Permanent Trustee Co Ltd v Gulf Import and Export Co
[2008] VSC 162
•14 May 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8130 of 2002
| PERMANENT TRUSTEE COMPANY LIMITED | Plaintiff |
| v | |
| GULF IMPORT AND EXPORT COMPANY AND EMIRATES TRADING AGENCY LLC | Defendants |
---
JUDGE: | HANSEN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 and 31 May, 1-2, 6, 8 and 15 June 2006, 21-23, 28-31 May, 4, 6-7, 12, 19, 21-22 and 25-28 June, 2-5, 24, and 30-31 July 2007 | |
DATE OF JUDGMENT: | 14 May 2008 | |
CASE MAY BE CITED AS: | Permanent Trustee Co Ltd v Gulf Import and Export Co | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 162 | |
---
Guarantee and indemnity – Defendants provided guarantees and indemnities in respect of amounts owing by trading company to two banks – Guarantees held by plaintiff as security trustee for banks – Certificates produced by plaintiff and banks stated amounts payable – Signed under powers of attorney – Regularity – Effect of certificates - Sufficient evidence unless matter or sum stated proved to be false – Clause in guarantees precluded guarantors, while guaranteed money unpaid, from setting up a defence, set-off or counterclaim in reduction of liability under guarantee and indemnity – Clause precluded defence that amount not payable – Unnecessary and undesirable to consider defence on the merits given terms of the guarantees and fact that defence raised serious allegations against non-parties yet could not affect conclusion that plaintiff must succeed.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P J Jopling QC and Mr J F Styring | Minter Ellison |
| For the Defendants | Mr R M Garratt QC and Mr A M Thomas | Aitken Walker & Strachan |
HIS HONOUR:
Introduction
The plaintiff, Permanent Trustee Company Limited (“Permanent”), sues the defendants, Gulf Import and Export Company (“Gulf”) and Emirates Trading Agency LLC (“Emirates”), for the amount owed by them as guarantors of the debts of a commodity trader Bustan International Pty Ltd (“Bustan International”) and its non-trading holding company Bustan Australia Holdings Pty Ltd (“Bustan Holdings”). The claim arises in the following circumstances, briefly described.
Bustan International and Bustan Holdings, which were registered in Victoria on 28 April 1994, were established by the Al Ghurair Group of Dubai in the United Arab Emirates primarily to procure wheat, grain and other commodities in Australia for the Group. Bustan Holdings owned the five issued shares in Bustan International. The shares in Bustan Holdings were and are held as to 85 percent by five individuals (as to 17 percent each) in the Al Ghurair family or Group. These individuals were also directors of each company. The balance of 15 percent was and is owned by C E & L Condon as trustee for the Condon Family Trust which represented the interest of Clinton Edward Condon who from 1 June 1995 until 22 February 2003 was also a director of each company and in charge of the office in Melbourne at which Bustan International conducted its business. He was the chief executive officer of the companies.
For the purpose of conducting its business Bustan International obtained banking facilities from Rabo Australia Limited (“Rabo”) and the Commonwealth Bank of Australia (“CBA”) under a Facility Agreement dated 26 January 1996. The CBA was replaced by the HongkongBank of Australia Limited (“HongkongBank”) by an Accession Deed dated 18 December 1997. Bustan Holdings was a party to the Facility Agreement, guaranteeing to the banks payment of all moneys owing by Bustan International. I refer below to the facility documents. For the moment I note only that Rabo, a wholly owned subsidiary of Rabobank International, is part of the Coöperative Centrale Raiffeisen – Boerenbenbank B.A. (“Rabobank”) Group. In 1998 Rabobank, Australian Branch became a financier under the banking facilities. The further change to note is that following an ownership change HongkongBank changed its name to HSBC Bank Australia Limited (“HSBC”) in the 1998/1999 period, in which period also Midland Bank PLC also became a financier under the facilities. Subsequently Midland Bank changed its name to HSBC Bank PLC. The financiers were thus the two Rabo banks and the two HSBC banks. In this judgment I will refer to the banks as Rabo, Rabobank, HSBC and HSBC PLC respectively. As to Rabo and Rabobank it will generally not be necessary to distinguish between them and I will refer to them collectively as Rabo unless it is not appropriate to do so. For the same reason I take the same approach to the HSBC banks which I will refer to as HSBC.
A requirement of the banks was the appointment of Permanent to hold securities in support of the facilities and, as security holder, to take action to enforce the security. I refer below to the documentation concerning this. The securities required by the banks included the guarantees sued upon which were given by agreements between Gulf and Emirates respectively on the one hand, and Permanent as “Security Trustee” on the other hand, in December 1997.
With the support of the banking facilities Bustan International undertook trading in which grain and pulses and (until early 2001) wool was purchased in Australia. These commodities were sold as follows. Wool was sold by export sales to purchasers in Europe or Asia for a price denominated in a foreign currency, GB pounds, Lira then Euros, or US Dollars. As to grains and pulses:
(a)some were sold in the domestic market in Australia,
(b)some were procured by Bustan International as agent on commission for Gulf,
(c)to a limited extent some pulses were sold by Bustan International as principal, and
(d)otherwise as regards export sales, were sold mostly to entities related to Gulf and Emirates.
In respect of export sales where the purchase price was payable in a foreign currency Bustan International entered into foreign currency transactions with the banks to protect itself or “hedge” against the risk of an unfavourable movement in the foreign exchange rate at the time when the price was payable.
Unhappily and in contravention of the facility arrangements and Bustan International’s policy, in purportedly hedging genuine export sale transactions, Bustan International, by one or more of its employees, engaged in speculative trading in foreign currency as a result of which it suffered losses and fell into debt with the banks.
This led the banks, on 31 October 2001, to give Bustan International a written notice demanding immediate payment of the amount due under the facility agreement, called the “Secured Moneys”. Rabobank also gave a separate demand on the same day under its foreign currency agreement. Bustan International did not pay the amounts demanded. Those demands were followed, on 2 November 2001, by a written notice from the banks demanding immediate repayment of the Secured Moneys; such payment was not made.
Also on 2 November 2001 Permanent appointed a receiver and manager to Bustan International and Bustan Holdings. The receivership continues.
On 18 December 2001 Permanent gave Gulf and Emirates written notice demanding payment of the amount owed, certified pursuant to the guarantees as $14,422,982.74. This amount was reduced to $5,078,640.16 by the realisation by the receiver and manager of the assets of Bustan International and Bustan Holdings, that being the amount claimed in the writ as owing to the banks and the further sum of $219,501.85 owing to Rabobank under its separate foreign currency agreement. This made the total amount claimed in the writ $5,298,142.01.
At the trial Permanent sought to establish the amount owing and payable under the guarantees by means of certificates signed by officers of Permanent pursuant to a power in that behalf contained in the guarantees. The certificates (one each for Gulf and Emirates) stated that the amount payable on 31 May 2006 was $6,306,427; these certificates were received as exhibits B and C. By further certificates of Rabo and HSBC given pursuant to the facility agreement it is stated that Bustan International owed that total amount, as to $3,285,932.41 to Rabo and as to $3,020,494.59 to HSBC; these certificates were received as exhibits H and F respectively.
Permanent relies on the certificates to prove the amount claimed. The defendants raise matters for the purpose of attacking the evidentiary value of the certificates so that, they submitted, the certificates cannot be relied on to establish Permanent’s claim which, in the absence of any other evidence, must therefore fail. I refer below to the way in which Gulf and Emirates seek to avoid the evidentiary force of the certificates. Apart from these matters, the essential point in the defendants’ case is whether the banks knew or had notice that some of the foreign currency transactions of Bustan International were made by its employees as and by way of currency speculation and hence in fraud of Bustan International. It is convenient to state at this point my conclusion that, for reasons which I explain below, it is neither necessary nor desirable to deal with the case raised by the defendants as to the banks’ alleged knowledge or notice of speculative foreign currency trading. In essence, that is because the terms of the guarantees, properly understood, do not permit the defendants to raise the defence sought to be raised while the “Guaranteed Money” remains unpaid.
Finally in this introduction, I note the assistance of the parties in providing me with some material for use in this judgment. Such materials were to be non-contentious. As I advised counsel I would, I have resolved any differences in the information so provided.
The issues
There is no issue as to the documents constituting the facility agreement and the guarantees, the appointment and powers of Permanent including its due acting as plaintiff, the banking facilities provided by Rabo and HSBC, the fact of foreign currency transactions conducted by Bustan International with Rabo and HSBC some of which are alleged by the defendants to have been speculative, the giving of the demands requiring payment, and the receivership. As mentioned earlier, Permanent relies on certificates to establish the amount of the claim. The defendants contend that on the grounds and for reasons alleged in the defence the certificates cannot establish the claim. The substantive points alleged in the defence are these:
(a)Paras 3-4(e) and (f) – Rabo (from at least 20 August 1998) and HSBC (from at least 3 October 1998) knew each of the following matters:
(i)the commodities acquired by Bustan International;
(ii)the trading activities of Bustan International;
(iii)the parameters within which Bustan International conducted its business;
(iv)payment in respect of an export sale to a corporation related to Bustan International was received prior to shipment or was secured by letter of credit in favour of Bustan International established for the full price with an approved bank or financial institution;
(v)payment in respect of all other export sales was secured to Bustan International prior to shipment;
(vi)the policy of Bustan International in respect of export sales which gave rise to a foreign exchange risk was to hedge against adverse exchange movements between the date of commodity sale and the estimated date of the foreign currency receipt by agreeing, at the date of the commodity sale, to sell as at the estimated date of the foreign currency receipt the amount of foreign currency receivable in exchange for Australian dollars;
(vii)Bustan International prohibited its officers and employees from engaging in currency speculation in the course of its business.
In particulars it is stated that the knowledge of Rabo and HSBC of each above matter is to be inferred from:
(a)As to Rabo – from Rabo created documents entitled “Bustan International Pty Ltd” dated 29 September 1997 and 31 March 1998, and a letter received by Paul Delaney from Bustan International dated 20 August 1998 which enclosed copies of Bustan International’s risk management policies.
