INTERETUD S.A. AND ANOTHER v. GOLDEN GLORY INTERNATIONAL CONSULTANCY LIMITED

1996, No. CL-115

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

COMMERCIAL LIST

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J U D G M E N T

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1. This is a claim upon dishonoured bills of exchange. The 1st Plaintiff is a French finance house which is wholly owned by the 2nd Plaintiff, a French bank; the Defendant is a Hong Kong company. The case is enmeshed in detail. However, the main elements stand out relatively clearly, and I begin with the factual background giving rise to this claim.

2. The story begins in 1987. At that time a joint venture was entered into between the Defendant, Golden Glory International Consultancy Limited ("Golden Glory") and a Chinese corporation to install and operate a sight-seeing cable car system at the Great Wall of China, Badaling, Beijing. Pursuant to this joint venture a limited company by the name of Beijing Badaling Cable Car Company Limited was incorporated. By agreement dated 3rd November 1987 a French company named Pomagalski S.A. ("Poma") agreed to manufacture and to sell to Golden Glory the cable car system, together with all equipment, supplies, spare parts, technical assistance and training for its installation and operation.

3. At the date of the Contract the price for the cable car system was fixed at FF23 million (Article 4); moreover, the terms of payment (Article 5) provided, inter alia, for payment of 85% of the price by utilisation of a buyer's credit over five years by COFACE [the acronym for a French Government export credit agency] payable in ten equal semi-annual instalments bearing interest at a rate agreed by Golden Glory, COFACE and Indosuez Bank. The first semi-annual instalment thereunder was to be due and payable six months after the last CIF delivery.

4. These initial contract provisions did not come to fruition. As I understand the position, Golden Glory was unable to secure the necessary financing; indeed it was only in the autumn of 1990 that a solution hove into view. In broad terms what happened was this. Poma, which I am told was confident that the deal could be financed and had already built a substantial part of the relevant equipment covered by the contract with Golden Glory, approached Credit Lyonnais in Grenoble for assistance. Credit Lyonnais was willing to help. This involved Poma filing an application with COFACE (Compagnie Fran?aise d'Assurance de Commerce Extérieur) a French export credit guarantee company, in order for Credit Lyonnais to obtain an export credit guarantee. In the event the evidence on this point, which I accept, was that the proposal made by the bank to COFACE was as to a straightline principal repayment over five years and repayment in ten decreasing half-yearly instalments of principal and interest. Moreover, it was suggested that a Credit Lyonnais subsidiary, Interetud S.A., was to be involved by, essentially, purchasing the receivables due to Poma from Golden Glory.

5. However, the financing structure did not end there. As a precondition to issuing its guarantee COFACE itself asked for a guarantee from a Hong Kong bank covering three sliding half-yearly instalments of principal and interest. The evidence, which I accept, was that Golden Glory was unable to arrange for a bank in Hong Kong to provide such a guarantee, and instead offered to make a cash deposit of US$1.5 million (equivalent to FF7.8 million at the then prevailing exchange rate) with the request that the Credit Lyonnais Branch in Grenoble arrange the issuance of the guarantee. On 10th October 1990 the Branch of Credit Lyonnais in Grenoble received from Golden Glory an amount of US$1.35 million, and upon such receipt Credit Lyonnais Grenoble applied to its headquarters for approval of the issuance of the guarantee; at the same time Golden Glory applied for, and obtained, a FF1.5 million overdraft facility from Credit Lyonnais.

6. These financing arrangements were referred to in amendments dated 3rd November 1987 to the primary Contract between Golden Glory and Poma. By an Addendum dated "Fontaine 8th November 1990", the contract price was amended to FF28,140,000. More importantly, the Terms of Payment were cancelled and the following provisions substituted:

"ARTICLE 5 : TERMS OF PAYMENT

Article 5 "Terms of Payment" is cancelled and replaced by :

The total price of Twenty eight million one hundred and fo[u]rty thousand French Francs is payable as follows :

5.1 5 % (five percent) within 30 days from coming into force of this Contract : already paid.

5.2 10 % (ten percent) of the Contract price i.e. : 2,814,000 FF (two million eight hundred fourteen thousand French Francs) - out of which 2,664,000 FF (two million six hundred sixty four thousand French Francs) have already been paid, the balance (150 000 FF) is payable at the latest upon the last delivery.

