· they had procured a bank guarantee from Antler as security for Brownvalley's entitlements under the MOU;
· subject to advancing US$460,000 Brownvalley would be entitled to receive a payment of US$540,000 by 26 October 2007;
· in the event that payment was not received, Brownvalley may call up and cash the bank guarantee without reference to Antler or Golden Harvests and retain the full proceeds on account of the payment;
· they had a separate arrangement with Antler pursuant to which the bank guarantee had been procured and may be applied for the purposes of the Memorandum of Understanding and to the full extent required, and Antler had agreed and consented to Brownvalley calling up and cashing in the bank guarantee without notice if it did not receive the payment [of US$540,000]; and
We jointly and severally agree to be responsible for all costs, liability, loss or damage suffered or incurred by you as a result of any breach or default of the MOU and this Acknowledgement and Undertaking and in respect of the BG, and all ancillary matters and transactions associated therewith.
16 Also on 21 August, Mr Snelson proposed that Brownvalley's investment be varied to AU$552,000, and the repayment to AU$648,000. On 22 August, Mr Braunthal, writing on the letterhead of Brownvalley, directed transfer of AU$552,000 from his own bank account to the account of Golden Harvests.
17 Brownvalley did not receive the repayment to which it was entitled under its MoU with Golden Harvest within a month of 22 August, and as the bank guarantee was to expire on 3 November 2007, Brownvalley on 30 October 2007 presented it to CBA and demanded payment. Jaylin Mao at CBA informed Jack Li of this on or about 1 November, querying the authenticity of the claim because she had been given to understand that Antler was to retain the original. Mr Li maintained that that was so, but when he and Jing Qi Yao took the laminated copy to the bank on 2 November, it was confirmed that it was in fact a copy.
18 On 1 November, an email was sent to Mr Atkins on behalf of Antler, reporting that they had just been informed that Brownvalley had attempted to cash the guarantee; Mr Atkins responded to the effect that "you have the original and that's the end of the story".
19 Following an intervention by Mr Snelson on 8 November, which included a promise that Golden Harvests would repay AU$700,000 in lieu of AU$648,000, an undertaking by CBA to pay on the initial guarantee if there were any issue with the replacement guarantee, and an assurance that Antler would provide a replacement guarantee, Brownvalley accepted a substituted guarantee on 19 November 2007. Further replacement guarantees were substituted, in anticipation of the expiry of the predecessor guarantee, on 5 February 2008, 2 May 2008, and 4 June 2008, the last expiring on 4 September 2008. On 3 September 2008, Brownvalley presented the fifth guarantee to the CBA and demanded payment under it. The CBA would have honoured the payment, but for an interlocutory injunction obtained by the plaintiffs.
Was delivery of the bank guarantee to Brownvalley authorised?
20 At no time were there any direct dealings between Antler and Brownvalley. Indeed, each proceeded on the basis that the other was essentially irrelevant. So how did Brownvalley come to possess the original guarantee?
21 The evidence of Jack Li, which in this respect was neither challenged nor contradicted, was that he entrusted the original bank guarantee to Mr Atkins upon terms that it would be copied, and the original returned. The overwhelming inference from the evidence summarised above is that Mr Atkins, instead of retaining a copy and returning the original, in fact retained the original and provided it to Mr Snelson, who in due course provided it to Brownvalley. At the very least, therefore, Mr Atkins exceeded his actual authority by delivering the original bank guarantee to Mr Snelson.
22 Nor in my judgment did Mr Atkins have ostensible authority to deliver the bank guarantee to the favouree. It is true that he was in a sense "armed" with the bank guarantee, but it is well-established that merely entrusting a person with the muniments of title is not of itself enough to give that person ostensible authority to deal with the title; for such circumstances to create apparent authority there must be something more - some indication of authority to deal with the subject matter over and above mere possession [Weiner v Gill [1905] 2 KB 172, 182; Cole v North Western Bank (1872) LR 10 CP 354, 362; Farquharson Brothers & Co v King & Co [1902] AC 325; Fry v Smellie [1912] 3 KB 282; Jerome v Bentley & Co [1952] 2 All ER 114; Central Newbury Car Auctions Ltd v Unity Finance Ltd [1957] 1 QB 371; Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890, 902-4]. Thus, even where a share certificate and an executed share transfer is given to an agent, but dealt with by the agent - in excess of authority - by deposit with a bank as security for an advance to the agent, the bank acquires no title against the true owner [Fox v Martin (1895) 64 LJ Ch 473].
23 As to whether there was anything in addition to mere possession of the guarantee, Brownvalley invoked two matters. First, Brownvalley emphasised that the plaintiffs and Jack Li were partners and co-owners of Antler. However, I do not see how the partnership adds anything to the argument, since Mr Atkins was not one of the partners, and Mr Li's authority is not in issue. Secondly, Brownvalley points to the "Corporate Resolution", and its references to the "assistance of Mr Luke Atkins". A copy of the Corporate Resolution did reach Brownvalley, via Mr Snelson. Its terms are somewhat ambiguous: while it refers to the "assistance" of Mr Atkins, who is described in it as "Consultant and Adviser", it does not nominate him as an agent; in this respect his status under it is quite distinguishable from that of Jack Li, who was described as "the appointed officer". In that context, I do not think that the Corporate Resolution, together with possession of the guarantee, cloaked Mr Atkins with authority to deliver it to the favouree. Mr Atkins' authority extended, at the highest, to assisting Mr Li.
