040-SLLR-SLLR-2005-V-2-PAN-ASIA-BANK-LTD.-vs-KANDY-MULTI-PURPOSE-CO-OPERATIVE-SOCIETY-AND-OTHERS.pdf
CA
Pan Asia Bank Ltd. l/s
Kandy Multi Purpose Co-operative Society and Others
211
PAN ASIA BANK LTD.VS
KANDY MULT! PURPOSE CO-OPERATIVE SOCIETY AND OTHERSCOURT OF APPEALSOMAWANSA J (P/CA).
BASNAYAKE J,
CALA 92/2004,
D.C. KANDY X/1278514TH FEBRUARY, 20054TH MARCH, 2005
Bank Guarantee – Enforcement – Circumstances? – Rule 3 (a) Court of Appeal(Appellate Procedure) Rule 1990 – Civil Procedure Code Sec. 757 (1) – Affidavit– Catholic affirming – deponent placing his signature not in the presence of theJustice of Peace – validity ? – Constitution – Article 140, 141 Oaths Ordinance. Sec. 6.
The 1st and 2nd Defendants entered into an agreement with the PlaintiffRespondent (Co-operative Society), wherein the plaintiff was appointed thesole distributor of a specific area for the purpose of distribution and sale of aproduct. For this purpose the plaintiff gave a Bank Guarantee in a sum of Rs. 1Million in favour of the 3rd Defendant Petitioner Bank (Pan Asia Bank) and atthe time of collecting the product the Plaintiff (Co-operative Society) was requiredto issue a cheque from the same Bank that-gave the Bank Guarantee (4thRespondent Peoples Bank) for the entire value in favour of the 1st and 2ndDefendants. The 3rd Defendant Petitioner (Pan Asia Bank) made a claim fromthe 4th Defendant (People's Bank) for a sum of Rs. 1 Million on the aboveguarantee.
The Plaintiff Respondent (Co-operative Society) instituted action seeking adeclaration that the Plaintiff Respondent owes nothing to the 1st and 2ndDefendants and that the 3rd Defendant Petitioner (Pan Asia Bank) has no rightto demand any payment on the Bank Guarantee from the 4th Respondent(People's Bank).
The Court issued an interim injunction restraining the 4th Defendant People’sBank from honouring the demand on the guarantee.
HELD
The liability of the 4th Defendant Respondent Bank ( People's Bank)arises in the event the principal fails or neglects to pay the sum orsums of money on the due date under a credit agreement betweenthe beneficiary and the principal.
2 – CM6557
Sri Lanka Law Reports
(2005) 2 Sri L. R.
212
The Plaintiff is not a party to the above guarantee the parties Jo theguarantee are the 1st and 2nd Defendants (the principal debtors) the3rd Defendant Petitioner (Pan Asia Bank the beneficiary) and the 4thDefendant Bank the People’s Bank (the Guarantor)
Nowhere in the Guarantee it is stated that the 4th Defendant People’sBank will be liable in the event the plaintiff defaults payments in respectof the products supplied.
Judges who are asked to issue an injunction restraining payment bya Bank under a bond or a guarantee or letters should ask whetherthere is any damage to the validity of the letter, bond or the guaranteeitself, if there is not …. prima facie no injunction should be issued andthe Bank should be left free to honour its contractual obligations.
Held further
The deponent in the affidavit states that he being a Roman Catholicdo hereby make oath, the attestation clause instead of stating that thedeponent having sworn to the contents thereof, states the contentsthereof are affirmed thereto. The affidavit is bad in law.
It is also apparent that the deponent had placed his signature at adifferent place and not in the presence of the Peace Officer.
There is no proper affidavit as required by law therefore the 3rdDefendant Petitioner cannot succeed.
APPLICATION for Leave to appeal from an Order of the District Court of Kandy.
Cases referred to :
Smith vs. Hughes 6QB 597 at 607
L. Schuler AG Vs. Wickman Machine Tool Sales Ltd. 1974 AC 235, 263,1973 2AU ER 39 at 35
Bolovinter Oil SA /s. Chase Manhattan Bank (1984) 1 All ER 351,(1984) (1984) Lloyds Rep. 251
CA
Pan Asia Bank Ltd. Vs213
Kandy Multi Purpose Co-operative Society and Others (Eric Basnayake J.)
