ASB Bank Ltd v Davidson CA95/03

The appeal in ASB Bank Ltd v Davidson CA95/03 concerns the liability of the trustees of the Aquatic Trust for unauthorised transactions with the ASB Bank. The central dispute revolves around the issuance of three standby letters of credit by ASB Bank, without the full knowledge or consent of all trustees. The first respondent, Kenneth James McGregor Davidson, acting on behalf of the Trust, requested these letters of credit, which were subsequently called upon, leading to ASB Bank seeking damages from the trustees. The case raised two primary legal issues: whether the trustees were liable to the bank for breach of contract, and whether the guarantors, Mr and Mrs Davidson, were required to indemnify the bank under a Deed of Guarantee and Indemnity.

The Court of Appeal ruled that the trustees were not liable to the bank for breach of contract. Glazebrook J emphasized that the trustees must act unanimously and cannot delegate their duties unless permitted by the trust deed or statute, a principle upheld by the lower court. The Court found that the other two trustees were not aware of the letters of credit and thus could not be held constructively aware of the unauthorised transactions. Furthermore, the Court rejected the bank's argument that constructive knowledge of the unauthorised transactions should trigger the trustees' obligation to notify the bank.

Regarding the indemnity, the Court of Appeal determined that Mr and Mrs Davidson were liable under the Deeds of Guarantee and Indemnity to indemnify the ASB for its loss under the third letter of credit. The Court found that the indemnity clause was clear and unambiguous, extending to cover situations where the guaranteed indebtedness was not recoverable due to lack of authority by a person purporting to act on behalf of the trustees. The Court concluded that the Davidsons were liable as indemnifiers for the bank's loss because the guaranteed indebtedness was not recoverable due to the lack of unanimity among the trustees.

The appeal was dismissed in relation to the first respondents but allowed in relation to Mr and Mrs Davidson's liability under the Deeds of Guarantee and Indemnity. The bank and the Davidsons were granted leave to file memoranda on the calculation of the amount owing under the indemnity and on costs.