CREDIT AGRICOLE v. CROSSLAND INDUSTRIES CORPORATION AND ANOTHER

IN THE COURT OF APPEAL

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REASONS FOR JUDGMENT

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Clough, J.A.

1. These are the reasons of the court for our order made on the 23rd June 1988 dismissing the appeal by the two defendants in these proceedings against summary judgment under Order 14 for the sum of (US)$318,842.09 or the Hong Kong dollar equivalent with interest given on the 25th February 1988 by Penlington J. (as he then was) in favour of the plaintiff.

2. The plaintiff is a bank. The first defendant, Crossland Industries Corporation ("Crossland") is a company incorporated in British Columbia. The second defendant, Mr. Sean Deneny ("the guarantor") resides in New York.

3. By a specially indorsed writ issued on the 30th October 1987, the plaintiff bank (``the bank'') claimed the judgment sum with interest against Crossland as the borrower under a Loan Facility the terms of which were contained in a letter ("the Facility letter") dated the 6th November 1986 addressed to Crossland by the bank. The letter purports to have been signed by Mr. William Chi ("Chi") and the bank claims that he signed on behalf of Crossland, thereby confirming the acceptance by Crossland of the terms of the Facility.

4. It was common ground that on the 7th November 1986 the bank had advanced (US) $300,000 to Crossland. In its Statement of Claim the bank claimed that the advance had been made pursuant to the Loan Facility. The sum of (US) $18,842.09 making up the balance of the judgement sum was claimed to be accrued interest as at the 12th August 1987.

5. The judgment sum and interest were claimed to be due from Crossland under the Facility letter because the bank contended that three events had occurred, each of which was stipulated to be an event of default under paragraph 15(e), (f) and (h) respectively of the Facility letter. Nothing arises on the appeal concerning these events of default, one at least of which the judge found to have been established.

6. On the 3rd November 1986 the guarantor had executed a written guarantee under which he had guaranteed irrevocably and unconditionally all moneys due and owing to the plaintiff from Crossland up to a limit of (US) $1 million with interest. The bank claimed that the judgment sum was also due and owing by the guarantor to the bank under the guarantee and that the requisite notice of the liability had been given.

7. The bank's Order 14 Summons was heard by the judge on the 25th February 1988 together with a summons which had been issued by both defendants on 22nd January 1988 applying for a stay of the action. The judge dismissed the defendants' summons at the same time as he Rave judgment for the bank under order 14. No appeal has been lodged against the dismissal of the defendants' summons.

8. The defendants, who had common representation below, sought to resist summary judgment by satisfying the court that for a number of reasons there were arguable issues or questions in dispute which ought to be tried. A substantial body of evidence was filed by both sides. The judge was firmly of the view that there was not even a shadowy defence to the action and that the plaintiff was entitled to summary judgment against both defendants.

9. The defendants now appeal against the judge's decision, contending by their notice of appeal that the judge erred in not finding that there was at least a triable issue that the Facility letter dated the 6th November 1986 was not accepted by Crossland so that no debt was due from Crossland under the Facility letter and there was accordingly no derivative obligation on the guarantor to make payment under the guarantee.

10. The issue of the acceptance or otherwise of the Facility letter by Crossland was first raised in the evidence of Mr. Daniel Overmyer ("Overmyer"), a consultant to Crossland, who made three affidavits on behalf of both the defendants. The actual defence which the defendants sought to plead if given leave to defend, was contained in a draft defence exhibited to Overmyer's second affidavit. On the issue relevant to this appeal it was proposed to plead that in early November 1986 the bank had agreed to grant Crossland loan facilities of up to (US) $1 million in connection with a joint venture project which Crossland had entered into with a partner in the People's Republic of China and that on or about the 7th November 1986 the plaintiff had advanced (US) $300,000 to Crossland.

11. However there was to be a denial that Crossland had ever entered into the loan agreement comprised in the Facility letter or agreed to the terms of that letter as alleged in the Statement of Claim. It was also to be denied that the agreement alleged by the defendants to have been made with the plaintiff stipulated any events of default the occurrence of which would entitle the bank to demand repayment from Crossland of any loan advanced. It was not sought to deny the guarantor's guarantee. It was clearly contemplated that the guarantor's proposed defence would stand or fall with that of Crossland.