Jeganathan Vs. Sefyath – 2003 2 Sri LR 372
Clifford Ratwatte Vs. Thilanga Sumathipala and Others 2001 2 Sri LR 55
Inaya Vs. Lanka Orix Leasing Company Ltd. 1999 3 Sri L.R 197.
SA Parathalingam PC with Varuna Senadheera and K. Kaneshyogan for the3rd Defendent Petitioner.
Gomin Dayasiri with Mursheed Maroof for Plaintiff Respondent.
Ronald Perera with Ms. Oeepa Govinna for 4th and 5th Respondents.
September 14, 2005ERIC BASNAYAKE J.,
The 3rd Defendant petitioner (hereinafter referred to as the 3rd defendant)filed this petition seeking leave to appeal against the order of the learnedDistrict Judge, Kandy dated 17.02.2004.
The facts in this case are as follows. The 1st and the 2nd defendantrespondents (hereinafter referred to as the 1 st and 2nd defendants) werein the business of distributing milk powder by the name of "Lakcow". The3rd defendant was their bank.
The 1st and the 2nd defendants entered into an agreement with theplaintiff respondent (plaintiff) (P1 b) wherein the plaintiff was appointed thesole distributor of a specified area for the purpose of distribution and saleof the said milk powder. For this purpose the plaintiff was required to havea bank guarantee in a sum of Rs. 1 million in favour of the 3rd defendantbank. At the time of collecting the milk powder the plaintiff was required toissue a cheque from the same bank that gives the guarantee for the entirevalue in favour of the 1 st and the 2nd defendants.
In terms of the above agreement, on the instructions of the plaintiff, abank guarantee was issued by the 4th defendant respondent (hereinafter
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Sri Lanka Law Reports
(2005) 2 Sri L. R.
referred to as the 4th defendant) in favour of the 3rd defendant in a sum ofRs. 1 million. On 11.09.2003 the 3rd defendant made a claim from the 4thdefendant a sum of Rs. 1 million on the above guarantee. On 18.09.2003the plaintiff filed action in the District Court of Kandy seeking a declarationthat the plaintiff owes nothing to the 1 st and 2nd defendants and that the3rd defendants therefore has no right to demand any payment on thebank guarantee from the 4th defendant. The plaintiff also prayed for aninterim injunction restraining the 4th defendant from making any paymentto the 3rd defendant on the said bank guarantee.
The 3rd defendant filed objections (P2) and the learned District Judgeafter Inquiry, on 17.02.2004 issued an interim injunction as prayed for inthe plaint. An English translation of the relevant passages of the order ofthe learned District Judge is as follows
"The plaintiff had given a guarantee in a sum of Rs. 1 millionthrough the 4th defendant bank with regard to the sale and thedistribution of Lakcow milk powder
" The law relating to bank guarantees is clear. The bank guaranteewas issued in respect of the milk powder supplied to the plaintiff bythe 1st and the 2nd defendants. If the plaintiff had defaulted paymentsin respect of the milk powder so supplied the 4th defendant is obligedto pay on demand on the said guarantee. The facts in this case aredifferent. The bank guarantee is in respect of the milk powdersupplied to the plaintiff by the 1st and the 2nd defendants.
The bank guarantee cannot be used to settle any other dues ofthe 1st and the 2nd defendants to the 3rd defendant. I
I will now set out some parts of the bank guarantee marked 'PI d‘. "Theprincipal (1 st and the 2nd defendant,) having requested from the Pan AsiaBank (3rd defendant, the beneficiary) for credit facilities amounting to Rs.1 million for the distribution of'Lakcow" milk powder to the plaintiff – the 3rddefendant has agreed to grant the said facilities on condition that theprincipal furnishes a bank guarantee from a reputed bank to thevalue of Rs. 1 million
We (4th defendant) hereby guarantee and undertake to pay thebeneficiary a sum of Rs. 1 million in the event the principal fails orneglects to pay the sum or sums of money on the due date under acredit agreement between the beneficiary and the principal.
CA
Pan Asia Bank Ltd. Us215
Kandy Multi Purpose Co-operative Society and Others (Eric Basnayake J.)