5.3 85 % (eighty five percent) of the Contract price upon each delivery by means of a Supplier's Credit with 10 semi-annual drafts accepted by the Buyer, consecutive, equal in principal and degressive in interest, at the interest rate of : ........ per year on outstanding balance of the loan.

The first draft will become due 6 months after the Commissioning date or at the latest 4 months after the last shipment arriving at Tianjin (C.I.F. TIANJIN). (such date shall be referred to as "the Cut-off date") and then on a semi-annual basis, until 60 months after Commissioning date or Cut-off date whichever is applicable.

Guarantee : an irrevocable unconditional, guarantee ("Guarantee") payable upon first demand, issued by CREDIT LYONNAIS HONG KONG FINANCE LTD. in an amount corresponding to the three highest instalments of the loan (principal and interests) in accordance with the requirements of COFACE.

These 10 drafts accepted by the Buyer, bearing no date, will be forwarded "in Trust" to Credit Lyonnais Grenoble Branch. Crédit Lyonnais Grenoble Branch will put the maturity date on these drafts as soon as the Commissioning date or the Cut-off date has occur[r]ed."

7. I have set out the new Article 5 in full because its provisions, in particular those of Article 5.3, are significant in terms of what thereafter occurred.

8. The day following the date of such amendments, namely Friday 9th November 1990, an important meeting was held at Poma's offices in Fontaine France at which the major financial aspects of the project were discussed. Present at the meeting, which took the best part of one complete day, were M. Jean-Marie Faure of Credit Lyonnais (Grenoble), Mrs. Joubin-Bret of Poma, Madame Lydia Trull of Interetud, Mr. Khoo Ee Liam of Golden Glory and Mr. Yungman Lee, Golden Glory's U.S. lawyer.

9. During the course of this meeting several things of note occurred. First, M. Faure was informed by his headquarters in Paris that both the guarantee over the first three instalments and the overdraft facility had been obtained. Second, an agreement termed the "tripartite agreement" was produced by Mr. Yungman Lee; this sought to specify in detail the guarantee and overdraft facility provided by Credit Lyonnais, but in the event it was not signed and, at bottom, appears to bear no significance in this case. Third, and most important, during this meeting the exact amount of interest on the ten semi-annual drafts drawn by Poma on Golden Glory could not be ascertained by Madame Trull of Interetud because it was late on Friday afternoon and she was then unable to discover the current applicable interest rate. This in turn meant that the exact amount that would fall due upon the maturity of each draft could not be ascertained. This presented the difficulty of the drafts being signed by Mr. Khoo of Golden Glory with no precise sum entered on their face. Accordingly, it was to solve this very particular problem that an Escrow Agreement was entered into to enable the signing of the drafts by Mr. Khoo, but with no effect to be given to them until the interest rates and the amount to be entered onto each bill could be ascertained.

10. The relevant provisions of the Escrow Agreement of 9th November 1990 entered into between Golden Glory and Credit Lyonnais Grenoble Branch read as follows:

"Whereas : the closing of the Supplier's credit between G.G.I.C.L. and POMAGALSKI S.A. cannot be completed because the interest rate cannot be a[s]certained.

Whereas : the closing of such Supplier's credit shall proceed in escrow.

Now, therefore, the part[ies] hereto agree as follows:

1. G.G.I.C.L. [Golden Glory] shall execute all ten drafts in accordance with the terms of the Purchase Contract, as amended, and such drafts shall be delivered to C.L.G.B. [Credit Lyonnais Grenoble Branch] in escrow. Such drafts shall be delivered to POMAGALSKI when the interest rate and the repayment can be a[s]certained and agreed to by G.G.I.C.L. in writing and an agreement dated the date hereof among G.G.I.C.L., C.L.G.B. and POMAGALSKI S.A.

2. C.L.G.B. shall fax to G.G.I.C.L. as soon as the interest rate and repayment amounts are available and G.G.I.C.L. may indicate its consent by fax.

3. Upon receipt of G.G.I.C.L.'s consent, C.L.G.B. shall deliver the drafts to POMAGALSKI or, dispose of them in accordance with Agreement with POMAGALSKI."