(b)As to HSBC – the receipt by Tim Gardiner of the letter from Bustan International to Paul Delaney dated 20 August 1998 enclosing copies of Bustan International’s risk management policies, a letter from Bustan International dated 17 February 1998 which enclosed Bustan International’s business plan for 1997/1998, and a Rabo Relationship Evaluation Form dated 3 October 1998.
(b)Para 20A –
20A(a) From 1998 to 2 November 2001, the senior management
and employees of Bustan International engaged in conduct (‘the unauthorised and fraudulent conduct’) which was not authorised by, and in fraud of, Bustan International and Bustan Holdings (‘the Bustan Companies’).
Particulars
Among other things, senior management and employees of Bustan International:
(i)engaged in foreign exchange trading and futures trading as a speculative activity without underlying commodity contracts, contrary to:
a.the Bustan Companies’ Foreign Exchange Risk Management Policy; and
b.the terms of the financial accommodation provided by Rabo and Rabobank (together, ‘Rabo’) and HSBC and HSBC Bank PLC (together, ‘HSBC’); and
(ii)breached financial accommodation convenants and approved facility limits provided by Rabo and HSBC.
Particulars are set out in Schedule 1 annexed to this pleading.
(b) Rabo and HSBC:
(i)advanced monies on the accounts of the Bustan Companies; and
(ii)conducted business on the accounts of the Bustan Companies;
in circumstances where, at all material times, Rabo and HSBC knew or were on notice that the senior management and employees of Bustan International were engaging in (or had engaged in) the unauthorised and fraudulent conduct.
Particulars of the matters relied upon as constituting knowledge or notice are set out in Schedule 2 annexed to this pleading.
(c) By reason of the foregoing:
(i)Rabo and HSBC did not advance monies to the Bustan Companies as alleged; and
(ii)The Bustan Companies are not indebted to Rabo and/or HSBC on account of monies so advanced.”
The Schedules 1 and 2 referred to in para 20A(a) and (b) were amended including in the course of the trial. The final amended versions filed pursuant to leave are as follows. A further revised Schedule 1 was filed on 30 May 2007, and a fifth revised Schedule 2 was filed on 7 June 2007. Each is an extensive document, the former running to 21 pages, the latter to 59 pages.
(c)Para 20AA pleads two bases on which proof of the claim by certificates tendered at the trial is challenged. The points are:
(i)That the provisions entitling Permanent to establish the amount by tendering a certificate do not, on their proper construction, apply where the liability in question is disputed on genuine and substantial grounds, as in this case.
(ii)Alternatively, if the provisions do bear that construction, they impose a penalty and are unenforceable or, alternatively, reliance thereon to prove the fact or extent of any such liability is unconscientious and to be restrained.
The point that the operation of the provisions was unconscientious and ought be restrained was not relied on by the defendants. Clearly, it was abandoned. Accordingly I do not consider it further.
(d)Para 20 – it is alleged that transactions conducted by Rabo and HSBC on the account of Bustan International in the circumstances referred to in para 20A did not give rise to debts or liabilities as alleged.
The plea in para 20 is picked up in later paragraphs of the defence. The contention is that debts or liabilities of Bustan International to Rabo and HSBC that arose in consequence of the unauthorised and fraudulent conduct referred to in para 20A, and of which Rabo and HSBC knew or were on notice as therein alleged, were not properly debts or liabilities payable by Bustan International to Rabo and HSBC. The banks had not been entitled to debit the foreign exchange losses to Bustan International’s account. Having so debited the account, the certificates (which included all transactions) falsely stated the indebtedness of the defendants under their guarantees. That being the case, and Permanent not otherwise establishing the amount of the liability of the defendants, the claim must be dismissed. Even if items of the impugned kind were excluded it is not known what amount, if any, was owed by Bustan International to Rabo and HSBC. Counsel submitted that, in the circumstances of the case, it was not appropriate that the Court seek to establish the amount, if any, actually owing.
In their final address counsel for the defendants advanced another reason why the claim must fail. That was because the certificates purport to be given under powers of attorney but there was no evidence concerning those powers. It is not established, for instance, that the powers were current at the relevant time and that their operation was correctly enlivened in respect of the certificates.
It is to be noted that the defence had included a counterclaim but this was abandoned prior to the trial.
Permanent filed a reply which put in issue the matters alleged in paras 3-4(e) and (f), 20A, 20AA and 20 of the defence. It further referred to several clauses of the defendants’ guarantees (4.1, 4.2, 7.1, 8.1, 9.1 and 9.2) by reason of which it contended that before payment of the Guaranteed Money (as defined) the defendants were not entitled to rely defensively on, and did not have standing to prosecute or maintain against the plaintiff, the matters alleged in para 20A of the defence. It was further alleged that the matters in para 20A of the defence were not justiciable or, alternatively, were vested in Bustan International or Bustan Holdings; see Indrisie v General Credits Ltd[1]. Counsel for the plaintiff submitted that if the defendants wished to litigate the issues raised in their defence, the proper course was to have joined Bustan International to the proceeding, (effectively seeking an indemnity against it as third party) which would in turn have joined the banks, so that “all the real issues in the banker and customer relationship would emerge”; see Cellulose Products Ltd v Truda[2].
[1][1985] VR 251 at 254.
[2](1970) 92 WN (NSW) 561 at 588.
The trial
To observe of the trial that it was keenly contested would be no understatement. Doubtless that is as it may be in a common law trial, and the importance of counsel’s role in the protection and advancement of the client’s cause is vital to the due administration of justice, yet it is also vital to the administration of justice considered both from the public and private interest that litigation be conducted with expedition, economy and robust common sense. That approach was not always observed. My impression was of a measure of over technicality, position taking and almost trench warfare.
The proceeding was set down with the usual orders for a Court Book and witness statements, which were duly filed. The defendants also provided statements of expert evidence of James Edward Everist and Ian Donald Bissland pursuant to rule 44.03.
When the trial got underway on 31 May 2006 counsel for the plaintiff applied to split the plaintiff’s case. I acceded to the application, it plainly being appropriate to do so, thus permitting the plaintiff to proceed by first calling evidence on the issues on which it had the burden of proof and not being required to call evidence on an issue on which the defendants bore the burden of proof until the defendants had closed their case. I observed at the time and repeat that in a case managed proceeding, which this was, the application should have been made and determined earlier. Particularly was that so as the defendants had to plan how to get documents into evidence. As it was, and pursuant to the setting down order, witness statements had been filed premised on the trial proceeding in the ordinary way of the plaintiff calling all its evidence first and the defendants following. The defendants had also prepared for a trial conducted in that way.
As it was, when – on 7 June 2007 – the defendants closed their case counsel for the plaintiff did not immediately proceed to call the witnesses whose witness statements had been filed in May 2006. Rather, counsel for the plaintiff made a no case submission which I declined to rule upon unless he elected not to call evidence. On then announcing that the plaintiff wished to call evidence, counsel stated that time was required to prepare that evidence. In the discussion that followed it seemed apparent on their assurance that the plaintiff’s counsel were not then and there in a position to call evidence, and certainly did not desire to do so in the proper presentation of the plaintiff’s case. The evidence was to be prepared, and time was required. In my view this was unsatisfactory. If I had not permitted the plaintiff to split its case the plaintiff would have called all its evidence – being all or some of the witnesses who had provided witness statements – before the defendants called their evidence. But, having been permitted to split its case and having the benefit of the defendants’ evidence, the plaintiff now blandly stated that it needed time to prepare its evidence. Of course to be fair it had to provide its evidence by witness statements and the Schedules had been amended. There was no choice in the circumstances but to grant the plaintiff’s request, but it was an indulgence and further delayed the trial as the plaintiff did not commence calling evidence until 21 June 2007. Between then and 5 July 2007 the plaintiff called 14 witnesses. As to those 14 witnesses, eight had provided a witness statement in 2006, and of them three provided a supplementary witness statement. Thus, there were six new witnesses. By any measure the witness statements, supplementary and new, were not large.
Next I note an issue concerning the discovery and provenance of documents. The concern here lay with the defendants who had to establish what documents the banks had at relevant times, to facilitate proof of the case under para 20A of the defence. A difficulty here was that the banks were not parties. Another difficulty was that the defendants were not calling former employees of Bustan International to establish facts and matters including documents between Bustan International and the banks. The splitting of the case and that the plaintiff established its case by certificates and minimal witness evidence exacerbated the difficulties confronting the defendants’ counsel in seeking to establish their case, as it meant that witnesses to relevant events and documents would not give evidence until rebuttal.
In the upshot, after hearing argument and considering it just and appropriate to do so, I ordered that unless by 4.00 pm on 13 June 2006 the banks respectively filed and served affidavits of discovery of documents in the manner and to the effect they would if a party to the proceeding in response to a notice of discovery, the proceeding be stayed until further order[3]. Affidavits of discovery were duly provided pursuant to the order.
[3]Willis & Co v Baddeley [1892] 2 QB 324; Abu Dhabi National Tanker Co v Product Star Shipping Ltd; The Product Star [1992] 2 All ER 20.
By this stage the trial had gone little distance, had become fragmented with adjournments, and had fallen back into interlocutory work including amendments. Ultimately, on 15 June 2006, I adjourned the trial to a date to be fixed. In terms of court time, the trial had become a wasteful indulgence, replete with articulate point taking but little progress on the merits.
From time to time between then and 21 May 2007 when the trial resumed, I heard counsel on matters of ongoing contention, the most vexed question being the ascertainment or clarification of the provenance of documents, an issue that should have been attended to prior to trial.
Bustan International personnel
In the period in question, 1997 to 2001, Bustan International’s business office was located at level 6, 6 Riverside Quay, Southbank and from 1998 in a smaller space at level 13, 628 Bourke Street, Melbourne.
As already mentioned, Clinton Condon was chief executive officer and also chairman of directors. Senior personnel engaged earlier were Alan Vincent Winney as Managing Director until mid 1997, Anthony Quail as general manager of finance until early 1997, and Paul Connole as general manager of finance from early to late 1997.
Bustan International had two trading divisions, grain and wool. The grain division was managed by Mark Thiele until the end of 1998 and from 1999 by Mark Timleris who was promoted from his position as a Senior Grain Trader. Timleris resigned shortly before the appointment of the receiver and manager. The wool division was managed by Ian Williams; it was a smaller aspect of the business.