12. The sequence of the relevant evidence on both sides was as follows. There was the usual formal verification of the matters pleaded in the Statement of Claim. This was contained, in the first affirmation of the manager of the plaintiff's Credit Department Ms. Anne Lai, which in effect verified the allegation in the Statement of Claim that Crossland had entered into a loan agreement under the Facility letter To this evidence Overmyer deposed that he had negotiated the loan in question on behalf of Crossland, that Chi was also involved in the negotiations to a limited degree and that the individuals involved on behalf of the bank were one Jesse Chang and his assistant Anne Lai and one Joseph Tsoi.

13. According to Overmyer the negotiations had started on or about the 1st May 1986 and had mostly been conducted by long distance telephone conversations conducted between New York and Beijing and between New York and Hong Kong. After an unsuccessful meeting in Hong Kong when the loan was turned down, it had, so Overmyer deposed, subsequently been approved on about the 4th November 1986 by long distance telephone between himself in New York and Jesse Chang in Hong Kong and Beijing.

14. Overmyer's evidence was that the agreement thus reached on or about the 4th November 1986 was for loan facilities of (US)$l million, of which (US) $300,000 was advanced to Crossland immediately on the 7th November 1986, leaving (U$)$700,000 to be advanced shortly thereafter. He deposed that it had been orally agreed between Jesse Chang and himself that interest at the rate of 1.5 percent over LIBOR on the money advanced should not be payable until the 7th February 1988 at the earliest, and that, if necessary, the interest could be further accumulated with payment being deferred. According to Overmyer there was no agreement about a fixed time for the repayment of the loan.

15. Overmyer maintained that the bank had operated the loan as if it were a term loan with roll-over of principal and interest after each term had expired. In support of this contention he exhibited six statements from the bank dated the 6th February, 11th May, 12th August, 7th October, 26th November and 23rd December 1987 showing principal and interest being rolled over progressively. The purpose of the loan had, he deposed, been to provide working capital and part of the finance for the joint venture undertaken by Crossland with a Chinese company in the Republic of China involving the production of terrazzo tiles and cultured marble.

16. As regards the Facility letter, Overmyer admitted that Crossland had received a letter dated the 6th November 1986 from the bank which he described as "almost identical to" the Facility letter. He exhibited a copy of the letter admitted to have been received which is in fact in the same terms as the Facility letter but does not bear the signature of any person on behalf of Crossland. "Overmyer deposed that he had not agreed on behalf of Crossland to the terms contained in the Facility letter. His evidence was that he had asked Chi if he had signed the Facility letter on behalf of Crossland and that Chi's answer had been that he could not remember whether or not he had signed it.

17. In a second affidavit Overmyer repeated the evidence outlined above, exhibited the proposed draft defence of the defendants and dealt with other issues not material to this appeal.

18. Thereafter the bank filed further evidence in rebuttal. Chi deposed that in September 1985 he had been employed as Vice-President of Crossland and as General Manager of the joint venture in which Crossland was involved in the Republic of China. He deposed that on the 19th February 1986 he had resigned as Vice-President of Crossland, but was thereafter retained by Crossland as a full time consultant and continued throughout 1986 to be General Manager of the joint venture.

19. After mentioning that he had read the earlier affirmation of Anne Lai and the affidavits of Overmyer, Chi confirmed that at a meeting at the bank's offices In Hong Kong on the 6th November 1986 he had signed the Facility letter He identified his signature alongside that of the plaintiff's Chief Manager and Regional Manager Marc Mayer, on the copy of that letter exhibited to the affirmation of Anne Lai. He deposed that the Facility letter, bearing only Marc Mayer's signature, which Overmyer had exhibited to his first affidavit was a true copy of the Facility letter relied on by the bank.

