Case Update

Bayerische Landesbank Girozentrale v Teh Li Li [2000] 4 SLR 602
High Court - Suit No 957 of 1998
Choo Han Teck JC
27-29 September, 2 October 2000

Banker and customer - Claim for amount outstanding under banking facility - Whether facility agreement illegal - Whether customer contracted with bank as principal or nominee - Whether bank negligent in sale of shares held as security for facility

Suresh Nair and Vikhna Raj (Allen & Gledhill) for the plaintiffs.
Lai Swee Fung and Nicholas J Narayanan (Toh Tan & Partners) for the defendant.

The plaintiff bank granted a banking facility to the defendant by way of a facility letter in 1996. The facility letter was signed by both parties and stated that an attached set of Standard Terms and Conditions would apply. The terms contained a clause stipulating Singapore law as the governing law of the contract. The defendant deposited certain shares with the plaintiff bank as security for the facility. By August 1997, the value of the defendant's security had fallen to below that of the outstanding loan. The plaintiff bank made two demands for payment in September 1997, but without success. The plaintiff bank sold various parcels of the security and cancelled the facility in February 1998.

The plaintiff bank claimed against the defendant for the outstanding sum of the loan. The defendant raised three defences. Firstly, the defendant alleged that the standard terms were never attached to the facility letter and Malaysian law, rather than Singapore law, was the governing law of the contract and the contract was illegal under Malaysian law. Secondly, the defendant pleaded that she contracted only as a nominee for her boss. Finally, the defendant pointed to the plaintiff bank's negligence in not having sold all the security in its possession to clear the defendant's debt with more to spare.

Held, allowing the plaintiff bank's claim:
Since no evidence was adduced as to Malaysian law which rendered the contract illegal, there was insufficient evidence for the court to make a finding on the defence of illegality.

As for the second defence, although the defendant averred that a representative from the plaintiff bank had represented to the defendant that the inclusion of her name was just a formality, the defence of estoppel was not raised. Instead, the defence was an outright denial of liability on the ground that the defendant was an agent for a named principal. There was no evidence to support this defence. In law, a party who signs a commercial document agreeing to be bound by it will be so bound, unless estoppel is proven.

The defence of negligence failed for lack of evidence: the value of the security had fallen much below the debt by the time the plaintiff bank called on the loan. Besides, the agreement had given the plaintiff bank the discretion to sell and to hold back any sale.

CGU International Insurance plc v Quah Boon Hua & Ors [2000] 4 SLR 606
High Court - Suit No 1766 of 1999
Rajendran J
19-21 July, 29 September 2000

Guaranty and indemnity - Letter of indemnity - Signatory signed letter of indemnity under impression that all three directors of company were expected to and would sign document - Whether enforceable as against signatory - Test of parties' intention

Fazal Mohamed Karim and M Anjalli (B Rao & KS Rajah) for the plaintiffs.
Goh Peck San and Chiong Meng Chuan (PS Goh & Co) for the first defendant.

The three defendants had signed a letter of indemnity, indemnifying the plaintiffs against all losses the plaintiffs may suffer as a result of issuing a performance bond for the sum of $383,222 to a company, Low Keng Huat (S) Ltd (the company), for the due performance by the third defendants of its obligation under a supply and installation contract entered into with the company. The first and second defendants were directors of the third defendants. There was a third director who did not sign the letter of indemnity. The plaintiffs had earlier informed the third defendants through a letter, that they required the signatures of only two of its directors. The letter of indemnity sent to the defendants by the plaintiffs for signature had provision for it to be signed by the third defendants and its three directors. The company called on the performance bond and the plaintiffs paid a sum of $383,222 under it. The plaintiffs sued the three defendants under the letter of indemnity, claiming reimbursement of the said sum. Judgment in default of appearance was entered against the third defendants and, as the second defendant had been adjudicated a bankrupt, the action only proceeded in respect of the first defendant. The first defendant claimed that he only signed the letter of indemnity on the basis that all three directors would sign. He pleaded that the signature of all three directors was a condition precedent and since the third director did not sign, the document was ineffective as against him.

Held, dismissing the plaintiffs' claim:
The first defendant played no executive role in the running of the third defendants and could not be expected to know the contents of the letter from the plaintiffs to the third defendants, stating that they would be content with the signatures of only two directors. The plaintiffs, in submitting a document requiring the signatures of three directors of the third defendants, reinforced what the second defendant had represented to the first defendant, namely, that all the directors of the third defendants would be signing the document.

