BCCI FINANCE INTERNATIONAL LTD v. AFTAB AHMED AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

Case No: 1988, A1936

___________

_______________

J U D G M E N T

_______________

The Action.

1. The Plaintiff seeks to recover the sum of US$649,558.31, with interest and costs, due under a loan agreement dated 28 October, 1981 and entered into by the plaintiff, Velbert Shipping Limited and the Defendants.

2. That the amount claimed is due under the agreement is not disputed by the Defendants, but they deny that they are liable to pay it. They say that the gurarantee of payment provided for in the agreement would take effect only if they and another person, Gulzar Ahmed, were parties to the agreement "and/or" executed the written document containing the agreement, and Gulzar Ahmed did not so become a party or so sign. Further, they say, if there was an agreement, it was a condition precedent to their liability that Gulzar Ahmed should also be a party to the agreement and be under the same obligations and liabilities as the Defendants.

The Undisputed Facts.

3. The facts of the matter are simple, and, in most respects undisputed. Only two witnesses gave evidence: Mr. Raman Rao was called by the Plaintiff and Mr. Aftab Ahmed gave evidence on behalf of the Defendants.

4. Aftab, Munir and Gulzar Ahmed are brothers. Gulzar is the eldest. They are the sons of a family based in Karachi, Pakistan, although they have fairly strong business connections with Hong Kong, visiting here frequently. They are businessmen, mostly engaged in trade of one kind or another, but have they also ventured into shipping.

5. The brothers decided to enter the shipping business in 1981. They did this, in the first instance, in about March, 1981, by acquiring a vessel called "Nazir" through a limited liability company. Finance for the purchase of this vessel was arranged, through the Plaintiff.

6. Sometime in September, 1981, the brothers set in motion steps to acquire another vessel, to be called "Nabeel". Again, they sought to arrange finance from the Plaintiff. The brothers paid a deposit of ten per cent of the purchase price of Nabeel, some US$130,000, about the end of September, 1981. They were obliged to complete the purchase, paying the balance of the price and taking delivery, within thirty days; that is, at the end of October, 1981. Failure to do so would result in the deposit being forfeited and loss of business.

7. The brothers used a Liberian company, Velbert Shipping Limited, to acquire Nabeel. The brothers owned the only, and equal, interests in this company.

8. The Plaintiff agreed to provide finance for the acquisition of Nabeel, subject to certain conditions, including the condition that the three brothers were parties to the loan agreement.

9. Aftab and Munir were in Hong Kong at the end of October, 1981. Gulzar was not here. Aftab said in evidence that he had been in Hong Kong before October, 1981 and expected him to return after that month.

10. A loan agreement was drawn up by the Plaintiff's solicitors and Aftab and Munir signed this about 28 October, 1981. At that time, they knew that Gulzar had not signed the agreement and would not be coming to Hong Kong to do so before the month of October had expired.

11. At that stage, completion of the purchase of Nabeel was a matter of urgency. Aftab asked the Plaintiff to release Mr. Raman Rao, one of its officers, for the purpose of flying to Amsterdam to assist in completing the purchase. This was done, and a fee of US$10,000 was agreed for Mr. Rao's services. Mr. Rao went to Amsterdam on about 28 October, 1981. The purchase, including the disbursement of the loan by the Plaintiff, was completed on 30 October, 1981.

12. That much is common cause.

The Disputed Facts.

13. Another aspect of the Plaintiff's case is in dispute. Mr. Raman Rao said in evidence that when it was known that Gulzar Ahmed had not signed the loan agreement, he told Aftab Ahmed that the bank would not disburse the loan until he had signed. He says Aftab responded by saying that it was important that the loan be disbursed so they could acquire the vessel. Aftab indicates that, because of their business commitments, all three brothers could not leave Karachi at the same time. He asked that the loan be disbursed without Gulzar's signature, and that, when Aftab retured to Karachi, Gulzar would come to Hong Kong and sign. The bank agreed to this arrangement, Mr. Rao flew to Amsterdam, assisted in completing the purchase and the loan was disbursed.

14. Mr. Rao says that Munir Ahmed knew of this arrangement because, although he thinks only Aftab was present when he made the request for the disbursement without Gulzar's signature, the matter was discussed subsequently when Munir was present.

15. Aftab Ahmed, in evidence, said that there was no such discussion, no such request and no such assurance that Gulzar would come to Hong Kong to sign when he, Ahmed, returned to Karachi. The most he would concede was that someone might have asked when Gulzar would be in Hong Kong to sign.

16. By letter dated 23 October, 1981, the plaintiff's solicitors wrote to the Plaintiff saying:

"Further to our meeting of this morning, we confirm that we now have, in our possession, the following documents, executed by the borrower, and were [sic] relevant by Messrs Aftab Ahmed and Munir Ahmed, but not by Gulzar Ahmed:- [There follows a list of documents]. ... We await your further instructions in connection with the steps that should be taken to procure the signature of Mr. Gulzar Ahmed of the relevant documentation.

