Arab Banking Corporation v Saad Trading & Financial Services Company & Anor

JUDGMENT

1. MR JUSTICE DAVID STEEL: This is an application by the claimants, who are a bank established in Bahrain, for summary judgment against the first and second defendants, the first defendants being a partnership existing under the laws of Saudi Arabia and the second defendant, Mr Al-Saneia, the chairman of that group or partnership. There is no dispute of course as to the relevant legal principles for an application of this kind.

2. It is the claimant's case, and they must make it good, that the Defence advanced by the defendants to the claims being made against them do not have any real prospect of success. It is also necessary (although in my judgment it is not really a point that arises on the present circumstances) that the claimants must establish that there is no other compelling reason why the issue should be disposed of at a trial.

3. The focus of the debate before me was on whether the defendants have more than an arguable case. The claim, which is for a substantial sum, not far short of $30 million US, arises out of some payments by way of loans made by the bank to the first defendants. It is not in issue that the loans had been made nor is it in issue that they have not been repaid, although on the face of it they are and have been due for some time. There is, however, a fundamental issue that has now emerged as to the terms upon which those loans were made and even a dispute as to the relevant contract which governs the provision of the loans.

4. It is not controversial that in October 2004 the bank agreed to provide what was called a conventional trade facility to the first defendant, with Mr Al-Saneia acting as a guarantor. The purpose of the facility, as expressly set out in clause 1.1, was to assist the first defendants in the financing of goods and materials for its authorised trading activities. The original availability of the facility ran until 5 October 2005 but, by virtue of written amendments executed by the claimants and by the first defendants, and indeed by the guarantors, was progressively extended until 31 October 2009. The amounts involved were also amended, most particularly by the second amendment entered into in September 2006. This increased the overall amount of the facility from $20 million US to $30 million US.

5. The facility was to be made available in three forms, two of which are of relevance to the present dispute. Firstly, a discounting facility up to $20 million US whereby the bank at its discretion would discount promissory notes issued by the first defendants with maturity dates not exceeding the earlier of (i) 180 days from the date of issuance or (ii) the termination date. It was expressly provided that these promissory notes had to be issued in connection with trade related transactions in respect of which the bank had to receive such details as it required. The second form of facility of pertinence to the present dispute is a short-term facility up to a limit of $20 million US for refinancing settlement amounts under sight letters of credit, again for periods of the earlier of 180 days after the expiry date of the relevant letter of credit or the termination date.

6. The facility, so far as relevant to the disputes that have arisen, also made provision as follows. Article 2.3, stated:

"You [the first defendant] shall give to [the bank] at least 2 (two) business days' irrevocable notice substantially in the form set out in Appendix 2 that you want to utilise the Facility pursuant to clause 1.3(b) and (c) [those being the categories to which I have already referred]… Advances shall be for 1, 3 or 6 months or such other period as ABC may agree in its absolute discretion."

7. The facility went on to make provision for repayment of advances on the final day of the period for which it was in fact made and there was a default clause in article 8 which contained provision for the service of notices for the purpose of acceleration of payments other than those that had already come due. Article 11 entitled the bank to rely on any communication or documents it received which it believed to be genuine and correct. Article 13 made provision for the impact of any failure or delay by the bank in exercising its rights to the effect that such delays or failures should not operate as a waiver of any claim. The relevant article finished:

"Any waiver or amendment by [the bank] shall only be effective if given by [the bank] in writing."

8. There was a jurisdiction clause which originally provided for the non-exclusive jurisdiction of the courts of Bahrain. That was in due course amended by the first amendment letter dated 20 September 2005 to the effect that the parties agreed to the non-exclusive jurisdiction of the English courts, a topic to which I will return in a moment. Those then were the terms of the facility letter as amended from time to time.

9. So far as the guarantee by Mr Al-Saneia is concerned, this was set out in a letter dated 24 October 2004 and it is only necessary, I think, to refer to clauses 1 and 2 of that guarantee. Clause 1 read:

"Hereby irrevocably and unconditionally guarantee the punctual payment of all sums payable by the Company under the Facility Agreement, whether by acceleration or otherwise."

