Euco International Sdn Bhd

- vs -

Chen

Judgment

HH Lee CJ (Borneo)

(delivering the Judgment of the Court)

1. The appellant/first defendant appealed against a declaration made by the learned Judge on 23 June 1982 that the respondent/plaintiff is entitled to be fully indemnified in respect of a guarantee for overdraft facilities. Out of four grounds of appeal one was abandoned.

   • The first ground is that the learned Judge was wrong to conclude that there was sufficient evidence from which he could draw the inference that the appellant had agreed to indemnity the respondent on the guarantee either orally or in writing.

   • The second ground is that the learned Judge was wrong to hold that an assurance from a director of the company, without more, when acted upon, could bind the company.

   • Lastly, that the learned Judge drew the wrong conclusion that a document(P2) was intended by the appellant to indemnify the respondent in respect of the guarantee issued by him.

2. We would only summarise the salient facts. The respondent is a consultant engineer. He was an employee of Euco Development Sdn Bhd (second Defendant) which is a subsidiary of Euco International Sdn Bhd (appellant). The third, fourth, fifth and sixth defendants are brothers. They own shares in and are directors of the appellant which holds 570,200 shares out of 842,725 shares in the second defendant company. The balance of 221,525 shares are held by Lee Wah Nominees. The plaintiff was appointed director of the second defendant company. He was not a shareholder of either the appellant or the second defendant company. He is also the director of Euco Prefab Sdn Bhd and Euco Engineering Sdn Bhd which are associated and connected with the second defendant company. They are also the subsidiaries of the appellant.

3. As director, the respondent was expected, from time to time, to join other directors to guarantee debts or other liabilities of one or more of the companies by issuing letters of guarantee. On 25 January 1967 he joined the fourth, fifth and sixth defendants in giving a guarantee (P1) to the Malayan Banking Ltd for granting overdraft facilities up to $300,000 to the second defendant company. Subsequently, the second defendant company failed to pay the bank on the overdraft facilities for which the guarantee (P1) was issued. The bank obtained judgment against the respondent, the fourth and sixth defendants on 7 January 1975 in Kuala Lumpur High Court Civil Suit No 608 of 1971. The respondent has so far paid $250,000 to the bank. Hence he claimed against the defendants to be fully indemnified against all sums paid by him to the bank. He relied on the oral assurance and also on the documentary evidence in the form of P2 which was signed by the four brothers in the following terms:—

   EUCO INTERNATIONAL LIMITED We, the undersigned, the Directors of Euco International Ltd for the time being pursuant to Article 91 of the Articles of Association, hereby make the following RESOLUTION: INDEMNITY TO GUARANTORS OF SUBSIDIARY COMPANIES FOR OVERDRAFT AND OR LETTERS OF CREDIT FACILITIES: RESOLVED that: In consideration of Letters of Guarantee furnished by Messrs John Eu, Roy Ru, and PF Chen to the Banker’s of our Subsidiary companies for overdraft and or letters of credit facilities, we hereby agree jointly to hold ourselves responsible for such Letters of Guarantee and to indemnify the Guarantors for any out of pocket expenses including the sum guaranteed with interest thereon if they are called upon by the Bankers make good such facilities. Dated this 23 July 1964. ... ... Article 91 reads:— Resolution signed by Directors to be valid. 91. A resolution in writing signed by all the Directors shall be as effective for all purposes as a resolution passed at a meeting of the Directors duly convened, held and constituted. In case any Director is absent from the Federation of Malaya, a resolution signed by all the other Directors shall be valid and effectual.

4. In support of their contention the appellant cited Hely-Hutchinson v Brayhead Ltd [1967] 3 All ER 98, 102 and Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 1 All ER 630. Reference was also made to “Source-book of Singapore and Malaysian Co Law” by Philip Pillai at page 402, para 4 which states:—

   It should be noted that a single director, unless appointed or held out as a committee of the board or as a managing director or expressly or impliedly authorised to act in the matter, is not capable of imposing liability on the company ......

5. Although the learned Judge discussed about the oral assurance and understanding he referred to another cogent ground which was relied by the respondent, that is, the documentary evidence (P2). Here we have a resolution made by four persons in their capacity as shareholders and directors of the appellant. Another point taken is that the guarantee (P1) was signed on 25 January 1967, about three years after the resolution which was made on 23 July 1964. We do not think this is really material on the evidence. Each case must be decided on its own particular facts. We agree with the respondent that the facts in our case are quite different from the facts in the cases cited earlier. Much was made of the word “furnished” in (P2) by the first defendant. It was argued that (P.2) is meant to indemnify guarantees issued prior to 23 July 1964. In his evidence fourth defendant mentioned that there were so many guarantees to sign. Every time a guarantee was signed it was backed up with a resolution which contained an indemnity by the company to the individual directors who signed the guarantee. For example, at page 105 of the Appeal Record the word “furnished” was also used in (D19), an indemnity given by the second defendant company. The word “furnished” could apply to the past or the future. It need not necessarily refer to guarantees already issued. The oral assurance given by the directors has also to be considered. It is the submission of the appellant that this is a matter of construction. It may be useful to refer to (D19) which was dated 22 April 1966. This resolution was intended to be an indemnity given to the guarantors to sign (P1). The word “furnished” was also used but the guarantee (P1) was not given until 25 January 1967.

6. Where there is ambiguity the court can ascertain the intention. Odgerson Construction of Deeds and Statutes fifth Ed, at page 31 reads:—

   Rule II. The intention may prevail over the words used. Ordinarily, parties use apt words to express their intention: but often they do not. The cardinal rule again is that clear and unambiguous words prevail over any intention, but if the words used are not clear and unambiguous, the intention will prevail. We have seen that the most essential thing is to collect the intention of the parties from the expressions they have used in the deed itself. What if the intention so collected will not square with the words used? The answer is that the intention prevails.

7. The submission of the appellant is that (P2) is not confined to guarantees prior to the date of resolution. The facts speak for themselves.

8. (P2) is a resolution made pursuant to Article 91 of the Articles of Association of the appellant. The intention is clear. As the learned Judge correctly pointed out at page 112 of the Appeal Record that “it is common ground that the resolution is not to be taken as a personal indemnity from the directors. I agree with counsel that this is the correct view to take — a circular resolution passed under the provisions of the articles of association of a company in the form it takes in (P2) cannot be said to be a personal indemnity themselves. In this case (P2) has to have effect as an indemnity from the first defendant company.” They may not meet formally in signing (P2). But it is clear beyond doubt that (P2) did represent a meeting of minds which is, after all, the essence of a meeting and the passing of a resolution.

9. The learned Judge has dealt with the matter very carefully, in particular, the evidence of John Eu (fourth defendant). He was satisfied that there was no reason for (P2) to be qualified by the words “prior to the date of (P2)”. We agree with the learned Judge that the real reason for making (P2) as given by the fourth defendant was to make Richard Eu (third defendant) bear his part of the liabilities as he was not a shareholder or director in the subsidiary companies.

10. For reasons given, we would dismiss the appeal with costs. Deposit to the respondent on account of taxed costs. 

Cases

Hely-Hutchinson v Brayhead Ltd [1967] 3 All ER 98; Freeman & Lockyer (a firm) v Buckhurt Park Properties (Mangal) Ltd [1964] 1 All ER 630

Authors and other references

Philip Pillai, Source-book of Singapore and Malaysian Co Law.

Odgerson, Construction of Deeds and Statutes 5th Ed

Representation

GS Nizar for the appellant.

Raja Abdul Aziz Addruse for the respondent.