From his appointment as head of the grain trading division, Timleris was effectively the general manager of the company in that he managed the day-to-day operations with Condon the chief executive officer. Further, an historical extract provided by the Australian Securities and Investment Commission (“ASIC”) records Timleris as an alternate director, and also of Bustan Holdings, from 27 April 2000 to 1 November 2006.
Trading in grain was conducted by Timleris and Reeves assisted by Timothy John Henry who in early 2000 was given responsibility for running the Canola Book, and David Williams who traded feed grain commodities (sorghum and barley). Williams was employed as a grain trader from mid 1999 to late 2001.
The accountant at relevant times was Claire Annette Rowley who succeeded Scott Whiteman in late 1997. The accounts department, which Rowley headed, included two others.
Evidence
In addition to the witnesses (to whom I refer below) there was a substantial Court Book and some other documentary exhibits. By the end of the trial the Court Book ran to 39 volumes comprising a little under 13,500 pages as I quickly calculate, excluding Court documents. When the Court Book was tendered at the end of the trial a vast number of pages were removed, including the entire contents of eight volumes while in volume 26 only one page remained, in volume 24 two pages remained and in volumes 6 and 33 seven pages remained. Only volume 39 was left unscathed. In all, thousands of pages were removed, the exact number of which I have not sought to ascertain but if placed on top of each other would have stood at a good height. While the defendants had a difficult case it yet remains a matter of serious concern that the Court Book contained such a vast quantity of irrelevant material. The cost of copying the material, and of the parties in considering it, must be large indeed.
I now refer to the witnesses. As I have mentioned I permitted the plaintiff to split its case by calling first the evidence on matters on which it bore the burden of proof. Bearing that in mind the evidence was led through witnesses as follows:
(a)The plaintiff in establishing its claim called:
(i)Lucas Papacostas, Senior Manager – Compliance of the plaintiff who gave evidence of the role of Permanent as security trustee, as a party to the defendants’ guarantees, non-payment of the 18 December 2001 demand and who produced a certificate pursuant to cl 18.1 of each guarantee which certified as to the 18 December 2001 demands for payment and the sum owed by the defendants pursuant to the guarantees. The certificates were tendered as exhibits B and C. He also produced the written direction of Rabo and HSBC to Permanent dated 26 May 2006 to sign exhibits B and C, give evidence and assist the solicitors acting for Permanent in the trial of the proceeding; the direction was tendered as exhibit D. He signed exhibits B and C in accordance with the written directions and without investigating the transactions of which the defendants complain.
(ii)David Cenciotti, a Manager, Credit and Risk of HSBC who produced a certificate pursuant to cl 23 of the Facility Agreement as to the sum owed to HSBC and other matters; the certificate was tendered as exhibit F. For the purpose of giving the certificate, he looked at HSBC’s Bustan files and the balance figure on the bill facility as at 2001 which was derived from a spreadsheet prepared, at Cenciotti’s direction, by an employee in the credit operations area. Cenciotti looked at the workings to satisfy himself that they were correct, and reconciled the figure with the statement of claim. He did not investigate the transactions of which the defendants complain.
(iii)Paul Jonathan Sabine, State Manager – Victoria, Tasmania, South Australia and New Zealand of Rabo who produced a like certificate as to the sum owed to Rabo and other matters; the certificate was tendered as exhibit H. He did not personally calculate the sum in the certificate. Rather, with his colleague Helen Crick who was a member of the credit committee, he reviewed the certificate and the spreadsheet that supported the sum stated therein, and was “stepped through the relevant clauses” in the facility agreement. The certificate made no allowance for any debits in respect of losses suffered by the customer on speculative foreign currency trading, and he did not investigate the transactions of which the defendants complain.
(iv)Separately a demand by Rabo for $55,602.51 was tendered as exhibit L and the banks’ demand on Bustan Holdings dated 2 November 2001 was tendered as exhibit M.
(b)In their case the defendants then called:
(i)James Edward Everist an accountant by training with 15 years’ experience in Treasury Operations and the Financial Markets. He gave evidence as an expert in relation to a number of questions concerning Bustan International’s foreign currency transactions with the banks bearing upon the issues in para 20A of the defence.
(ii)Ian Donald Bissland who following an accounting qualification has had over 30 years’ experience in money markets, foreign exchange and credit control, including working for major Australian and international banks. He too gave expert evidence bearing on the issues in para 20A.
(iii)Michael James Reeves, an employee of Bustan International from late 1996 until it closed in November 2001 with responsibility as Senior Grain Merchant for trading milling wheat and coarse grains. His evidence concerned a variety of matters relating to his activities and the conduct of Bustan International’s business including foreign exchange transactions with the banks.
(iv)Stephen Charles Burt, a trader and broker in wheat sorghum and barley who gave evidence as to trading in the grain market.
(v)Leon Adrian Witt who was employed by Bustan International from 1995 to November 2001 as a logistics co-ordinator for the movement and shipping primarily of wool and to a lesser extent grain exports, and who described the conduct of such matters. His witness statement was tendered without the need to call him.
(vi)Timothy John Henry, an employee of Bustan International between January 1999 and November 2001. He was involved in grain trading and from early 2000 was responsible for trading in canola. He described the role of Mark Antony Timleris in arranging Bustan International’s foreign currency hedges, and stated that in 2000 he became aware that Timleris was buying and selling currency other than as a hedge on actual grain transactions. His witness statement was tendered without the need to call him.
(vii)Blaine Elton Howe who described a computer reporting system known as CMS (Contract Management System) which he principally developed for Bustan International as an employee of Praxar Pty Ltd. It was a flexible system which recorded contracts and stock. The system did not prevent Bustan International’s traders from entering into foreign exchange transactions without underlying commodity contracts, or from making large-scale stock adjustments. After leaving Praxar in mid 2001 he consulted to Bustan International until it ceased trading in late 2001. His witness statement was tendered without the need to call him.
(c)Following completion of the defendants’ case the plaintiff called the following present or former employees of the banks:
HSBC
(i)Bryan Anthony Roberts who was employed by HSBC between January 1998 and August 2001, initially as a Credit Analyst and from about June 2000 as a Relationship Manager with responsibility for Bustan International’s account under the Facility Agreement. That included reviewing its conduct of the facilities and compliance with the terms and conditions thereof.
(ii)John Wijendran Rasiah who commenced employment with HSBC in July 2000 as an Account Relationship Executive Commercial Financial Services Victoria. From Roberts’ resignation until Salazar’s appointment as Relationship Manager, Rasiah was the principal point of contact for Bustan International at the “relationship” level. His present position with HSBC is a Senior Relationship Manager Commercial Banking Victoria.
(iii)Fernando Salazar, who commenced employment with HSBC on 25 June 2001 and to whom Bustan International’s account was transferred as its Relationship Manager in early August 2001. He has continued to be employed by HSBC and is presently Global Relationship Manager.
(iv)Ling Tan who was employed by HSBC between 1988 and December 2001 in the “front office” as a foreign exchange dealer. Bustan International was a customer with whom she dealt, usually with Timleris, and occasionally speaking to Rowley. She met personnel of Bustan International - Condon, Timleris and Rowley.
(v)Robert Kemal Demirel who has been an employee of HSBC since 1997. Following two years working in interest rate dealing in the Treasury area in Sydney he transferred to Melbourne around 1999 to take charge of the dealing room and he remained in charge until December 2001. He described the operation of the dealing room and other relevant matters. If Ling Tan was not available when Bustan International rang he or the other dealer (Nick Cork) would take the call. He is now Senior Sales person in the dealing room of HSBC’s Treasury and Capital Markets Division.
(vi)David Wayne Sheaff an employee of HSBC since August 1996. He commenced working in Sydney in a temporary role as an Inter-bank Checker, FX Operations, a “back office” role in the Treasury and Capital Markets Division. As such he did not perform foreign currency deals for clients; that was done by the dealers in the “front office”. In June 1997 his employment became permanent and in late 1998 he was promoted to Corporate Settlements Officer. Since early 2001 he has been a Senior Operations Officer, FX Options and Structured Trades, still part of the “back office” team in Sydney. He is responsible for the settling of foreign currency options and precious metal trades. He described the different operations of the “back office” and “front office” dealing room and the internal steps in handling a foreign exchange deal. In the period 1997 to 2001 there was a dealing room in Sydney and Melbourne (there is now only one in Sydney).
(vii)Peter John Farrell, who has been employed by HSBC for approximately 19 years. In November 1999 he was employed in Treasury operations as Assistant Manager, Financial Markets Division Administration in which his tasks included approving deal tickets for foreign exchange deals entered into by HSBC for customers, documenting historical rate rollovers in relation to foreign exchange contracts and advising customers of the risks involved, and entering into the TREATS system approval of a customer’s payment instruction to the bank when a foreign exchange deal was “settled” or “closed out”.
(viii)Christopher Greville Owen, who has been employed by HSBC since 7 February 2001. In the period to 25 July 2005 he was employed by HSBC in its Financial Markets – Credit Department as part of the Credit Risk Management team. He referred to his role as “middle office” or “administrative”. His responsibilities included ascertaining whether any historical rate rollovers of a customer of a forward foreign exchange contract conformed with HSBC’s credit guidelines manual, cl 6.2.2(f). He reported to the credit manager and the relationship manger on credit issues relating to a customer. He did not deal directly with customers. Since July 2005 he has been a Relationship Manager.
(ix)James Norman Smith who was employed by HSBC between 1986 and 2004 and who was Senior Manager, Credit Risk Management from April 1997 to early 1999, then Senior Manager and Head of the then established Credit Control Unit (responsible for reviewing impaired assets) until late 2001 when he became Senior Manager of Consumer Credit Risk. As Senior Manager, Credit Risk Management he was responsible for reviewing annual (and any interim) reports in respect of customers who had lines of credit and all aspects of credit. The team comprised 12 people. He described the process involved in an annual review. A further responsibility was approving Urgent Treasury Walkarounds required if a customer was at risk of breaching a foreign exchange limit set by the bank.
