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HCA 204/2012
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 204 OF 2012
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BETWEEN
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UCO BANK |
Plaintiff |
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and
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DAYS IMPEX LIMITED, LIBERIA |
1st Defendant |
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NANIK DAYARAM |
2nd Defendant |
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Before : The Honourable Deputy High Court Judge Seagroatt in Chambers
Date of Hearing and Decision: 18 October 2012
Date of Handing-down of Written Judgment : 24 October 2012
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J U D G M E N T
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1. This is an appeal against the decision of Master de Souza on 17 August 2012, when he gave the defendants unconditional leave to defend following his hearing of the plaintiff’s application for Summary Judgment under Order 14.
2. The plaintiff’s claim is to recover the amount of the credit facilities, and interest together with some associated costs, (altogether approximately US$1,293,566) afforded to a company known as Days Impex Limited. Repayment of the sums due was guaranteed on the face of it by the 1st defendant, the holding company of Days Impex Limited (having virtually the same name) and the 2nd defendant, who is the Director of the 1st defendant and has the controlling interest, on his personal guarantee.
3. The claim is based on guarantees in writing given by the respective defendants on 1 February 2011. These guarantees in turn repeated the guarantees by the defendants in September 2005. These earlier guarantees were given in accordance with a Board meeting of 12 September 2005 at which three members of the Dayaram family (including the 2nd defendant) attended as Directors. The 2nd defendant was Chairman of the meeting at which it was resolved that the 1st defendant would give the corporate guarantee to the plaintiff to be signed by the 2nd defendant who also signed the minutes recording this. These earlier documents are evidentially significant.
4. The actual personal guarantee dated 1 February 2011, and signed by the 2nd defendant, is in identical form to that of 12 September 2005 signed by him. Similarly the actual corporate guarantee dated 1 February 2011 bearing the 1st defendant’s chop and signed by the 2nd defendant as authorized signatory is in identical form to that of 12 September 2005 also bearing the 1st defendant chop and signed by the 2nd defendant as authorized signatory.
5. In order to see what defence is raised in the light of these seemingly conclusive documents, it is necessary to look at the Defence pleaded. Paragraph 6 avers that:
“The Plaintiff and the 1st Defendant did not procure any board resolution approving the purported guarantee and/or authorizing its direction (sic— it must mean ‘director’) to execute the relevant loan documents.”
Paragraph 8 quotes the Board’s resolution dated 1 February 2011 which it admits was sent to the plaintiff on 2 February 2011. Paragraph 9 further avers “that the Board Resolution did not authorize the director of the 1st defendant, Nanik Dayaram, to execute the guarantee on behalf of the 1st defendant.” The one matter that is clear from this paragraph is that there is a clear admission that the 2nd defendant is the director of the 1st defendant.
6. The Defence then goes on to suggest the plaintiff’s manager was unhappy with the form of Board Resolution in that it did not contain an authorization for the 2nd defendant to sign on behalf of the 1st defendant and accordingly produced a draft Board Resolution for the 2nd defendant to approve in or about mid‑February 2011. This draft, the Defence alleges, was not signed. Accordingly, the defendants say the 1st defendant has no liability under the guarantee.
7. The plaintiff through its manager on the other hand has deposed that there was no such approach or draft Board Resolution provided. Mr Kumar says that he had merely asked for Board Resolutions similar to those executed in September 2005.
8. The documents submitted to the plaintiff are clear enough. There is a Board Resolution of the 1st defendant dated 1 February 2011 (made at a meeting on the same day) signed by the 2nd defendant as chairman of the meeting. It stated unequivocally that the company:
“Resolved that the company be and hereby give the Corporate Guarantee to UCO Bank (the plaintiff) … for securing the credit facilities granted in favour of (the borrower) …”
9. There is a certificate at the bottom of the document which says:
(1) The above resolution is not ultra vires the memorandum and articles of association of the company (the 1st defendant).
(2) The aforesaid borrowing is within the borrowing powers of the company/Directors and the requisite formalities in this connection have been completed.
10. There is an undertaking of the same date to stand as guarantor of the “loan/CC Accounts” for the borrower, signed by the 2nd defendant, described as “Guarantor.” The wording is significant — “I have stood as guarantor in respect of the loan in the name of Days Impex Limited …. I undertake I shall remain liable for all the outstanding in the above said account …”. That clearly refers to the earlier guarantee of September 2005 and a recognition of continuing liability.
11. There is also a letter of 31 January 2011 from the plaintiff to the 2nd defendant in his personal capacity. He was asked to sign the duplicate of the letter “in token of your having understood the various terms and conditions enshrined in the guarantee agreement and in acceptance thereof”. He was also advised to seek independent legal advice before signing the guarantee. The 2nd defendant returned the duplicate letter duly signed and dated 1 February 2011.
12. A letter in exactly the same form was sent to the 1st defendant on the same date. Its duplicate was returned with the 1st defendant’s chop and signed by the 2nd defendant as the authorized signature.
