under the Guarantee being time-barred. The allegations of misrepresentation and total failure of consideration on the one hand and the defence of limitation on the other were alternative grounds for contending that the Guarantors were not liable to Kristle under the Guarantee, and not mutually exclusive defences to Kristle’s counterclaim.

Was the limitation period extended under section 6(3) of the Limitation Act upon the conversion of the Award into an enforceable judgment?

[36] The Guarantors argued that the Judge’s decision that s 6(3) of the Limitation Act had the effect of “further extend[ing] [the limitation period] to run from 30 January 2008 when the Award was converted into a judgment that was enforceable” (see the Judgment at [119]) likewise came as a complete surprise to them as this point was neither pleaded by Kristle nor raised at the trial. The Guarantors argued that, as a result, they had been severely prejudiced – a contention which we disagreed with, as counsel could have raised the scope of s 6(3) of the Limitation Act before us, it being a point of law. We did, however, agree with the Guarantors’ submission that the Judge should not have relied on s 6(3) of the Limitation Act to make a finding on limitation against the Guarantors’ favour. In this regard, we would reiterate our earlier comments (at [34] above) on the issue of acknowledgment of liability in the context of s 26(2) of the Limitation Act. If the Judge had heard arguments on the applicability of s 6(3) of the Limitation Act to Kristle’s counterclaim against the Guarantors, she might not have confused ICP’s liability under the Award with the Guarantors’ liability under the Guarantee. All that s 6(3) provides is that no “action upon any judgment” [emphasis added] may be brought after the expiration of 12 years from the date on which the judgment became enforceable. Section 6(3) was not applicable to Kristle’s counterclaim against the Guarantors because their counterclaim was based on the Guarantee, and not on a judgment.

[37] We now consider a sub-issue which was neither pleaded nor raised by counsel or the Judge at the trial, but which we nonetheless brought up for argument at the hearing of these appeals. This sub-issue was whether, assuming that Kristle’s counterclaim against the Guarantors were indeed time-barred, the Guarantors had waived the defence of limitation by virtue of cl 8 of the Guarantee, which read as follows:

[38] Clause 8 of the Guarantee was clearly intended to provide for two contingencies which every prudent creditor would wish to avoid, especially in cross-border transactions where the laws of two or more different jurisdictions might be applicable. The first contingency relates to applicable laws that affect the legality of the provisions of the Guarantee, which laws cannot be waived, whilst the second contingency relates to applicable laws that affect the enforceability of the provisions of the Guarantee, which laws can be waived. In the first case, the provisions concerned will be “severed … and rendered [ineffective]” (see the first sentence of cl 8 of the Guarantee) so as not to affect the validity and the enforceability of the rest of the Guarantee. In the second case, the applicable law will be “waived … to the full extent permitted by [the applicable] law” (see the second sentence of cl 8 of the Guarantee) so that the rest of the Guarantee will remain valid, binding and enforceable. In the context of the present appeals, the law of limitation is a law that the party who is entitled to rely on it may waive either expressly or impliedly (by not pleading or invoking it). As such, although the first limb of cl 8 of the Guarantee was not directly relevant to the present appeals, the second limb thereof was potentially applicable. However, since neither counsel for the Guarantors nor counsel for Kristle was ready to address us on this point and since it had no bearing on the final outcome of these appeals because of our determination on other matters, we shall not express a conclusive view on this issue in these grounds of decision.

The Second Main Issue: Were the Guarantors liable for only the Outstanding Sum together with interest thereon, or for all the amounts payable by ICP under the Award?

[39] The present appeals raised for the first time before this court the status of the principle laid down in Re Kitchin ([22] supra) (“the Re Kitchin principle”). In Re Kitchin, the guarantor (“J”) executed a guarantee in favour of the creditor (“Cantor”) under which he “[undertook] and guarantee[d] that all wines supplied to [the principal debtor] by [Cantor] shall be duly paid for, and that the said agreement shall be otherwise duly performed in all respects on [the principal debtor’s] part” (id at 669). Disputes later arose between Cantor and the principal debtor (“Pelican”). The disputes were referred to arbitration and an award in Cantor’s favour for the sum of £1,250 was made. By then, J had become bankrupt. As the arbitration award was not satisfied, Cantor, relying on the guarantee given by J, sought to prove in J’s bankruptcy that it was J’s creditor to the sum of £1,250.

