The Judicial Committee of the Privy Council Decisions

Privy Council Appeal No. 47 of 1996

 

Malcolm Maydwell Appellant

v.

WFM Motors Pty Limited Respondent

 

FROM

 

THE COURT OF APPEAL OF HONG KONG

 

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 21st May 1997

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Present at the hearing:-

Lord Browne-Wilkinson

Lord Slynn of Hadley

Lord Nolan

Lord Steyn

Lord Hutton

  ·[Delivered by Lord Browne-Wilkinson]

 

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1. On 22nd October 1993 the Supreme Court of New South Wales gave summary judgment for the plaintiff, WFM Motors Pty Limited ("WFM") against Malcolm Maydwell in the sum of HK$3,709,342.  The judgment was based on a guarantee dated 20th July 1992 under which Mr. Maydwell guaranteed the payment to WFM of all monies owing to WFM by a Hong Kong company, Skink Limited ("Skink").  The New South Wales judgment was registered in Hong Kong on 8th June 1994.

 

2. Mr. Maydwell has sought to set aside the registration of the New South Wales judgment on a number of grounds.  After the judgment was registered in Hong Kong he launched an application to the Court of Appeal in New South Wales for leave to appeal out of time.  At the same time he applied to set aside the registration of the judgment in Hong Kong on the grounds that it was subject to appeal in New South Wales.  When the Court of Appeal in New South Wales refused to extend Mr. Maydwell's time for appeal against the judgment in New South Wales,  on  22nd  December 1994 Mr. Maydwell applied to set aside the registration in Hong Kong on five different grounds, one of which was that the New South Wales judgment was obtained by the fraud of WFM or its representatives.  Apart from this allegation of fraud, all the other grounds relied on to set aside the registration have either been decided against Mr. Maydwell or abandoned by him.  The only question in the appeal before the Board is one of pure fact, viz. whether the evidence discloses a sufficient case to justify the court in Hong Kong directing an issue whether the New South Wales judgment was obtained by fraud.  The Court of Appeal held that there was not.

 

3. There is no dispute as to the applicable law.  The registration of a foreign judgment will be set aside if it has been obtained by fraud.  In cases of doubt, the court will direct a preliminary issue to be heard to determine whether or not the judgment was obtained by fraud: but no such preliminary issue will be directed unless there is evidence disclosing at least a prima facie case of fraud.  In the courts below, Findlay J. set aside the registration of the judgment on an allegation of fraud different from that now relied upon by Mr. Maydwell before the Board.  His decision was reversed by the Court of Appeal who restored the registration of the New South Wales judgment.

 

4. The trading relationship between the parties is complicated and in some respects unusual.  Their Lordships will not attempt to give a full account of the position but will confine themselves to those aspects of the evidence directly relevant to the issue to be determined.

 

5. WFM, an Australian company, had a wholly owned subsidiary now called Australian Telephone Distributors (Pty) Limited ("ATD").  ATD was the Australian distributor of telephones manufactured by Skink, a Hong Kong company owned and controlled by Mr. Maydwell.  The trade between Skink and ATD was regulated by a series of distribution agreements made between them.  The actual purchase orders for telephones to be distributed by ATD took a number of forms.  In early years the orders were placed with Skink by WFM on behalf of ATD.  Later, the orders were placed by ATD on behalf of WFM.  From June 1991 the orders were placed by ATD, no reference being made in the order documents to WFM.

 

6. The explanation for this trading pattern lies in the fact that ATD's trade in telephones purchased from Skink was wholly financed by WFM.  Goods supplied by Skink to ATD were paid for by letters of credit.  On some occasions the letters of credit were issued by the bank on the application of ATD, on others on the application of WFM.  But whichever of the two companies was  the  applicant  for  a particular letter of credit, the issuing bank was always put in funds by WFM and not by ATD.  WFM was financing the purchases.  WFM provided security by way of floating charge to the issuing banks.  In addition, until 22nd April 1992, the issuing bank required that the property in the goods being purchased should be vested in WFM until ATD sold the goods to retailers, at which time the property was to pass to ATD and through ATD to the retailers.  Due to a change in its capital requirements, WFM sought additional finance from a different banker who required a different system, viz. that ATD should be the purchasers of the goods on its own account so as to be the owner of the goods purchased until the bank received full reimbursement by WFM of the monies drawn down by Skink under the letter of credit provided for the particular purchase.  Once the bank was put in funds by WFM in relation to the given letter of credit, the property in the relevant goods purchased passed to WFM who retained title in those goods until they were sold on by ATD to retailers.

 

7. In 1991 and 1992 a very unconventional system was developed as between Mr. Maydwell on behalf of Skink and Mr. Jackson on behalf of ATD.  Skink was permitted to draw down on letters of credit sums greatly in excess of the value of the goods supplied under the relevant orders.  In consequence Skink became indebted either to ATD or to WFM for the sum so overdrawn.  This excess draw down system was apparently unknown to WFM which under the financing arrangements had in fact provided the monies so drawn.  When WFM learned of the overdrawings on the letters of credit, it insisted that the overdrawings by Skink should be repaid.  Negotiations to that end led to an agreement, the exact terms of which are in doubt.  However they contained the following elements:-

 

1.Mr. Maydwell would guarantee the repayment of the sums overdrawn (approximately HK$8.6 million) up to a limit of HK$3.5 million.