Rabo
(i)Paul Francis Delaney who was employed by Rabo from January 1996 until early 2006, initially as Manager Trade Services (Operations) in the Trade Department in Melbourne and then being promoted to Manager, Trade Commodity Finance in 1999. In January 1997 he first became involved in Rabo’s banking relationship with Bustan International, and was given responsibility for the account in mid 1997. From December 1997 he was the relationship manager for Bustan International and as such had the day to day management of the facilities granted pursuant to the Facility Agreement, ensuring compliance with the terms and conditions of the bank’s lending and preparing reviews of the account. He gave evidence concerning matters in his conduct of the account.
(ii)Adam Vanderstelt, who between 1995 and 2001 was employed by Rabobank as a Corporate Dealer in its Sydney office. Bustan International was one of his clients. Towards the end of his employment at Rabobank another dealer, Michael Hudson, shared responsibility for the Bustan account. He described the operation of the dealing room and the conduct of foreign exchange transactions including historical rate rollovers.
(iii)Adam Young who commenced employment with Rabo on 1 July 1996 as Supervisor, Payments, then Assistant Manager, FX and Money Markets and since 2000 as the Manager, Treasury Operations. In these roles he has worked in the “back office” of Rabo’s foreign exchange dealing room in Sydney. At all relevant times Rabo only maintained a front office and a back office in Sydney through which all foreign exchange deals were done. He described the functions of those offices and the steps in a foreign exchange deal.
(iv)Stephen Clyde Scott, who has been employed by Rabobank since 1994. In 1998 and 1999 he was Manager, Corporate Credit Administration. He referred to the bank’s requirements concerning historic rate rollovers and the Credit Committee’s decision on 24 July 1998 that no further such rollovers be undertaken with Bustan International.
(v)Philip Clive Hislop, who for 12 years has been the General Manager Credit of Rabo. He described the role and functions of the Credit Committee and its membership from 1996 to 2001.
Were it not for my conclusion that the guarantees preclude the defendants’ case based on para 20A of the defence, and further that the present proceeding is not in any event an appropriate vehicle by which to determine the issues raised by para 20A, I would at this point have dealt with a number of evidentiary issues. Those issues include the alleged failure of the defendants to call relevant witnesses to give evidence, criticism of the witness statements of the witnesses called by the plaintiff in reply to the defendants’ para 20A case, and the defendants’ allegation that the plaintiff attempted to confine the materials that its witnesses saw before giving evidence. Further, I would have expressed findings concerning witnesses on the defendants’ para 20A case, including as to their credit and otherwise. But none of these evidentiary issues affect the reliability of the evidence of Papacostas, Cenciotti or Sabine, whose evidence I accept, in addition to the several certificates, Facility Agreement and related documents. In the circumstances, therefore, it is unnecessary and undesirable that I deal with these evidentiary issues further.
The Facility Agreement and related documents
I now refer, as briefly as possible, to the documents under which the Banks provided the agreed facilities to Bustan International.
The initial Facility Agreement dated 26 January 1996 was made between Bustan International, Bustan Holdings, Rabo and the CBA under which at the request of Bustan International the banks as Financiers provided facilities “to assist in financing the purchase of commodities approved by the Financiers”, as stated in the recital to the Agreement. Before further referring to the Facility Agreement, I should refer to an agreement entered into the previous day (25 January) between Permanent as Security Trustee, and Bustan International and Bustan Holdings as Security Providers; this is called the Security Trust Deed. For duty reasons a separate form of this Deed was entered into in New South Wales; a separate reference to this and later New South Wales Deeds is not necessary.
The Security Trust Deed was expressed to be made on the basis that the Financiers and Security Providers had or would enter into the Facility Agreement, and of the provision by the Security Providers of securities to the Security Trustee to be held for the Financiers upon the terms and conditions of the Deed. It was stated in the recitals that the Financiers wished to regulate the relations between them in respect of the Secured Moneys which meant all debts, monetary liabilities and obligations of the Security Providers to a Financier or the Security Trustee. By the Deed the Security Trustee declared that it held the Trust Fund (which by definition included “all right, title and interest vested in the Security Trustee in, to and under each and any of the Securities, including all rights and benefits thereunder and all moneys recovered thereunder) on trust for the Financiers on the terms and conditions of the Deed (cl 2.1). “Security” included any present or future guarantee or other agreement in favour of the Security Trustee as security for the payment of the Secured Moneys.
Clause 6 of the Security Trust Deed provided for the Security Trustee’s rights and responsibilities. Subject to the Deed the Security Trustee was entitled to exercise all powers under the securities as if it were the absolute beneficial owner thereof and had absolute discretion as to the manner of the enforcement of the Securities (cl 6.1). However, in exercising its powers the Security Trustee must act in accordance with, and only with, the instructions of the Financiers who are bound by action so taken (cl 6.2). The Security Trustee must, if so directed by the Financiers following an Event of Default, give written notice to a Security Provider declaring that the relevant Secured Moneys are immediately due and payable, appoint a Controller and enforce a security as directed in writing (cl 6.4); pursuant to this provision the banks gave the direction to the plaintiff which is Exhibit D, to sign certificates pursuant to cl 18 of the guarantees, give evidence at the trial and assist the plaintiff’s solicitors in the conduct of the trial. “Event of Default” had the meaning defined in the Deed of Common Provisions between Bustan International, Bustan Holdings and the Security Trustee dated on or about the date of the Security Trust Deed (cl 1.1). Clause 6.8 provided that the Security Trustee was not required to inform itself as to the performance or observance by the Security Providers of their obligations under any Transaction Document (defined in cl 1.1 to include the Security Trust Deed, Deed of Common Provisions, Facility Agreement, a Security and any other document agreed to be such or so defined in the Facility Agreement) or inspect the books or assess the business of the Security Providers.
Finally, clause 8 provided that a Financier assigning or novating any of its rights and obligations under the Facility Agreement may cause the assignee to become a Transferee Financier by executing an Accession Deed.
Having thus outlined the nature and operation of the Security Trust Deed to an extent sufficient for the case, and noting that the Deed was amended by a Deed entered into on 29 June 1998, I now refer to the Facility Agreement dated 26 January 1996. I will then refer to the Deed of Common Provisions dated 28 January 1996. By cl 2.1 of the Facility Agreement the banks (referred to as the Financiers) granted Bustan International:
(a)The bill facility, available as Bill Drawings and Rollover Drawings;
(b)The Guarantee/Letter of Credit Facility, available by the issue of Guarantees or Letters of Credit; and
(c) The Transactional Facilities.
Clauses 5, 6 and 7 elaborated upon these facilities. Other facilities may be provided by a Financier as agreed (cl 2.5(a)). Clause 2.2 stated the purpose of the facilities as follows:
2.2The Company shall apply the proceeds of the Bill Facility and may only request the issue of Guarantees or Letters of Credit to secure the underlying obligations of the Company in respect of the purchase and sale of commodities approved by all of the Financiers or such other purposes as may be agreed in writing by all of the Financiers. The proceeds of the Bill Facility may not be applied and the Company may not request the issue of Guarantees or Letters of Credit to finance, directly or indirectly, the acquisition of any fixed assets or capital items or for any other purpose other than a purpose approved in this clause 2.2.
Clause 2.3 provided that “No Financier has any responsibility for [Bustan International’s] compliance with clause 2.2.”
Among other things the facilities provided Bustan International with working capital with which to conduct its business. The obligations of the Financiers under the syndicated arrangement were several up to the amount of their respective limits which were:
Commitment Bill Facility, Guarantee/Letter of Credit Facility
Commitment Transactional Facility
Rabo
$22,500,000
$0
CBA
$19,500,000
$3,000,000
The repayment date was 31 October 1996 or such later date as may be determined in accordance with cl 2.4 if the facility was to continue.
Finally, I note that by amendments to the Facility Agreement made by an Amendment and Restatement Agreement dated 29 May 1998 there was added to cl 2.1 the following:
(b)The Export Bill Discount Facility, available as Export Drawings;
and after “the Transactional Facilities” in (c) (which became (d)) the words “which includes the Overdraft Facility”. The effect was to introduce the new (b) while retaining the existing facilities. Further, in cl 2.2 after “the Bill Facility” (where first occurring) there was added “the Export Bill Discount Facility and the Overdraft Facility”, and where second occurring the words “the Export Bill Discount Facility or the Overdraft Facility”.
Events of default were specified in cl 14, and included events defined in cl 9 of the Deed of Common Provisions. Clauses 14.2 and 16.2 also dealt with the matter of the Financiers, on the occurrence of an event of default, declaring the Secured Moneys due and payable, that the Financier’s obligations were terminated, and demanding payment; Exhibits F and H were given pursuant to such power.
The Deed of Common Provisions, together with the Facility Agreement, was made between Permanent as Security Trustee and Bustan International and Bustan Holdings as the Transaction Parties. It was stated in the recitals that the purpose of the Deed was “to set out certain commercially material terms and conditions which are intended to benefit the Security Trustee and all Financiers and serve as a standard for Facilities which qualify for security under the Transaction Documents”. The Deed specified Financial (cl 4), Trading (cl 5) and General (cl 7) covenants to be observed in the conduct of Bustan International’s business. Specifically –
(a)Clause 4.1(a) required that the consolidated shareholders’ funds of Bustan Holdings and its subsidiaries not fall below $2M and cl 4.1(c) provided that the Transaction Parties would not incur or permit to remain outstanding Financial Indebtedness in aggregate exceeding $100,000 except with the prior written consent of the Majority Financiers or agreements or arrangements within the definition of that expression “for the purpose of:
A)trading in commodities approved by the Financiers from time to time; or
B)managing currency, exchange, interest or commodity price risk in accordance with a risk management program approved by the Financiers from time to time.”
Finally, a loan security ratio was imposed by cl 4.1(d).