[40] At first instance, Cantor’s proof was admitted in full. On appeal, however, the English Court of Appeal reversed that decision and held that Cantor was not entitled to file a proof of debt for the sum awarded to it in the arbitration. The court’s reasoning was as follows (id at 673–674 per Lush LJ):

[41] James LJ’s comments (id at 671–672) are also pertinent:

[42] Re Kitchin ([22] supra) lays down the principle that a judgment or an award against a principal debtor is not binding on the guarantor and is not evidence against the guarantor in an action by the creditor against the guarantor based on the judgment or the award. Instead, should the creditor sue the guarantor, it must prove the guarantor’s liability in the same way as it must prove the principal debtor’s liability if it were to bring an action against the principal debtor. In the court below, the Judge held that the facts of Re Kitchin were “vastly different” (see the Judgment at [135]) from the facts before her (see also id at [134]–[136] generally). Before this court, counsel for Kristle made a faint (and, in our view, entirely unmeritorious) attempt to argue that the Re Kitchin principle should not be followed because, when Re Kitchin was decided, the English courts did not have much faith in arbitration, whereas arbitration is today well regarded and widely accepted as a creditable form of alternate dispute resolution.

[43] The authority of Re Kitchin ([22] supra) has stood for more than 100 years. In The Vasso [1979] 2 Lloyd’s Rep 412, the Re Kitchin principle was clearly and unequivocally endorsed by the court. In that case, the guarantor “guarantee[d] and [undertook] to procure the due performance and payment by [the principal debtor] … of all [the] liabilities and obligations of [the principal debtor] arising out of the [agreement between the principal debtor and the creditors]” (id at 416). A dispute arose between the creditors and the principal debtor, and was referred to arbitration. The arbitrator found in the creditors’ favour. The creditors then sought to enforce the arbitration award against the guarantor, arguing (inter alia) that (id at 418):

In relation to this two-pronged argument, Robert Goff J held (id at 418–419):

[44] The Re Kitchin principle was recently affirmed in the UK (see the English High Court decision of Sabah Shipyard (Pakistan) Ltd v Government of Pakistan [2008] 1 Lloyd’s Rep 210) and is also good law in numerous Commonwealth jurisdictions (see, for instance, Re Meridian Construction Inc [2006] NSSC 17 (a decision of the Supreme Court of Nova Scotia) at [27]–[31] and, in particular, [29]; Robert Louden Begley v The Attorney-General of New South Wales (1910) 11 CLR 432 (a decision of the High Court of Australia) at 439–440 (per Griffith CJ); and Weltime Hong Kong Limited v Cosmic Insurance Corporation Limited [2003] HKCFI 163 (a decision of the High Court of Hong Kong) at [13]–[19]). The principle was accepted locally by Choo Han Teck J in Oversea-Chinese Banking Corp Ltd v Ang Thian Soo [2006] 4 SLR 156 as “good law” (at [4]) on the basis that (at [6]):

Choo J gave the example of the guarantor being misled into providing the guarantee even though the principal debtor itself might not have been misled in any way (ibid).

[45] In his written submissions, counsel for Kristle argued that this court should adopt the approach taken in Peerless Carpet Corporation v Maurice Desjarlais and Joyce Desjarlais Vancouver Registry No C851477 (10 November 1987) (unreported) (“Peerless”), where the British Columbia Supreme Court held that the guarantors were bound by a court judgment against the principal debtor. There, the creditor had earlier sued the principal debtor and the guarantors in the same action for the unpaid balance owed by the principal debtor. The judge allowed the creditor’s application for summary judgment against the principal debtor, but dismissed the creditor’s application for summary judgment against the guarantors. The creditor’s action against the guarantors was eventually dismissed altogether because the creditor had failed to make a demand on the guarantee, which was a condition precedent to any action by the creditor against the guarantors. Subsequently, the creditor sued the guarantors in a fresh action and sought to rely on the earlier judgment against the principal debtor as proof of the guarantors’ indebtedness under the guarantee. The court distinguished Re Kitchin ([22] supra), citing the following statement by Lord Denning in the Privy Council case of Nana Ofori Atta II Omanhene of Akyem Abuakwa v Nana Abu Bonsra II [1958] AC 95 at 101:

Applying the first of the two exceptions outlined by Lord Denning, the British Columbia Supreme Court held the guarantors liable for the judgment entered against the principal debtor in the earlier action because they had been privy to that action.