11. This Escrow Agreement is of central importance in this case; with regard to its effect the parties before me appeared, at the outset at least, to be totally at odds. So far as the Plaintiffs were concerned, the Escrow Agreement was signed in circumstances in which the Agreement was purely a holding operation until the relevant interest rates and the corresponding correct amounts to be entered onto each bill could be discovered; to the contrary, to the Defendant the Escrow Agreement served to prevent any amount being entered on the face of the bill at any time before payment was due, and precluded the release of any of the bills of exchange absent the Defendant's agreement thereto: a sort of 'indefinite escrow' was the way I have recorded Mr. Ronald Tang as describing it when responding to a question from the Bench early in the case.

12. The next important event which took place was a meeting on Monday 12th November 1990 in the offices of Interetud in Paris, attended by M. Faure, Madame Trull, Mr. Khoo and Mr. Lee. I pause to note that this meeting had been unanticipated. The Escrow Agreement was entered into on the previous Friday afternoon in anticipation of the fact that Mr. Khoo would be leaving immediately for Beijing; in the event, he was available in Paris on the afternoon of 12th November 1990, by which time Interetud had been able to ascertain the relevant interest rates, and was therefore in the position to determine the exact amount to be entered onto the face of each bill of exchange. At this meeting on Monday 12th November Mr. Khoo was given a written payment schedule that had been completed and indicated the amount of interest to be paid on each of the ten drafts. This was the sole purpose of the meeting, and upon Mr. Khoo's receipt of and agreement to the payment schedule the meeting concluded. Although the Plaintiffs did not obtain Golden Glory's written agreement in writing, on the evidence I accept that such was no longer necessary because all parties had been physically present at the time the relevant information had been obtained, and thus the matter could be, and was, dealt with there and then. I further accept that the agreement referred to in the final clause of paragraph 1 of the Escrow Agreement referred to the so-called "tripartite agreement", which in the event remained unsigned.

13. Thereafter, matters proceeded with some speed. On 13th December 1990, Mr. Khoo met with M. Faure, and at that meeting signed the necessary documents for the issue of the guarantee and the cash collateral for Golden Glory. By 18th December 1990 a corresponding financing agreement between Interetud and Poma was entered into whereby Interetud agreed to make advances to Poma of FF23,919,000 repayable in 10 semi-annual drafts over a 5-year period in return for the purchase of the bills and a subrogation of Poma's rights as to their enforcement. On 21st January 1991, Interetud received by letter copies of the ten drafts endorsed by Poma with the dates of creation and the due dates left blank. It was not until 25th October 1991 that Interetud received the original drafts from Credit Lyonnais, these original drafts then being endorsed by Interetud to the order of Credit Lyonnais's Paris headquarters for collection upon maturity.

14. In broad terms, therefore, the position was tolerably clear. In November 1990 the Defendant had accepted 10 bills of exchange drawn by Poma, each dated 12th September 1991 and made payable in Hong Kong at the Standard Chartered Bank Nathan/Jordan Road Branch at 6-monthly intervals commencing on 17th March 1992. Each of the bills was for a different amount, in line with the reducing amounts of interest on a straightline basis. The drafts were in due course endorsed by Poma to Interetud, Poma having been put in funds therefor, and thereafter, for purposes of collection only, Interetud had further endorsed the bills to Credit Lyonnais.

15. So much for the financing arrangements. While these matters were being put in place, what was happening to the installation of the cable car system? By 17th September 1991 Poma had completed installation of the system, and on that day a certificate of commissioning for the completion of the project was received by Credit Lyonnais. Problems however arose as between Poma and Golden Glory regarding the installation, technical assistance, training and supervision, and Golden Glory had reacted to the dispute with Poma by informing Credit Lyonnais that no further payment should be made to Poma. By fax dated 15th November 1991, Mr. Khoo of Golden Glory stated:

"We refer to the above transaction between your client Pomagalski and Golden Glory International Consultancy Limited.

We regret to have to inform you that as yet Pomagalski have not complied with all the terms and conditions of the contract. With regard to the Escrow Agreement between your goodself and Golden Glory International Consultancy Limited we require an instruction that no further monies howsoever are to be transferred to Pomagalski from our accounts until such time as we confirm in writing to you that all matters are settled between Pomagalski and Golden Glory International Consultancy Limited. ..."