10. Clause 2 read:

"The Guarantor's liability under this Guarantee shall not be discharged, reduced or otherwise affected in any way by reason of (a) the Bank giving the Company or the Guarantor time or any other concession, (b) any composition, discharge, release or other variation of liability entered into with, or granted to, the Company or the Guarantor, (c) the Bank taking, holding, varying, realising or not enforcing any other security for the liabilities of the Company under the Facility Agreement, (d) any amendment, variation or waiver (however fundamental) of any provision of the Facility Agreement."

11. The problem that has emerged derives largely from the terms of some letters written by the first defendants seeking to draw down sums of money against what are called “order notes”. These, so the claimants contend, were applications to draw down under the first part of the facility for the discounting of promissory notes. The letters as written by the first defendants are dated 1 and 2 December 2008. The letter of 1 December 2008 referred to the fact that Mr Al-Saneia had signed the attached “order notes”. The “order notes” dated 26 November 2008 were for $10 million US each and recorded:

"For value received we, Saad Trading, Contracting & Financial Services Co. with commercial registration number [and that is set out], as the maker … unconditionally and irrevocably undertake to pay Arab Banking Corporation [and their address is set out] the sum of US$10,000,000.00 … on 26 May 2009.

"The holder of this Note may obtain recourse without presentation or costs or notice or protest of non-payment."

It should be noted, as this formed a significant part of the debate before me, that the period of time between 26 November 2008 and 26 May 2009 was 181 days.

12. The letter which accompanied these “order notes” recorded, as I have already said, that Mr Al-Saneia had signed them. It explained that payment would be made at the face value in US dollars free of any deductions and in paragraph 5 said:

"We irrevocably and unconditionally undertake to effect payment of the face value of the Order Note on the maturity date to the then current bona fide holder of the Order Note…

"6. The proceeds of the Order Note will be used to fund our trade finance requirements...

"8. This letter is issued in relation to the Order Note and any related documents, and is for the benefit of Arab Banking Corporation … and each subsequent holder of the Order Note...

"10. Any notice, demand or other communication to be given by one party to the other party shall be in writing and signed by or on behalf of the party giving it. It shall be served by sending it by fax to [a number which is set out], or delivering it by hand or sending it by pre-paid recorded delivery or special delivery, to the address set out above."

13. I have not read out the particular fax number but it should be noted in passing that it is a number which is different from the fax number provided for in the facility agreement. It also must be noted that in paragraph 12 of the letter, albeit stating that the order note was to be governed by English law, provided for alternative non-exclusive jurisdiction either in the courts of England or before the Special Committee for the Settlement of Banking Disputes in Saudi Arabia. That letter, together with the accompanying “order notes”, was sent on to the bank on 2 December under the cover of another letter from the first defendants headed: "Subject: 20 million PN discounting" and I do not understand it to be controversial that "PN" simply stands for "promissory note". The letter reads:

"Please find enclosed herewith the following documents, which are duly executed from our side:

"Kingly (sic), arrange to transfer PNs' proceeds to our account as below."

14. It is at the forefront of the defendants' case on this application that this request to draw down $20 million by way of discounted promissory notes was not a request being made under the facility agreement. This was said to be a completely discrete agreement, exemplified by the fact that since the period of the facility notes was 181 days, by definition it could not have been a promissory note tendered pursuant to the facility agreement, which only allowed for a period of 180 days. It was further said that the terms of this letter made provision, amongst other things, for a particular fax number for notices or demands to be made to and a particular and specific jurisdiction clause. In the alternative, as I understand it, the defendants say that the letter with the accompanying documents constituted a further variation and amendment of the facility agreement and thus again imported into the facility agreement the new or changed fax number and the revised jurisdiction clause and the absence of any limitation to 180 days for the terms of any advance, whether by way of promissory notes or the other facilities.

15. There is no dispute that short-term advances were also made in respect of letters of credit, of which payment became due sometime in June 2008. They totaled about $10 million US. I did not understand it to be asserted that these advances were made other than under the facility. Certainly they appeared to be expressly so made, but there were the same problems, so the defendants contended, with regard to the period of the advance, which was expressed to be six months and thus somewhere between 181 and 184 days. Similar points were also raised with regard to the fax number to which notices had to be given and the jurisdiction agreement. One distinction, and it is probably a very minor one, between the advances made under the discounted promissory notes facility and the advances in respect of letter of credit payments was that in the latter there was furnished a prescribed appendix 2, utilisation notice, but not in respect of the former.

