Eutech Pty Ltd v Valiant Holdings (Singapore) Pty Ltd [1994] QSC 84

( ' IN THE SUPREME COURT OF QUEENSLAND No. 1214 of 1991 Before Mr Justice J.A. Dowsett [Eutech Pty Ltd] BETWEEN: EUTECH PTY LTD Plaintiff AND: VALIANT HOLDINGS (SINGAPORE) PTE. LTD. First Defendant AND: COLIN WARWICK MARTIN Second Defendant THOMAS GEOFFREY BUDGEN Third Defendant JONATHAN DUNCAN Fourth Defendant DAVID BRICE TOY Fifth Defendant REASONS FOR JUDGMENT - DOWSETT J. Judgment delivered 08/04/1994 Counsel: Solicitors: Mr Morton for the Plaintiff The Second Defendant in person and for the First Defendant The Third Defendant in person No appearance by the Fourth and Fifth Defendants Feez Ruthning for Plaintiff Hearing Dates: 6-16 April, 1993 -- 1 of 26 -- IN THE SUPREME COURT OF QUEENSLAND No. 1214 of 1991 Before Mr Justice J.A. Dowsett [Eutech Pty Ltd] BETWEEN: EUTECH PTY LTD Plaintiff AND: ( VALIANT HOLDINGS (SINGAPORE) PTE LTD First Defendant (': ' / COLIN WARWICK MARTIN Second Defendant THOMAS GEOFFREY BUDGEN Third Defendant JONATHAN DUNCAN Fourth Defendant DAVID BRICE TOY Fifth Defendant REASONS FOR JUDGMENT - DOWSETT J. Judgment delivered 08/04/1994 At the outset I should record that the second defendant, who is a solicitor, appeared at the trial for himself and for the first defendant of which he is a director. The third defendant also appeared in person. The fourth and fifth defendants did not appear at the trial. I record my satisfaction that the plaintiff -- 2 of 26 -- 2 has complied with 0.39 r.31 and is entitled to proceed to prove its case as against them. In the first half of 1990, the plaintiff was interested in borrowing a substantial sum of money. Probably through the agency of one Ferguson (trading as Ferguson and Associates), the plaintiff was introduced to a scheme being fostered by the various defendants. The details of the scheme are not fully revealed in the evidence, but it involved the raising of r ' substantial funds in the United States, primarily by the efforts I of the fourth and fifth defendants. The promoters offered funds to borrowers in multiples of ~~' I I \_~ US$14 million. For each such borrowing, it was necessary that ( ~. the potential borrower advance initially the sum of US$600,000. In the present case, however, the amount of US$7 million was sought by and offered to the plaintiff for an initial deposit of US$300,000. The fourth and fifth defendants were to use the deposits as "seed funds'' to facilitate the obtaining of substantial credits in the United States, thus yielding the loan funds. The mechanics of the proposed transaction appear in more detail in ex.22, although the account there given is not entirely convincing. The plaintiff (the "Borrower") and the first, second and third defendants entered into an agreement dated 15 May 1990 (ex.2). Relevantly, the agreement recited as follows:- "B. The Borrower ... is a corporation existing under the laws of the state of its incorporation. It is ready and willing to deposit good and clean US dollar funds in the amount of $300, 000 (the "Deposit 11 ) for the purpose of supporting its loan application to be made to VHS in its behalf, and to provide working capital and expenses necessary for the loan programme of VHS. -- 3 of 26 -- ( ( ' \ ) "-_j 3 C. Borrower has requested the assistance of VHS to provide it with a loan of not less than $7m USD (the "Loan") no later than 120 days after the day of this agreement. D. Whether or not the Loan is made by VHS to Borrower, VHS shall return the Deposit plus accrued interest in accordance with the terms of this Agreement. E. F. In consideration of Borrower agreeing to enter into this agreement and to deposit with VHS the Deposit, and to permit the Consultants to invest the Deposit and retain for their own benefit the profits from the investment of the Deposit and trading those investments the Guarantors have agreed to guarantee the return of the Deposit plus accrued interest in accordance with the terms of this Agreement." The "Consultants "were Austral Holdings Pty Ltd (a company controlled by the fifth defendant) and the fourth and fifth defendants. The "Guarantors" were the second, third, fourth and fifth defendants. Although the agreement contemplated the fourth and fifth defendants incurring obligations, they were not parties to it. However they incurred obligations as guarantors under a (_ collateral agreement (ex.3). The acronym "VHS" in the agreement referred to the first defendant. The second and third defendants were directors of that company and although not the only directors, they were effectively in control of it. Pursuant to cl. 1 of the agreement, the first defendant undertook to, "use its good faith best efforts to arrange the Loan". It also undertook to account to the first defendant for the deposit. Other relevant clauses were as follows:- "2. DEPOSIT OF FUNDS: At the request of VHS, Borrower will cause the Deposit to be made with Bank of New Zealand, Singapore Branch, Account No. 752447-054, for the use by VHS in accordance with the terms of this Agreement. VHS will cause the transfer of such funds to one or more -- 4 of 26 -- ( () l/ 4 interest bearing accounts segregated for VHS and managed by the consultants to VHS for the purpose of assisting the funding of VHS's loan programme. 