16. From the Plaintiffs' point of view this instruction was curious; in the circumstances it was not clear why Golden Glory was purporting to instruct in this manner since, so far as the Plaintiffs were concerned, the Escrow Agreement had run its course and the bills of exchange had been negotiated. In any event, on 12th December 1991 M. Faure of Credit Lyonnais replied to Mr. Khoo, stating, inter alia, that they were holding a certificate of commissioning dated 17th September 1991 which had triggered the switch to the repayment stage of the credit, and that the first payment of FF3,755,283.04 would fall due on 17th March 1992. M. Faure also referred Golden Glory to the deposit made to cover the Bank's commitment towards COFACE regarding the first three payments, and the fact that they had extended overdraft facilities in the sum of FF1.5 million pursuant to Poma's guarantee.

17. On 13th December 1991 Golden Glory again wrote to Credit Lyonnais advising them not to make any payments to Poma, and that payment should not be made due to Poma's failings under the Contract. This was reiterated on 12th January 1992, and again on 28th February 1992, Golden Glory insisting that no payment was to be made to Poma.

18. Credit Lyonnais replied to Golden Glory on 4th March 1992 explaining that Credit Lyonnais did not know what was Golden Glory's financial position with Poma, but that the payment of FF3,755,283.04 was due by Golden Glory to Credit Lyonnais on 17th March 1992. On 11th March 1992 a letter was sent for and on behalf of Golden Glory asking why Golden Glory was liable for the sum requested by Credit Lyonnais, and that no payment would be made until they were satisfied why it was due.

19. By mid March 1992 the Standard Chartered Bank of Hong Kong began to seek payment for the first of the bills presented to them by Credit Lyonnais in the amount of FF3,755,283.04. Golden Glory gave instructions to countermand the payment of the bill and also requested that the original bill be forwarded to them. Standard Chartered duly forwarded the bill, which was received by Golden Glory in March 1992.

20. Thereafter, in June 1992 Golden Glory issued complaints against offices of Credit Lyonnais before the Examining Magistrate in Grenoble alleging breach of trust and abuse of signing authority. In the meantime, Poma had also commenced civil proceedings against Golden Glory on 2nd April 1992 in Hong Kong claiming the amount of FF1,298,889.80. This claim was not for the price, because of course Poma had already been placed in funds by Interetud, but was simply for extra expenses and services rendered with regard to the installation of the cable car system.

21. As matters transpired, the first 3 bills of exchange were dishonoured by Golden Glory, and on 17th March 1992, the date upon which the third bill of exchange was due, Credit Lyonnais exercised its rights under the guarantee and deducted the sum of FF8,759,072.81 from Golden Glory's deposit.

22. On 17th August 1993 Golden Glory and Poma entered into a global settlement of all outstanding matters between them. In the context of the present action paragraphs 2 and 4 are of significance:

"2. GOLDEN GLORY International Consultancy Ltd. is satisfied that the Contract signed on Nov. 3rd of 1987 between the parties and the addendum thereto signed on Nov. 8th 1990 have been fully completed to their satisfaction by POMAGALSKI [S] SA and GOLDEN GLORY International Consultancy Ltd. has no claim against POMAGALSKI SA related thereto. .....(emphasis added)

4. GOLDEN GLORY International Consultancy Ltd. has outstanding matters with the Bank Credit Lyonnais and recognizes POMAGALSKI SA's request to find a settlement of said matters in good faith."

23. To complete the history of events, the present writ of summons was issued by the Plaintiffs against Golden Glory on 1st May 1995, and in September 1995 M. Faure of Credit Lyonnais (Grenoble) was exonerated of any wrong doing by the Grenoble Examining Magistrate. I note that, inter alia, M. Faure and Madame Trull gave evidence before the Examining Magistrate, who heard argument on behalf of Golden Glory that the Escrow Agreement covering the ten drafts accepted in blank (with the date of creation, due date and amount left blank) had been executed by Credit Lyonnais on 9th November 1990 whereby the drafts were to be released to Poma only upon receipt of formal written instructions from Golden Glory specifying the amount and the date of each of these drafts as well as the applicable rate of interest. In this context that one of the particular observations of the learned Examining Magistrate was that:

"It remains true that Mr. Khoo who did not come back to Grenoble though asked to on several occasions by the Examining Magistrate at least misunderstood the complex provisions of the contract when he pretended he could decide the date on which the rate of interest (made up of three elements including the COFACE rate) was to be finally determined."