16. On 26 May 2009 the first defendants had not repaid the sums due under the “order notes”/promissory notes and the bank gave notice of an event of default to both the defendant and to Mr Al-Saneia which, if effective, would have accelerated the requirement to repay the sums due on the advances. On 31 May the bank demanded immediate repayment of all sums due under the facility and on 11 June, which was the day on which the advances became due in the natural course of time, they also served a demand on Mr Al-Saneia under the guarantee. There is a dispute about the validity of this demand and in particular complaint is made that the demand was for an excessive sum in that the bank should have accorded credit for something in the region of $600,000, which it did not do, in making its demand against the guarantor.

17. The proceedings got underway in late June and Particulars of Claim were served in July. In October last year there was a challenge to jurisdiction made by both defendants. I dismissed the challenge following an inter partes hearing. The focus of the challenge was to the effect that, despite the existence of a non-exclusive English jurisdiction clause, nonetheless there were various other relevant criteria which justified staying English proceedings in favour of either Bahraini or Saudi Arabian proceedings. I gave a short oral judgment in which I dismissed the challenge and no appeal was sought.

18. Shortly thereafter the defendants served their defences and this raised for the first time the proposition that the loans that had been made had not been made under the facility at all but under some separate arrangement evidenced, at least in part, by the letters which I have read. This proposition or contention, I am bound to say, sits very uncomfortably with the manner in which the jurisdiction challenge was advanced. It is now repeatedly said in the course of submissions that one impact of the exchange of correspondence in December 2008 was to make arrangements either for a new facility containing an English law but English/Saudi Arabian non-exclusive jurisdiction or an amendment to the facility to remove the non-exclusive jurisdiction clause and replace it with the one that is contained in the letter of 1 December 2008. I say that sits uncomfortably with the way in which the jurisdiction challenge was mounted because, if this was an arguable proposition, it seems astonishing that it was not advanced in October.

19. In particular, so far as the first defendant is concerned, it would be clear that, given that there was only a non-exclusive English jurisdiction clause in the original facility, but a contention to the effect that that was not part of the loan agreements that had been made or alternatively had been replaced by paragraph 12 of the 1 December 2008 letter, this would have had significant implications, from the point of view of the question whether the defendants could assert that, despite an agreement of non-exclusive English jurisdiction, nonetheless the non-exclusive Saudi Arabian jurisdiction was to be preferred on the usual grounds of convenience, and so on. So far as the second defendant is concerned, it would have had even more marked implications because if the advances were not made under the facility at all, no question of any exposure under his guarantee would have arisen. It is for those reasons that I approach what Mr Twigger calls the rather technical points being taken by the defendants with a considerable degree of circumspection. The description of them being technical was perfectly fair and there have been moments during the hearing when I have had to pinch myself as to whether I am actually sitting in the Commercial Court.

20. With that introduction may I turn to the principal question that arises as to whether the advances that have been made by the bank fell outside the facility. The starting point here is that it is utterly implausible that the bank made advances under something other than the facility at the time when the facility was in existence and when there was no agreement for the provision of some additional or alternative source of funds. All the more so when on any view the arrangement allegedly made in December 2008 made no provision for such things as interest and made no provision for security in the form of a guarantee. It, in short, is in stark contrast with the commercial approach adopted by the bank to the prospect of effecting loans to the first defendant.

21. Secondly, there are various features of the documentation that emerged in December 2008 which are really only consistent with the advances having been made under the facility. Firstly, the covering letter dated 2 December 2008 refers to two promissory notes, ie the very class of negotiable instrument which is contemplated by the facility, and refers to two side letter agreements, presumably a reference to the two letters of 1 December 2008. The use of the word "side" suggests that there is something to which those letters are “side” to. The only possible candidate concurrent with the agreement is the facility. Secondly, the letter itself actually attached commercial invoices. This again was entirely consistent with the obligation as expressed in the original facility that the financing should be for goods and materials within the authorised trading activities of the first defendant, and indeed an obligation on the part of the defendants to satisfy the bank that there were relevant commercial and trading activities associated with the loans. Thirdly, again the very same letter refers to the discount of promissory notes and the subsequent transfer of the proceeds of promissory notes, entirely consistent with the mechanics of the facility agreement.