As you are aware, the sellers of the vessel have expressed considerable concern that the funds in repsect of the payment for the vessel be made available to them in time for delivery of the ship which is currently expected to take place either on 29th or 30th October 1981."

17. On this letter, the words "not by Mr. Gulzar Ahmed" are underlined by hand and next to this is written "We will receive this later." This annotation is marked in the margin "OK", initialled and dated 28 October. At the foot of the letter, there is another handwritten note; an instruction to remit the funds. This instruction is signed with the sane initials as those authenticating "OK" and is also dated 28 October.

18. Mr. Rao says that the assurance "We will receive this later" was written by him, and the "OK" and the authorization to remit the funds were initialled by Mr, Yousef Abedi, the Plaintiff's general manager. This was done after the bank agreed to Aftab's request and accepted his assurance that Gulzar would come to Hong Kong to sign when Aftab reutrned to Karachi.

19. On this dispute, I accept the evidence of Mr. Rao. His evidence had the ring of truth about it and is supported by the probabilities. It is not at all likely that the Plaintiff, having required Gulzar's guarantee as a condition of the loan and having their attention drawn expressly to the fact that he had not signed, would proceed to advance the loan with only, according to Mr. Aftab Ahmed, a possible inquiry as to when Gulzar might be in Hong Kong to sign. The annotations on the letter of 28 October, 1981, support what Mr. Rao Says. It is possible, as Mr. Smith argues, that the note " we will receive this later" is simply a statement that Mr. Rao anticipated that Gulzar would sign later, but, in my view, it is much more likely that it records, in shorthand form, the arrangement with Aftab and the acceptance of this arrangement by Mr. Abedi. I regard it as highly unlikely, as Aftab contends, that there was not even a discussion about the problem of the absence of Gulzar's signature, nothing more than, possibility, a plaintive inquiry as to when Gulzar would sign.

20. It is conceded by Mr. Aftab Ahmed that the brothers were anxious to get the loan money as soon as possible. Non-payment would have had serious consequences. It must be likely that the bank would have pointed out the difficulty when they were told that Gulzar had not signed, and it is probable that, in response to this, Aftab would have sought to persuade the bank to proceed nonetheless. The likely course this persuasion would have taken would have been as Mr. Rao described; saying, in essence, that they should not worry about the lack of Gulzar's signature - there would be no difficulty about that.

The Defendant's Case.

21. It must be said that the Defendant's case, in my view, has not one shred of merit or morality about it.

22. They, with their eldest brother, use a company to acqurire a vessel. They need money to pay for it. They borrow it from the Plaintiff. They sign guarantees for the repayment of the loan. They know that their brother has not signed the guarantee. They urge that the advance of the loan be made and accept that advance at a time when they know that their brother has not signed. The Plaintiff goes out of its way to accommodate their difficulties. Then, when they are called upon to pay in accordance to the undertaking solemnly and seriously accented by them, they seek to avoid payment by saying that they are not bound because they understood that they would not be bound if their brother did not become a party to the undertaking. Such a proposition must offend anyone's sense of justice and be contrary to common-sense.

23. I would have been surprised if the law were to allow such a defence to succeed, and I am happy to say that, in my opinion, it does not.

The Law.

24. I have had cited to me a number of authorities featuring cases in which one of a number of intended guarantors, or co-debtors, does not sign the document establishing or evidencing the debt.

25. James Graham Ltd. v. Southgate-Sands [1986] 1 Q.B. 80, proceeds on the basis that the defendant entered into a guarantee on the basis that all contemplated co-sureties would be bound by it and the effect of holding him liable would be to do so on a contract into which he had not entered. All the other cases were decide on a similar basis.

26. In the case before me, there is, in my view, no question of the Defendants giving their guarantees on the basis that they would not be wound by it if Gulzar Ahmed did not sign. They signed the agreement, and then, knowing that Gulzar had not signed and would not sign before the loan was advanced, asked for and received the money. The agreement had then been fully implemented by the Plaintiff; all that remained was for the Defendants and their company to repay the loan in due course.

27. Of course, at one stage, it was contemplated that Gulzar would sign as co-guarantor before the loan was advanced, and it may have been that, at some time in the future, Gulzar would add himself as a guarantor and party to the agreement, but to contend that, at the time the Defendants signed the loan agreement and were pressing for the loan to be advanced, it was contemplates by anyone that the Defendants would not be bound and would remain "unbound" until Gulzar signed is to fly in the face of ordinary sense and the commercial realities of the matter.