[46] In the court below, Kristle and KT argued that the Guarantors had been ICP’s privies in the arbitration proceedings (see the Judgment at [124]–[125]). The Guarantors sought to rebut that argument by contending that (id at [126]):

The Judge found that Low had indeed been “[ICP’s] privy” (id at [136]) in the arbitration proceedings. However, it is not clear what this finding of “privity” signified. On one hand, the Judge held that Low was “the alter ego of ICP” (id at [135]) and was therefore its privy, thereby suggesting that the finding of privity arose out of Low’s involvement in the arbitration qua managing director and/or controlling shareholder of ICP. On the other hand, the Judge held that “it was for Low … and not [Kristle and KT] to bring the issue of the Guarantee into the arbitration” (id at [148]), thereby suggesting that Low was privy to the arbitration qua guarantor as well. With respect, given that the arbitration did not relate to the enforceability of the Guarantee, we did not see how Low could have been privy to the arbitration qua guarantor. As such, the fact situation in Peerless ([45] supra) was distinguishable from that in the present appeals. In Peerless, the guarantors were privy to (and were, in fact, also parties to) the creditor’s earlier action qua guarantors as they were sued under the guarantee. Here, however, Low was privy to the arbitration only as the managing director and/or controlling shareholder of ICP, and not as ICP’s guarantor. As such, whatever the authority of Peerless might be, it had no application to the present appeals.

[47] Kristle also argued that this court should adopt the position taken by Mocatta J in The Rosarino [1973] 1 Lloyd’s Rep 21 in lieu of the Re Kitchin principle. In The Rosarino, the creditor chartered a vessel to the principal debtor. The guarantor executed a guarantee in the creditor’s favour, as follows (id at 22):

A dispute between the creditor and the principal debtor arose and was referred to arbitration, pursuant to which an award was made against the principal debtor. As the principal debtor did not honour that award, the creditor sued the guarantor for the sums due under the award. Mocatta J allowed the creditor’s claim, holding that (id at 25–26):

[48] With respect, Mocatta J’s decision in The Rosarino ([47] supra) was given without reference to Re Kitchin ([22] supra) and was inconsistent with the Re Kitchin principle as summarised by Goff J in The Vasso ([43] supra) at 418–419 (reproduced at [43] above). Mocatta J’s decision was subsequently rejected in Ards Borough Council v Northern Bank Ltd [1994] NI 121, where the court, in preferring Goff J’s decision in The Vasso, commented as follows:

[49] To summarise, in view of the numerous authorities affirming the decision in Re Kitchin ([22] supra) and the principle laid down therein, the Re Kitchin principle remains good law in Singapore and is applicable in the present appeals. We therefore rejected Kristle’s argument that this court should adopt the position taken by Mocatta J in The Rosarino ([47] supra). We also did not think that the decision in Peerless ([45] supra) assisted Kristle’s case as the facts of Peerless were distinguishable from those in the present appeals for the reasons given at [46] above.

[50] Turning now to Kristle’s contention that the Guarantee had the effect of an indemnity, the key difference between a guarantee and an indemnity, as succinctly summarised in Low Kee Yang, The Law of Guarantees in Singapore and Malaysia (LexisNexis Butterworths, 2nd Ed, 2003) (“Low’s Law of Gaurantees”), is that a guarantor’s liability is “collateral to and dependent upon the liability and default of a third person [ie, the principal debtor]” (id at p 52) whereas “an indemnitor’s liability is original and independent” (id at pp 52–53).

