Dobbs v National Bank of Australasia [2009] NSWSC 397 | Case summary

5973/06 BANK OF CHINA LTD -v- C.G.S. (GROUP) PTY LTD JUDGMENT 1 HIS HONOUR: The plaintiff (the Bank) sues CGS (Group) Pty Ltd, which was its customer, and Mr Guo, who was its managing director and guaranteed the Bank's dealings with its Customer, for moneys due for credit which the Bank extended to the Customer on 29 September 1998 when the Bank paid $US4,680,000 which it was liable to pay on Letters of Credit issued on 10 November 1997 on behalf of the Customer in favour of Nam Kwong Development (HK) Ltd, which supplied the Customer or someone associated with it with deliveries of Australian wool in China. 2 The Customer was incorporated on 28 March 1996 and its name then was CGS Wool Pty Ltd. It began banking as the Bank's customer on 25 October 1996, and Mr Guo was the signatory on the account. The general manager of the Bank was then Mr Fugen Chen and he took the principal part in the Bank's dealings with the Customer and Mr Guo. Mr Chen left the Bank's Sydney Branch on 10 September 2003. He continued to be an officer of the Bank in China, but left the Bank's service in 2006. 3 Mr Chen did not give evidence in the proceedings. Mr Chin, the manager of the Bank's Credit Control Department, had a limited part only in the Customer relationship, and much of the evidence, including Mr Chin's evidence, was based on files and documents. Mr Chin was cross-examined, but no doubt was raised as to his credibility. Little of what Mr Chin said was in dispute; indeed nothing that I regard as important in Mr Chin's evidence was in dispute. The case does not turn on credibility and turns on consideration of the meaning and effect of documents. The authenticity of all documents to which I refer has been established at interlocutory stages. 4 These proceedings were commenced by Statement of Claim filed on 24 November 2006, and Defences under the Limitation Act 1969 raise the limitation period of six years for causes of action founded on contract (section 14 (1)). There is also a limitation period of 12 years for causes of action founded on deeds (section 16). The Bank in Reply relies on documents said to be confirmations within section 54. 5 I do not deal in detail with matters of calculation, or with credits which the Bank has allowed, because the Bank has relied upon Exhibit C - a certificate by an officer of the Bank given under provisions of several documents governing its relations with the Customer and Mr Guo. The certificate is admissible having regard to Dobbs v National Bank of Australasia Limited (1935) 53 CLR 643 and there was no debate at the hearing about the matters certified. Issues apparently raised on the pleadings by non-admissions relating to interest and matters of calculation did not lead to any real debate and the facts are sufficiently established by Exhibit C. The certificate says: The amount owed by C.G.S. (Group) and Yue Jin Guo both jointly and severally:- 1. Principal owed as at 1 January 1999 USD2,824,670.30 2. Interest from 1 January 1999 (date of last notification) to 5 May 2009 at the rate of 9.25% per annum USD2,742,009.46 TOTAL USD5,566,679.76 With a daily rate of interest being Being per day from 5 May 2009 USD 725.78 6 Two written applications for irrevocable documentary credit were made on 15 October 1997 (Ex A, Tab 7 & 8) by Mr Guo on behalf of the Customer. The applications contained passages authorising bank charges inside and outside Australia to be debited to the Customer's account, and printed terms by which in consideration of establishing the credit the Customer agreed to indemnify the Bank against all expenses incurred, and authorised the Bank to debit the Customer's account with payments in accordance with the credits and related charges. The printed terms also contained an agreement to pay interest at the rate notified. These applications do not include any guarantee by Mr Guo. Arrangements were made for the Customer to deposit 50% (or approximately 50%) of the amount of the Letters of Credit with the Bank and to provide security for the remaining credit which would be required when the Bank met the Letters of Credit. This deposit is referred to as the margin deposit. The security consisted of a mortgage over a hotel in Tianjin in China, with personal guarantees by Mr Guo and by Mr Liu, another director of the Customer. 7 Two Letters of Credit were issued on 10 November 1997, LC 1000171 for $US2,523,082.80 and LC 100019 for $US2,156,859.30. The payments totalling $US4,680,000 on 29 September 1998 followed by debit to the Customer's account are admitted on the pleadings. These facts establish a cause of action for a contract debt with an accrual date of 29 September 1998 under Limitation Act section 14(1). The Bank established the interest to be charged and debited to the Customer at 9.25% per annum simple interest, under notices relating to interest dated 29 September 1998 (Ex A, Tabs 52 & 53). 