SAL Industrial Leasing Ltd v Hydtrolmech Automation Services Pte Ltd and Others

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 14 November 1997
• Neutral Citation: [1997] SGHC 298
• Docket Number: Suit No 1646 of 1993
• Date: 14 November 1997
• Published date: 19 September 2003
• Year: 1997
• Plaintiff Counsel: Leonard Hazra (David Lim & Partners)
• Citation: [1997] SGHC 298
• Defendant Counsel: VK Rai (VK Rai & Partners)
• Court: High Court (Singapore)
• Subject Matter: Construction of commercial contracts,Managing directors,Whether directors authorised to act individually -Whether lenders could rely on acts of individual director without proving that lenders knew the extent of his authority,Contract,Importance of strict compliance with clause,Whether a factoring agreement fell within the phrase "grant credit",Rules of construction,Construction of clause,Conclusive evidence clause,Contractual terms,Whether lenders could rely on a certified true copy of an extract of a company resolution,Companies,Directors,Powers,Whether lenders had sufficient basis to rely on acts of one director as acts of the managing director,Credit and Security,Mistake,Non est factum,Requirements for a successful defence of non est factum,Guarantees and indemnities,Capacity,Whether "any judgment" in the clause refers to judgments obtained in default of appearance,Indoor management rule

Judgment:

JUDITH PRAKASH J

Cur Adv Vult

The first defendant, Hydtrolmech Automation Services Pte Ltd (the company), carried on the business of ship repairers. In October 1990, it entered into a factoring agreement with the plaintiffs. At the same time, the second and third defendants signed a joint and several guarantee in favour of the plaintiffs. The second defendant, Mr Yeo, and the third defendant, Mr Lin, were then the sole directors and shareholders of the company.

2.On 17 May 1993, the plaintiffs terminated the factoring agreement and demanded that the company pay them the sum of $427,216.18 by 25 May 1993. On 4 June 1993, letters of demand were sent to the second and third defendants for the sum of $430,384.34 outstanding as at 2 June 1993 together with interest at the specified rate. No payment being received, this action was commenced against all three defendants on 30 July 1993. The amount claimed was that outstanding as at 2 June 1993.

3.Mr Lin had resigned from his directorship in January 1993. He entered an appearance to the action and proceeded to contest it vigorously. Neither the company nor Mr Yeo, however, took any part in the proceedings. At some stage, Mr Yeo absconded from Singapore. In November 1993, the plaintiffs obtained judgment in default of appearance against the company and Mr Yeo for the sum of $387,385.63, interest thereon at the rate specified in the factoring agreement and costs on a solicitor and client basis. Mr Lin continued to resist the claim and whether he is liable to the plaintiffs under the guarantee is the issue which I have now to decide.

4. Background

Mr Lin first became acquainted with Mr Yeo in 1987. The latter was then employed by a ship repairing company and used to buy rubber articles from a family business in which Mr Lin worked. In 1990, Mr Yeo set up a partnership with a third party to carry on business as a ship repairer. Shortly thereafter, his partner left and Mr Yeo then invited Mr Lin to join him as a new partner in the business called `Hydtrolmech Automation Services` (the partnership).

5.The two men discussed the proposed business and agreed that the partnership should be converted into a private limited company as soon as possible and that Mr Yeo would be the active partner and director seeing to the day-to-day running and administration of the business whereas Mr Lin would be a dormant partner whose main contribution would be an infusion of capital. On 25 June 1990, Mr Lin was admitted as a partner. Shortly thereafter, Mr Yeo informed Mr Lin that the partnership was having cashflow problems because one of its big customers, Sembawang Shipyard Ltd (Sembawang), was slow in payment. Mr Yeo suggested that this cashflow problem be resolved by factoring the partnership`s invoices to the plaintiffs.

6.The plaintiffs first came into contact with the partnership and its partners in July 1990. They were referred to the partnership by a supplier. The main person who dealt with the partnership on behalf of the plaintiffs was Ms Teo Lay Sim who was then an account officer. In early July, she paid a visit to the partnership`s office together with a colleague and explained to Mr Yeo how a factoring facility worked. After that, Ms Teo put in a credit application to the management of the plaintiffs and the plaintiffs then decided to offer the partnership a $300,000 factoring line.

7.On 6 July 1990, the plaintiffs issued a letter of offer to the partnership whereby they offered to extend the latter a factoring line of up to $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 plaintiffs collecting payment from the customer on the factored invoices, would receive, at the plaintiffs` discretion amounts not exceeding 70% of the face value of the invoices factored. Further, all invoices that were not settled by the customers within 180 days after the due date would be reassigned to the partnership. The plaintiffs required both partners to sign a joint and several personal guarantee in their favour in respect of the facility. By an appendix to the letter it was made clear that the only invoices which the plaintiffs would accept for factoring were those issued to Sembawang and that the maximum aggregate amount which the plaintiffs would advance on such invoices (ie the advance limit) would be $300,000.