20. Chi's evidence that he had signed the Facility letter was corroborated by two witnesses. In her second affirmation, Anne Lai affirmed that she had attended the meeting on the 6th November 1986 referred to in Chi's affidavit. She confirmed that Chi had then signed the Facility letter on behalf of Crossland in her presence. Further corroboration of Chi's evidence was afforded by the affirmation of Mr. Wudy Heung (made after the last affidavit of Overmyer) a member of the Bars of the District of Columbia and Virginia who was employed by the Hong Kong office of Baker & McKenzie between 1986 and 1987 to advise on matters of U.S. law. He affirmed that he had attended the relevant meeting at the bank's offices on the 6th November 1986 with Chi and Anne Lai and that in his presence Chi had signed the Facility letter on behalf of Crossland.

21. Anne Lai exhibited three copies of a resolution expressed to be a resolution approved by the directors of Crossland at a duly constituted meeting held by conference telephone on the 8th October 1986. Five directors are named as having been present. The resolution recites that Crossland has negotiated a loan of (US) $1 million from the bank and that the bank has agreed to make the loan provided Crossland provides the bank with certain securities. The body of the resolution is expressed to ratify and approve the loan and Chi is authorised to execute and complete any document on behalf of Crossland which may be necessary to complete the loan transaction.

22. The last paragraph of the body of the resolution declares that resolutions may be signed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. The three copies of the resolution exhibited by Anne Lai purported to bear the signatures of three of the five directors named as present at the meeting, namely John Powers and Peter Hill, John Overmyer and Peter Hill, (who thus signed twice), respectively.

23. Anne Lai also exhibited the Notice of Drawing dated the 6th November 1986 together with the formal request dated the 7th November 1986 for payment of the (US) $300,000 drawn down by Crossland. Both these documents purported to have been signed by Chi on Crossland's behalf as Vice-President, although Chi's evidence was that he had ceased to hold that office on the 19th February 1986. The Notice of Drawing was expressed to be addressed to the bank by reference to the Facility letter.

24. One of the conditions required to be satisfied under clause 4(b) (vii) of the Facility letter in relation to any drawing under the Facility was the issue of a debenture creating a fixed and floating charge over assets of Crossland Industries Marketing Corporation, or, subject to the bank's approval, an undertaking by the Chairman of that Corporation to procure the execution of such a debenture in favour of the bank within 60 days of the first drawing under the Facility.

25. In this connection Anne Lai deposed that Overmyer had through his solicitors, Messrs. Baker & McKenzie raised with her the question of whether or not the bank required a debenture under clause 4(b) (vii) of the Facility letter. She exhibited a copy of a fax transmission dated the 30th December 1986 from Mr. Peter Amour of Baker & Mckenzie to her, the text of which included the following:

"Mr. Overmeyer (sic) has contacted us concerning Clause 4(b) (vii) of the Facility Letter... Mr. Overmeger (sic) wants to know if Credit Agricole requires this Debenture and, if so, what assets should be subject to the fixed charge.

Would you kindly let me known your answer to Mr. Overmeyer's (sic) questions so that I can pass them on to him."

26. Not surprisingly, Anne Lai maintained that this document was further evidence that the Facility letter had been signed on behalf of Crossland and that Overmyer had agreed to its terms. Anne Lai further deposed that although the Facility letter was given on the 6th November 1986, it was not until Overmyer's first affidavit (sworn on the 21st January 1988) was served that it had ever been suggested that the Facility letter was not binding on Crossland.

27. The bank also relied on the evidence of its solicitor, Mr. Enock, exhibiting an excerpt of the transcript of proceedings on the 19th August 1987 under the Securities Act of British Columbia before the Superintendent of Brokers of the Vancouver Stock Exchange. The shares of Crossland were listed on the Vancouver Stock Exchange. The proceedings were held for the purpose of enabling Crossland to be heard on the question whether the suspension of trading in Crossland's shares ordered by the Vancouver Stock Exchange on the 26th June 1987 should continue.

28. The excerpt of the transcript of those proceedings on the 19th August 1987 purports to record evidence in chief of Overmyer on behalf of Crossland. At one stage he is recorded as saying:

"The Credit Agricole loan was executed on November 6th of 1986 by Mr. Chi in Hong Kong. Subsequently over a period of time, 300,000 or traunch one as described in the loan agreement was drawn down."