28. One can test this by asking what the parties would have said if an officious bystander had asked theta where the Defendants stood at the date of the agreement. Clearly, the Plaintiff would have said: "Of course Aftab and Munir are bound. We will not pay out the loan if that is not the clear understanding." The Defendants must have said: "Yes; we are bound. We want the money now and we cannot wait for Gulzar to sign before we get it ." If they had said: "Well, we are taking the money from the Plaintiff for our business purposes, but we are not obligated to the bank in the terms we have signed", I believe the bystander would have had grave suspicions about their bona fides, if not their sanity. If they had declared this, they most certainly would not have receives the money they so desperately needed.

29. If one likes, one can translate this position into the language used in the cases.

30. In Hansard v. Lethbridge (1892) T.L.R. 346, Lord Esher M. R. talks about a party having a right to insist upon all signing before he becomes liable himself, of that right not being done away with without his consent and there being no evidence that the party gave up that right. In the present case, the Defendants clearly, by implication, gave up the right and consented to it being done away with. There can be no other reasonable interpretation of their conduct.

31. Evans v. Brembridge 2K. & J. 174 speaks of the creditor's duty to inform the signing surety that the deed was not signed by his co-surety, and to ascertain his view with respect to his altered position. Here, the Defendants knew that the agreement had not been signed by Gulzar, and would not be signed before they received the loan, and, therefore, well knew their "altered position". They must be deemed to have accepted that altered position by pressing for and accepting the advance of the loan.

32. In National Provincial Bank v. Brackenbury (1906) 22 TLR 797, Walton J. held that it was never agreed that the signature of one co-surety should be dispensed with, and, on the evidence before him, that he was quite unable to find as a fact that there was a consent by the signatories that the signature of the non-signing surety should be dispensed with or that they should be liable whether he signed or not. Here, the evidence that the defendants consented to the dispensing of the signature of Gulzar is compelling, and they clearly accepted that they would be liable without Gulzar's signature.

33. Coyte v. Elphick (1874) 22 WR 541 deals with the problem as a matter of the intention of the parties, as does the Irish case of Fitzgerald v. M'Cowan [1898] 2IR 1, although that was a case dealing with co-debtors rather than co-sureties. In that case, Holmes J., at page 11, said:

"It is not, however, to be supposed, that the [signing debtors] right to repudiate liability springs from this breach of duty. [The duty mentioned in Evans v. Brembridge above.] Knowledge on their part was material to enable them to consider their altered position - in other words, to consider whether they would accept or repudiate liability. Once they had a right to repudiate, it seems to me that they could not lose it until they had an opportunity to make this election. Of course if, after they became aware that the execution of the deed by [the non-signing debtor] could not be obtained, or if, after they had grounds to believe he would not execute it, they acted on the document, a jury ought to infer thereby waived the right; but, as long as they entertained a reasonable and honest belief that he had executed it, the inference of waiver could not arise."

34. In the case before me, the Defendants, with knowledge of the fact that Gulzar had not executed the agreement and would not do so before they had desperate need of the money, acted on the agreement, they pressed the Plaintiff for payment of the loan, received it and paid it out to the seller of the vessel. It is difficult to imagine a clearer case of co-debtors waiving any right they might have had to take the point that another potential co-debtor had not assumed liability.

35. Mr. Smith has pointed out that, in terms of the agreement, the Defendants are not merely guarantors but co-debtors with Velbert Shipping Limited. In that event, if the Defendants are entitled in law to succeed on the point they take in this case, Velbert Shipping Limited would be equally entitled to raise it as a valid defence. This would mean that the Plaintiff, having advanced this large amount of money, has ho rights against any of the sighing parties on the agreement. This result would be little short of ridiculous and I cannot accept that it is permitted by the law.

Conclusion.

36. The position I nave reached in this matter would be so even without the additional factor that I have accepted; that the Defendants expressly requested the Plaintiff to implement the agreement without the signature of Gulzar and assured the Plaintiff that his signature would be forthcoming. With that added strength, the justice and legal validity of the Plaintiff's case becomes overwhelming.

37. In the result, I find that there is absolutely no basis on the evidence and in law that, in this case, the Defendants should not be liable under the agreement, either on the contention that the guarantee would take effect only if Gulzar became a party or on the basis that there was any condition precedent to the Defendants' liability that Gulzar should be a party and under the same liabilities as the Defendants.

38. To the extent that I have, in reaching my conclusions, treated Velbert Shipping Limited and the Defendants as having the same mind and being essentially the sane persona, I believe this is, on the evidence, justified.

The Award.

39. As I have said, the quantum of tire Plaintiff's claim is not in dispute. Accordingly, there will be judgment against the Defendants in the sum of US$649,558.31, with interest in terms of the agreement. I do not know now this interest is to be calculated; whether, for example, the whole sum awarded is to bear interest, or only the capital portion of it. If the parties cannot agree this element, it will be necessary to come to back to me.

40. On the face of it, there seems no reason why the Defendants should not day the Plaintiff's costs and I make an order nisi to this effect.