8.Ms Teo took the letter of offer to the partnership`s office together with copies of the plaintiffs` standard form factoring agreement and guarantee. There she met both partners. The copies of documents produced in court show that the plaintiffs` letter of offer was accepted on 6 July 1990 itself by both partners signing on behalf of the partnership. The same day, both also signed the factoring agreement on behalf of the partnership and signed the joint and several guarantee as the joint and several guarantors. Their signatures on all documents were attested to by Ms Teo.

9.According to Ms Teo, before the documents were signed, she explained to both men the facilities contained in the letter of offer. She told them that in order to obtain the facilities they would have to sign the factoring agreement and the guarantee. She explained that the guarantee was made in their personal capacity and that if there was any default in payment or advances or loans outstanding, they would be personally liable for the same. She also explained briefly the mechanics of the factoring facility.

10.On 12 October 1990, the company was incorporated to take over the business of the partnership and to carry on business as ship repairers. Mr Yeo and Mr Lin were the promoters and initial directors and shareholders of the company. At some stage, Mr Yeo informed Ms Teo that they were converting the partnership into a company and he was told that because there was a change in the business entity, the plaintiffs would require a fresh set of documents to be signed for a similar facility to be given to the company. Mr Yeo agreed to this.

11.On 18 October 1990, the plaintiffs prepared a fresh letter of offer in respect of the facility to the company. Most of the conditions in the new letter were the same as those in the letter of 6 July 1990 to the partnership. On 23 October 1990, Ms Teo went to the company`s office. She took with her the new letter of offer, a new factoring agreement and a new guarantee. According to her evidence, both directors were present when the documents were handed over. The letter of offer and the factoring agreement were signed by Mr Yeo on behalf of the company and the guarantee was signed by both directors. Again, Ms Teo acted as witness. After the signing was over, she took all the documents back with her to the plaintiffs` office for signature by the plaintiffs` authorised officers.

12.On 9 July 1991, the plaintiffs wrote to the company referring to a recent request made by Mr Yeo and stating that they were agreeable to reallocating the company`s factoring line of $300,000 to include invoices issued to Keppel Corporation Ltd. The company accepted the terms and conditions of this offer on 9 July. The acceptance was signed by Mr Yeo on behalf of the company and both Mr Yeo and Mr Lin signed an indorsement stating `we hereby agree to guarantee due performance of the terms and conditions of the above factoring facility`. On 21 October 1991, a further letter of offer was issued by the plaintiffs. By this letter, the plaintiffs increased the company`s credit line from $300,000 to $500,000 and approved three customers viz Jurong Shipyard Ltd for $200,000, Keppel Corporation Ltd for $150,000 and Sembawang for $150,000. The company accepted the offer on 3 November 1991 and once again the two guarantors signed an indorsement guaranteeing the facility.

13.On 19 June 1992, the plaintiffs revised the facility further. They offered to reallocate the factoring line of $500,000 based on the following revised credit limits: $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 offer was accepted by Mr Yeo on behalf of the company on 24 June 1992. There was no indorsement signed by the guarantors and the stand taken by Mr Lin throughout this action has been that he knew nothing about this revised offer of June 1992.

14.Mr Lin said that if he had known about it, he would not have agreed since it meant that the plaintiffs were allowing the company to increase the quantum of Sembawang invoices factored by $150,000 and also to factor up to $100,000 worth of invoices to Esso. This was because he was having problems with Mr Yeo. He had not received any salary from the company since August 1990; no accounts of either the partnership or the company had been furnished to him despite requests; and, in January 1992, he had been informed by Mr Yeo that the latter was having problems collecting payment from Sembawang. Therefore, he was not in favour of any increase in facilities in respect of Sembawang.

15.On 9 January 1993, Mr Lin sold his 50,000 shares in the company to Mr Yeo`s wife. At the same time, he resigned as a director of the company and Mdm Tan Hwee Eng (Mrs Yeo) was appointed a director in his place. Mr Lin was under the impression that the guarantee he had given was only for the duration of his term of office as a director. Thus, on the same day, he telephoned Ms Teo to give the plaintiffs oral notice of his resignation. During the conversation, he was informed that the plaintiffs had advanced certain sums to the company which were still outstanding.

16.By April 1993, the plaintiffs had realised that something had gone seriously wrong in the company. Many of the invoices it had issued to Esso and Sembawang, and which the plaintiffs had purchased, remained unpaid despite more than 180 days having passed since their issue. Further, Esso had indicated that an invoice...