(b)Clause 5 contained Trading Covenants as follows:
“5.1 Trading Covenants
Each Transaction Party covenants on an ongoing basis to the Security Trustee for the benefit of the Security Trustee and each Financier that:
(a)grain tonnage restrictions:
(1)the net open position of milling wheat, feed grains, pulses and oil seeds held by Bustan International will not at any time exceed 50,000 metric tonnes;
(2)the net open position of any particular category of milling wheat, feed grains, pulses and oil seeds held by Bustan International will not exceed the amount specified in its board approved position limits notified to the Financiers from time to time;
(b)Trading Stock restrictions: the net open position of all Trading Stock based on the Market Value of that Trading Stock will not at any time exceed $10,000,000 unless otherwise agreed in writing by the Majority Financiers;
(c)payment terms for export sale to Related Corporations: any export sale of Trading Stock by Bustan International to any of its Related Corporations:
(1)on or before the day 6 months after the date of this deed (or such other date as the Majority Financiers may determine) will be subject to the condition that payment must be:
(A)received by it prior to shipment; or
(B)supported by the issue of a letter of credit in favour of it for a maximum amount not less than the sale price of that Trading Stock, such letter of credit to be issued by a bank or financial institution approved by the Majority Financiers; or
(2)after such date, on such payment terms as the Majority Financiers may require in writing:
(d)payment terms for other export sale: any export sale of Trading Stock by Bustan International to any person other than any of its Related Corporations, will be supported by issue of a letter of credit in favour of it for a maximum amount not less than the sale price of that Trading Stock, such letter of credit to be issued by a bank or financial institution approved by the Majority Financiers;
(e)exposure limits for domestic sale:
(1)the total amount owing to Bustan International by any particular purchaser resident in Australia (other than a Prime Purchaser) for the sale of Trading Stock will not exceed $500,000 at any time;
(2)the total amounts owing to Bustan International by all purchasers resident in Australia (other than Prime Purchasers), for the sale of Trading Stock, will not exceed $2,500,000 at any time; and
(f)supply contracts: Bustan International will, consistent with industry standards, endeavour to negotiate the best possible trading terms with its suppliers;
(g)retention of title: Bustan International will use its best endeavours to ensure that any sale of Trading Stock by it is on condition that title to the relevant Trading Stock will not pass to the purchaser prior to receipt by it of full payment for that Trading Stock, and
(h)change of business: the Transaction Parties will not change the nature of their business without the prior written consent of the Majority Financiers.”
(c)The General Covenants in clause 7 required Bustan International to provide the following information to each Financier:
(i)Annual accounts – as soon as practicable and no more than 120 days after the financial year, the audited consolidated balance sheet and profit and loss account of Bustan Holdings and subsidiaries along with all individual accounts.
(ii)Half year accounts as soon as practicable and no later than 30 days after the half year, the unaudited balance sheet and profit and loss account of the above entities.
(iii)Management accounts as soon as practicable and no later than 20 days after each month, comprising profit and loss statement, trial balance sheet and debtors’ ledgers.
(iv)Cash flow forecasts as soon as practicable and no later than 20 days after each month, an unaudited cash flow report for that month and year to date for the above entities including a comparison against budget and forecasts for the next 12 months (updated six monthly).
(v)Loan security ratio certificate as soon as practicable and no later than 20 days after each month, in the form in Schedule 4.
(vi)Weekly Trading Reports as soon as practicable and no later than two business days after each week, in the form in Schedule 5 or as agreed.
(vii)Such other information reasonably requested by a Financier.
These materials would, as Delaney said in evidence, give the banks “a snapshot” of compliance with the covenants and the value of their security. It is not necessary to refer to other provisions of the Deed which include a list of events of default (cl 9).
That is how the documents stood in January 1996 when the facility was established.
Moving forward in time, on 11 and 14 December 1997, Emirates and Gulf respectively provided guarantees. The guarantees were in identical terms. Permanent entered into the guarantees in its capacity as Security Trustee under the Security Trust Deed (cl 1.4), and the guarantors unconditionally and irrevocably guaranteed payment to the Security Trustee of the Guaranteed Money on demand (cl 3). The Guaranteed Money meant all amounts at any time for any reason payable by Bustan International or Bustan Holdings to the Security Trustee or a Financier. Clause 4 also provided an indemnity by which the defendants unconditionally and irrevocably indemnified the plaintiff against “any loss [the plaintiff or the banks] suffer because: the Guaranteed Money is not or has never been recoverable from the Guarantor under clause 3, or from the Debtor because of any circumstance whatsoever including, without limitation, any transaction relating to the Guaranteed Money being void, voidable or unenforceable and whether or not [the plaintiff or the banks] knew or should have known anything about that transaction”. Clause 7.1 provided that the liabilities of the guarantor under the guarantee “are not affected by anything which might otherwise affect them at law or in equity including, without limitation” any of a series of specified matters. Those matters include “any part of the Guaranteed Money being irrecoverable” (sub-cl (n)) and “the invalidity or unenforceability of an obligation or liability of a person other than the Guarantor (sub-cl (q)). It is important to note cl 8.1, viz:
8.1As long as the Guaranteed Money or other money payable under this guarantee and indemnity remains unpaid, the Guarantor may not without the consent of the Security Trustee:
(a)in reduction of its liability under this guarantee and indemnity, raise a defence, set-off or counterclaim available to itself, the Debtor or a co-surety or co‑indemnifier against the Security Trustee or claim a set‑off or make a counterclaim against the Security Trustee; or
(b)make a claim or enforce a right (including, without limitation, an Encumbrance) against the Debtor or any other Guarantor or against their estate or property; or
(c)…
(d)…
As to payment, under cl 9.2 the guarantor agreed to make payments under the guarantee to the Security Trustee “without set-off or counterclaim”. Clause 15 required the guarantor to also pay specified costs, charges and expenses. Finally and importantly cl 18.1 provided proof by certificate as follows:
18.1A certificate signed by the Security Trustee or its solicitors about a matter or about a sum payable to the Security Trustee in connection with this guarantee and indemnity is sufficient evidence of the matter or sum stated in the certificate unless the matter or sum is proved to be false.
A few days later, on 18 December 1997, an Accession Deed was entered into by which HongkongBank was substituted for CBA as a Financier under the Facility Agreement.
Also on 18 December 1997, an Amendment and Restatement Agreement was entered into between Bustan International, Bustan Holdings, Rabo and HongkongBank for the purpose of amending the Facility Agreement which as amended was set out as Annexure A. The repayment date was extended to 30 April 1998. The Financiers provided a total commitment sum to Bustan International of $20M each. The sum committed by HongkongBank included a $3M (including up to US$500,000) Transaction or overdraft facility.
Pursuant to a requirement of the Amendment and Restatement Agreement, also on 18 December 1997 Gulf and Emirates executed a fresh guarantee. Being in like terms to their prior guarantee it is not necessary to refer to the terms of these further guarantees. They are the guarantees sued upon and under which the certificates being Exhibits B and C were provided.
The final agreement entered into on 18 December 1997 was a Deed of Amendment to the Deed of Common Provisions. The changes included the following. The Trading Covenants in cl 5 were substantially altered: sub-cl (a) and (b) were replaced and (b) was amended by substituting a limit of $16M for the net open position of all Trading Stock. In cl 7 the words “Marked to Market” were inserted before the words “Trading Reports”. There was also a new loan ratio certificate.
The Facility Agreement and the Deed of Common Provisions were further amended. I refer to these as summarily as possible, while interspersing reference to other agreements in the chronology.
On 29 May 1998 the parties executed an Amendment and Restatement Agreement (No. 2). The repayment date was extended to 31 December 1998. The total commitment of each Financier was reduced to $12.5M to 31 October 1998 then increasing to $15M to 31 December 1998. Each bank’s limit for the several facilities is set out in the amended Facility Agreement. Also on 29 May a Deed of Amendment to Deed of Common Provisions (No. 2) was entered into which, among other things, elaborated on the matter of the “debtors ledger” referred to in the cl 4 covenant that required the provision of management accounts.
It is convenient to note here that following a request to Rabo by Bustan International, on 29 July 1998 the Credit Committee of Rabo resolved, in relation to Bustan International, not to allow any further historical rate rollovers under any circumstances. The Committee required that Treasury ensure that foreign exchange contracts be settled on or before the scheduled value date.
On 14 September 1998, Rabobank and Bustan International entered into a Master Agreement for Foreign Currency Transactions. The Agreement included the following provisions:
(a)Part 1 – Purpose:
…that any foreign exchange transactions … will be for your normal trading purposes, and will not be entered into for speculative reasons.
(b)Part 3 – Dealing limits:
You acknowledge and agree that:
1.The aggregate amount of outstanding transactions at any time may not exceed AUD20,000,000 (or its equivalent in other currencies) or such other amount as we may in writing agree.
2.The term of any transaction must not exceed 365 days or such other period as we may in writing agree.
3.The total value of transactions maturing on any one day must not exceed AUD1,000,000 (or its equivalent in other currencies) or such other amount as we may in writing agree.
On 25 November 1998 the Facility Agreement and Deed of Common Provisions were further amended by amending Deed No. 3. The date for repayment under the Facility Agreement was extended to 30 June 1999. For the period ending 30 November 1998 the total commitment of each financier was $15M. Thereafter it reduced and was as follows:
For the period from 1 December 1998 to 31 March 1999
RAL
HKBA
Bill Facility Commitment
Total Commitment
$9,000,000
Export Bill Discount Facility Commitment
Total Commitment
$3,000,000
Guarantee/Letter of Credit Facility Commitment
Total Commitment
$5,000,000
Transactional Facility Commitment
Nil
AUD$3,000,000 including up to US$500,000
Total Commitment
$10,000,000
$10,000,000
For the period from April 1999 to 30 June 1999
RAL
HKBA
Bill Facility Commitment
Total Commitment
$7,000,000
Export Bill Discount Facility Commitment
Total Commitment
$3,000,000
Guarantee/Letter of Credit Facility Commitment
Total Commitment
$3,000,000
Transactional Facility Commitment
Nil
AUD$2,500,000 including up to US$500,000
Total Commitment
$7,500,000
$7,500,000
The Deed of Amendment to the Deed of Common Provisions (No. 3) included Rabobank as a party and as a current Financier with Rabo and HongkongBank. The amendments included a reduction in the net open position of all Trading Stock from $16M to $11M (cl 5.1(b)), and changed the requirement in cl 4.1(b)(6) for the Marked to Market Trading Report from weekly to monthly and clarified the approach for Trading Stock held for sale to China.
