Raiffeisen Zentralbank Osterreich AG v Cross-seas Shipping Ltd and Others

JurisdictionEngland & Wales
JudgeLORD JUSTICE POTTER,LORD JUSTICE THORPE,LORD JUSTICE HENRY
Judgment Date21 December 1999
Neutral Citation[1999] EWCA Civ J1221-37
Judgment citation (vLex)[1999] EWCA Civ J1221-60
Docket NumberCase No: QBCMF 1999/0382/CMS3
CourtCourt of Appeal (Civil Division)
Date21 December 1999

[1999] EWCA Civ J1221-37

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

MR JUSTICE CRESSWELL

(QUEENS BENCH DIVISION COMMERCIAL COURT)

Before:

Lord Justice Henry

Lord Justice Thorpe and

Lord Justice Potter

Case No: QBCMF 1999/0382/CMS3

Raiffeisen Zentralbank
Osterreich Ag
Respondent
and
(1) Crossseas Shipping Limited
(2) Vipool Vora
(3) Citi Holdings Corporation
(4) Ajay Shah
(5) Hemant Sangvi
Plaintiffs

Richard Salter QC and Ms Geraldine Andrews (instructed by Lawrence Jones, Sea Containers House, London, for Ajay Shah)

Stephen Hofmeyr Esquire and Peter MacDonald Eggers Esquire

Tuesday, 21 December 1999

LORD JUSTICE POTTER

INTRODUCTION

1

This is an appeal by the fourth defendant ("Mr Shah") from a decision of Cresswell J dated 19 th March 1999 reported at [1999] 1 All ER 626, in respect of which the judge himself gave leave to appeal. The decision followed the trial of a number of preliminary issues, previously ordered by Rix J on 4 th December 1998 to be tried before all other questions or issues in the action.

2

The plaintiff bank, Raiffeisen Zentralbank Osterreich AG ("the bank") claimed against Mr Shah, who is a resident of Kenya, the sum of $US 5,000,000 and interest pursuant to a guarantee dated 29 th July 1997 ("the guarantee"). One of the matters raised by Mr Shah in his defence was a plea that the guarantee had been avoided by a material alteration made to it after execution, namely the insertion by or on behalf of the bank in Clause 37 of the guarantee (which had been left blank at the time of his signature), of the name, address, telex and fax numbers of the first defendant Crossseas Shipping Limited ("Crossseas") as purported service agent for Mr Shah. It was alleged, and admitted by the bank for the purposes of the preliminary issues, that the insertion was made without Mr Shah's knowledge or consent, there having been no discussion between the bank and Mr Shah in relation to this clause or the appointment of an agent for service at any material time. The bank asserted in its reply various factual matters intended to show that Mr Shah would or should have consented to the alteration made had he been asked and that, in any event, the alteration did not in fact operate to his prejudice. In particular it was alleged that Mr Shah was a joint-venturer with Crossseas and had provided all the capital for the joint venture vessels' facilities; further, Crossseas had been the nominated agent for service of any notice/demand under previous facilities and vessel mortgages granted by the bank in respect of the joint venture.

THE ISSUES

3

On 4th December 1998 Rix J ordered that the following issues of fact and law be tried as preliminary issues:

(1) Whether Clause 37 of the guarantee was filled in by Mr Andrew Church of the plaintiffs before Mr Shah signed the guarantee and returned it to the plaintiff or after.

(2) If Clause 37 was filled in after Mr Shah had signed the guarantee, whether, in determining whether that alteration to the guarantee was material, so as to render the guarantee unenforceable against Mr Shah, the court will be entitled to take into account any factual matters pertaining to the relationship between Mr Shah and the service agent named in Clause 37 which may hereafter be pleaded by the plaintiff by way of amendment to its points of reply.

(3) Whether (leaving out of account any such factual matters as aforesaid) the alteration to the guarantee by the insertion of the name and address of the service agent in clause 37 was material so as to render the guarantee unenforceable against Mr Shah?

The issue in (1) fell by the wayside when, shortly before the hearing below, the bank admitted that the alteration had been made by the bank after signature of the guarantee and without the authority of Mr Shah.