24. It appears from the foregoing extract from his decision that the Examining Magistrate did not have the benefit of Mr. Khoo's continued presence before that inquiry. Curiously, and most regrettably, the same situation was to prevail in this case, albeit as the result of different circumstances.

25. What happened was this. Shortly after the commencement of the afternoon session on the second day of the trial, Mr. Ronald Tang, Counsel for the Defendant, made an adjournment application. He indicated that he had been labouring under significant difficulties in the conduct of his client's case, and that important matters had been raised upon which he could not take precise instructions, his client currently being absent in Australia. He further indicated that his client, Mr. Khoo, was even then in the course of returning to Hong Kong, and would be available later that evening. In the circumstances he asked for an adjournment to enable him to confer properly with his client.

26. I granted this application. At the same time I indicated to Mr. Tang that if he had taken me into his confidence and had explained the situation to me earlier, I could have appreciated his difficulties, and perhaps then matters would have developed differently. This was a reference to an exchange between Bench and Bar immediately before lunch on that same day; from the outset of the trial, I had been concerned to properly grasp the way the Defendant put its case, and after a fairly circuitous piece of cross-examination by Mr. Tang of the Plaintiff's first witness, M. Faure, I asked Mr. Tang on more than one occasion to put his case as to what his client maintained had occurred at one of the important meetings in November 1990. Mr. Tang responded by suggesting that his cross-examination was being fettered and that he was being prevented from testing the evidence and from protecting his client's interests. He sat down and declined to ask further questions. Lunch intervened. Immediately after the break, and before Mr. Westbrook commenced re-examination, I indicated to Mr. Tang that I was particularly concerned to ensure fairness, and invited him to continue his cross-examination. It was important that the case be put about the events of November 1990; highly significant in this regard was the Escrow Agreement and whether his client, Mr. Khoo, had in fact agreed to the face amounts appearing on the face of the bills of exchange and to their completion in those terms. As a matter of evidence this was clearly vital to the case in terms of the broad shape of the dispute.

27. In the event no such further cross-examination took place, because after I had invited him to continue Mr. Tang then made his application to adjourn, and I acceded thereto. At that stage I understood that Mr. Tang would be meeting his client later that evening and that he would consider not only the matters which had arisen during the case thus far, but also would reflect further on the state of his pleadings and possible amendments to allege, inter alia, that the bills were not regular on their face, an issue which Mr. Tang had first raised during his cross-examination.

28. At the commencement of the hearing on morning of the third day, Mr. Tang did not appear. Instead I was addressed by Mr. Chui, the Defendant's solicitor. Mr. Chui informed me that at a meeting that morning Mr. Tang had been discharged from the case by Mr. Khoo, who now wished to instruct 'more senior' counsel; he said that his client felt that a fair trial could not be conducted as matters stood, and that his client had lost confidence in his present representation. He asked for an adjournment of the case. I understood that it was not anticipated that any such adjournment would be short, since it was not possible to find senior counsel at short notice, and since new counsel would have to review all that had occurred in the case thus far. This application was firmly opposed by Mr. Westbrook, who submitted that in his view it was an obvious stratagem to force the trial to a halt.

29. In the particular circumstances I refused this adjournment application. It seemed to me plain that such peremptory and unilateral action by the Defendant was designed to prevent the case from continuing; I also bore in mind the fact that this was a long-standing fixture, and that two witnesses for the Plaintiffs have flown from France for the case, and were scheduled to return at the end of that week. I indicated to Mr. Chui that although the Defendant apparently no longer had counsel, as a result of the action taken in suddenly discharging Mr. Tang, nevertheless in the circumstances I would exercise my discretion and permit him to take over conduct of the case. His client was now present and he, Mr. Chui, knew both the papers and, presumably, the case. This offer was declined on the basis of lack of competence, at which point Mr. Chui then made a further application to be given immediate leave to come off the record. I refused this application; in my view, no ground was made out therefor. At this juncture I was asked to stand the matter down for five minutes.

30. Upon resumption, Mr. Chui informed me that he had a further application. He stated that he wished to leave the case because his services, also, had now been summarily terminated by Mr. Khoo just minutes before. In the circumstances I permitted Mr. Chui to depart.