Then, on 18 August 1999 Midland Bank PLC entered into a Master Agreement for Foreign Currency Transactions with Bustan International. This was on the same standard terms as the like Master Agreement with Rabobank. However an annexure page setting out the limits was not included, as it was in the Rabobank Agreement. As I understand it, details of the facility are set out in a letter of offer from HSBC dated 19 August 1999 and accepted by Bustan International. It is also clear that Bustan International’s letter of indemnity dated 20 August 1999 relates to this facility. The letter of 19 August described the Facility as an uncommitted, on demand transactional facility governed by the terms of the Deed of Common Provisions as amended. The facility limited was AUD5M in face value or equivalent for the purpose of concluding forward foreign exchange contracts up to a maximum of 180 days, in any readily tradeable currency acceptable to the bank up to an aggregate maximum outstanding value of the contracts at any time or the equivalent of AUD5M. It was specified that historical rate rollovers may occur for a maximum period of 30 days subject to the original term of the contract plus the extension period not extending beyond 180 days. Unless earlier demanded by the bank, the facility expired on 30 July 2000.
A few days later, on 27 August 1999, the parties entered into agreements to further amend the Facility Agreement and the Deed of Common Provisions. The parties to the Facility Amendment Agreement were the two Bustan companies, Rabo and HSBC. The repayment date was extended to 30 July 2000 or later as determined under cl 2.4 with a total commitment in respect of each Financier of $7,500,000 made up as follows:
For the period from 1 July 1999 to 30 July 2000
RAL
HKBA
Bill Facility Commitment
Total Commitment
$7,000,000
Export Bill Discount Facility Commitment
Total Commitment
$3,000,000
Guarantee/Letter of Credit Facility Commitment
Total Commitment
$1,500,000
Transactional Facility Commitment
Nil
AUD$2,500,000 including up to US$500,000
Total Commitment
$7,500,000
$7,500,000
The Deed amending the Deed of Common Provisions was made between Permanent, the Bustan companies, Rabo, Rabobank, HSBC and Midland Bank. The definition of Transaction Document was amended to include any other document made with HSBC, Rabo, Rabobank and Midland Bank, and thereby to incorporate all additional arrangements with those entities as Financiers. Clause 4.1(a) of the Financial Covenants was amended to the effect that shareholders’ funds not fall below $7M (previously $2M) but for this purpose a loan of $5M made by Gulf on or about 3 May 1999 was to be excluded in calculating Total Liabilities. Some amendments were made to the net open positions in cl 5 (Trading Covenants). Clause 7 (General Covenants) was amended to require that the profit and loss statement provided with the management accounts include the monthly interest expense.
The next round of Amending Agreements (No. 5) were entered into on 31 August 2000. The repayment date under the Facility Agreement was extended to 28 September 2001 or later as determined under cl 2.4, and the total commitment of each Financier for the further period was increased to $10M made up as follows:
For the period from 1 September 2000 to 28 September 2001:
RAL
HSBC
Bill Facility Commitment
Total Commitment
$9,500,000
Export Bill Discount Facility Commitment
Total Commitment
$3,000,000
Guarantee/Letter of Credit Facility Commitment
Total Commitment
$1,500,000
Transactional Facility Commitment
Nil
AUD$2,500,000 including US $500,000
Total Commitment
$10,000,000
$10,000,000
The Deed amending the Deed of Common Provisions was now entered into by Midland Bank as HSBC Bank PLC, as its name had by then been changed. Clause 4.1(a) was amended to require that shareholders’ funds not fall below $2M, and cl 5.1 was amended in several respects.
On 31 October 2000 HSBC PLC offered, and on 13 November 2000 Bustan International accepted, a further uncommitted, on demand foreign exchange facility governed by the terms of the Deed of Common Provisions. Save that the limit was AUD$10M and that the facility would expire on 30 September 2001 the terms were the same as in the 1999 Facility.
The final round of Amending Agreements (No 6) were entered into on 6 December 2000. The repayment date was extended to 28 September 2001 or later as determined under cl 2.4. The total commitment for each Financier was initially $7,500,000 increasing to $10M as set out in the following schedule:
For the period from 1 September 2000 to 28 September 2001 until the Financiers have received additional standby letters of credit of $2,500,000 for RAL and $2,500,000 for HSBC current to at least 31 March 2002 issued by Mashreqbank PSC pursuant to clause 14.3 (‘Mashreqbank Letters of Credit’):
RAL HSBC Bill Facility Commitment Total Commitment $7,000,000 Export Bill Discount Facility Commitment Total Commitment $3,000,000 Guarantee/Letter of Credit Facility Agreement Total Commitment $1,500,000 Transactional Facility Commitment Nil AUD$2,500,000 including up to US$500,000 Total Commitment $7,500,000 $7,500,000
For the period from 1 September 2000 to 28 September 2001 upon receipt of the Mashreqbank Letters of Credit:
RAL HSBC Bill Facility Commitment Total Commitment $9,500,000 Export Bill Discount Facility Commitment Total Commitment $3,000,000 Guarantee/Letter of Credit Facility Commitment Total Commitment $1,500,000 Transaction Facility Commitment Nil AUD$2,500,000 including up to US$500,000 Total Commitment $10,000,000 $10,000,000 The amendment to the Deed of Common Provisions required that shareholders’ funds not fall below $7M provided that if the $5M loan from Gulf to Bustan International on or about 3 May 1999 was repaid with the consent of the Financiers shareholders’ funds not fall below $2M.
By a written acceptance of an offer from Rabo and HSBC dated 28 September 2001, and consented to by Gulf and Emirates, the Facility Agreement (and the date of repayment) was extended to 19 October 2001 or later as determined under cl 2.4 and otherwise on the terms and conditions of the Facility Agreement and Deed of Common Provisions as amended.
By this time Bustan International was in financial trouble and the Facility Agreement was not further extended. As mentioned earlier, the banks demanded payment of the amount owing on 31 October and 2 November 2001 and on the latter date the receiver and manager was appointed to the Bustan companies.
Bearing in mind the syndicated nature of the facilities, the Facility Agreement was implemented in the following way as stated in the defendants’ written submission. The transactional Banker for Bustan International under the Facility Agreement was HSBC in succession to the CBA. Bustan issued drawdown notices to Rabo and HSBC for the provision of funds under the Facility Agreement and funds advanced by Rabo were deposited to the credit of Bustan’s accounts with HSBC. Although Bustan conducted foreign exchange transactions with Rabo and HSBC, as Bustan International did not have a transactional account with Rabo it used its accounts with HSBC to settle amounts due to Rabo, or amounts received from Rabo, in respect of foreign exchange transactions, and the Banks adjusted contributions between themselves.
Finally, it is to be noted that the defendants do not allege that the Banks were in any relevant breach of a term of the Facility Agreement.
With that overview, it is now convenient to turn to the submissions and my conclusions thereon.
The powers of attorney
As mentioned at [16] above, the defendants contended that the plaintiff’s claim must fail given the absence of evidence that the powers of attorney were current when the certificates were signed and that they duly authorised the certificates. Counsel submitted that it was not established that the powers were current at the relevant time and that their operation was correctly enlivened in respect of the certificates. I interpolate that counsel’s written submission referred only to the certificates produced by HSBC[4] and Rabo[5], however having regard to the objection taken during the hearing I would treat the defendants’ submission as extending to the certificates produced by the plaintiff[6], which similarly stated that they were given under powers of attorney. The plaintiff’s written submission stated in a footnote that the matters referred to in this part of the defendants’ submission are “without merit, and deserve no serious response other than to observe that the defendants executed contracts allowing for the very proof of things relied upon by exhibits B and C”.
[4]Exhibit F.
[5]Exhibit H.
[6]Exhibits B and C.
The plaintiff’s certificates were purportedly given under cl 18.1 of the guarantees. The terms of that clause are set out at [50] above. Each certificate stated that it was made by Permanent pursuant to cl 18.1 of the guarantee and indemnity made on 18 December 1997 and, after a series of statements of fact, concluded with the following attestation clause:
Made by Permanent Trustee Company Limited (ACN 000 000 993) by being signed by its Attorneys
· Lucas Papacostas
· John Dinan
under Power of Attorney dated 2 June 1993
Permanent Trustee Company Limited by its Attorney
(signed)
Who hereby certifies that he is a
Senior Manager Compliance
for the time being of Permanent Trustee Company Limited
Permanent Trustee Company Limited by its Attorney
(signed)
who hereby certifies that he is a
Executive General Manager
for the time being of Permanent Trustee Company Limited
Hence, the certificates were duly signed by Papacostas and Dinan. Dinan did not give evidence. Papacostas was not challenged in cross-examination as to the power of attorney having been current and having authorised the certificates.
The HSBC and Rabo certificates stated that they were made by HSBC or Rabo as the case may be, pursuant to cl 23 of the Facility Agreement made 26 January 1996, as amended and restated. Clause 23 stated that:
Save where it is expressly stated otherwise in any Transaction Document, a certificate signed by a Financier or its solicitors about a matter or about a sum payable to the Financier in connection with a Transaction Document is prima facie evidence of the amount or any other matter stated in it.
That was followed, in each certificate, by a series of statements of fact and by the duly completed attestation clause.
The attestation clause in the HSBC certificate stated and was completed as follows:
Made by HSBC Bank Australia Limited (ACN 006 434 162) by being signed by its Attorney David Cenciotti under Power of Attorney dated 25 May 2006
HSBC Bank Australia Limited by its Attorney
(signed)
David Cenciotti
who hereby certifies that he is a
Manager Credit & Risk Management
for the time being of HSBC Bank Australia Limited
The certificate was signed by Cenciotti who was not challenged in cross-examination as to the power of attorney.