This guarantee will be in force from 03.01.2003 until 02.01.2004
Claims if any under this guarantee should be submitted to us in
writing to reach us on or before the expiry date 02.01.2004
(emphasis added)."
The liability of the 4th defendant bank arises “in the event the prinicpaifails or neglects to pay the sum or sums of money on the due dateunder a credit agreement between the beneficiary and theprincipal". The plaintiff is not a party to the above guarantee. The partiesto the guarantee are the 1 st and the 2nd defendants (principal debtors),the 3rd defendant (beneficiary) and the 4th defendant (guarantor). Nowherein the guarantee it is stated that the 4th defendant will be liable in theevent the plaintiff defaults payment in respect of milk powder supplied.
Although the bank guarantee was issued in the instance of the plaintiffby the plaintiff's bank, namely the 4th defendant, the liability could beattached only by interpreting the bank guarantee itself.
The effect of a guarantee like that of other contracts depends on thewords of the contract, in Smith vs. Hughes at 607 Blackburn J said "ifwhatever a man's real intention may be he so conducts himself that areasonable man would believe that he was assenting to the terms proposedby the other party and that other party upon that belief enters into thecontract with him, the man thus conducting himself would be equally boundas if he had intended to agree to the party's terms". "The question to beanswered always is "what is the meaning of what the parties have said?"not "what did the parties mean to say" Lord Simon of Glaisdae L SchulerAG Vs Wickman Machine Tool Safes Ltd.iZ)
The observation made by the Court of Appeal in Bolovinter Oil SA VChase Manhattan BankZ) is that 'the judges who are asked to issue aninjunction restraining payment by a bank under an irrevocable letter ofcredit or performance bond or guarantee should ask whether there is anychallenge to the validity of the letter, bond or the guarantee itself. If there is
notprima facie no injunction should be granted and the bank should
be left free to honour its contractual obligations …. The wholly exceptionalcase where an injunction may be granted is where it is proved that thebank knows that any demand for payment already made or which maythereafter be made will clearly be fraudulent1. The court further observedthat 'if, save in the most exceptional cases, he is to be allowed to derogate
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Sri Lanka Law Reports
(2005) 2 Sri L R.
from the bank’s personal and irrevocable undertaking…. by obtaining aninjunction restraining the bank from honouring that undertaking, he willundermine what is the bank's greatest asset, however large and rich itmay be, namely its reputation for financial and contractual probity.Furthermore, if this happens at all frequently, the value of all irrevocableletters of credit and performance bonds and guarantees will be undermined'.
I am of the view that the learned District Judge erred in interpreting thebank guarantee and thereby erred in issuing an interim injunction restrainingthe 4th defendant (People’s Bank) from honouring the demand made onthe guarantee.
However, the learned counsel for the plaintiff submits that the 3rddefendant cannot succeed in this case due to the following reasons
There is no valid affidavit filed along with the petition as requiredby Rule 3 (1) (a) of the Court Appeal (Appellate Procedure) Rulesof 1990 and Section 757 (1) of the Civil Procedure Code. Counselsubmits that whilst the person giving the affidavit is a RomanCatholic and at the beginning of the affidavit states that he "dohereby make oath and state as follows", the jurat to the affidavitstates "Affirmed there to". Therefore he submits that the affidavitis defective and should be rejected.
Failure to tender the document marked 4 VI amounts tosuppression of a material fact.
The Bank Guarantee in pursuance to an agreement between theplaintiff and the 1 st and the 2nd defendants was for the purpose ofdistribution and sale of Lakcow milk powder. The learned counselsubmits that the bank guarantee is only for the purpose of coveringthe monies the plaintiff could have owed the 1 st and 2nd defendantsunder and in terms of the agreement marked P1b. He furthersubmits that all the documents pertaining to this transaction shouldbe examined ; that the bank guarantee should not be consideredin isolation.