22. It also is fair to note that subsequent communications from the first defendant and the responses from the bank are only consistent with the draw downs having been effected under the original facility. For instance, on 29 March 2009 the first defendants wrote to the bank saying:

"Please provide us monthly statement of account for our above current account [that is a reference to list of outstanding letters of credit and loans as of March 2009] … to enable us to reconcile with our records at our end."

23. They get back the reply:

"As per your request, we hereby confirm that the following were the outstanding balances in your name in our records as at the close of business on 31 March 2009."

These are then set out, including the two $10 million to which I have referred. Underlined and immediately below the table, it says:

"Loan reference: Saad Trading, USD30MM letter of credit issuance, discounting and short term advance facility - Amendment Letter No. 4."

24. You might have expected if the first defendants or the second defendant was under the impression that he had persuaded the bank to make a loan other than under the facility he would write back and say: what is this all about?: this is nothing to do with the amendment letter number 4, this is a completely separate facility.

25. In my judgment, everything about the documentation in relation to the draw down and the subsequent material is only consistent with the loans having been made under the facility taken out in 2004 and subsequently amended from time to time. This leads to what is put at the forefront of the defendants' submission, namely, the problem, as they contend, of the 181 days. It is suggested that if a loan is 181 days it cannot by definition be a loan taken under the 180-day provision of the facility. As to this it can be said in passing that it would be a surprising outcome for that disparity of one day to give rise to the consequence that the defendants assert.

26. The claimants advance two arguments in response to it. First, they say that the terms of the facility do not draw a distinction, or at least a distinction of any significance, between a period of six months on the one hand and a period of half of 360 days, namely, 180 on the other. They draw attention to the fact that the utilisation notices, if used, would include requests for advances over a period of six months, or indeed such other period as the bank might agree in its absolute discretion. So the very facility is contemplating advances for a period in excess of 180 days, namely, somewhere between 181 and 184. The calculations of commission are also to be annualised, as it is put under article 5.4, on the basis of a year of 360 days. On the face of it, it is submitted that the use of "the period of 180 days" is a convenient shorthand for calculation purposes to encompass an advance which would be for a period of six months and, given the discretion afforded to the bank, a period of 181, 182, 183 or 184 days is neither here nor there.

27. I agree with that approach, but it seems to me that whether I agree or not the claimant's second response in any event provides a complete answer to the issue. The request for a loan which is put forward in the letter of 1 December 2008 is of course by definition a request drafted and sent by the defendants, ie they are the persons responsible if it be inconsistent with the terms of the facility for seeking a loan over a period of 181 days rather than 180 days. There is not a word from the author of the letter, namely, the second defendant, as to the agreement under which he was seeking to get a loan and not a word as to his reasoning behind the choice of 181 days rather than 180. So what the bank are left with is an application for credit over a period up to 29 May 2009. It may well be that by virtue of article 11 of the agreement they were entitled to rely upon that application as being consistent with and correct pursuant to the terms of the agreement.

28. But, even if that is not an appropriate view of the matter, the claimants say that it is manifest that there was a waiver, an indulgence or concession if that is to be preferred, whereby, despite the fact that the defendants were asking for more than that to which they were entitled by a period of a whole 24 hours, the claimants were minded to take no point. On the face of it the limitation to precisely 180 days, if that be the true construction of article 1.3(b), is a protection for the bank, entirely for their benefit and which they are entitled to and did waive. It is true that there is an express provision with regard to waiver, which I read out earlier, in article 13, namely, that a waiver shall only be effective if given in writing by the bank. Again it seems to me from the way in which the parties have conducted themselves at the time of the advance that there was a waiver, because this is also entirely for the protection of the bank. No such equivalent provision was available to the defendants of the entitlement to have a written record of any forbearance. For all those reasons, in my judgment, the significance of the 181 days is entirely marginal and of no impact to the issue as to whether this was a loan draw down under the facility.

29. Indeed it would be, I think, a necessary part of the defendants' alternative case, that the effect of the letters of 1 December 2008 was itself to constitute a variation of the facility and, whilst that might overcome the problem of 180 days because by that process the promissory note for the marginally longer period would fall within the facility, nonetheless it would import in its trail the different fax number and the different jurisdiction agreement, to which I have already referred. But on any realistic reading of the documents that emerged in 2008, it seems to me that the only relevant document for the purposes of considering the position of the defendants are the order notes/promissory notes themselves, which contain none of the limitations in terms of notice or jurisdiction which the defendants wish to rely on. If and to the extent the letters could be viewed as an offer being made by the defendants to vary the contract, there is absolutely no evidence of a clear acceptance of that offer so as to constitute some amendment to the contract.