The attestation clause in the Rabo certificate stated and was completed as follows:
Made by Rabo Australia Limited (ACN 060 452 217) by being signed by its Attorneys
·Gregory Paul Kelly
·Paul Jonathan Sabine
under Power of Attorney dated 18 April 2000
Rabo Australia Limited by its Attorney
(signed)
who hereby certifies that he is a
Company Secretary
for the time being of Rabo Australia Limited
Rabo Australia Limited by its Attorney
(signed)
who hereby certifies that he is a
State Manager
for the time being of Rabo Australia Limited
The certificate was signed by Kelly and Sabine. Kelly did not give evidence. Sabine was not challenged in cross-examination as to the power of attorney.
As stated, counsel for the defendants did not cross-examine as to the powers of attorney being current when the certificates were signed and as duly authorising the certificates. The position taken by the defendants’ counsel was that the plaintiff had simply failed to lead any evidence to establish that the powers subsisted and authorised the certificates. In my view, however, this overlooked the presumption that the relevant powers of attorney were current at the relevant time and duly authorised the certificates[7]. In McLean Bros & Rigg Ltd v Grice[8], the High Court considered whether proof of the passing of an extraordinary resolution for voluntary winding up of a company was prima facie evidence that a quorum, if required, was present at the meeting. In answering that question in the affirmative, Griffith CJ quoted[9] with approval a passage from Knox County v Ninth National Bank[10] which stated that “where an act is done which can be done legally only after the performance of some prior act, proof of the later act carries with it a presumption of the due performance of the prior act.” The Chief Justice also referred to a passage from Bank of United States v Dandridge[11] which stated that “Persons acting publicly as officers of the corporation are to be presumed rightfully in office; acts done by the corporation, which presuppose the existence of other acts to make them legally operative, are presumptive proofs of the latter … If officers of the corporation openly exercise a power which presupposes a delegated authority for that purpose, and other corporate acts show that the corporation must have contemplated the legal existence of such authority, the acts of such officers will be deemed rightful, and the delegated authority will be presumed.” Although these observations were made in circumstances different from those in the present case, the relevant principle is the same. In the present case, there being no indication that the powers of attorney are (or were at the relevant time) not current and subsisting, or in any way did not authorise the certificates, there was a presumption of regularity as to those matters. The defendants did not displace that presumption. They neither challenged those matters in the pleadings nor in the cross-examination of relevant witnesses. It follows that I do not accept the defendants’ submission that the plaintiff has failed to establish that the powers of attorney under which the certificates were given were current and duly authorised the certificates.
[7]See Cross on Evidence (online edition) at para [1175] and the cases there cited.
[8](1906) 4 CLR 835 at 850.
[9]At 850.
[10]147 US 91 at 97 per Brewer J.
[11]12 Wheat, 64 at 70.
The certificates and guarantees – submissions as to their effect
Counsel for the plaintiff submitted that the effect of cl 18.1 was that unless the certificate could be shown to be false, for example in the calculation of the sum stated, or that error on the face of the certificate was otherwise shown, the certificate would be sufficient evidence of the matter or sum stated. He referred to the promise by Emirates to pay the “Guaranteed Money” in cl 3 of the Emirates guarantee, the definition of “Guaranteed Money” in cl 1.1 of the guarantee, and emphasised that the Emirates certificate[12] stated, among other things, that the sum payable to the plaintiff by Emirates was “Guaranteed Money” payable under the guarantee. He submitted that cl 18.1, combined with the certificates, provided sufficient legal evidence not only of the amount owed by each guarantor but the legal existence of the amount owed. He relied on the decision of the High Court in Dobbs v The National Bank of Australasia Limited[13].
[12]Exhibit B.
[13](1935) 53 CLR 643.
Counsel then submitted that, notwithstanding the accessorial nature of a guarantee contract and the general principle that a guarantor may take advantage of defences open to the debtor against the creditor, the defendants ought not be permitted to raise the matters sought to be raised in their defence. Counsel accepted that a guarantor is entitled to plead a set-off in its defence against a creditor, where the debtor would be entitled to a set-off against the creditor’s demand arising out of the same transactions as the debt guaranteed and in fact reducing the debt. He cited a passage from Cellulose Products Ltd v Truda[14] where Isaacs J gave[15] a non-exhaustive list of the types of matters which a guarantor is permitted to raise in a defence against a creditor’s claim. Counsel submitted, however, that unlike those cases the defendants’ case in para 20A of the defence did not involve a discharge or reduction of the primary debt but rather was a “camouflaged claim” for damages arising out of the Master Agreement for Foreign Currency Transactions in circumstances where any such claim remained vested in Bustan International and might properly have been raised by Bustan International as a set-off in its defence if it were sued by the banks, to the extent that amounts were wrongfully debited to its account; see Covino v Bandag Manufacturing Pty Ltd[16] and Indrisie v General Credits Ltd[17]. Moreover, counsel submitted that the proper way to litigate the matters raised in para 20A was for the defendants to have joined Bustan International to the proceeding (in effect, to seek an indemnity against Bustan International as a third party) which would in turn have joined the banks as additional parties, so that “all the real issues in the banker and customer relationship would emerge”. Counsel referred to the observations of Isaacs J in Cellulose Products Ltd v Truda[18] as to the appropriate way to bring such a proceeding.
[14](1970) 92 WN (NSW) 561.
[15]At 565-566.
[16][1983] 1 NSWLR 237.
[17][1985] VR 251 at 254.
[18](1970) 92 WN (NSW) 561 at 588.
Further, and as mentioned at [18] above, the plaintiff contended that even if the principles referred to in the authorities cited above did not preclude the defendants from raising the matters in para 20A of the defence, then several clauses in the guarantees themselves precluded the defence. I have set out the relevant parts of these clauses at [49]-[50] above. Counsel submitted that by cl 4.1 of the guarantee, the defendants, as indemnifiers, promised to pay in any event, regardless of whether the sum was recoverable from Bustan International. In effect, they assumed a primary liability to indemnify the plaintiff against loss. Counsel also emphasised cll 8.1(a) and 9.2 and relied on G E Capital Australia v Davis[19] in support of his submission that those clauses expressly prohibited that which the defendants sought to maintain by their defence.
[19](2002) 180 FLR 250.
Counsel for the defendants submitted as follows. As to cl 18.1, he submitted that if falsity (of the amount stated in the certificate) was established, there was no proof of liability on the part of the defendants. Thus, the plaintiff’s claim (not having been sought to be proved in any way other than by the tender of certificates) must be dismissed. As no allowance had been made in the certified debt for debits to Bustan International’s account in respect of dealings which, to the knowledge or notice of the banks, were speculative, the amount certified as owing was in fact not the amount owing, if indeed any amount was owing.
As to the submission that the terms of the guarantees prevented the defendants from seeking to establish that the sums stated in the certificates were false, counsel submitted that the short answer was that while cl 8.1 refers to “Guaranteed Money”, that term is defined in cl 1 as “money payable by the debtor”. In this case, counsel submitted, no money was payable by Bustan International to the particular bank in respect of a debit to its account for losses on speculative trades which stood outside the banking facilities of the customer by reason of the matters of which the bank had knowledge or notice.
As to the indemnity in cl 4.1, counsel submitted that the debited moneys did not form part of the “Guaranteed Money” for the same reason referred to above. Further, the defence was not that the moneys are or were never recoverable but rather that the moneys were never owing in the first place, because the moneys debited stood outside the facility to the banks’ knowledge or notice.
As to cll 7.1 and 9.2, counsel submitted that as Bustan International was never liable for moneys debited to its account in the circumstances described, it was not a question of the defendants raising a principle of law or equity, or some set-off or counterclaim, to cut down what would otherwise have been the customer’s liability. The liability simply did not exist. If the guarantee had, on its proper construction, the operation contended for by the plaintiff, its effect would be penal and thus unenforceable.
The effect of the certificates
The consideration of these submissions commences with Dobbs v The National Bank of Australasia Limited[20] where the High Court considered the effect of a “certificate of indebtedness” tendered pursuant to cl 8 of the guarantee in that case, which clause provided that:
[20](1935) 53 CLR 643.
A certificate signed by the manager or acting manager for the time being of your head office or of any other office of your bank at which the banking account of the customer shall for the time being be kept stating the balance of principal and interest due to you by the customer shall be conclusive evidence of the indebtedness at such date of the customer to you.
In their joint judgment, Rich, Dixon, Evatt and McTiernan JJ stated[21]:
The bank could recover without the production of a certificate if, by ordinary legal evidence, it proved the actual indebtedness of the customer. But the clause, if valid, enables the bank by producing a certificate to dispense with such proof. It means that, for the purpose of fixing liability of a surety, the customer’s indebtedness may be ascertained conclusively by a certificate.
[The Court then considered the appellant’s submission that the clause did not make the certificate conclusive of the legal existence of the debt but only of the amount, and continued:]
But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness. The clause means what it says, that a certificate of the balance due to the bank by the customer shall be conclusive evidence of his indebtedness to the bank.
[21](1935) 53 CLR 643 at 651-652.
The clause in Dobbs was different from that in the present case, in that it made the certificate “conclusive evidence of indebtedness” whereas cl 18.1 merely states that the certificate is “sufficient evidence” of the matter or sum stated in the certificate “unless the matter or sum is proved to be false”. Nevertheless, it is clear from Dobbs that cl 18.1 should be read, and given effect, in accordance with its terms. The object of cl 18.1 was to provide a means by which the plaintiff could, by tendering a certificate, establish both the legal existence and amount of the guarantors’ debt, unless it is proved that the matter or sum referred to in the certificate is false.