[51] Before this court, Kristle argued that the Guarantee was in effect an indemnity because each of the Guarantors had (under cl 1 of the Guarantee):

Reference was also made to cl 9 of the Second Novation Agreement, which provided that:

[52] We rejected Kristle’s argument that the Guarantee was effectively an indemnity. The “principal debtor” clause (which is also referred to as a “primary obligor” clause) is a common feature of modern guarantees. It is also sometimes used together with words such as “indemnity” or “indemnify” to describe the guarantor’s liability. The purpose of incorporating a “principal debtor” clause in a guarantee is typically to preserve the guarantor’s liability in the event that the principal debtor’s obligation is, for some reason, discharged or unenforceable (see Paget’s Law of Banking (Mark Hapgood gen ed) (LexisNexis Butterworths, 13th Ed, 2007) at para 33.31). However, “[a]s with all contracts, it is a matter of construction in each case [involving a ‘principal debtor’ clause] whether a guarantee or an indemnity has been given” (see Low’s Law of Guarantees ([50] supra) at p 32). The dominant view of the effect of a “principal debtor” clause (“the Dominant View”), according to James O’Donovan & John Phillips, The Modern Contract of Guarantee (Sweet & Maxwell, English Ed, 2003), is that it “does not convert what would otherwise be interpreted as a contract of guarantee into a contract of indemnity” (at para 1-101). This can be seen from, inter alia, Heald v O’Connor [1971] 1 WLR 497, where the question arose as to whether a guarantee which stated that “the liability hereunder of the guarantor [was] as a primary obligor and not merely as a surety” (id at 500) had the effect of an indemnity. Fisher J held in the negative, as follows (id at 503):

[53] In Habibullah Mohamed Yousuff v Indian Bank [1999] 3 SLR 650 (“Habibullah”), this court endorsed the Dominant View. There, the relevant clauses of the guarantee given by the guarantor (“Habibullah”) to the creditor (“Indian Bank”) were as follows (at [45]):

[54] Indian Bank sued Habibullah on the guarantee and obtained summary judgment against him. Habibullah appealed to the Court of Appeal (following an unsuccessful appeal to a High Court judge) against the granting of summary judgment, arguing (inter alia) that there had been non-disclosure by Indian Bank of certain unusual features in the main contract between it and the principal debtor and that such non-disclosure gave him (Habibullah) a real or bona fide defence to the claim on the guarantee. One of the counter-arguments raised by Indian Bank was that, since Habibullah had in the guarantee itself given a separate and independent covenant to indemnify it (Indian Bank), Habibullah would be liable in any event on the indemnity. Citing the Australian case of The Fletcher Organisation Pty Ltd v Crocus Investments Pty Ltd [1988] 2 Qd R 517 (“Fletcher”), where the contract of guarantee contained a clause stating that the creditor was “at liberty to act as though the [g]uarantor were the principal debtor” (id at 520), Indian Bank submitted that (see [51] of Habibullah ([53] supra)):

[55] This court rejected Indian Bank’s argument for the following three reasons (id at [52]):

[56] In our view, it is clear from the quotation in the preceding paragraph that this court rejected Indian Bank’s argument based on Fletcher ([54] supra) as, inter alia, the correctness of the decision in that case had been doubted by the authors of a leading treatise and as the decision was inconsistent with the Dominant View (as summarised at [52] above). The court accordingly gave Habibullah unconditional leave to defend the action. We note that the court did not appear to have considered the effect of cl 18 of the guarantee given by Habibullah (reproduced at [53] above), which, on its face, appeared to us to be a true indemnity. As such, the decision in Habibullah ([53] supra) does not assist us in determining whether, as a matter of construction, the “principal debtor” clause in the present case (ie, cl 1 of the Guarantee) turned the Guarantee into an indemnity.

[57] For the purposes of the present appeals, therefore, we had to look at the terms of the Guarantee, read with the Second Novation Agreement, to determine whether the Guarantors had indeed undertaken to indemnify Kristle. In this connection, the Guarantee was replete with the words “[g]uarantor” and “guarantee” (with the latter used both as a noun and, more importantly, as a verb). The words “primary obligor” were used only once in the Guarantee, and that was in cl 1. The words “indemnity” and “indemnify” did not appear in the Guarantee at all, and the latter term (viz, “indemnify”) appeared only once in cl 9 of the Second Novation Agreement. In our view, the overall effect of the Guarantee was that it was not an indemnity, nor did it make the Guarantors liable as principal debtors to Kristle. The Dominant View was apt to apply to the Guarantee.