8 The Customer and Mr Guo had a full understanding of the obligation to pay what the Bank had paid under Letters of Credit; they asked for an extension of time to do so by a letter of 25 September 1998 (Ex A, Tab 47). On 30 November 1998 Mr Guo wrote to the Bank on behalf of the Customer (Ex E), referred to the loans under the Letters of Credit which were due on September 29, 1998, said that the Customer had received the proceeds from sales and expected to send the money to the Bank before the end of December 1998. 9 The Customer's obligation was significantly reduced when on 31 December 1998 part of a loan, referred to as drawn down by Landmark, was used to pay part of the debt relating to Letters of Credit. Mr Guo and the Customer were in some way involved in or related to the credit to Landmark; but I am not concerned with those arrangements which are not sought to be enforced in these proceedings. The existence of the Landmark credit is a probable explanation why the acknowledgement, to which I refer later, is for a greater sum than was owing by the Customer. 10 With industry too great for commendation the Bank obtained at least three basal documents, in similar terms, regulating its banking arrangements with the Customer. 11 The Bank and the Customer entered into a General Banking Facility Agreement (GBFA) dated 2 December 1997 (Ex A, Tab 38). This document is expressed to be an agreement; it is not expressed to be a deed. It was executed by the Customer under the Customer's common seal. It was signed by an attorney under power on behalf of the Bank. The Bank does not contend that this document is a deed. GBFA 2 December 1997 contains highly general provisions regulating the relationship of banker and customer and credits in the course of it. Its terms show that it was entered into for consideration, and its recitals refer to the Bank's agreement to provide credit accommodation. Clause 17.01 contains a contractual promise promptly to pay all sums of whatever nature due under the facility. The positive undertakings in clause 17 extend to existing obligations as well as to obligations arising after 2 December 1997. The promise extends to an advance, and by reference to definitions of "Advance" and "Loan" in clause 1 extends to any money for which there is an obligation to pay the Bank, in terms which include money which had already fallen due. However that may be, GBFA 2 December 1997 certainly extends to money which became due on 29 September 1998 when the Bank met its obligations under the Letters of Credit. 12 The Bank also relies on a third source of obligations to it. This is General Banking Facility Agreement bearing date 4 November 1997, although it was in fact made on or about 25 June 1998. The document has no internal reference to its being ante-dated. It is not disputed that the document was made and was ante-dated as the Bank alleges. These facts show that it was the intention of the parties that the document should operate on their rights as if it had been made on 4 November 1997, and should be given effect accordingly. GBFA 4 November 1997 has a strong general resemblance to GBFA 2 December 1997, although there are differences in detail. It was executed by the Customer under its common seal and it was signed on behalf of the Bank by an attorney under power. Immediately before the seal and execution the document states "EXECUTED by the parties as a Deed". Because it so states and is executed by the Customer under its seal the document is in my opinion a deed; or in any event, it is the Customer's deed. For this reason obligations of the Customer under it give rise to causes of action for which the limitation period is 12 years under section 16 of the Limitation Act. 13 The further round of documents in June 1998 was, it is fairly certain, taken in connection with release by the Bank on the Customer's application of $US1 million from the margin deposit in arrangements which included providing more security. The release of the margin deposit enhanced the need for security and for well-established arrangements regulating dealings with the Customer. 14 In clause 14 GBFA 4 November 1997 contains positive undertakings to pay obligations which, traced through definitions of "Advance" and "Loan" extend to obligations existing at the date of the GBFA as well as to obligations which arose later. There is no doubt that the positive undertakings extended to the obligations which arose later in 1998 when the Bank met its obligations under the Letters of Credit. 15 The language of the facility documents is general language and its reach of reference to obligations to the Bank is very wide. There is no reason to read their language down so as to only to relate to the business immediately at hand at the time each GBFA was made. There is no reason to limit the general references in the operative parts of each facility agreement to the subjects introduced by the recitals. When the Bank debited the amount which it had paid out on the Letters of Credit to the account of the Customer there was a loan within the meaning of each GBFA. The reach of the facility agreements is wide and the obligation may fall with them for other reasons; but what I have stated is sufficient. 