3. RETURN OF DEPOSIT: Borrower's funds shall at all times remain on deposit in accounts controlled by Consultants for VHS with prime world banks. Not later than 120 days after the date of this Agreement VHS shall repay to Borrower the Deposit together with interest at the rate of 8% per annum. 4. MANAGEMENT OF DEPOSIT: Austral Holdings, David Brice Toy, Jonathan Duncan (the "Consultants") and VHS undertake that at all times the deposit will be represented by:- (a) Cash; (b) Deposits with prime world banks; (c) Debt instruments or other securities of investment grade quality ... ;or (d) Any combination of the above. At all times the aggregate of all cash held, the amount of all deposits and the face value of all debt instruments or other securities shall exceed the value of the Deposit. Borrower acknowledges and agrees that the Consultants to VHS may employ not more than $50,000 USD of the Deposit in order to engage in the short term trade and exchange of bank debt instruments specified in paragraph (c) above and other forms of collateral through their trading account, and agrees that the consultants may engage in such trading so long as the Deposit is not pledged as collateral for such transactions." Clause 12 of the contract clearly contemplated VHS making a profit for itself, "from the raising of loan funds arranged by VHS for borrowers and others 11 . . . . . Clause 16 provided:- "This agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and may not be amended except with the express written consent of both parties first obtained. This agreement may not be assigned, transferred or sold 11 -- 5 of 26 -- ( \ () ( ( 5 Paragraph 17 provided:- "In consideration of the Borrower at the request of Thomas Geoffrey Budgen, Colin Warwick Martin, Jonathan Duncan and David Brice Toy (Guarantors) (as testified by the Guarantors' execution hereof) entering into this Agreement the Guarantors jointly and severally hereby: (a) unconditionally and irrevocably guarantee to the Borrower, until the Guarantors are released from the Guarantors' liabilities hereunder, the due and punctual performance by VHS and Austral Holdings of each of the covenants and agreements on VHS's part to be performed and observed under this Agreement . ('the obligations hereby guaranteed' ) whether demand there for has been made by the borrower on VHS or not including (but without limiting the generality of the foregoing) the due and punctual payment of the Deposit and all moneys which at any time or from time to time become payable pursuant to this Agreement (all of which moneys, whether in the nature of principal, interest, reimbursement or otherwise, are in this Agreement called 'moneys hereby guaranteed') and jointly and severally undertake as a separate and additional obligation of the Guarantors under this Agreement and as principal obligor to observe and perform on demand by the Borrower all the covenants and agreements under this agreement binding on VHS and which VHS does not observe and perform within the time prescribed in this agreement for observance or performance thereof, whether demand for such observance or performance has been made by the Borrower on VHS or not, and (b) undertake as a separate and additional obligation under this Agreement and as a principal obligor to indemnify and to keep the Borrower indemnified against any loss that the Borrower incurs as a consequence of the failure for whatever reason (other than default by the Borrower) of the performance of VHS of any of the obligations under this Agreement. Although the agreement contemplated the deposit of US$300,000 in a nominated account with the Bank of New Zealand, Singapore Branch, this was not done. The plaintiff paid the sum in question, but not to that account. It is substantially upon this fact that the first, second and third defendants rely to avoid liability. -- 6 of 26 -- ( \ 6 The second defendant and his firm, Martins, acted for the first defendant in the completion of the loan transaction. Messrs Allen, Allen and Hemsley, solicitors of Sydney acted for the plaintiff. The solicitor having the carriage of the matter was Mr Kym Evans who gave evidence before me. The second defendant had acted for the first defendant in earlier, similar transactions in which Mr Evans had also been involved on behalf of borrowers. The plaintiff led evidence of some aspects of these earlier transactions. This evidence was advanced as relevant to two issues. Firstly, it was said that in the earlier transactions, the solicitors had experienced problems, which also ( ': \. arose in this transaction, relating to the holding of deposits paid by the relevant borrowers pending execution of the guarantee documents by the fourth and fifth defendants in the United States. The solution devised in the earlier transactions was to pay the deposit to Martins to be held in trust until the guarantee documents were executed