The terms of the guarantees preclude the defence
I have already set out (at [49]-[50] above) the relevant parts of cll 8.1 and 9.2 of the guarantees. In G E Capital Australia v Davis[22] Bryson J considered a contract of guarantee and indemnity containing clauses which were, in all relevant respects, identical to those in the present case. Bryson J observed[23] that “The obligation of the guarantors to pay to the plaintiff the amount of the debt is expressed in the Guarantee and Indemnity in very strong language”. He set out cl 3, the relevant parts of cll 7, 8 and 9, and observed[24] that cl 8.1(a) and cl 9.2 “appear to deal wholly or partly with the same subject, should be read together and complement each other”. He later said[25]:
The effect of the obligations in cl 8.1 is that the guarantors were contractually bound to pay the amount of money owing by the debtor when it was demanded. It was a contract to make an amount of money available when it was demanded. It was not an element of the obligation that it was subject to or limited by any process of ascertaining whether the debtor should be allowed any credits or set-offs, in respect of the security or of any other matter. Irrespective of the existence of security, and irrespective of the state of progress of any attempt at realising the security, it was and remains the obligation of the guarantors to provide to GE Capital the money amount of the debtors’ obligation. The provisions relating to suspension of the guarantors’ rights including cl 8.1 give effect to the amplitude of this obligation, and remove the possibility that the guarantors might in any way compete with GE Capital in attempts to recover from the debtors. Clause 8.1 does not bar the guarantors from making any claims or enforcing any rights against either GE Capital or the debtors; it suspends those rights so long as the guaranteed money remains unpaid, and the suspension can be ended at once if the guarantors meet their contractual obligation and pay the amount of the guaranteed money. Once they do that, they can bring any proceedings they wish against GE Capital or the debtors, notwithstanding cl 8.1; but the effect of cl 8.1, and of cl 8 generally, is that until they make that payment they are contractually bound to the proposition that they are not entitled to bring any claims or proceedings or to act in any of the manners referred to. The jurisdiction of the court is not ousted in any respect, the rights of the guarantors are suspended but otherwise not impaired, and they can pursue their rights as they wish if they first comply with what the Guarantee and Indemnity makes their primary obligation.”
Bryson J concluded that the operation of cl 8.1 and cll 9.1 and 9.2 according to their terms was not contrary to any principle of law.
[22](2002) 180 FLR 250.
[23]At [14], 256.
[24]At [19], 257.
[25]At [93], 279.
I respectfully agree with and adopt his Honour’s observations as to the meaning and effect of cl 8.1. In my view, and as Bryson J observed, cll 8.1 and 9.2 are clear in their terms. In effect, as long as the guaranteed money remains unpaid, the defendants may not, without the plaintiff’s consent, raise a defence, set-off or counter-claim (whether available to the defendants or Bustan International) in reduction of their liability under the guarantees. In my view, that is plainly what the defendants’ case seeks to do. In effect, the defendants raise issues in their defence in purported reduction of their liability under the guarantees. I reject the submission that the defence does not seek to “cut down” what would otherwise have been the customer’s liability, but rather does no more than establish that Bustan International was never liable for moneys debited to its account in the circumstances pleaded, and hence that there was no “Guaranteed Money” in respect of which the defendants could be liable under the guarantees. The submission ignores the liability imposed on the guarantors by the terms of the guarantees themselves, read according to their ordinary meaning and bearing in mind the purpose of the guarantees. Put simply, the defendants’ submission ignores the guarantors’ contractual obligation to pay the amount of the “Guaranteed Money”, which amount may be stated in a certificate. Finally, I reject the contention that cll 8.1 and 9.2 of the guarantees have a penal effect and are thus unenforceable.
In these circumstances, I conclude that the plaintiff is entitled to judgment in the sum claimed.
Indemnity
In light of my conclusion as to cll 8.1 and 9.2, it is not necessary to consider the plaintiff’s claim brought on the indemnity clause. Nevertheless, I have reached a clear view on the matter – namely that if the plaintiff were not able to recover from the defendants under the guarantees it would be entitled to recover under the indemnity - and it is convenient to state briefly my reasons for this conclusion.
The plain language of the indemnity clause makes the defendants liable to indemnify the plaintiff for loss suffered because the Guaranteed Money is not or has never been recoverable from the defendants “because of any circumstance whatsoever including, without limitation, any transaction relating to the Guaranteed Money being void, voidable or unenforceable and whether or not [the plaintiff or the banks] knew or should have known anything about that transaction”.
In seeking to avoid liability under what, on its face appeared to be an expansively worded indemnity, the defendants focused attention on the term “Guaranteed Money” which was defined in the guarantee as being “amounts payable” by the debtor to the plaintiff or the banks. The defendants conceded that they were obliged to indemnify the plaintiff in respect of loss caused to it because “Guaranteed Money” was not recoverable. But in the present case, submitted counsel, it could not be said that “Guaranteed Money” was not recoverable. Rather, there was no “Guaranteed Money” at all, because the relevant moneys were never owing in the first place.
The starting point in considering the submission is the term “Guaranteed Money” which is defined, relevantly, as “all amounts which at any time, for any reason or circumstance in connection with any agreement, transaction, engagement, document, instrument (whether negotiable or not), event, act, omission, matter or thing whatsoever, are payable … by the Debtor to the Security Trustee or a Financier” (emphasis added). This is a very broad definition. As to when money is “payable”, cl 23 of the Facility Agreement relevantly provides that “a certificate signed by a Financier or its solicitors about a matter or about a sum payable to the Financier in connection with a Transaction Document is prima facie evidence of the amount or any other matter stated in it” (emphasis added). The HSBC certificate given under this clause refers to the relevant clauses of the agreement, the event of default, and the fact that HSBC and Rabo, by Notice of Demand served on Bustan International, declared that the Secured Moneys under the agreement were immediately due and payable. Further, the certificate stated that “The Secured Moneys under the Facility Agreement owed to HSBC by International on 31 May 2006 is $3,020,494.59”. The Rabo certificate uses the same language and is to like effect. Similarly, cl 18.1 of the guarantees refers to the giving of a certificate about a “sum payable to the Security Trustee in connection with this guarantee” and the certificates given under that clause state the amount of the “sum payable” to the plaintiff pursuant to the guarantee. The bank’s certificates are, to use the language of cl 23, “about a sum payable to the Financer in connection with a Transaction Document”, and the plaintiff’s certificates are, to use the language of cl 18.1, about a “sum payable to the Security Trustee in connection with this guarantee”. In substance, the certificates claim that certain amounts are payable by Bustan International to the banks and the plaintiff. In my view, the amounts stated to be “payable” in the certificates are plainly covered by the definition of “Guaranteed Money” referred to above.
The defendants’ submission, which I reject, amounts to saying that because the certificates are only “prima facie” or “sufficient” evidence of the sums stated, the sums stated in the certificates are not “payable” until a court determines that they are payable, and hence the term “Guaranteed Money” does not include the “sums payable” referred to in the certificates. In my view, the term “Guaranteed Money” cannot be read in such a narrow way. To do so would be to read into the broad definition of “Guaranteed Money” a qualification to the effect that money is only taken to be “payable” for the purposes of the guarantee if a Court has conclusively determined the matter. If this interpretation was correct, the indemnity in cl 4.1 would have no effect in a case where a court decided that moneys were not payable. That is to say, in the very case that moneys were not recoverable, the indemnity clause would be ineffective because it would, on the defendants’ submission, only operate in respect of money “payable”. Conversely, in a case where a court determined that moneys were “payable” (or recoverable), the indemnity clause would be effective, but otiose given that the plaintiff would be able to recover under the guarantee. The result is counter-intuitive and could not have been intended by the parties to the guarantee, not least the plaintiff which intended that the indemnity clause would allow recovery of losses caused to it because of and in circumstances where guaranteed moneys were, for whatever reason, held not to be recoverable. The defendants’ interpretation of the indemnity clause undermines the fundamental purpose of the contract. It renders the certificates ineffective and, in so deferring the question of whether money is “Guaranteed Money” to a court’s determination, has the effect of providing for an indemnity where none is required, and denying an indemnity in cases where the plaintiff cannot recover under the guarantee. In my view, the parties could not have intended such a result.
The indemnity clause should be construed according to its terms. Accordingly, if the plaintiff were not able to recover from the defendants under the guarantees it would be entitled to recover under the indemnity clause.
Unnecessary and undesirable to consider the case raised by para 20A of defence
Notwithstanding the fact that the issues raised by the “knowledge or notice of fraud” case occupied much of the time spent at trial, and that counsel for the plaintiff stated in his closing submission that “the most substantial issue in the case is whether the banks named in the proceeding knew or had notice that some of those foreign currency transactions were being made by employees and senior management of Bustan International in fraud of the company”, it is unnecessary to deal with the para 20A case for several reasons. First, my conclusion as to the effect of the clauses in the guarantees means that the defendants simply cannot avail themselves of the para 20A case. Even if they could make good that case, it would not affect my conclusion that the plaintiff must succeed on the certificates. Secondly, I agree with the plaintiff’s counsel’s submission that if the defendants wished to raise the matters in para 20A, the appropriate way of doing so was by joining Bustan International, who in turn would be expected to have joined the banks, so that all relevant and proper parties were before the Court and thus bound by any judgment[26]. For reasons as to which I cannot and do not speculate, that was not done in the present case. As a consequence, any consideration of the para 20A case would effectively involve making findings and reaching conclusions as to the banks’ and Bustan International’s liability to each other, but in circumstances where the very parties concerned were not before the Court. Thirdly, I note that Bustan International has commenced a proceeding alleging negligence and breach of other duties against its auditors[27]. While it may be expected that there will be some overlap between the documents tendered in the present case and those that might be tendered in the case against the auditors, the issues raised in that case are quite different from the matters raised in the para 20A case. In effect, the para 20A case is irrelevant to both proceedings. Even if the para 20A matters did have some relevance to the proceeding against the auditors, it would be inappropriate to use the present case as a vehicle for giving what would effectively be an advisory opinion. Fourthly, as counsel for the plaintiff was at pains to emphasise, the para 20A case raised serious allegations against the banks and their officers. To succeed, the defendants’ case required findings that the banks knew (or at least were on notice) that Bustan International employees were using the Facility Agreement to engage in speculative foreign currency trading, against the policy of and in fraud of the company. Without expressing any view as to whether the evidence would warrant the making of such findings against the banks and their officers, I consider that it would be inappropriate to make findings of such a nature in circumstances where the findings cannot in any way affect my conclusion that the plaintiff must succeed.
[26]See Cellulose Products Ltd v Truda (1970) 92 WN (NSW) 561 at 588; Covino v Bandag Manufacturing Pty Ltd [1983] 1 NSWLR 237 at 241; Indrisie v General Credits Ltd [1985] VR 251 at 254.
[27]That proceeding has effectively been on hold pending the outcome of the present proceeding.
There will be judgment for the plaintiff. I will hear counsel as to costs.
13
3
0