Coronation Electronics Ltd v Lalchand Mahtani

• Jurisdiction: Singapore
• Judge: Chan Sek Keong JC
• Judgment Date: 23 July 1986
• Neutral Citation: [1986] SGHC 22
• Docket Number: Suit No 6602 of 1985
• Date: 23 July 1986
• Published date: 19 September 2003
• Year: 1986
• Plaintiff Counsel: Gurbani Prem Kumar (Prakash Gurbani & Chong)
• Citation: [1986] SGHC 22
• Defendant Counsel: Molly Lim (Freshfields)
• Court: High Court (Singapore)
• Subject Matter: Whether leave ought to have been given,Consent to variation,Conditional leave to defend,Guarantee,Guarantees and indemnities,Judgments and orders,Whether condition onerous,Variation of terms,Civil Procedure,Credit and Security

This is an appeal from the decision of the assistant registrar giving the defendant, who is sued as guarantor, conditional leave to defend this action, the condition being that the defendant pay into court the full amount of the claim, ie the sum of $2,172,026.19, or provide security to the plaintiff in the form of a bank guarantee within 30 days, failing which plaintiff would be at liberty to enter final judgment against the defendant.

The underlying contract giving rise to these proceedings is an agreement dated 18 December 1984 (the agreement) made between the plaintiff and Tharoomals (HK) (Tharoomals) whereby it was agreed that:

(a) the plaintiff would open or caused to be opened letters of credit amounting to S$1,969,000 in favour of one or more beneficiaries in Singapore as desired by the defendant and at the risk and responsibility of Tharoomals in payment of a shipment of 2,200 video cassette recorders (VCRs);

(b) Tharoomals would place with the plaintiff as margin in equivalent United States Dollars or Hong Kong Dollars an amount equal to 10% of the letter of credit amount, ie S$196,900 (the margin deposit);

(c) out of the 2,200 VCRs to be shipped, 200 VCRs would be supplied by Tharoomals to the plaintiff at the total cost price of S$172,000, ie at S$860 per VCR; settlement of this sale transaction would be done at the same time as the settlement of payment by Tharoomals under the letters of credit but not later than 31 January 1985;

(d) Tharoomals would pay to the plaintiff a financing commission of 1.5% of S$26,581.50 per annum for opening the letters of credit and all bank charges and interest incurred by the plaintiff;

(e) the defendant would extend his personal guarantee for the entire amount payable by Tharoomals under the agreement to the plaintiff.

The guarantee of the defendant dated 18 December 1984 was endorsed on the agreement. It reads:

I ... hereby confirm that I have witnessed signing of this agreement and consented to stand liable for payment personally in case (Tharoomals) fail to pay amount on or before 1 December 1985 as claimed by [the plaintiff] under letter of credit to be established by them as stated above. I further agree that [the plaintiff] have full rights to claim the amount from me in Singapore.

Pursuant to the agreement, the plaintiff procured Overseas Trust Bank of Hong Kong to open two letters of credit, one in favour of LM (Far East) Buying House for S$984,500 and the other in favour of Intra World also for S$984,500. The beneficiaries negotiated the letters of credit and obtained payment in the amount of S$984,500 each. As a result, Tharoomals became liable to pay to the plaintiff the amount of S$1,969,000 and interest thereon.

The defendant was a partner of both the beneficiary firms. He was also a director of Tharoomals.

The plaintiff made repeated requests to and demands against Tharoomals for payment of the sum of S$1,969,000 and interest thereon and other payments due under the agreement but was not paid except for a sum of S$50,000 in June 1985.

One day after it commenced action against Tharoomals in Hong Kong on the same subject matter, the plaintiff commenced this action on 9 July 1985 against the defendant as guarantor claiming the sum of S$2,172,026.19 being the aggregate of the sums alleged to be owing by Tharoomals under the agreement together with accrued interest up to the date of issue of the writ.

On 1 August 1985 the plaintiff took out a summons for summary judgment to be entered against the defendant. A large number of affidavits was filed on behalf of both parties. The hearing took place on 8 January 1986 before the assistant registrar who gave the defendant conditional leave to defend upon payment into court of the sum claimed or furnishing a bank guarantee within 30 days and costs of $700 in the event of default.

On 14 January 1986 the defendant filed a notice of appeal against the decision of the assistant registrar, but strangely enough, the notice referred only to the provision of security in the form of a bank guarantee and not also against payment into court. I have assumed that this was an inadvertent omission and of no consequence since counsel for the plaintiff did not advert to or make any submission on this omission.