24 In any event, Brownvalley did not receive the original guarantee from Mr Atkins, but from Mr Snelson, of Golden Harvests, who certainly had no actual authority to deliver it to Brownvalley, and there was no act of holding out by the plaintiffs to give Mr Snelson ostensible authority to do so.
25 It follows that the delivery of the original guarantee to Brownvalley was unauthorised. What then are the consequences?
Brownvalley was not entitled to enforce the original guarantee
26 There was some confusion in the argument between the doctrine of nemo dat quod non habet, and that of bona fide purchaser for value without notice. The former is concerned with the passage of legal title: if legal title does not pass, no question arises for consideration of the bona fide purchaser doctrine. But if legal title passes, then the transferee takes subject to the equities, unless it is a bona fide purchaser for value without notice. Which of these is applicable depends in part on the characterisation of a bank guarantee - whether it is a chattel transferable by delivery, or a negotiable instrument, or the equivalent of money.
27 In the case of moneys, the relevant principle is that if money is transferred by a thief or a fraudster or an agent in excess of authority, and is intercepted before it comes into currency, the true owner can recover it; but where it is paid as money for valuable consideration to a person without notice of the absence of authority, it cannot be recovered, because it has passed into currency [Miller v Race (1758) 1 Burr 452, 457; Lipkin Gorman v Karpnale [1991] 2 AC 548]. Here, even if the bank guarantee were regarded as money's equivalent, it had not yet passed into currency: it retained its separate identity and had not been cashed. As it had not been received in due course from the true owner, it could be intercepted and recovered. Such a result would not be inconsistent with the commercial character of a bank guarantee. Nor would it be inconsistent with the commercial equivalence of a bank guarantee to cash. Indeed, it would treat a bank guarantee no differently from cash: the recipient of money is not entitled to its benefit if it is received from a thief, or from an agent in excess of authority - unless it has passed into currency.
28 A different position pertains in respect of negotiable instruments. If the bank guarantee were a negotiable instrument, then its delivery to Brownvalley conveyed title, but only insofar as Brownvalley was not other than a bona fide purchaser for value without notice. Despite the argument advanced by Mr Hall to the effect that no consideration moved from Brownvalley - because Brownvalley did not itself pay any funds, the funds advanced apparently being drawn from the account of its director Mr Braunthal - in my judgment Brownvalley was not a volunteer. The payment by Mr Braunthal, albeit from his own account, was in performance of Brownvalley's obligations under the MOU, and would have created a reciprocal obligation by Brownvalley to Mr Braunthal, presumably on loan account.
29 Notwithstanding that as a matter of commercial practice, a bank guarantee is frequently treated as if it were equivalent to money, it is not money, any more than is a cheque or a bill of exchange: it is a promise to pay upon certain conditions being satisfied. And a bank guarantee is not a negotiable instrument; it operates only in favour of the favouree. Because it does not have the quality of negotiability, it is not akin to a cheque. It follows that receipt by the favouree of a bank guarantee does not automatically entitle the favouree to the benefit of the guarantee, but does so only if it is delivered by the true owner (or its duly authorised agent). Thus, whether or not Brownvalley acquired a good legal title depends upon whether the immediate prior possessor (relevantly Mr Snelson) had title or right to transfer it. It follows from the above that Mr Atkins, and a fortiori Mr Snelson, had no such authority.
30 Accordingly, I would therefore not have accepted that Brownvalley should be regarded as on notice of the excess of authority, and had legal title passed I would not have concluded that Brownvalley was other than a bona fide purchaser for value without notice. But, because the guarantee was not delivered by the true owners or their authorised agent, Brownvalley never acquired legal title to it.
The effect of the subsequent guarantees
31 The next issue is whether any defect in the enforceability of the initial guarantee affects the enforceability of the replacement guarantees, in particular the fifth. The plaintiffs say that the replacement guarantees were, in a practical sense, "forced" upon them, in that they would lose their funds if they did not give a replacement guarantee.
32 After Brownvalley first called on the first guarantee, negotiations ensued. Assurances were given by Golden Harvests that Brownvalley's funds would be repaid. In order to avoid the imminent loss, the plaintiffs procured the issue of a replacement bank guarantee. The background to this was at least a hope that Golden Harvests would source the funds to repay Brownvalley in the meantime. The procuring of the replacement guarantee was facilitated by Mr Snelson, and by Mr Jack Li and his son Michael.
33 On 5 November 2007, Mr Li sent an email to CBA:
United Antler Corp would like to issue a new Bank Guarantee to Brownvalley Investments Pty Ltd, valid from November 6th, 2007 to February 5th, 2008.
We would like all other details on the Bank Guarantee to remain unchanged from the previous BG….