16 In effect then the Bank relies on a covenant in the Customer's deed to pay obligations on the Customer's account, and had 12 years to sue from the time when the obligation arose. For obligations which arose in September 1998 there was no time bar when these proceedings were commenced. The Bank also had the benefit of two enforceable contractual promises by the Customer to pay the debt thus arising. As to the simple contract obligations to pay the same debt which arose under the applications for Letters of Credit and GBFA 2 December 1997 the Bank contends that the limitation period of six years does not apply because there are later acknowledgements which operate under section 54 of the Limitation Act. Disposition of this contention is not necessary for the Bank's success, but I will give it some consideration. 17 I turn to the claims that Mr Guo is liable as guarantor of the obligations of the Customer. 18 The parties entered into a document entitled "Guarantee and Indemnity" on 5 June 1998 (Ex A, Tab 62). Its authenticity is not disputed and Mr Guo admits that he signed it. The document is expressed to be a Deed in its opening words and at several places in the body of the document and the executions are preceded by the words "EXECUTED by the parties as a deed". The words attesting Mr Guo's execution say that it was "Signed, sealed and delivered" by him and his execution is witnessed by the person who also signed the attestation by the Customer as its secretary. As well as being expressed as a deed, the Guarantee and Indemnity contained recitals which establish that it was given for consideration and that Mr Guo as guarantor had agreed to guarantee the obligations to the Bank of the Customer under a General Banking Facility Agreement of 5 June 1998. GBFA 5 June 1998 is in evidence, although it is not one of the several documents on which the Bank founds causes of action in the pleadings. 19 In clause 2.01(b) Mr Guo gave an express guarantee of due and punctual payment of the principal moneys, extensively defined in clause 1.01 and extending to all moneys owing by the Customer to the Bank. Clause 2 is stated in such extensive terms that it may well be that Mr Guo came under a liability to make a payment to the Bank, and that a cause of action arose, contemporaneously with any obligation of the Customer to the Bank. However that may be, clause 2.02 creates an obligation of Mr Guo to pay the debt, referred to as the principal moneys, on demand and whether or not the Customer is in default. There is an indemnity in clause 2.10 against any loss in consequence of a breach or default by the Customer under any existing agreement. 20 A cause of action for a guarantee liability under the Guarantee and Indemnity is in my opinion a cause of action to which section 16 of the Limitation Act applies, so that in no possibility could guarantee liability relating to a debt incurred on 29 September 1998 have been statute-barred when the proceedings were commenced. 21 The further GBFA made on 5 June 1998 relates to trade credit facilities $US4,680,000, plainly the same subject matter as the Letters of Credit, and provides for there to be guarantees by Mr Guo and by two companies Ausbao Pty Ltd and Strategic Adventure Pty Ltd of obligations under GBFA 5 June 1998. This document is referred to as the credit agreement in Mr Guo's guarantee. However his guarantee is not limited to obligations under it. 22 Mr Guo and the Bank also entered into a deed entitled "Guarantee and Indemnity" which bears date 4 November 1997, although it is established and it is not disputed that it was actually made on 25 June 1998. The parties are the Bank, and two guarantors Mr Guo and one Yayun Liu. The document is expressed in its opening words and in many other places to be a deed and the executions are preceded by the words "EXECUTED by the parties as a deed". The Customer referred to as the borrower is a party. The Customer executed the Guarantee and Indemnity under its common seal; it is expressed to be signed, sealed and delivered by each of Mr Guo and Mr Liu; their signatures appear, but each attested the signature of the other, which may deprive the document of the support which section 38(1) of the Conveyancing Act 1919 would give to a claim that it is a deed. The Bank's counsel did not contend that it is a deed or that the requirement in subs 38 (1) that it be attested by at least one witness not being a party to the deed was met. I act on the basis that obligations under this document are subject to the six-year limitation period. 23 Another document which the Bank put forward as a guarantee by Mr Guo is a document in Chinese (Ex A, Tab 39) with a certified translation. This letter signed by Mr Guo and Mr Liu dated 2 December 1997 sets out at length detailed terms of the guarantee. Its opening words refer, unmistakably, to the credit of $US4,680,000 to the Customer for the purpose of Letters of Credit and financing facilities. This is unmistakably the same transaction and credit as the Letters of Credit to which I earlier referred. The document is an agreement to pay to the Bank's Sydney Branch all moneys owed by the Customer to the Branch within 14 days of a written demand if any default shall occur. Guarantee liabilities under this document are subject to the limitation period of six years. 