29. Faced with this formidable body of evidence on what has proved to be the only issue on the appeal, the best that the defendants could do was to rely on the last affidavit of Overmyer. He exhibited another statement form received by Crossland from the bank. It was similar to the six statement forms he had exhibited earlier. The form he now exhibited was dated the 26th January 1988 and indicated that the rolled over principal and interest under the loan was (US)$332,261.59 on the 25th January 1988 and that on maturity on the 25th February 1988 interest at 8.5 percent would have accrued, so that (US) $334,693.56 would then be payable to the bank by Crossland.

30. Overmyer re-iterated that Chi had told him he could not remember whether or not he had signed the Facility letter. This time he deposed that this had happened on two occasions in early 1988 when Overmyer had telephoned Chi. He added that Chi's employment by Crossland had terminated on the 19th February 1986 and that on the 28th August 1987 Crossland had determined his appointment as General Manager of the joint venture in the Republic of China. Since the termination of Chi's employment he had, Overmyer deposed, taken a hostile stance towards Crossland. Accordingly Overmyer expressed his belief that Chi's statements and his affidavit could not be relied on. He also deposed that search caused by him to be made of Crossland's records and files had failed to locate a copy of the Facility letter allegedly signed by Chi.

31. As to the reference to a debenture under Clause 4(b) (vii) in the fax transmission dated the 30th December 1986 from Peter Amour, Overmyer deposed that he had not raised the matter of the debenture on his own initiative. According to him the request for a debenture was raised by the bank.

32. As regards the admission contained in the excerpt from the transcript of the proceedings on the 19th August 1987 before the Superintendent of brokers in Vancouver exhibited to the affidavit of Enock, Overmyer first referred in terms to his testimony in those proceedings "... where I said the Credit Agricole loan was executed on November 6, 1986 by Mr. Chi in Hong Kong." He then went on to say:

"I was referring to Mr. Chi's execution of the Assignment of the Book of Accounts Act which was witnessed by a Notary Public, and executed on November 1986. The execution of the assignment of the loan by William Chi was witnessed by Wudy Heung on November 6 1986, A draw request was also executed on November 6, 1986 by William Chi.''

33. Overmyer went on to depose that Crossland did not possess any other documents executed on the 6th November 1986. He concluded by saying:

"With the exception of the draw request Crossland does not have in its possession any other signed documents related to this loan. I have never seen a signed copy of the facility letter until quite recently during the pendency of this litigation. I deny that this is an admission by me that the facility letter exhibited as "AL-1" was signed by William Chi."

34. The judge's conclusions, so far as material to the appeal, were expressed in the following passages of his written judgment:

"I am satisfied and find as a fact that the loan agreement of 6th November 1986 was signed by Mr. William Chi, that he did so behalf of the 1st Defendant and was so authorised. I am satisfied that Mr. Overmyer meant exactly that when he gave evidence in Vancouver and I accept the evidence of Miss Lai and Mr. Chi, which is strongly supported by the documents exhibited. I find it inconceivable that the Plaintiff would have made a loan of this size without an executed agreement containing the terms of the loan which is what Mr. Overmyer is saying it must have done. I see not the slightest reason to doubt the evidence of Miss Lau Mr. Heung and Mr. Chi himself. What Mr. Overmyer says Mr. Chi told him is hearsay and equivocal. It would be quite extraordinary if Mr. Chi could not remember whether or not he signed a loan agreement for U$1,000.

    ... I am also satisfied that there is no defence to this action, not even shadowy, and the Plaintiff is entitled to judgment against both Defendants. There is no dispute that, the amount of US$300,000 has been lent to the 1st Defendant by the Plaintiff and I am satisfied that repayment of that loan plus interest, was guaranteed by the 2nd Defendant if default in repayment was made by the 1st Defendant. There seems no doubt at all, that the loan has become repay able on the happening of several events. ...Mr. Overmyer has exhibited a further `roll-over' letter which he alleges shows that the amount of the loan and interest are still not payable. I do not consider it does so. In my view it simply sets out the 1st Defendant's indebtedness at that date, i.e. the 25th January 1988."

35. In the light of the evidence before him we considered that the judge was fully entitled to come to the conclusion that he did. Indeed we considered that he would have displayed an unwarranted degree of credulity if he had given even conditional leave to defend.