31. Mr. Khoo then came forward. He had been sitting in Court throughout that morning, having arrived from Australia the previous evening. Mr. Khoo said that he came to seek justice. Mr. Khoo submitted that on the basis of what he had been told about exchanges between Bench and Bar by those who had been present in Court during the first two days of the trial that he required more senior counsel to protect his interests, that it was evident that I had made up my mind about the case, and that as a consequence he could not obtain a fair trial. He applied for a change of judge, which in the circumstances I took to be an application to recuse myself on the basis of bias. If I did not he would appeal. I refused his application. As I recall, I indicated that he was in error in the assumptions that he had made, and that I was anxious to hear his evidence (he was to be the sole witness for the defence) on all material issues. I also suggested to him that in my view it was entirely in his interests to stay with the case; if he wished to appeal on the basis of bias he would still have the right to make any such submission on appeal. Regrettably he did not accept this suggestion. He asked for leave to withdraw, and upon being informed that such was unnecessary, since effectively this was his case and that he could do as he wished, he left the courtroom together with his associates.

32. After this unexpected and unusual sequence of events, I rose for the mid-morning adjournment. Half of the courtroom was now empty, and I indicated to Mr. Westbrook that the trial would continue, and that he should proceed to call his witnesses and to prove his case, or at least to attempt to do so. The case then continued for a further period of one and a half days, during which time I listened to the evidence, and to Mr. Westbrook's closing submissions, and thereafter reserved judgment to consider such evidence and submissions.

33. It is regrettable that Mr. Khoo saw fit to take matters into his own hands in the way that he did; his actions could only be interpreted as an attempt to present the Court with a fait accompli and to force an adjournment via summary termination of his existing legal representation. Those actions, however, were peculiarly his choice, and in my judgment it was necessary in the circumstances to continue with the case, notwithstanding the absence of the Defendant.

34. To return, however, to the claim itself. As pleaded and argued, the Plaintiffs put their case in two main ways:

35. First, a claim on four bills No. 4 to 7, which were dishonoured for non-payment. These bills were dated 17th September 1993, 17th March 1994, 17th September 1994 and 17th March 1995, and on their face amounted to a total of FF12,567,042.70; second, the 2nd Plaintiff's claim against the Defendant under the guarantee, issued at the Defendant's request, with reference to the amount of the first three dishonoured bills of exchange totalling FF10,856,834.21. The 2nd Plaintiff had paid the 1st Plaintiff the full amount of the bills, and by the terms of the guarantee the Defendant was obliged to repay all monies paid out thereunder; after deduction of the Hong Kong Dollar cash deposit held in the Defendant's account with the 1st Plaintiff, a debit balance remained of FF2,033,371.31.

36. On the pleadings the 1st Plaintiff also maintained an alternative claim on the basis of the unpaid balance of the contract price on the basis of being subrogated to Poma's rights under the underlying contract with Golden Glory. This claim was alternative to that under the bills of exchange, and was not strongly pressed by Mr. Westbrook, counsel for the Plaintiffs, at trial. Accordingly, I have confined myself to the claims under the bills of exchange, and that under the guarantee given to the 2nd Plaintiff.

37. With regard to the Defendant's case, I am in difficulty in properly rehearsing that case because in the event no case was rehearsed before me. Doing the best that I can, however, both from the papers and from that which I was able to glean when the Defendant maintained representation, I understood that the thrust of the defence went to the allegation that the Plaintiffs had no right to present the bills of exchange for payment by reason of the terms of the Escrow Agreement, that the interest rates and payments in the relevant amounts were never agreed by Golden Glory, nor was there ever written consent by Golden Glory to deliver the bills from escrow, that accordingly the Plaintiffs had acquired the said bills in bad faith and with knowledge of defective title, and, finally, that the Settlement Agreement of 17th August 1993 which was entered into between Golden Glory and Poma was binding upon the Plaintiffs. Indeed Mr. Ronald Tang informed me early in the case that the Defendant attached considerable significance to this Settlement Agreement. I confess that I was never able to grasp why this should have been so.