24 The Bank made a demand in writing of Mr Guo under his guarantees on 23 July 2002 (Ex A, Tab 75) and called for payment of the principal then owing, $US2,824,670.30 and interest within 14 days. The demand threatened recovery action. This demand met the requirements for a demand for payment of principal and interest in each of the three guarantee documents. This document establishes 6 August 2002 as an accrual date for Mr Guo's liability under each and all of the guarantees, and neither limitation period had expired when the litigation was commenced. 25 The Bank made a further written demand on Mr Guo in Chinese on 19 November 2002; that demand and a translation also appear at Ex A, Tab 75. This demand refers to other business as well as the matter I am presently considering. It is not unequivocally a demand for payment under the guarantees. 26 As the Bank's claims against both the Customer and Mr Guo are based on obligations in deeds, there is no time bar under section 14 of the Limitation Act. This is no less so because the Bank may also have causes of action to which the shorter time bar would apply. The consideration which I give in this judgment to the operation of section 54 (2) and to acknowledgement is not essential for my disposition. 27 A letter of 19 July 2000, exhibit A, Tab 73, is a full and clear acknowledgement by both the Customer and Mr Guo of the indebtedness now sued on. However (as was conceded) it is a difficulty for the Bank to rely on it, if the Bank is in need for such reliance, that the proceedings were commenced more than six years later. 28 Mr Guo, writing both for himself and as a Director of the Customer, gave the Bank a written acknowledgement of debts in a letter of 1 July 2002 (Ex A, Tab 74). The acknowledgement refers to a principal sum of $4,679,924.10 as "debt owned by CGS Wool Pty Ltd and CGS (Group) Pty Ltd." It also refers to interest and states the total outstanding at $US6,262,752.01. The amount of principal acknowledged is greater than the balance then owing in respect of the letter of credit transactions, and includes another obligation to which some references appear in the evidence. Notwithstanding that the acknowledgement states a greater sum than the debt sued on, facts and circumstances not referred to in the acknowledgement, but not open to dispute, show that the reference is to causes of action including the claim on which the Bank now sues. Mr Chin said in evidence (t. 31) that the acknowledgement was prepared to deal with the total liability owed by the Customer. The letter is an acknowledgement because, echoing clause (2)(a)(1) of section 54, it acknowledges, to the Bank, a right or title of the Bank to the cause of action on which the Bank now sues. Plainly there can be acknowledgement of a right or title to a cause of action even though the acknowledgement does not specify the amount of the debt, or if it states the amount of the debt erroneously. The certificate Exhibit C shows that that principal was $US2,824,670.30 on 1 January 1999. It is in my opinion plain that the figure acknowledged includes the principal of the debt on which the Bank now sues. It is not in my opinion necessary for the Bank to rely on an acknowledgement or on section 54 of the Limitation Act, but if that were necessary the Bank could rely upon this document. 29 English authority on the operation of section 24 of the Limitation Act 1939 (UK) establishes that an acknowledgement need not identify the amount of the debt and may acknowledge a general indebtedness, provided that the amount of the debt can be ascertained by extraneous evidence; see Dungate v Dungate [1965] 1 WLR 1477 at 1487E-F (Diplock LJ). In my view the same conclusion is appropriate in the application of s 54(2) of the Limitation Act 1969. That section does not require that, in the case of a debt, the amount of the debt should be stated. It is appropriate to have recourse to evidence external to the terms of a document to identify subject matters referred to in it. 30 Hepburn v McDonnell (1918) 25 CLR 199 relates to an acknowledgement under the statute law in force before the Limitation Act 1969. Section 54 makes simpler requirements than the earlier law, in which it was necessary that an acknowledgement contained a promise, express or implied, to pay the debt, but the implication was made readily, it was not necessary for the acknowledgement to specify the amount of the debt, and other evidence, in that case the letter to which the acknowledgement was a reply, was referred to. Hepburn v McDonnell illustrates the earlier liberal approach to acknowledgement, which section 54 does nothing to restrict. If the causes of action acknowledged can be identified it is not in my opinion significant for the operation of section 54 if the amount of the liability is not stated, or is overstated. Understatement may have problems of its own, but these are not my present concern. 