and delivered. This was the course followed in the present case, and although Mr Evans could not remember precise conversations leading to this course being adopted, it was said that evidence of these earlier, identical transactions provided a matrix of background circumstances in which context both solicitors were acting, justifying an inference that the solicitors had, at least implicitly, agreed to proceed in the same way in this transaction. Secondly, the first, second and third defendants made it clear early in the trial that their respective defences depended very much upon the assertion that the failure to pay the deposit to the account in Singapore seriously prejudiced them to the -- 7 of 26 -- ( I \ 7 extent that any liability to the plaintiff was discharged. The plaintiff submitted that evidence of the similar course followed in earlier transactions demonstrated that the method of payment had no particular significance to the defendants. Both bases for receiving such evidence appeared arguably correct, and the evidence was received. The sequence of events as revealed in the contemporaneous documents was as follows:- Prior to 8 May, 1990:- Some documentary references to form of agreement and amount of loan 8 May, 1990:- Fax from Martin to Toy and Duncan stating:- "Eutech Pty Ltd - US 600 K - documents being prepared today - expect transfer within seven days. Please prepare and forward your guarantee."(ex.57) 9 May, 1990 Letter from insurance brokers to plaintiff as follows:- "We confirm having noted your company as a participant in the Valiant Holdings (Singapore) Pte Ltd deposit agreement and investment programme. 11 (ex. 21 ) 15 May, 1990:- Agreement and collateral guarantee ,both executed (or at least they bear that date). (exs.2 and 3) 24 May, 1990:- Barclays remit $306,000 on behalf of plaintiff to "Martins Solicitors in Trust for Eutech Pty Ltd" at A.N.Z. Bank, Beenleigh. (ex.24) 25 May, 1990:- Fax transmission from Evans to Martin as follows:- "I understand that you have spoken to Colin Finkle of Barclays concerning the transfer of the funds to your Trust Account. In accordance with our previous arrangements, these funds are not to be released to Valiant Holdings, Austral Holdings or David Toy until Eutech has received a collateral guarantee of contract executed by Messrs Toy and Duncan .... "(ex.16) -- 8 of 26 -- ( () 8 26 May, 1990:- Fax from Martin to Toy as follows:- "I hold a further US$300K in A.N. z. New York for Eutech Pty Ltd."(ex.58) 26 May, 1990:- Telex from Toy to Martin:- "I note that the Eutech guarantee dated 15 May is in your hands, so I assume you intend to instruct remittance on the opening Tuesday. Please confirm this: it is important."(ex.59) 27 May, 1990:- Fax from Martin to Evans as follows:- "Herewith current format of loan agreement as requested. I shall attend to other matters re: Eutech and The Boys on Monday."(ex.39) 29 May, 1990: - Fax from Martin to Toy and Duncan:- "US$300 and US$300 en route to you tomorrow for Eutech and The Boys, subject only to the receipt of guarantee by Jonathan for The Boys. Look forward to your report overnight. Have lit the candles!"(ex.60) 29 May, 1990:- A.N.Z. Bank Foreign Exchange confirms deposit from 29 May to 30 May, 1990 of $US306,299.14, the customer being Martins, Solicitors Trust Account "for Bell Russell No. 7 Pty c-":1 Ltd". (ex. 44) 29 May, 1990:- Letter from Martins to Allen, Allen and Hemsley enclosing executed deposit agreement and collateral guarantee together with a letter from Frank B Hall indicating notation of Eutech as a participant in the deposit agreement. (ex.17) 30 May, 1990:- Letter from Martins to the Manager, A.N.Z. Bank, Beenleigh authorising transfer of $300,000 to Toy and $6,000 to Martins Trust Account. (ex.20) 30 May, 1990 -Credit note for $300,329.56 from Security Pacific National Bank in Los Angeles to the remitting A.N.Z. bank. The note has been marked "Re Eutech Pty Ltd", presumably in Mr Martin's office. (ex.46) -- 9 of 26 -- 9 30 May, 1990:- Fax from Martin to Toy and Duncan - "A.N.Z. New York has remitted first batch of us 300 today to Secpac. I shall have trace numbers tomorrow. Balance US$300 by me tomorrow. Regards to you both." A handwritten note on the fax refers to Eutech, apparently as the source or relevant party in respect of "$300 (presumably $US300,000)." (ex.61) 30 May, 1990:- Letter - Allen, Allen Hemsley to the plaintiff confirming that Mr Evans had given clearance for the transfer of f funds to Toy. (ex.21)I 31 May, 1990:- Trust account receipt to Eutech for $7,836.99, apparently an insurance premium, "re Valiant Holdings". (ex.45) 31 May, 1990:- Authority to Martins from Valiant Holdings, signed by Budgen, authorising that firm to act on behalf of Valiant in the transaction with Eutech and authorising the firm to deal with moneys in connection with so acting. (ex.45) 31 May, 1990:- Letter from the A.N.Z. Bank to Martins confirming disbursement of $306, 000 and interest, less a transfer fee, totalling $US306,339.56 of which $300,000 plus interest went to Toy in Los Angeles and the balance went to