38. In addition, on the pleadings at least, the Defendant mounted a counterclaim alleging wrongful deduction of the amount of the deposit in partial satisfaction of the guarantee, the return of the monies allegedly thus wrongfully deducted, and, in so far as the Defendant was to be found liable to the Plaintiffs under the bills of exchange, the balance of the purchase price of the cable car project, because the Defendant had never agreed to release any of the bills to the Plaintiffs.

39. Mr. Westbrook on behalf of the Plaintiffs contended that the Plaintiffs' role in the cable car project was solely that of helping in the raising of the necessary financing for the completion of the project, that the defences put forward were clearly without merit, and that the Defendant was simply and transparently seeking to avoid payment. Mr. Westbrook called two witnesses of fact.

40. The first witness was M. Jean-Marie Faure, who was the Manager of the corporate branch of Credit Lyonnais Grenoble between April 1990 and September 1992. It was M. Faure who had represented Credit Lyonnais in its meetings with the Defendant, and had attended the meeting on Friday 9th November 1990 at Poma's offices to discuss the financial aspects of the project. M. Faure told me in detail what had transpired during that meeting, in particular the manner in which he had obtained approval for the guarantee of the first three instalments from Credit Lyonnais headquarters in Paris and to the granting of FF1.5 million overdraft facility in Golden Glory's favour, and as to the way in which the Escrow Agreement had come into being. Due to the fact that the interest rate for the principal sums could not be determined at the meeting he acted, in effect, as 'escrow agent' under that Agreement, the purpose of which was to reassure and protect Mr. Khoo of Golden Glory who was concerned about signing drafts in blank. Mr. Faure confirmed that the Escrow Agreement was necessary solely because the exact interest rate could not then be ascertained and was for no other purpose; as it happened, said M. Faure, the interest question was settled very quickly, and at the further meeting on 12th November at the offices of Interetud in Paris a written repayment schedule showing the applicable interest rate and the amounts to be inserted on the drafts was provided to Mr. Khoo. M. Faure was in no doubt whatever that Mr. Khoo, who was then present with his lawyer Mr. Yungman Lee, had specifically agreed to the relevant interest rate and to the amounts which were to be so inserted on the drafts, and that Mr. Khoo was well aware of the financing mechanics which had been put in place. M. Faure also gave evidence about the further history of this matter up to and including the lodging of the complaint against him by Mr. Khoo alleging breach of trust and an abuse of signing authority in connection with the Escrow Agreement.

41. The second witness was Madame Lydia-Michèle Trull, whose position in 1990 was that of Sales Officer with Interetud S.A. Madame Trull recounted what had happened on the meeting of 9th November 1990, where she was the only representative of Interetud present at the meeting, and where her presence was to provide answers to any questions that might be raised about the terms and conditions in the financing costs that Interetud would quote, subject to the approval of COFACE. Madame Trull confirmed that during the meeting she was asked about the rate of interest that Interetud would apply to the semi-annual instalments due, and that she was unable to make the calculations there and then without the necessary computer equipment. Later that day her office had telephoned explaining that due to the fact that information could not be obtained from COFACE late on Friday only an approximate cost could be given on a simulated computer run. Madame Trull then informed the meeting that she would be unable to ascertain precisely the necessary information until Monday 12th November, when she could work out the exact amount of half-yearly instalments; she continued that in her presence the draft bills were written up with both the amounts and the due dates being left blank.

42. Madame Trull also confirmed the events of the meeting of 12th November in the offices of Interetud, where she gave the written repayment schedule to Mr. Khoo who looked at it and put it in his briefcase. She further confirmed M. Faure's assertion that Mr. Khoo had agreed to such repayment schedule. In comparison with the previous Friday, she said that this particular meeting was a short one, and had concluded as soon as the necessary information had been provided to Mr. Khoo. Thereafter she had had no further contact with Mr. Khoo.

43. Madame Trull continued that on 18th December 1990 the financial agreement between Poma and Interetud was entered into with Interetud agreeing to make advances to Poma. She further told me how in January 1991 she received copies of the ten drafts endorsed by Poma, the dates of creation and due dates being left blank, and how on 25th October 1991 she received a letter dated 21st October 1991 from Credit Lyonnais Grenoble enclosing the original ten drafts. These drafts were endorsed by Mr. Christophe Fay, Interetud's Director, to the order of Credit Lyonnais and were sent to Credit Lyonnais Paris headquarters for collection on the scheduled maturity dates. She confirmed that drafts were dishonoured upon presentation and were returned unpaid.

