Standard Chartered Bank v Neocorp International Ltd

• Jurisdiction: Singapore
• Judgment Date: 28 February 2005
• Date: 28 February 2005
• Docket Number: Suit No 92 of 2004
• Court: High Court (Singapore)

Standard Chartered Bank

Plaintiff

and

Neocorp International Ltd

Defendant

[2005] SGHC 43

V K Rajah J

Suit No 92 of 2004

High Court

Banking–Lending and security–Plaintiff bank issuing conclusive evidence certificate–Whether certificate arrogating to plaintiff bank sole right to judge propriety of its claim against defendant borrower–Whether court precluded from reviewing legal basis of plaintiff's claim–Contract–Collateral contracts–Whether collateral contract existing to limit terms of guarantee–Contract–Contractual terms–Construction of guarantee–Whether guarantee should be interpreted in context of existing facts–Whether subsequent conduct of parties and evidence of subjective views may be considered when interpreting guarantee

The plaintiff bank granted banking facilities, comprising a term loan and overdraft facilities, to the defendant's subsidiary, Ceramic Technologies Pte Ltd (“the borrower”). The purpose of the overdraft facility was to meet the borrower's working capital requirements. These facilities were expressly stated in the facility letters to be subject to the plaintiff's Standard Terms and Conditions, which stated that the facilities approved could be “revised, amended and supplemented from time to time”.

The defendant executed a guarantee for the sum of $1.5m for all liabilities which might become due any time thereafter. A board resolution was also passed stipulating that the defendant was to provide the guarantee in the form and content required by the plaintiff bank.

The borrower subsequently began servicing the term loan. Although no mode of repayment was specified, the repayments were paid out from the borrower's current account. This account was the sole operational account through which all moneys were paid in and out after the term loan had been disbursed. One of the defendant's complaints was that the repayments should not have been paid out this way.

The borrower later requested an increase in the overdraft limit for six weeks and subsequently asked to extend this period for two months. Some time afterwards, pursuant to the Standard Terms and Conditions, the borrower defaulted on the loan and overdraft facilities when it was placed under interim judicial management.

The plaintiff demanded payment under the guarantee of the principal sum of $1.5m with interest thereon. The defendant disputed its liability. Pursuant to the guarantee, the plaintiff issued a conclusive evidence certificate asserting that as at 1 April 2004, the defendant owed the plaintiff $1,712,938.36. This comprised $1.5m and accrued interest from the relevant period.

There were three main issues of contention. First, the plaintiff argued that the court was precluded by the conclusive evidence certificate from reviewing the legal basis of its claim as it arrogated to the plaintiff the sole right to judge the propriety of the claim. Second, the defendant asserted that the terms of the guarantee were limited by a collateral agreement formed between the parties which precluded the plaintiff from claiming sums due on the overdraft facility that were not strictly used for working capital purposes. Third, the defendant maintained that the extent of its liability turned on the construction of the facility letter, the guarantee and the board resolution. It alleged that the plaintiff had, through the facility letters which preceded the guarantee, created an understanding that they would rely on the guarantee only to recover overdraft facilities employed by the borrower strictly for the purposes of its working capital. The plaintiff countered that the defendant's liability should be determined by reference only to the terms of the guarantee as they were unambiguous.

Held, giving judgment for the plaintiff:

(1) A court was loath to construe a conclusive evidence clause as encapsulating an intention to preclude any review of the legal basis of the plaintiff's claim. Nevertheless, that did not mean that a court would never recognise such a clause provided it was well-drafted and unequivocally conferred to one party the right to determine issues impacting on the other. Generally therefore, there would be a rebuttable presumption in commercial documents that a party had not agreed to confer on the opposing party an exclusive right to determine conclusively all matters pertaining to an adversarial claim: at [21] and [23].

(2) The defendant's argument that a collateral agreement existed, limiting the terms of the guarantee, was wholly unmeritorious. The only extrinsic evidence the defendant relied upon was the facility letter and the board resolution. There was never any meaningful communication between the defendant and the plaintiff relating to either the terms of the facility letters or the guarantee. Furthermore, the board resolution did not create a contractual relationship between the parties. The defendant was also staffed with experienced directors and managers who would certainly have qualified the terms of the guarantee had they so desired. It was amply evident that the defendant agreed to the guarantee without manifest reservations to its terms: at [26] to [29].