31 Counsel for the defendants contended to the effect that the acknowledgement was vitiated as it refers to an incorrect amount as the amount acknowledged. I do not accept this submission; it is a matter of identifying what cause of action the acknowledgement refers to, from its terms if possible and by external evidence if there is any. In this case there is. 32 An application by the Bank dated 3 July 2002 to a Court in Tianjin (Ex F) contains statements about the indebtedness in similar terms to the document of 28 November 2002. It appears to have been directed to preserving rights under a mortgage in the bankruptcy of the company which owned the hotel. I do not regard this application, to which the Customer and Mr Guo were not parties, as presently important. 33 A document dated 28 November 2002 in Chinese with a certified translation (Ex A, Tab 76) gives a short history of transactions relating to a trade facility of $US8 million said to have been signed in 1999, and to security over the Tianjin East Asia Hotel. The document confirms that the trade credit facility "included the two L/C bills between our company and Bank of China in 1997. The amount consists of the principal of about $US4,680,000 principal, the corresponding interest, penalties and taxes. The balance is the newly increased amount." Mr Guo signed the document and affixed the Customer's seal. This may be an acknowledgement within s 54(2) but it is not altogether clear and the Bank does not need to rely on it. 34 Counsel for the defendants contended (t. 76) that the Bank could not make good an argument that a single debt which came into being by a contract of debt, a complete contract with consideration and expressions of promises and all aspects of a functioning contract, was or could be the subject of other documents which would give rise to an independent cause of action. Defendant's counsel submitted that it was not possible for a later contractual promise to pay a debt for which there was an earlier contractual promise to pay to have effect; counsel argued to the effect that if the debt and a promise to pay it already existed, a further promise to pay it could not have effect. Counsel suggested that there could only be a fresh or further cause of action if the parties agreed to rescind whatever earlier agreement for payment existed, and to start afresh. The parties did not make any such rescission agreement. However in my opinion it is not relevant whether there were or were not rescission agreements of the kind to which counsel referred. There is no conceptual difficulty about the existence of multiple enforceable contractual promises to pay the same debt. Counsel developed this at some length, but I think it is sufficient to dispose of it to say that in my opinion there is no reason why there cannot be more than one contractually enforceable promise to pay the same obligation. If a plaintiff has the benefit of several different contractual promises to pay the same debt, failure to pay is breach of each of them, and gives rise to separate causes of action for each breach. There is no reason in principle why the first breach and the first accrual date should be the only ones. It is of course necessary that each contractual promise should be a term of a contract supported by consideration, or of a deed. A simple contract promise to pay an existing debt would not be supported by consideration, but the promises put forward by the Bank are not bare promises and in each case the contract shows a sufficient consideration. 35 Defendant's counsel contended that as each of these general documents was made after the Customer had applied for credit relating to Letters of Credit and the Bank had agreed to give it none of the GBFA extended to the then existing arrangements. I do not accept this because each of the GBFAs according to its own terms does extend to existing obligations. But further, the customer's indebtedness to the Bank under the Letters of Credit arrangements did not arise until 29 September 1998, which was later in date than each of the GBFAs. Upon their own terms it is in my opinion plain that each of the GBFAs extends to that credit, and that Mr Guo's guarantee also extends to it. 36 Both in its claim against the Customer and its claim against Mr Guo the Bank has proved causes of action arising under deeds against which no time bar has operated. Further, the document of 1 July 2002 is a sufficient acknowledgement both by the Customer and by Mr Guo to overcome any time bar which otherwise existed. 37 For these reasons I will give judgment for the plaintiff against the defendants for $US5,566,679.76 and interest from 5 May 2009 until publication of this judgment at $US725.78 per day: and also for costs. I require counsels' assistance on the currency in which the judgment is expressed.

Dobbs v National Bank of Australasia

At a glance

Court

Decision date

Before

Source

Judgment (11 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (3)

Cited By (3)