It was not a rule of law that an instrument of guarantee in the form or terms implying execution by more than one guarantor for joint and several liability, all parties had to sign the instrument before it was binding. The crucial test was the intention of the parties.

The letter of indemnity sent to the first defendant for signing provided for the signatures of all three directors. By making such provision, the plaintiffs represented to the first defendant that they required all three directors to sign. The first defendant had signed the document under the impression that all three directors were expected to and would sign the document. As a minority shareholder, he would not have signed unless all the directors were signing. As the letter of indemnity had only two signatures, contrary to the parties' intention, the indemnity would have no legal effect as against the first defendant.

Bayerische Landesbank Girozentrale v Teh Li Li [2000] 4 SLR
602
High Court - Suit No 957 of 1998
Choo Han Teck JC
27-29 September, 2 October 2000

Illegality - Banking facility - Whether contract illegal under Malaysian law

See BANKING.

Capital Realty Pte Ltd v Chip Thye Enterprises (Pte) Ltd [2000] 4 SLR 548
Court Of Appeal - Civil Appeal No 50 of 2000
Yong Pung How CJ, LP Thean And Chao Hick Tin JJA
25 September, 27 October 2000

Loan agreement - Construction project - Moneys loaned by owners of property - Borrower's identity - Account stated - Audit confirmation signed by debtor - Prima facie evidence of debt

Yang Ing Loong and Christopher Tan (Allen & Gledhill) for the appellants.
Alfonso Ang and Nicholas Chan (A Ang Seah & Hoe) for the respondents.

The appellants were the owners and developers of a housing project ('the project'). The respondents were the main contractors for the building of the project and they sub-contracted nearly the entire building contract to a company called Articon. The person in the appellant company who was primarily in charge of the project was their director, one APS, who had passed away on 14 June 1998. One of the two persons managing Articon was Lee, a shareholder and director of the company. Although Lee was neither a shareholder nor a director of the respondent company, there was clear evidence that he managed the project on the respondents' behalf. Lee and APS also shared a close personal relationship.

In 1996, an oral arrangement was made between APS and Lee: the appellant company would loan sums of money for payment of the project sub-contractors. The loan was made in the form of four cash cheques drawn on the appellants' bank account. Each cheque was handed by APS to Lee, who then deposited it into Articon's bank account. Three repayments were made in the form of cheques drawn on Articon's account. The outstanding balance owed to the appellants, the subject of this action, was $500,000.

The main issue was the identity of the borrower. APS and Lee could not be called to give evidence: the former had passed away while Lee had gone missing. The appellants argued that the respondents were the borrowers, relying on an audit confirmation signed by the respondents' managing director, Phay, stating the respondents were indebted to the appellants for $300,000. The respondents denied they were the borrowers and contended that the moneys were loaned to Articon. The trial judge dismissed the appellants' claim on the basis that they had failed to prove that the loans were made to the respondents, as he found that the loans were made to either Lee or Articon. The appellants appealed.

Held, allowing the appeal:
There were contemporaneous documents, such as the payment vouchers and receipts in respect of repayments issued by the appellants and receipts issued by the respondents, which showed that the loans were made to the respondents and not to Articon.

The trial judge gave undue significance to the fact that the four cash cheques issued by the appellants were deposited into the bank account of Articon. Under a loan arrangement, the money disbursed was not required to go into an account of the borrower. The fact that the cheques were deposited into Articon's bank account was not conclusive.

While there was a close and special relationship between the respondents and Articon, which APS was probably aware of, it did not follow that the appellants also knew the precise contractual relationship between the respondents and Articon relating to the project. There was no contract of novation and documentary evidence relating to the loans was in the respondents' name and minutes of site meetings did not reflect the presence of Articon. These showed that the appellants intended to deal only with the respondents.

The audit confirmation signed by Phay constituted strong prima facie evidence of a debt owed by the respondents to the appellants. The court rejected his explanation as to why he signed the audit confirmation as it was inconsistent and lacking in credibility.

Although Lee was neither a shareholder nor a director of the respondents, it was clear that he was authorised to deal on their behalf. Numerous documents indicated Lee's involvement in the project and he had signed various documents relating to the project on the respondents' behalf. The payments were loans given by the appellants to the respondents. The evidence, in the totality, convincingly supported the appellants' claim.