36. Mr. Anthony Neoh for the defendants did his best to persuade us that the judge was wrong and that there was a triable issue, namely whether Crossland had ever accepted the Facility letter and taken the loan of (US) $300,000 under its terms and conditions rather than the oral open-ended loan agreement which Overmyer claimed he had made by telephone on Crossland's behalf with Mr. Chang on behalf of the bank on the 4th November 1986.

37. Mr. Neoh contended that the evidence of Overmyer raised a doubt whether Chi had signed the Facility letter. But the judge had before him the sworn evidence of Anne Lai and Wdudy Heung to corroborate Chi's evidence that he had signed the letter. The evidence of Overmyer was no more than an assertion that Chi had told him that he could not remember whether or not he had signed the letter. The defendant's filed no evidence to impeach the evidence or the credit of Anne Lai or Wudy Heung. Mr. Neoh was unable to say in what way the evidence of Anne Lai and Wudy Heung could be effectively tested by a trial of the action.

38. Reliance was sought to be placed on the fact that Crossland had no copy of the Facility letter bearing the signature of Chi on behalf of Crossland. That state of affairs seemed to us, as no doubt it seemed to the judge, to be consistent with the bank's case, because Crossland admitted possession of a copy of the letter signed by Marc Mayer on behalf of the bank and there was credible evidence that the copy of the letter in the possession of the bank had been signed by Chi on behalf of Crossland.

39. Although it had not been pleaded in the draft defence and no evidence had been filed on behalf of the defendants specifically directed to the point, Mr. Neoh contended that it was implicit from the denials in the draft defence that Chi had had no authority to sign the Facility letter on Crossland's behalf. He stressed that the evidence of both Chi himself and of Overmyer was that Chi had ceased to be a Vice-President of Crossland on the 19th February 1986 and that there was no indication on the Facility letter signed by him that he signed it on behalf of Crossland.

40. However Chi's evidence was that he remained a full time consultant of Crossland after resigning as Vice-President on the 19th February 1986 and there was ample evidence before the judge of his admitted activities on behalf of Crossland after that, including his part in the negotiation of the loan, his signature of the Notice of Drawing on the 6th November 1986 albeit as Vice-President, and his execution of an assignment of the loan on the same date.

41. As to Chi 's authority to sign the Facility letter on behalf of Crossland, Mr. Neoh argued that the three copies of the resolution signed by three directors, purporting to authorise him to do that very thing as three of the five directors holding a meeting by conference telephone on the 8th October 1986, had not been proved to be effective under the law applicable in British Columbia or the articles of Crossland But the judge was not trying the action when he heard the bank's application for summary judgment. The bank had undoubtedly brought its application within Order 14 by complying with the requirements of rule 2. It thereby established a prima facie case entitling it to judgment unless the defendants could show cause to the contrary by affidavit or otherwise see the practice note to Order 14 rule 4 in the Annual Practice, Vol. I, at paragraph 14/3 - 4/1. It was not therefore for the bank to adduce evidence of the validity of the resolution in question but for the defendants to show by affidavit or othewise that there was a triable issue concerning the authority of Chi to sign the Facility letter on behalf of Crossland. This they had failed to do.

42. Bearing in mind all the other evidence before the judge, including the other admitted acts of Chi on behalf of Crossland on the 6th November 1986 (the date of the Facility letter), namely the signing of the Notice of Drawing which was expressed to be a notice by reference to the Facility letter, and the assignment of the loan, we readily concurred with the judge's conclusion that the question of Chi's authority to sign the Facility letter did not raise a triable issue.

43. It was somewhat faintly argued that the signatures of Chi on the Facility letter and the Notice of Drawing (as "William S. Chi") required investigation by trial because he had signed Crossland's joint venture contract and an amending contract respectively dated the 24th September 1985 and the 21st May 1986 as "William Chi". We could see no substance in this argument, particularly in the light of the bank's reliance on the execution of Chi's signature on the Facility letter in the presence of two witnesses.

