Article

Topics: Limitation of Actions; Reimbursement

Note: To pay for deliveries of Australian wool in China, CGS (Group) Pty. Ltd (Buyer) obtained two LCs from Bank of China Ltd. (Issuer) for US$2,523,082.80 and US$2,156,859.30 in favour of Nam Kwong Development (HK) Ltd. To obtain the LCs, Buyer applied for the two LCs and authorized charges incurred inside and outside Australia to be debited to Buyer/Applicant. Applicant made a socalled "margin deposit" of 50% of the value of the LCs and gave a mortgage of a hotel in Tainjin in China. The manager of Buyer/Applicant, Yue Jin Guo (Managing Director/Surety) also gave a personal guarantee as did another director. The Applicant's obligation was reduced on 31 December 1998 by a set off payment.

The LCs were honored on 29 September 1998. Applicant requested an extension of its obligation to repay Issuer which was granted. Not having been repaid, Issuer sued Applicant and its Managing Director/Surety on 24 November 1006. They raised the Statute of Limitations as a defense, claiming that under the Australian Limitation Act 1969 the limitation period was 6 years, the time applicable to an action founded on a contract rather than the 12 year period applicable to a deed. The Supreme Court of New South Wales, Bryson, AJ, ordered judgment for Issuer against the Applicant and Guarantor for US$5,566,679.76 plus interest and costs.

Two written applications for irrevocable documentary credits were made on 15 October 1997 by Mr. Guo on behalf of the Applicant. The applications contained passages authorising bank charges inside and outside Australia to be debited to the Applicant's account, and printed terms by which, in consideration of establishing the credits, the Applicant agreed to indemnify Issuer against all expenses incurred, and authorised Issuer to debit the Applicant's account with payments in accordance with the credits and related charges. Arrangements were made for the Applicant to deposit 50% of the amount of the letters of credit with Issuer and provided security in the form of a mortgage over a hotel in Tianjin (China) with personal guarantees by Mr. Guo and Mr. Liu, another director of the Applicant.

Issuer and Applicant entered into a General Banking Facility Agreement (GBFA) dated 2 December 1997 which contained highly general provisions regulating the relationship of banker and Applicant. This was not a deed.

Another document executed as a deed, including the words, "EXECUTED by the parties as a Deed", and because it so states and is executed by the Applicant under its seal the document. This was held to be a deed.

The language of the facility documents is general language and its reach of reference to obligations to Issuer is very wide.

Issuer relied on a covenant in the Applicant's deed to pay obligations on the Applicant's account, and had 12 years to sue from the time when the obligation arose. Issuer also had the benefit of two enforceable contractual promises by the Applicant. As to the simple contract obligations to pay the same debt, Issuer contends that the limitation period of six years does not apply because there are later acknowledgements which operate to extend or renew the limitation period.

Mr. Guo executed a document entitled "Guarantee and Indemnity" on 4 November 1997 expressed to be a Deed. The words attesting Mr. Guo's execution state that it was "Signed, sealed and delivered" by him and his execution is witnessed by the person who also signed the attestation by the Applicant as its secretary. As well as being expressed as a deed, the Guarantee and Indemnity contained recitals which established that it was given for consideration and that Mr. Guo as guarantor had agreed to guarantee the obligations to Issuer of the Applicant under a GBFA of 5 June 1998. His Honour regarded this document as a deed.

Mr. Guo and Issuer executed another document in similar terms to the guarantee by Mr. Guo, but due to the method of execution used, it was deprived of its status as a deed and was regarded as being subject only to a six year limitation period.

Issuer put forward put forward another document as a guarantee by Mr. Guo. This was in Chinese with a certified translation. The document is an agreement to pay to Issuer's Sydney Branch all moneys owed by the Applicant to the Branch within 14 days of a written demand if any default shall occur. Guarantee liabilities under this document are subject to the limitation period of six years. Issuer made a demand in writing of Mr. Guo under these guarantees on 23 July 2002 and called for payment of the principal and interest within 14 days. The demand threatened recovery action. This demand met the requirements for a demand for payment of principal and interest in each of the three guarantee documents. This document establishes 6 August 2002 as an accrual date for Mr. Guo's liability under each and all of the guarantees, and neither limitation period had expired when the litigation was commenced.

Issuer made a further written demand on Mr. Guo in Chinese on 19 November 2002 although it did not unequivocally a demand for payment under the guarantees.

A letter of 19 July 2000 was a full and clear acknowledgement by both Applicant and Mr. Guo of the indebtedness now sued on. However (as was conceded) there was a difficulty for Issuer to rely on it, as proceedings were commenced more than six years later.

Mr. Guo, writing both for himself and as a Director of the Applicant, gave Issuer a written acknowledgement of debts in a letter of 1 July 2002. On the facts of the case the Judge held while it was not necessary to rely on this acknowledgement, it could do so.

Bryson AJ stated:

"There is no conceptual difficulty about the existence of multiple enforceable contractual promises to pay the same debt. ... If a plaintiff has the benefit of several different contractual promises to pay the same debt, failure to pay is breach of each of them, and gives rise to separate causes of action for each breach. ... It is of course necessary that each contractual promise should be a term of a contract supported by consideration, or of a deed. A simple contract promise to pay an existing debt would not be supported by consideration, but the promises put forward by [Issuer] are not bare promises and in each case the contract shows a sufficient consideration."

Applicant's indebtedness to Issuer under the letter of credit arrangements arose on 29 September 1998 which was later in date than each of the GBFAs. According to Bryson AJ, upon their own terms, each of the GBFAs extended to the credits and Mr Guo's guarantee also extended to them.

The Judge concluded that Issuer has proved causes of action arising under deeds against which no time bar has operated. Further, the document of 1 July 2002 is a sufficient acknowledgement both by the Applicant and by Mr. Guo to overcome any time bar which otherwise existed.

* Dr. Alan Davidson is Senior Lecturer TC Beirne School of Law University of Queensland; Solicitor and Barrister Supreme Court of New South Wales and of the High Court of Australia. Dr. Davidson is a member of the DCW Editorial Advisory Board.

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