[58] Kristle argued that, even if the Guarantee were not an indemnity, the Guarantors had entered into what some writers have categorised as a “performance guarantee”, as opposed to a “payment guarantee”. Lord Reid drew a distinction between these two types of guarantees in Moschi v Lep Air Services Ltd [1973] AC 331 (“Moschi”), where he stated (at 344–345):

[59] In the present appeals, the Guarantee contained elements of both types of undertakings described by Lord Reid in Moschi ([58] supra) at 344–345 in that, under cl 1(a) of the Guarantee, the Guarantors guaranteed “the due, prompt and faithful performance by ICP of all its obligations under the [Second Novation] Agreement” [emphasis added] (ie, the Guarantors gave a performance guarantee) and, under cl 1(b), the Guarantors guaranteed “the due and punctual payment by ICP of the money payable by ICP under the [Second Novation] Agreement in the manner and at the time fixed under the Agreement” [emphasis added] (ie, the Guarantors gave a payment guarantee). However, it was clear to us, from our perusal of the Second Novation Agreement, that ICP had not breached any of the clauses therein other than the payment clause in cl 3. Therefore, the question of whether the Guarantee was a performance guarantee or a payment guarantee was immaterial for the purposes of the present appeals.

[60] In truth, Kristle was contending that the Guarantee was a performance guarantee and that:

On this basis, Kristle sought to recover from the Guarantors not only the Outstanding Sum, which constituted “the money payable by ICP under the [Second Novation] Agreement” (per cl 1(b) of the Guarantee), but also the Accrued Interest and the Remaining Sums. However, as we noted earlier, the fact that the guarantor has guaranteed the due performance of the contract between the principal debtor and the creditor does not, in the absence of express words, render the guarantor also liable to pay any sum awarded in an arbitration between the principal debtor and the creditor, even if the award arises out of an arbitration clause in the contract between the principal debtor and the creditor (see The Vasso ([43] supra) at 418 per Goff J (reproduced at [43] above)). We thus held that Kristle was entitled to recover from the Guarantors only the remaining amount payable by ICP under the Second Novation Agreement (ie, the Outstanding Sum), but not the Accrued Interest and the Remaining Sums.

See the Appellant’s Core Bundle for CA 189/2008 (“ACB for CA 189/2008”) at vol 2, p 103.

Id at vol 2, p 105.

Id at vol 2, p 106.

See the Respondent’s Supplemental Core Bundle in CA 185/2008 at vol 2, p 43.

See ACB for CA 189/2008 at vol 2, p 119.

Id at vol 2, p 120.

See, inter alia, ICP’s letter to Kristle dated 13 March 2001 (id at vol 2, p 126).

See Kristle’s letter of demand to PTJS dated 26 March 2001 (id at vol 2, p 130) as well as Kristle’s letter of demand to Low of the same date (id at vol 2, p 132).

Id at vol 2, pp 135–136.

Id at vol 2, p 137.

Id at vol 2, p 139.

See ICP’s letter to Kristle dated 17 April 2001 (id at vol 2, p 145).

Id at vol 2, p 164.

Id at vol 2, p 165.

Id at vol 2, p 166.

Id at vol 2, p 263.

See ACB for CA 189/2008 at vol 2, p 52.

See p 3 of Annex A to Summons No 452 of 2009.

See ACB for CA 189/2008 at vol 2, pp 110–111.

Id at vol 2, p 103.

See para 51 of the Appellants’ Case for CA 185/2008.

See para 33(B) of the Statement of Claim (Amendment No 3) filed on 20 February 2008 in respect of S 12/2005 (at vol 2, pp 90–91 of the Appellants’ Core Bundle in CA 185/2008).

See para 34 of the Statement of Claim (Amendment No 3) filed on 20 February 2008 in respect of S 12/1005 (at vol 2, p 91 of the Appellants’ Core Bundle in CA 185/2008).

See ACB for CA 189/2008 at vol 2, p 112.

Id at vol 2, p 110.

Id at vol 2, p 105.

See para 92 of the Appellant’s Case in CA 189/2008.