STATE BANK OF INDIA v. GOPI TEXTILES AND INDUSTRIAL LTD AND OTHERS

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J U D G M E N T

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Cons, V.-P.:

1. This is an appeal from the decision of Godfrey J. giving unconditional leave to defend.

2. The Plaintiff in the proceedings is a bank. As against the 1st Defendant, which is a limited company, the claim is for money advanced under a general agreement for banking facilities. As against the 2nd and 3rd Defendants the claim is as guarantors of the moneys due from the 1st Defendant. Both the 2nd and 3rd Defendants are directors of the 1st Defendant. The 2nd Defendant, according to his wife the 3rd Defendant, is the founder and driving force of the Company. She affirms that she took no active part in the Company, and she takes no part in these proceedings. We are not asked to give summary judgment as against her.

3. The defence of the 1st and 2nd Defendants, put forward in an affidavit by their solicitor, is that either 1. the Plaintiff by an oral agreement made in August 1984 through its representatives at meetings of the Forum of the Indian Banks in Hong Kong agreed to accept certain promissory notes issued in the Plaintiff's favour by the Central Bank of Nigeria in full accord and satisfaction of the moneys due from the 1st Defendant; or 2. the Plaintiff is estopped by reason of representations made by the same representatives at the same meetings.

4. The judge below was not satisfied that the evidence even began to establish the agreement or the representations upon which the Defendants relied. Mr. Scott, on their behalf, has sought to persuade us otherwise. His biggest hurdle is the fact that neither the 2nd Defendant, nor his two sons who are also directors of the Company, nor any one else on its behalf has filed any affirmation directly to support the agreement or the representations said to have been made. The reasons given for this failure are not in themselves impressive. On the other hand there are intimations in the documents, and to which Mr. Scott has drawn our attention, which are at least not inconsistent with the defence case and perhaps do give it some assistance.

5. I mention the first only to dismiss it. On the 31st March 1987 the Plaintiff stopped sending statements of account to the Company and shortly after that the first promissory note was received from the Central Bank of Nigeria. For myself I am not prepared to find any connection between the two facts. It seems to me more likely that the Plaintiff saw no future in continuing to send statements which recorded nothing but an ever increasing interest factor.

6. The second lies in the resolution of the board of the Company (page 177 of the Appeal Bundle) which mentions that the assignment of the incoming promissory notes to banks other than the Plaintiff, was "subject to payment of the current outstanding overdraft due to" the Plaintiff. (The emphasis is Mr. Scott's). The reference could be to payment as and when it came in it is accepted that the promissory notes were to be paid over a period of some 3? years - or to payment in full. It is thus equivocal, but not inconsistent.

7. The third document to which I have to refer is a letter (at p.104 of the Appeal Bundle) from the Company dated the 21st August 1984, Having referred to the debit balance in the current account with the Plaintiff it continues -

"For due payment of the overdraft in our account accrued interest thereon and other charges we hereby assign in your favour proceeds of various bills which we have sent through your bank for collection to Nigeria Details of that (sic) bills under collection are incorporated in enclosed memorandum. This assignment is in addition to the charges which you have over the bills purchased by you and still outstanding in your books."

8. The memorandum attached shows that the bills in question were the original bills which the Plaintiff had taken as security for the overdraft facilities. Again reference to payment is equivocal, but more helpfully from the Defendant's point of view is the absence of any response from the Plaintiff which might have been expected to say, as it now does, something like: "You appear to be under some misunderstanding. This is not in full payment. This is only by way of an additional security."

9. Finally there is the response of the Company to the Plaintiff's letter before action which contains the words -

"…it was agreed that the State Bank of India will accept the promissory notes to the extent of the then claimed amount of US$165,000.00 and interest thereon."

I am unable to accept the plaintiff interpretation of that passage. To me it is, in layman's language, a clear assertion of the defence now put forward.

10. These matters may not establish the Defendant's case, but in my judgment they are sufficient to give him the right to present and argue his case in court. For my part I would therefore have been willing to give leave, subject to submissions as to what conditions ought to be imposed; and it may be that I would not have been easily convinced as to anything less than payment into court of the full amount. But as my two brothers take a different view, it is necessary that I should consider the position on the basis that the judge below was correct to find that there was no triable issue.