I will now refer to the affidavits filed on behalf of both parties, because many of the affidavits were filed to rebut allegations of fact and explanations contained in the preceding affidavit, the most convenient way to deal with such allegations and statements is to refer to the affidavits filed in their chronological order:

(a) On 30 July 1985 the plaintiff filed the affidavit of Malkani Bhagwan Hiranand (MBH), its manager, stating that the defendant had no defence. The second affidavit of MBH was filed on 7 October 1985 to explain the amount of interest claimed by the plaintiff.

(b) The defendant filed in his affidavit on 19 October 1985 and averred that he was discharged from liability as guarantor by reason of a material variation of the terms of the agreement, the variation being that the plaintiff had not obtained the 10% margin deposit from Tharoomals prior to the opening of the letters of credit.

(c) The affidavit of Manohar Gangaram Ahuja (MGA), a director of the plaintiff, filed on 6 November 1985 in reply to the defendant`s affidavit, asserted that all the relevant negotiations and discussions leading to the signing of the agreement and the guarantee were conducted by him with the defendant personally; that shortly before the letters of credit were opened on 31 December 1984 he had agreed with the defendant during various telephone conversations as well as meetings with him personally at the plaintiff`s Hong Kong office that part of the monies which the plaintiff then owed to Tharoomals on the running account operated between the two parties in respect of their general trading transactions, and which was in excess of the margin deposit, would be treated and used, temporarily, as the margin deposit until other arrangements were made; that at the same time, or shortly after this temporary arrangement, he asked the defendant for a cheque for the amount of the margin deposit and that subsequently the defendant on or about 10 January 1985 gave him (MGA) a cheque post-dated 19 January 1985 for the total amount of the margin deposit provided for in the agreement in substitution for the said temporary arrangement.

(d) The third affidavit of MBH, filed on 7 November 1985 on behalf of the plaintiff, averred that there was no variation of the agreement because no specific method of placing the margin deposit was provided for in the agreement and that the plaintiff, being `in possession` of the equivalent of the margin of $196,000 in the running account with Tharoomals was entitled to treat (which it did) that equivalent amount as the margin deposit; that if there were variation, the variation was not material; that the defendant on behalf of Tharoomals had agreed expressly with MGA to the variation; that further and alternatively, the defendant permitted the plaintiff to believe that he (the defendant) had assented to the variation and had raised no objection to the arrangement and the defendant again was involved on or about 10 January 1985 in agreeing to provide the plaintiff with a cheque for the amount of the margin deposit to replace the credit in the running account.

(e) On 22 November 1985 Prem K Gurbani, counsel for the defendant, filed an affidavit on behalf of his client in which he deposed, inter alia, that the defendant had informed him that the relevant negotiations and discussions leading to the conclusion of the agreement were conducted not solely with the defendant but also and together with Kishore Mahtani, his brother; that the defendant had not agreed that the margin deposit would be obtained from the running account between the plaintiff and Tharoomals temporarily; that the plaintiff did not at any time require a deposit from Tharoomals and did not at any time raise the matter of the deposit with Tharoomals or the defendant; and that the defendant did not assent to any variation of the agreement; that the cheque post-dated 19 January 1985 handed to MGA was only for HK$602,000 (equivalent to S$169,900 at HK$3.56 = S$1) which was far below the margin deposit (of $196,900) and that such cheque was not given as the margin deposit but as security for the 200 VCRs to be sold by Tharoomals under the terms of the agreement; and that the variation was a material variation.

(f) The fourth affidavit of MBH filed on 27 November 1985 denied that Kishore Mahtani participated in the negotiations with the plaintiff and went on to assert that the entire responsibility for the negotiations and subsequent dealings between the plaintiff and Tharoomals rested on the defendant himself (and that was why he gave his personal guarantee); that the defendant on behalf of Tharoomals gave the actual instruction to the plaintiff for the establishment of the letters of credit; that the primary responsibility of the defendant for the agreement and the consequences of Tharoomals` default were evidenced by copies of the telexes exhibited, that if there was any variation the defendant had complete knowledge and/or consented to it, and indeed if there was any such variation, it would have resulted from the defendant`s own action, or rather failure to act, in his role as director of and sole agent for Tharoomals; and finally that the cheque for HK$602,000 was not intended as security for the 200 VCRs and that in his experience the provision in international trade of security by a supplier of goods to the purchaser (rather than the other way round) was a very extraordinary practice and one which, in any normal case, had no commercial justification.

(g) The affidavit of Kishore Mahtani filed on 9 December 1985 stated that he was throughout involved with the negotiations between the...