(3) On the interpretation point, where the terms of a guarantee were unambiguous, extrinsic evidence was inadmissible to vary its terms. Nevertheless, the immediate events surrounding the giving of a guarantee could be relevant in determining the context in which the guarantee was given and how it was to be interpreted. However, this was not tantamount to an unbridled licence to import subjective expressions of intent, or to ignore established rules of interpretation, which eschewed reliance on prior negotiations and subjective expressions of intent: at [35] and [36].

(4) The facts did not demonstrate that the scope of the guarantee was limited only to facilities utilised for the borrower's working capital. It was clear that the intention of the facility letter was to confer on the plaintiff bank the discretion to rely on the securities for not only the proposed facilities but for facilities which might be granted periodically as well: at [37] to [39].

(5) The defendant had agreed to the guarantee without any qualification. Its contention that the term loan repayments and interest should not have been debited from the borrower's current account was vacuous. By not raising any objections, the borrower had clearly acquiesced to this mode of repayment: at [40].

(6) Although several of the plaintiff's internal documents, at first blush, appeared to indicate that the plaintiff might have initially intended to rely on the guarantee in somewhat limited circumstances, it was pertinent to note that the defendant's witnesses conceded they had no knowledge of any such documents, nor had they ever had any direct communications with the plaintiff on these issues. Therefore, the internal documents that followed the execution of the guarantee were clearly inadmissible. Where the contract was fully embodied in documents, the court ought not to look at the subsequent conduct of either party to determine the meaning of the written agreement or to discern the parties' intentions: at [41] and [44].

(7) The terms of the guarantee were broad enough to embrace the plaintiff's claim in the proceedings. Further, the terms of the facility letter and the board resolution did not pare down the ambit of the guarantee. The plaintiff's claim for the principal sum and outstanding interest was allowed in full with costs: at [48].

[Observation: There was no reason why a guarantor could not assume a more extensive liability than that contemplated in a facility letter if the terms of the guarantee explicitly provided so, though such instances would be unusual. This was essentially a question of fact. Most guarantors focused only on the upper limit of their liability when signing a guarantee and did not consider the permutations that may be visited upon them by the other terms of the guarantee: at [45] and [46].]

Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA [1973] 2 Lloyd's Rep 437 (refd)

Bangkok Bank Ltd v Cheng Lip Kwong [1989] 2 SLR (R) 660; [1989] SLR 1154 (refd)

Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 (refd)

Chip Hua Poly-Construction Pte Ltd v Housing and Development Board [1998] 1 SLR (R) 544; [1998] 2 SLR 35 (refd)

Citibank NA v Ooi Boon Leong [1981] 1 MLJ 283 (refd)

Citicorp Investment Bank (Singapore) Ltd v Wee Ah Kee [1997] 2 SLR (R) 1; [1997] 2 SLR 759 (refd)

Dobbs v The National Bank of Australasia Limited (1935) 53 CLR 643 (refd)

Glacier Bay, The [1996] 1 Lloyd's Rep 370 (refd)

HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2 Lloyd's Rep 161 (refd)

Holme v Brunskill (1878) 3 QBD 495 (refd)

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] AC 896; [1998] 1 All ER 98 (refd)

James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 (refd)

Kitchin, In re; Ex parte Young (1881) 17 Ch D 668 (refd)

Kok Lee Kuen v Choon Fook Realty Pte Ltd [1996] 3 SLR (R) 182; [1997] 1 SLR 182 (refd)

Lishman v Christie & Co (1887) 19 QBD 333 (refd)

Pacific Century Regional Developments Ltd v Canadian Imperial Investment Pte Ltd [2001] 1 SLR (R) 614; [2001] 2 SLR 443 (refd)

Prenn v Simmonds [1971] 1 WLR 1381 (refd)

Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 (refd)

Evidence Act (Cap 97,1997Rev Ed)ss 94 (b),94 (c)

Andre Maniam and Ong Pei Chin (Wong Partnership) for the plaintiff

Oommen Mathew and Genevieve Chia (Haq & Selvam) for the defendant.

V K Rajah J

Parties

1 The plaintiff is a bank. The defendant is a public company listed on the Singapore Stock Exchange. Pursuant to a guarantee dated 8 October 1999 (“the guarantee”) the defendant stood as a guarantor for certain banking facilities granted by the plaintiff to its customer, Ceramic Technologies Pte Ltd (formerly...