SAL Industrial Leasing Ltd v Lin Hwee Guan

• Jurisdiction: Singapore
• Judge: Karthigesu JA
• Judgment Date: 30 July 1998
• Neutral Citation: [1998] SGCA 44
• Docket Number: Civil Appeal No 256 of 1997
• Date: 30 July 1998
• Published date: 19 September 2003
• Year: 1998
• Plaintiff Counsel: Leonard Hazra (David Lim & Partners)
• Citation: [1998] SGCA 44
• Defendant Counsel: Vijay Kumar Rai (VK Rai & Partners)
• Court: Court of Appeal (Singapore)
• Subject Matter: Factoring agreement between appellants and respondent's company,Whether factoring agreement and acceptance of offer signed by director binding on company,Companies,Powers,Credit and Security,Director signs guarantee to guarantee liability of company,Variations made to factoring facility over time,Whether variations to factoring facility discharged guarantee,Guarantee signed by respondent company director alongside factoring agreement,Guarantees,Whether guarantee binding on respondent,Guarantee,Guarantees and indemnities,Whether consideration provided for guarantee,Directors

Judgment:

LP THEAN JA

Cur Adv Vult

(delivering the judgment of the court): The appellants in the proceedings below claimed against the first defendants, Hydtrolmech Automation Services Pte Ltd (the Company), a sum of $388,255.52 or in the alternative the sum of $387,385.63, together with interest under or arising out of the factoring agreement expressed to be made between the appellants and the Company. The appellants also claimed against the second defendant, Yeo Jui Meng (Yeo) and the third defendant, Lin Hwee Guan, the respondent in this appeal, under the guarantee signed by both of them. Neither the Company nor Yeo took any part in the proceedings below and before us; only the respondent resisted the claim. The case was heard before Judith Prakash J and in a reserved judgment (reported in [1998] 1 SLR 702) she dismissed the appellants` claims on the ground that, as against the Company, the factoring agreement was not binding on the Company and, as against the respondent, his liability under the guarantee was accordingly not established. Against her decision this appeal is now brought.

2. The facts

The relevant facts that gave rise to the dispute have been fully set out in the judgment below and may be briefly stated as follows. The respondent first became acquainted with Yeo in 1987 when the latter was employed by a ship repairing company which used to buy various articles from a family concern in which the respondent was working. In 1990, Yeo left the employment and set up a ship repairing business in partnership with a third party. That partnership did not last long and was soon dissolved. Yeo then invited the respondent to join him in a new partnership in the business of ship repairing. The respondent agreed and the new partnership between them called `Hydtrolmech Automation Services` (the partnership) was formed on 25 June 1990. The respondent did not have an active role in the business and his main contribution was the infusion of the capital, whilst Yeo was the active partner and oversaw the day to day management of the business. It was their intention to convert the partnership into a private limited company as soon as possible.

3.Soon after the commencement of the partnership business, Yeo informed the respondent that the partnership faced cash-flow problems because one of its major customers, Sembawang Shipyard Ltd (Sembawang), was slow in making payment. To alleviate some of the problems, Yeo suggested that the receivables from Sembawang should be factored to a factoring company, such as the appellants.

4.Yeo and the respondent got in touch with the appellants. The main person who dealt with them on behalf of the appellants was one Ms Teo Lay Sim who was then an account officer. In early July 1990, she visited the partnership`s office together with a colleague and explained to Yeo how a factoring facility worked. After that, Ms Teo put in a credit application to the management of the appellants and following that on 6 July 1990, the appellants issued a letter of offer to the partnership in which they offered to extend to the latter a factoring credit line up to the limit of $300,000. The main terms of the facility were that the partnership would have to pay a factoring discount charge and a service charge and, prior to the appellants collecting payment from the customer on the factored invoices, would receive, at the appellants` discretion, amounts not exceeding 70% of the face value of the invoices factored. The appellants would only accept invoices issued to Sembawang for factoring. Further, all invoices that were not settled by the customers within 180 days after the due date would be re-assigned to the partnership. The two partners on behalf of the partnership accepted the offer and signed the acceptance. In addition, they also signed the factoring agreement on behalf of the partnership and signed the joint and several guarantee. Their signatures on all these documents were witnessed by Ms Teo.