44. One of the most significant facts in this case is the deafening silence of Crossland about the oral loan agreement allegedly made on the 4th November 1986 until, as Anne Lai asserted in her second affirmation, the service of Overmyer's first affidavit. By then there had been ample opportunity for both defendants to assert the existence of the oral loan and deny that the Facility letter governed the loan, Default letters alleging events of default under the Facility letter had been sent by the bank to Crossland for the attention of Overmyer and the guarantor on the 15th July and the 12th August 1987. A copy of the second letter had been sent to the guarantor who also received formal demand, in a letter from the bank dated the 28th August 1987, for payment under the guarantee. When Anne Lai relied on the silence of the defendants concerning the alleged oral loan agreement which was to be the corner stone of the proposed defence to the action, no evidence was forthcoming from the defendants to deny that the first mention of the oral agreement had been made in Overmyer's first affidavit which was not sworn until the 21st January 1988.

45. The rest of Mr. Neoh's argument seemed to us to be scraping the bottom of a very empty barrel. He did his best to minimise the significance of the letter from Peter Amour to the bank dated the 30th December 1986 which was expressed to pass on Overmyer's query about the debenture under clause 4(b) (vii) of the Facility letter. This was clearly another highly material indication, albeit through a third part that Overmyer regarded Crossland as bound by the Facility letter. His query about the debenture was wholly inconsistent with there being any genuine triable defence available to Crossland based on the oral loan agreement which was first alleged to exist by Overmyer over a year later.

46. Then there was the admission by Overmyer on the 19th August 1987 in the proceedings in Vancouver that the bank's loan was executed on the 6th November 1986 by Chi in Hong Kong. Mr. Neoh sought to mitigate the effect of this damaging admission by contending that Overmyer had in his last affidavit denied the accuracy of the transcript of his evidence which Mr. Neoh contended, was in any event double hearsay without disclosure of source. However this argument was not even initially well founded, because in his affidavit Overmyer clearly admits that in his relevant testimony in the Vancouver proceedings he said that the bank's loan was executed on the 6th November 1986 by Chi in Hong Kong. He seeks to explain away what he said by deposing that he was referring to something else, namely an assignment. His evidence was to the effect that when he said one thing in the Vancouver proceedings he meant another.

47. The judge found that Overmyer meant what he said. This is only another way of saying that he found Overmyer's affidavit evidence on this matter incredible. In all the circumstances we concluded that such a finding was open to the judge and we certainly would not disagree with it.

48. Finally there was the question of the roll-over statements which Mr. Neoh contended, with particular reference to the statement dated as late as the 26th January 1988, supported the argument that there was a triable issue regarding the alleged oral loan agreement. We were unable to accept that these statements were inconsistent with the case for the bank based on the Facility letter. We accept that the roll-over of principal and interest beyond the 9th February 1987 was inconsistent with the requirement under clause 6 of the Facility letter for the payment of interest at the end of each three monthly interest period commencing on the day of draw down. However the failure of the bank to enforce its rights under the Facility letter as regards payment of interest is equally attributable to indulgence on the part of the bank as it is attributable to the alleged oral loan.

49. In particular it would be patently wrong to attribute the roll-overs after the bank had called in the loan in August 1987 to the adherence of the bank to the alleged oral loan agreement, because the loan had clearly been called in by reason of events of default under the Facility letter which were wholly inconsistent with the alleged oral loan agreement. We agreed with the judge's conclusion that the statement dated the 26th January 1988 merely recorded the overall indebtedness of Crossland to the bank on that date.

50. Out of deference to the careful arguments of Mr. Neoh, advanced with his usual courtesy, we have set out in full our reasons for dismissing this appeal although we did not find it necessary to call on Mrs. Kaplan who represented the bank. However we emphasise that we consider that the appeal was a hopeless attempt to upset the careful judgment of a Judge who had properly carried out in Order 14 proceedings the exercise of balancing factual assertions on affidavit. In the course of carrying out that exercise the judge was not bound to give credence to every statement on affidavit, however incredible. If he were so bound, every application for summary judgment under Order 14 would be defeasible by ingenious mendacity.

51. In our view the pursuit of hopeless appeals of this kind which inevitably keep plaintiffs out of money to which they are justly entitled should be discouraged. Accordingly we acceded to Mrs. Kaplan's application that the present appeal should be dismissed with costs on the common fund basis.