30. So far as the fax number is concerned, again no variation, in my judgment, was entered into. In any event it does not seem to me that the misdirection of any notice to the wrong fax number is of the slightest significance because these facilities were recoverable without demand on their maturity date.

31. There were two other points which were touched on by the defendants as affording some arguable Defence. First, the title to the December 2008 notes as “order notes” rather than promissory notes and the reference to the wrong clause relating to events of default in the notice, but in the end I was of the clear impression that those points had simply fallen by the wayside. Similar points emerged with regard to the short-term advances which add nothing to the argument.

32. One last point for completeness' sake: it was suggested that, and again this was said to be supportive of the argument that there was a separate agreement, or alternatively that there was some invalidity in the loan, that there were no utilisation notices issued under appendix 2 for the purpose of the promissory note advances. This is a point that emerged at a late stage. It seems to me a point in which it is manifest, once again, that the bank did not insist on strict compliance with the terms of the contract. They embarked upon the loans in the face of the request, despite the fact that the request was not expressed in the precise terms as set out in appendix 2 of the agreement.

33. So far as the second defendant is concerned, almost all the same points emerge again and I will not repeat them. But two additional points were made. The first that the waiver in respect of the 180-day period was not binding because under usual principles amendments to the surety agreement would not bind the second defendant unless he acceded to them and the way in which the parties had proceeded, at least up until 2008, was to record in writing any changes to the agreement, such to be signed by the second defendant himself. But, as I have already read out, the provisions of clauses 1 and 2 of the guarantee could not be expressed in wider terms. There is no reason of why the scope of clause 2 of the guarantee does not encompass the maintenance of exposure on the guarantee, despite the fact that the bank may have waived strict compliance with appendix 2, waived strict compliance with the precise 180-day period, and so on. The second defendant also fails on the argument that he has a real prospect of success of establishing that the liability which he is guaranteeing arose outside the guarantee. I also reject the argument that he is not bound by the terms of the waiver that the bank entered into. The 180-day period, as I have already recorded, appears to me entirely for the benefit of the bank and the position of the guarantor one way or the other is irrelevant.

34. That leaves one last point, namely, as I have recorded earlier in this judgment, the demand was for a marginally greater sum than was due, namely, $29,600,000 rather than something in the region of $29 million. Again it is not a point that has immediate attraction and merit. The issue of the impact or otherwise of an excessive demand on a guarantee or liability under a guarantee is discussed at some length in The Modern Contract of Guarantee, the English edition, the editors being O'Donovan and Phillips. The relevant passage and the relevant authorities are set out in paragraphs 10-126 through 10-130 and I will not solemnly read through them. But I have formed the clear view that a request for more than is due does not invalidate a demand made against a guarantor. I refer in particular to the decisions which are noted in note 95 of the book and the cross-references to Bunbury Foods v West Beck Banking(?). I accede to the proposition advanced by the editors to the effect that the decision in Donnelly v National Australia Bank(?) is a decision which should not be embraced by the English courts.

35. Any other conclusion, it seems to me, creates an imbalance between the burden on the claimant and the burden on the defendant. It is inevitably going to be difficult for the claimant to identify the precise amount that is due. So far as the defendants are concerned, and not least this defendant, there could not have been any misunderstanding as to the identity of the monies being referred to, no conceivable difficulty in at least forming a view as to what the broad nature of the sums payable were (not least because the second defendant was the chief executive officer of the first defendant, who had actually been involved in the draw down and, in my judgment, can be readily inferred to have a full understanding as to which loans or advances had been repaid and, if so, to what extent). Indeed he had asked for details from time to time from the bank and received notices explaining what sums were outstanding.

36. But in any event all this is by the by. The claimants have now issued a second demand. It is true they would need in theory leave to amend to rely on it. It is not suggested for one moment that there is anything defective about the new demand, which has been made quite recently, any suggestion that the matter should be deferred so that the parties can gear up again for a summary judgment application in the wake of the second demand. It seems to me to be wholly counter to the overriding objective. So for all those reasons I grant the claimants the relief they seek.