44. I have no hesitation in accepting the evidence of M. Faure and Madame Trull. They gave their evidence carefully and with conviction. In my judgment there was no reasonable room for doubt that they were telling the truth as they clearly recalled it. Each was a professional person of obvious integrity. I should add that I had the benefit of an excellent French interpreter, so although problems sometimes occur when dealing with a translated evidence, I am in no doubt that the evidence I received was as given, and that events had occurred entirely as the witnesses had described. I recognise also, of course, that the evidence of M. Faure and Madame Trull was not tested by cross-examination. That, however, was not a situation of their own making. They made the trip from France in order to give their evidence, they gave such evidence clearly and concisely, and the evidence that they gave possesed the additional advantage, in my judgment, of being entirely consistent with the commercial probabilities in the circumstances prevailing.

45. To sum up, I find that events occurred as they were described to me by M. Faure and Madame Trull. I find on the basis of the evidence I have heard that Mr. Khoo was well aware of the very limited purpose of the Escrow Agreement, namely, to hold the position simply until the correct amounts could be ascertained and the correct payment schedules worked out; indeed, to ascribe to the Escrow Agreement the meaning and purpose apparently subsequently attributed to it by the Defendant made no commercial sense whatever from the Plaintiffs' standpoint, as in fact M. Faure was at pains to point out during his evidence. I also specifically find, and I have no hesitation in so doing, that there was no question of the Plaintiffs acquiring those bills in bad faith and with knowledge of defective title. On the evidence before me, in my judgment Mr. Khoo well knew precisely what was to occur in terms of the financing structure which had been put in place; when events are looked at in their totality, the overwhelming probabilities are that the financing structure in position was sought to be varied only when problems arose with the cable car system itself, and for this purpose there was, therefore, a purported reversion to an Escrow Agreement the purpose and function of which had been spent long since. Whilst I have not had the opportunity of hearing from Mr. Khoo, or indeed any evidence from the defence side of the table, I am left with the overwhelming impression in this case that there has been an inability, or more probably an unwillingness, to draw a clear line of demarcation between the underlying transaction, that is the cable car contract itself, and the rights and obligations accruing upon to the Defendant's acceptance of the bills of exchange and their subsequent negotiation. Indeed, at an early stage on the opening day of the trial I have recorded Mr. Tang, in responding to a question as to the basic lines of defence (wherein the "indefinite" escrow and the Settlement Agreement were isolated as being those very lines) as noting that "our difficulty is that we bought something that is not worth the money".

46. Mr. Westbrook seeks payment of and has asked for judgment on four dishonoured bills of exchange only, namely Nos. 4-7 in the sequence. In my view he has proved the case he set out to prove. Accordingly, the Plaintiffs shall have judgment against the Defendant in the sum of FF12,567,042.70. Interest is claimed thereon at an annual rate of 11.4% on each of the four dishonoured bills from their respective maturity dates until the date of the writ. However, the interest as claimed appears to have been calculated upon both the principal and interest element of each bill, which in my view is inappropriate; I am also disinclined to award interest at the claimed rate, which rate, as I understand the position, represented the rate adopted in the financing transaction. The Plaintiffs are to have interest, which I apprehend will require a further calculation, at the rate of 8% on the principal element only of the four bills, such interest to run from the date of dishonour of each of the bills until the date of judgment, and thereafter at judgment rate.

47. With regard to the 2nd Plaintiff's claim for the balance of monies due pursuant to the guarantee, after deduction of the monies deposited by the Defendant against that guarantee, the 2nd Plaintiff is to have judgment in the amended sum of FF2,033,371.31, with interest thereon at 8% from 17th March 1993 to the date of judgment herein, and thereafter at the judgment rate.

48. Mr. Westbrook further suggested, by reason of that which he described as the "whimsical nature" of the defence, that his client was entitled to an enhanced order as to costs, since there was no bona fide or properly arguable defence advanced. He asked for costs on a solicitor and own client basis. I have considered his request but do not accede to it. The Plaintiffs are to have the costs of this action, such costs to be taxed and paid, if not agreed, on a party and party basis. I so order.

49. The Defendant's counterclaim is also dismissed with costs on a like basis.