34 Mr Braunthal was adamant (to Mr Snelson) that he would only accept such an arrangement if there was no chance of the replacement guarantee being withdrawn; it was against that background that CBA gave an undertaking that it would honour the original guarantee if there were any issue about the replacement.
35 Jack Li provided to Antler a letter dated 13 November 2007, as follows:
Na Min Yu's deposit in the UAC account as an investment capital is AUD $330,000.00, I will personally arrange protection methods for her capital. If any one party breaches the contract which causes said capital to be withdrawn from account. Golden Harvest Ltd will deposit emergency funds into UAC account to be returned to Na Min Yu. Only under the condition that no one interferes with the investment plan aside from Na Min Yu herself, this Letter of Promise becomes active. I guarantee the safety of Na Min Yu's investment capital, and I am willing to make this promise. Hereby signed, Bai Shan Li. 13 November 2007.
36 On 16 November, Mr Michael Li sent an email to Mr Snelson:
CBA has received all signatures including from the overseas director mailing it in from Hong Kong.
CBA will express mail the original BG to Brownvalley first thing on Monday. They will also provide us with a copy that I will scan and email to you fior your reference.
37 Mr Snelson onforwarded that email to Mr Braunthal
38 As has been mentioned, this process of issuing a replacement guarantee was repeated at intervals thereafter, shortly prior to the expiry of the predecessor guarantee.
39 In distinction from the initial guarantee, the plaintiffs executed the second and subsequent guarantees knowing and intending that they be delivered to Brownvalley, as they were. No question of irregularity in their delivery arises. The fifth guarantee, which is that now presented and relied on by Brownvalley, was regularly received from the true owners.
40 The second further amended statement of claim articulates no basis on which the subsequent guarantees might be unenforceable by Brownvalley. In her oral evidence, Na Min Yu said that she was forced to sign the subsequent guarantees, against her will; that she signed the subsequent guarantees "really against my will, because I knew the original was missing"; she explained what she meant by this as being that she signed it because she has been told (by Jack Li and Mr Snelson) that if she did not, "then the money would be taken away"; and that they signed the subsequent guarantees "for fear that we might lose the money". She was aware that there was some risk that the guarantees might be called on. When she signed the second guarantee, she was overseas. Jing Qui Yao said that when they signed the second guarantee, they knew that it would be given to Brownvalley "but we didn't have any choice" because otherwise the moneys would be immediately called up by Brownvalley.
41 There is no evidence of any agreement or understanding that the replacement guarantees were "without prejudice", that the rights of the plaintiffs in respect of the initial guarantee were to be preserved. Essentially, in return for a deferral of the risk of their exposure, the plaintiffs gave a new guarantee. In so doing, they entertained some hope that the moneys would be recovered and the problem dissipate as a result, but nonetheless appreciated that they were confirming a solemn and important undertaking.
42 Even if some vitiating conduct in respect of the subsequent guarantees were established against Jack Li (which is difficult to reconcile with the resolution of the proceedings in his favour), or against Mr Snelson, there is no basis for attributing it, or notice of it, to Brownvalley. There is no basis for impugning the enforceability of the fifth guarantee, or for restraining Brownvalley from making demand under it, or CBA from paying on it.
43 It follows that the plaintiffs' claims against Brownvalley and CBA fail and must be dismissed. Brownvalley has foreshadowed a claim under the plaintiffs' undertaking as to damages, given in connection with the interlocutory injunction. Prima facie, Brownvalley has been kept out of its money during the pendency of the injunction, and I will direct an inquiry as to damages accordingly.
The plaintiffs' claims against Mr Snelson and Golden Harvests
44 The second further amended statement of claim contains claims against Golden Harvests and Mr Snelson for damages, and for an order pursuant to ss 1324(10), 1317H and/or 1317HA (presumably, of the (CTH) Corporations Act 2001), to the effect that they reimburse to the plaintiffs such amount as CBA might pay to Brownvalley pursuant to the guarantee.
45 Neither the pleadings, nor the submissions, much elaborated the claim against Golden Harvests. However, it can at least be said that, in breach of the terms of the Antler/Golden Harvests MOU, Golden Harvests has failed to return the bank guarantee and to make the payments totalling US$80,000 to which the plaintiffs were contractually entitled, and the plaintiffs are entitled to judgment against Golden Harvests for damages for breach of that obligation, in which respect their loss equates to the amount they will be liable to reimburse to CBA in respect of the guarantee, plus US$80,000.
46 The plaintiffs also allege that Mr Snelson personally guaranteed to the plaintiffs return of the guarantee, by a Statutory Declaration made by him on 8 September 2008, relevantly as follows:
Without prejudice and not implying or admitting liability for any matter whatsoever, given our primary business client did not complete their advised and contracted purchase in June/July 2008 of a very high value Security from my company and in full respect of the Untied Antler Corporation Directors (Antler) and their very sensitive situation. I have obtained approval in writing and signed to release funds to Brownvalley Investments (BVI) (so that BVI can voluntarily release their legal hold on the Antler provided BG). Our best efforts target date for this transfer of funds from the international account to BVI is approximately 10 September 2008.