In Jeganathan vs. Sefyath <4) where the plaintiff has commenced heraffidavit after making an oath does not end the jurat in a manner consistentwith the oath she has taken, the court held that she has not sworn to thecontents of the affidavit in the true sense of the expression as expected bylaw. In CliffordRatwatte vs. Thilanga Sumanthipala and Others{S) on similar
CA
Pan Asia Bank Ltd. Vs217
Kandy Multi Purpose Co-operative Society and Others (Eric Basnayake J.)
facts Edussuriya J. states "It is not a case where there has been anomission to make any oath, or make any affirmation or the substitution ofanyone for any other of them has taken place. Nor is there a question ofany irregularity in the form in which the oath or affirmation was administered
If the contents of the affidavit were read and explained by the Justice
of Peace, I cannot fathom how he could have, after having read that thedeponent was a Christian and was making oath, at the end in the jurat
clause stated that the deponent affirmedThe contradiction that has
occurred could never have occurred, had the Justice of Peace (actually)read over and explained to the deponent the contents of the affidavit as he
claims he didor had the deponent (actually) made oath and sworn
to the contents of the affidavit in the presence of the Justice of Peace”.
Edussuriya J. held that "the Justice of Peace did not read and explainto the deponent the contents of the affidavit as he claims in the juratclause, nor did the deponent make oath and swear to the contents of theaffidavit in the presence of the Justice of Peace, but that the Justice ofPeace "blindly" signed an "affidavit" which had been already signed by thedeponent in some other place at some other time". The affidavit wastherefore held not an affidavit which has any legal validity and/or sanctityand therefore there was no affidavit as required by law. In Inaya vs. LankaOrix Leasing Company Ltd.(6) the defendats being Muslims had failed tosolemnly, sincerely and truly declare and affirm the specific averments setout in the affidavit. The recital merely states that they make a declarationand in the jurat there is no reference as to whether the purported affidavitwas sworn to or affirmed to. Jayasinghe J, said "the technicalities shouldnot be allowed to stand in the way of justice. But however the basicrequirements of the law must be fulfilled".
The bank guarantee marked *P1 b‘ does not refer to the agreement theplaintiff had with the 1 st and the 2nd defendants and therefore the terms ofthe agreement cannot be-considered in interpreting the bank guarantee.The document 4VI is relevant only if the agreement is material. Furthermore there is no dispute that the guarantee was issued at the instance ofthe plaintiff on the agreement marked 'P1 b".
Anyhow I am of the view that the plaintiff respondent should succeed onthe point raised with regard to the validity of the affidavit filed by the 3rdrespondent. The petition of the 3rd respondent in this case is supportedby an affidavit in terms of the Court of Appeal (Appellate Procedure) Rules
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(2005) 2 Sri L. R.
1990 which states thus, "every application made to the Court of Appeal forthe exercise of the powers vested in the Court of Appeal by Articles 140and 141 of the Constitution shall be by way of petition, together with an
affidavit in support of the averments therein“ Section 757 (1) of the
Civil Procedure Code states thus, "Every application for leave to appealagainst an order of court made in the course of any civil action proceeding
or matter shall be made by petitionSuch petition shall be supported
by affidavit". The Oaths Ordinance in Section 6 states that "All oaths and
affirmations made shall be administered according to such forms
and with such formalities as may be … prescribed by rules …"
The deponent in that affidavit states that he being a Roman Catholic"do hereby make oath". The attestation clause, instead of stating that"the deponent having sworn to the contents thereof" states thus : "thecontents thereof affirmed thereto". It may be argued that the Peace Officerwho made the attestation made a mistake in the attestation. The matterto be considered is in fact whether there was an attestation or not; that iswhether the deponent had placed the signature at a different place andsent the papers to the Peace Officer for his signature, to make it look asif the signatures were placed at the same time.
There is another fact which assists the court in coming to the conclusionthat the deponent placed his signature at a different place and not in thepresence of the Peace Officer. I find that the deponent has placed thesignature on two crosses made with a ball pen which is visible to thenaked eye. The two crosses would usually indicate where one shouldplace the signature. If the oath was administered and the signature wasplaced in the presence of the Peace Officer, there is no necessity toindicate where to place the signature. Therefore it could be safely assumedthat the signatures were placed at different places and the contents werenever read over and hence there was no swearing in at all. Hence, I takethe view that there is no proper affidavit as required by law and thereforethe 3rd defendant cannot succeed. Hence leave is refused.
SOMAWANSA J. PICA – / agree.
Application dismissed