13. In conformity with that is an undertaking by the 1st defendant in identical terms to that given by the 2nd defendant in his personal capacity. The phrases repeated and noted as significant in my view are “— we have stood as guarantor in respect of the loan … in the name of Days Impex Ltd.”, and “we undertake that we shall remain liable for all the outstanding in the above said account …”. It has the chop of the 1st defendant with the 2nd defendant signing as authorized signature, and the description — ‘Corporate Guarantor’ in brackets. As in the case of the 2nd defendant’s undertaking, it reflects the past (i.e. 2005) and recognizes continuing liability.
14. The documentation relation to the guarantee in September 2005 by the 1st defendant clearly cloaks the 2nd defendant with actual authority. Everything is done by the 2nd defendant on behalf of the 1st defendant as its director. Mr Alder for the defendants appeared at some stage not to accept this but in my view it is unarguable. Of course the plaintiff is not suing on the basis of the 2005 guarantee but, as I have said earlier, the 2005 guarantee and associated documents are of significant evidential value.
15. The Bank was entitled to treat the 2nd defendant as continuing to act as the 1st defendant’s unauthorized agent. If one could argue that actual authority had lapsed on or about 31 January/1 February 2011 it would be highly artificial and indulging in semantics to rely upon the absence of express authority in the Board Resolution of 1 February 2011. The 1st defendant’s undertaking clearly stated acceptance of a history of liability and continuing liability as a guarantor. The letter of 31 January 2011 did exactly the same when the company appended its chop to the duplicate and its director, the 2nd defendant, signed as “authorized signature.” The 2nd defendant had at the very least implied or ostensible authority in continuing to sign in his capacity as director (he signed the 1st defendant’s Board minute and resolution as Chairman). He was at all times the ‘persona’ of the company he continued to represent and whose authority was invested in him for all practical purposes.
16. I do not need to resolve the apparent conflict between Mr Kumar, the plaintiff’s manager, and the 2nd defendant concerning whether or not there was a request by the bank for a Board Resolution confirming the 2nd defendant’s authority to sign the guarantee by the 1st defendant. Even if the Bank thought it needed a resolution which was in every respect a replica of that given in 2005, in my judgment it did not need it. I have already set out the reasons. More significantly the 2nd defendant ignored the position and did nothing to meet what he says he was asked to do. Mr Alder submitted that the explanation for this was preoccupation with draw-down of the facilities provided by the plaintiff later in 2011. I do not accept that as a valid reason. In my view the 2nd defendant’s inaction/omission simply lent weight to his ostensible authority. I do not need to consider whether this amounted to an estoppel. The bank’s facility continued and the defendants accepted that.
17. Reference was also made on the defendants behalf to the 1st defendant’s Memorandum and Articles of Association in relation to powers of directors with regard to the company. Such documents were not before Master de Sousa. This is a rehearing and they have not been put before me.
18. So much for the position of the 1st defendant. The 2nd defendant’s personal guarantee stands on its own backed by his personal undertaking and his signature on the duplicate letter signifying his acceptance of the guarantee and its implications.
19. It seems as if at one stage the 2nd defendant was trying to argue that if the 1st defendant succeeded in showing that its guarantee had not been validly executed then he could escape liability under some sort of protective umbrella.
20. I was referred to the English Court of Appeal’s decision in Capital Cashflow Finance Ltd v Southall [2004] EWCA Civ.817 & 2004 All E.R.(Comm) 675 which I have read. It is also the subject of commentary in Rowlatt on Principal and Surety at page 126. Mance LJ had quoted in his judgment a passage in Rowlatt’s earlier edition, following his saying “There is … also a relevant distinction between the position where a single document is on its face intended to be signed by more than one person undertaking liability as a guarantor or indemnifier and the position where different documents are prepared, each to be signed separately by a single guarantor or indemnifier.”
21. In the latter circumstances Rowlatt, after citing Capital Cashflow Finance Ltd, added that this “may give rise to an inference that each is to be bound on execution.” This case does not assist the 2nd defendant. It does lend support to the plaintiff’s case if it be needed. The 2nd defendant has no ground or argument on which he can escape liability.
22. One cannot help feeling that the defendants’ contention are borne out of some sophistry but even more disconcerting was Mr Alder’s affirmative reply to my question “Did the 2nd defendant know he had no authority to sign the guarantee when he put his signature below the company chop and above “authorized signature” on the various documents ?” My recollection is that Mr Alder had obtained information from his client in court when I received from him the answer “yes”.
23. That is an admission by the 2nd defendant of fraud and specifically, of obtaining a pecuniary advantage by deception. I have considered whether I should refer the matter to the Director of Public Prosecutions but have decided to leave it for the plaintiff to consider.
24. The appeal will be allowed. Judgment will be entered for the plaintiff under Order 14 on the ground that neither defendant has any defence to the plaintiff’s claim, with costs.
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(Conrad Seagroatt)
Deputy High Court Judge |
Mr Alan Kwong, instructed by Wilkinson & Grist, for the plaintiff
Mr Edward Alder, instructed by Tanner de Witt, for the 1st and 2nd defendants
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