THE JUDGE'S DECISION

4

The judge dealt first with Issue (3). Having reviewed the leading authorities at some length, in a passage headed "Analysis and Conclusion" he decided as follows

5

He began by quoting the well�known rule in Pigot'sCase (1614) 11 Co Rep 26 b to the effect that any material alteration made to a deed or other instrument after the execution of that instrument or deed renders it void, if made without the approval of all the parties thereto. He also cited Aldous -v- Cornwell (1868) LR 3 QB 573, Bishop of Crediton -v- Bishop of Exeter [1905] 2 Ch 455 and Lombard Finance Limited -v- Brookplain Trading Limited [1991] 1 WLR 271 at 274 per Dillon LJ. He then referred to the rationale underlying the rule as stated by Jessel MR in Suffell -v- Bank of England (1882) 9 QBD 555 at 561, quoting with approval from the judgment of Grose J in Master -v- Miller (1791) 4 T.R. 320:

"� a man shall not take the chance of committing a fraud, and when that fraud is detected recover on the instrument as it was originally made. In such a case the law intervenes, and says that the deed thus altered no longer constitutes the same deed and that no person can maintain an action upon it �. and the principle of those cases is that any alteration in a material part of any instrument or agreement avoided, because it thereby ceases to be the same instrument. And this principle is founded on great good sense because it tends to prevent the party in whose favour it is made from attempting to make any alteration to it."

Turning to the question of materiality, he referred also to the passage at 563 where Jessel MR stated:

"� before one can consider the question as to whether the alteration is an alteration affecting the contract one must know exactly what the instrument is, what the alteration is and what the general effect is �"

6

The judge then pointed out and emphasised the fact that the instant contract was a contract of guarantee, the central obligations of which were contained in Clause 2 (the guarantee clause) and Clause 3 (the indemnity clause). The remainder, save for Clause 37, went to the nature extent and validity of those central obligations. He then referred to s. 64 of the Bills of Exchange 1882 relating to avoidance of a bill by reason of material alteration and in particular

"any alteration of the date, the sum payable, the final payment, the place of payment, and, where the bill has been accepted generally, the addition of a place of payment without the acceptor's consent."

After observing that the court was here concerned not with a negotiable instrument but a guarantee, the judge then referred to three particular authorities upon the touchstone of materiality. First, to Gardner -v- Walsh (1855) 5 E&B 83 at 89 per Lord Campbell, as adopted by Scrutton LJ in Koch -v- Dicks [1933] 1 KB 307 at 320:

"� we conceive that he [the defendant] is discharged from his liability if the altered instrument, supposing it to be genuine, would operate differently from the original instrument, whether the alteration be or be not to his prejudice."

Second, to Koch -v- Dicks at 324 per Greer LJ:

"if in fact it alters the legal incidence of the bill."

Third, Suffel -v- Bank of England at 568 per Brett LJ:

"Any alteration of any instrument seems to me to be material which would alter the business effect of the instrument if used for any ordinary business purpose for which such an instrument or any part of it is used."

7

The judge then stated that Clause 37 was "procedural in nature" only, in that, if the guarantor were out of the jurisdiction at the time of service, Clause 37 would remove the need for an application for leave to serve out under RSC Order 11, Rule 1(1)(D)(i), (iii) and (iv). He concluded:

"The contract of guarantee (and indemnity) with cl 37 completed would not have operated differently from the guarantee in its original form (with cl 37 containing blanks). The legal incidence of the contract of guarantee (and indemnity) was not altered by the insertions into cl 37. The business effect of the contract of guarantee (and indemnity), if used for any ordinary business purpose for which a contract of guarantee (and indemnity) is used, was not altered by the insertion into cl 37. The alteration was not, in the context of this guarantee (and indemnity), material.

For these reasons I answer issue 3 in the negative"

In the light of that finding, it followed that it was not necessary for the judge to consider Issue 2.

THE TERMS OF THE GUARANTEE

8

It is not necessary to refer in detail to the terms of the guarantee which is a lengthy standard form bank guarantee in respect of the indebtedness of Crossseas and Citiholdings Corporation. Most, if not all, of the clauses are of the type conventionally encountered, although, (as the judge observed) it is by no means unusual for such a document not to include provision for a service agent. Clause 37 in this case reads as follows:

"37.Service Agent

The Guarantor hereby irrevocably appoints the following as its agent to accept service of all legal process issued in England in any legal action or proceedings against the Guarantor or its assets arising out of or in connection with the guarantee; -

Name: �.

Address: �.

Telex: Fax �

("The Service Agent")

The Guarantor agrees that any notice, demand or other communication to be given hereunder and any legal process shall be sufficiently served if delivered to the Service Agent at its address as specified in this Guarantee or such other address in England as it may have notified the Bank for such purpose. The Customer agrees to notify the Bank in writing within (7 days) of any replacement of Service Agent which it appoints if the Service Agent named above (or any replacement Service Agent) ceases to act. Failing the...

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