5.On 12 October 1990, the Company was incorporated to take over the business of the partnership and to carry on business as ship repairers. Yeo and respondent were the only directors and shareholders of the Company. Both of them held 50,000 shares each. The appellants required a fresh set of documents to be signed for a similar facility to be given to the Company. Yeo agreed to this readily. The appellants prepared a fresh letter of offer dated 18 October 1990 and a factoring agreement dated 23 October 1990. The terms of these documents were substantially the same as those contained in the corresponding documents signed on behalf of the partnership on 6 July 1990. On or about 18 October 1990 a board resolution of the Company was passed authorising, inter alia, the Company to accept the terms of the letter of offer. We shall set out the terms of this resolution in detail in a moment. On 23 October 1990, Ms Teo together with her colleague brought the documents over to the Company. According to her, both the directors were present when the documents were handed over. The acceptance of the letter of offer and the factoring agreement were signed by Yeo on behalf of the Company in her presence and in the presence of the respondent, and both the directors signed the guarantee whereby they guaranteed the liability of the Company to the appellants.

6.Some eight months later, on 9 July 1991, the Company accepted the appellants` offer to reallocate the Company`s factoring line of $300,000 to include receivables owing from Keppel Corporation Ltd. A letter from the Company varying the line of credit was accepted by Yeo on behalf of the Company and both Yeo and the respondent signed the letter also confirming their guarantee of the facility as varied. Following that, on 21 October 1991, the parties agreed to increase the limit of the credit line from $300,000 to $500,000, which included the receivables owing from Jurong Shipyard Ltd. The sub-limits of the receivables of the three customers acceptable for factoring were as follows: Jurong Shipyard Ltd for $200,000, Keppel Corporation Ltd for $150,000 and Sembawang for $150,000. The letter from the Company stating briefly these variations were agreed to by the parties on 3 November 1991: it was signed by Yeo on behalf of the Company and was also signed by Yeo and the respondent confirming their guarantee of the facility so varied.

7.On 19 June 1992, the appellants further revised the factoring facility by allocating the factoring line of $500,000 as follows: $50,000 for Keppel Corporation Ltd, $300,000 for Sembawang, $50,000 for Jurong Shipyard Ltd and $100,000 for Esso Singapore Pte Ltd (Esso). This letter of variation was signed by Yeo on behalf of the Company on 24 June 1992. However, on this occasion, there was no indorsement thereon signed by Yeo and the respondent as guarantors, and the respondent claimed that he knew nothing about this variation. Between June 1991 and July 1992, pursuant to the factoring agreement, the appellants purchased from the Company debts having a total face value of $664,063.65 owing by their customers, viz Jurong Shipyard Ltd, Sembawang, Keppel Corporation Ltd and Esso.

8.On 9 January 1993, the respondent sold all his shares in the Company to Yeo`s wife, and he resigned as a director of the Company. By April 1993, the appellants realised that there was something amiss with the Company. Many of the invoices it had issued to Esso and Sembawang and which the appellants had purchased remained unpaid despite that more than 180 days had passed since their issue. In addition, Esso and Sembawang disputed the debts which the Company had assigned to the appellants.

9.On 17 May 1993, the appellants terminated the factoring agreement and called on the Company to repurchase the outstanding debts. The Company failed to do so and the appellants instituted proceedings against the Company, Yeo and the respondent. Only the respondent defended the claim, and he raised several defences: (i) the Company did not enter into the factoring agreement as alleged; (ii) the guarantee executed by the respondent was not valid or effective; (iii) there was a mistake on his part and there were misrepresentations made by the appellants inducing the respondent to sign the guarantee; or alternatively the defence of non est factum; and (iv) the guarantee was discharged by subsequent conduct of the appellants.

10. The decision below

Before the learned trial judge five issues were raised: first, whether the factoring agreement was binding on the Company; second, whether the guarantee was valid and binding on the respondent; third, whether the appellants had established the indebtedness of the Company to them; fourth, whether guarantee was avoided by any mistake, misrepresentation or the plea of non est factum; and finally whether the guarantee was discharged by reason of any variation made to the factoring agreement without the respondent`s consent. On the first issue, the learned judge found that Yeo signed the acceptance of the letter of offer and the factoring agreement without the requisite authority of the Company and accordingly those documents were not binding on the Company. On the second issue, the learned judge held that the guarantee was supported by consideration and was valid and binding on the respondent. With regard to the third issue, the learned judge held that, as the factoring agreement was not binding on the Company, the appellants could not rely on it to establish the Company`s indebtedness and the appellants had not proved the actual indebtedness of the Company to the appellants. As for the fourth issue, the learned judge found that there was no mistake on the part of the respondent and that he was not induced by any misrepresentations by the appellants and that the defence of non est factum was not available to the respondent. On the final issue, the learned judge found that the guarantee was not discharged by the...