11. The position then, as far as Order 14 rule 3(1) is concerned, is that the judge has not dismissed the Plaintiff's claim and he has not been satisfied that there is an issue or dispute which ought to be tried. That means, as I see it, that the Plaintiff is in effect entitled to judgment. If the judge does have any discretion, the discretion is, as it was put in European Asian Bank A G. v. Punjab G Sind Bank [1983] 1 W.L.P. 642 at 653 "only of a most residual kind".

12. However the judge did not enter judgment for the Plaintiff. Instead he was concerned that "the promissory notes were clearly taken as part of some overall arrangement to which the Plaintiff, and the 1st Defendant, and indeed a number of other hanks were parties". He took the view that this was one of those unusual cases, of which Miles v. Bull (1968). 3 All E.R. 632 is the best example, where despite the apparent lack of an issue to be tried there ought to be a trial under what I might call "the second exception" of Order 14 rule 3. The judge felt that the facts needed to be "properly and thoroughly investigated", and then added -

"I do not think this application for summary judgment provides a proper opportunity for the Court to evaluate the validity of the contention that the promissory notes were issued by way of security, rather by way of accord and satisfaction of the debt."

With all respect I find that passage a little difficult to understand for the judge had already accepted that there was no evidence to support the Defendant's contentions. It goes perhaps to illustrate a misunderstanding which is apparent in other passages of the judgment that the Plaintiff was under a duty to prove that the notes were not taken as a security. But that was not so. The Plaintiff had to prove no more than that the moneys were due. That inevitably followed in the circumstances unless the Defendant was able to establish accord and satisfaction.

13. Finally in this respect the judge said -

"But I am not willing, when I know that these promissory notes came into existence as part of a much more complicated trnsaction than a simple arrangement between banker and customer, to treat this as a suitable case for summary judgment."

14. It is trite law that this Court will not interfere with the exercise of a discretion of a judge at first instance unless he is plainly wrong or has acted on wrong principles. With every respect to the Judge, in my view he was plainly wrong in this respect. The last passage that I have quoted shows and there are others which do likewise that he was very much influenced by what he thought was the complicated nature of the transactions. To my mind they were not. No doubt the operations in Nigeria were not simple, but they are not relevant. The settlement of accounts between banks other than the plaintiff may well have presented difficulty to persons not mathematically inclined. But the agreement itself, as appears from the various minutes which we have been shown, is relatively simple. And most importantly, the relationship between the Plaintiff and the Company is absolutely straightforward.

15. For myself I have been unable to envisage what further facts the judge had in mind when he said –

"The facts need to be properly and thoroughly investigated."

In Miles v. Pull Megarry J., as he then was, confidently expected evidence to be forthcoming at the trial which could perhaps convert the "device", as it stood before him, into the "sham' which the defendant wife was hoping to estoblish. There is nothing of that kind in this case, and with every respect to the judge below I think he misapprehended the position. I would take leave to disagree with him that this was a proper case to be decided under the "or otherwise" provision of order 14.

Kempster, J.A.:

16. Like Godfrey J., I find myself unsatisfied that the Defendant Company has demonstrated by evidence that there is an issue or question in dispute which ought to be tried. The 2nd Defendant, who advances no separate defence, could have given the relevant evidence had it been available. He was in his solicitor's office in Hong Kong on the 8th December 1988.

17. In relation to the question whether there ought, for some other reason, to be a trial of the Defendant's claim,  I disagree with the judgment of Godfrey J. and agree with that of my Lord the Vice-President for the reasons he has given. In the light of the judge's findings on the suggested defences the circumstances of this case were not "such as to require close investigation" as explained by Lord Parker in Daimler Company Limited v. Continental Tyre and Rubber Company (Great Pritain) Limited [1916] 2 A.C. 307 at p.346 and repeated by Megarry J. in Miles v. Bull [1969] 1 Q.B. 258 at p.266.

18. I would allow this appeal and order that judgment be entered for the Plaintiffs in the sum claimed.

Macdougall, J.A.:

19. In my view, on the evidence before the judge, the Defendants failed abysmally to discharge the burden of proof which was clearly cast upon them by Order 14 rule 3(1). I agree entirely with what my Lord Kempster has said. I too would allow this appeal and would order that judgment be entered for the Plaintiff in the sum claimed.