 

2.Skink would charge certain of its assets as security for such repayment.

 

3.The indebtedness of Skink would be repaid at least in part by ATD placing orders with Skink for further supplies of telephones and, under the letters of credit provided by way of payment, Skink would draw down only 50% of their face value (the "two for one" arrangement).

 

8. Mr. Maydwell originally offered to enter into the guarantee with ATD.  This offer was subsequently amended so as to offer the guarantee to WFM and/or ATD.  The central factor in this case  is  that  the guarantee entered into by Mr. Maydwell on 22nd

9. July was made with WFM and not ATD.  It guaranteed to pay to WFM "all monies ... owing by [Skink] to WFM" up to a limit of HK$3.5 million.  The guarantee was expressed to be given "in consideration of WFM granting and continuing to grant credit or other financial accommodation to" Skink.  Clause 2.04 of the guarantee provided that "a certificate of balance signed by any director of WFM shall be conclusive evidence against [Mr. Maydwell] of the amount of" the monies due from Skink to WFM.

 

10. Amongst the defences raised by Mr. Maydwell in the courts of New South Wales was the claim that no sum was owing by Skink to WFM: it was said that the indebtedness of Skink was to ATD, the purchaser of the goods, not to WFM.  The New South Wales courts rejected this defence in reliance on a certificate of indebtedness under clause 2.04 of the guarantee which, it was held, was conclusive.  Mr. Maydwell advanced no case based on fraud at any time before the New South Wales courts.

 

11. Before their Lordships the case of prima facie fraud relied upon by Mr. Maydwell to justify an inquiry was to the following effect.  The debt owing by Skink was owed to ATD, not to WFM.  WFM (and in particular Mr. Aiken, one of its directors) knowingly misled the courts of New South Wales by putting forward the certificate of balance (signed by Mr. Aiken) and other evidence that Skink was indebted to WFM when WFM knew that any debt was owed to ATD.

 

12. Having summarised the trading background, their Lordships can deal very shortly with this submission which is without merit.  There was plainly room for argument as to the correct legal analysis of the position between the parties immediately before the guarantee was executed.  Was Skink contracting with ATD as agent for an undisclosed principal, WFM, or on its own behalf?  Who had the right to repayment of the excessive sums drawn down by Skink under the letters of credit?  Was it ATD as purchaser of the goods or was it the entity upon whose application the letters of credit were issued (sometimes WFM, sometimes ATD)?  Or was the repayment due to WFM who had in fact funded the letters of credit under which excessive sums had been drawn down?  Whatever the correct legal answers to these questions might have been, it is clear that when the parties entered into the arrangements in July 1992 they were acting on the basis that the repayment of overdrawings was due from Skink to WFM, not to ATD.  Not only is that the meaning of the documents ("in consideration of WFM ... continuing to grant credit" to Skink), it is the only way in which sense could be made of the "two for one" arrangement: the overdrawings were to be repaid by drawing down  only  one-half  of  the full amount of the letters of credit

which had been issued to cover goods to be delivered to ATD after July 1992.  Whether the parties were right or wrong in their legal analysis of the position, they proceeded on the basis that the repayments were due from Skink to WFM.

 

13. That being the obvious factual starting point, there is nothing in the evidence to suggest that, up until the time the case came before the courts of New South Wales, either Mr. Aiken or anyone else in WFM had any reason to reopen what had been the common understanding of the position.  In New South Wales, the case put forward by Mr. Maydwell challenged the proposition that the sums were due to WFM.  But in the confused position surrounding this case it is impossible to treat the insistence by WFM on its understanding of the legal position as being evidence of putting forward a case known to be false.  They were simply maintaining their legal position which they were entitled to do.

 

14. It is also significant that the claim of fraud was first put forward by Mr. Maydwell at a late date.  In New South Wales no case of fraud was put forward either at first instance or on the application for leave to appeal out of time which was dismissed by the Court of Appeal on 16th August 1994.  Similarly, in the courts of Hong Kong no case of fraud was put forward when Mr. Maydwell first applied to set aside the registration of the New South Wales judgment: that first application was based on the proposition that the New South Wales judgment was not final since it was subject to appeal.  Not until Mr. Maydwell's application to appeal out of time in New South Wales was dismissed did Mr. Maydwell for the first time raise the allegation of fraud.

 

15. Their Lordships can see no trace of any fraud by WFM in this case.  There is every indication of an attempt by Mr. Maydwell to avoid paying his just debts.  The allegation of fraud, being groundless, should never have been made.  In the circumstances their Lordships will humbly advise Her Majesty that the appeal should be dismissed.  Mr. Maydwell must pay the respondent's costs before their Lordships' Board, to be taxed in the absence of agreement between the parties on the indemnity basis.

 

© CROWN COPYRIGHT as at the date of judgment.