Martins Trust Account. (exs.40 and 55) 4 June, 1990:- Letter from Martins to Allen, Allen & Hemsley as follows:- "Further to our recent discussions we now enclose herewith duly executed original collateral guarantee of contract in respect of each matter." Eutech is one of the matters in question. (ex.47) 1 8 June , 1 9 9 0 :- Fax from Toy to Martin enclosing receipts, including one in respect of the Eutech transaction. (ex.24) -- 10 of 26 -- ( 10 19 June, 1990:- Letter from Martins to Ferguson and Associates confirming acceptance of Eutech and setting out security documents required. (ex.48) I have not described in detail the documents tendered at the trial which originated after June, 1990. The loan to the plaintiff did not eventuate, and the deposit fell due for repayment. It is sufficient to say that there were numerous documents dealing with problems which were experienced in recovering the plaintiff's deposit and those of other depositors. Martin and Budgen spent a considerable amount of time and effort in trying to recover moneys from Toy, including at least one (_) visit to the United States. After June, 1990, the first, second and third defendants continued to act as if the plaintiff's transaction had been regularly completed. There was no suggestion of a complaint about the failure to pay to Singapore, other than Budgen's evidence that he complained to Evans, which ( ) '--- / evidence I reject for reasons which appear hereafter. Although Mr Evans did not always distinguish clearly between the earlier transactions and the present one, he made it clear \"-..._ __ / that in the course of those transactions, difficulties had been experienced in securing the borrowers' funds pending execution of the guarantees. I am satisfied that he and the second defendant devised the solution referred to above by which the deposit was to be held by Martins pending receipt of the executed guarantee documents. I infer that this course was expressly or implicitly agreed to by the second defendant and Evans in this case, too, and that the deposit was paid accordingly. The correspondence strongly suggests this conclusion. I accept Evans -- 11 of 26 -- /~ 11 as a truthful and generally reliable witness, although time has dulled his recollection of details. As I have said, the defendants appearing at the trial asserted that payment of the deposit to the Singapore account was critical to them, and that payment direct to Toy had the effect of discharging their obligation under the contract, notwithstanding that the contract contemplated the money going to the consultants (including Toy) for their use in any event, and notwithstanding that the second defendant, acting as solicitor for the first defendant, was instrumental in so disbursing the funds. Although I suspect that this argument was ( ) ' / misconceived, a great deal of time was spent on it at the trial. I shall therefore deal with it in some detail. The third defendant said:- "At the time the money was to come into my possession at Singapore on its way across to Toy I would have - at that point in Singapore I would have full power and possession of the funds. This was important in terms of Valiant being the entity which secured these loan funds and then independently as a company independent from the borrower, in this case Eutech, would then be able to make loans as quite a separate company with no implications. So it was important there that I should have full power and possession of the funds independent of the company Eutech." (See p.143- 11.26-38) Further, at p. 151 of the record this passage appears at 11.37 et.seq. (Questioned by Judge) "In the end, the money ended up in Toy's account? -- Absolutely, and all day long. "Is that not where it had to go under the agreement?-- No, Sir. From my point of view - you are talking to me, Sir, and from my point of view, surely, Sir, I say that I should have received the money if I am to be responsible. That's what I am defending here today, and I certainly did not. -- 12 of 26 -- c) 12 There well may be strength in that assertion. I am not trying to short circuit that at all. That's just something that has to be considered quite seriously. What I am saying is: Where would you have sent the money after it arrived in Singapore? -- I may have had some ability to have it returned. Weren't you obliged under the contract to send it to Toy? -- Yes, Sir. So Toy was to get it, in any event? -- Yes, Sir. Well, he did? -- Yes, Sir. I'm being asked why can't I demand the money back? 11 At p. 154 he said:- 11 I think I mentioned earlier that it was terribly important that Valiant, which started out as a $2 company, should capitalise its bank accounts by having cash going to an from - doesn't matter what business you were in - but basically we were developing a certain reputation in Singapore of having a certain volume, a certain quantity of money going into this, going out, coming back, going out, all very nice. At the same time, we'd made an application to obtain a moneylender's licence because to operate Valiant Holdings as a lender out of Singapore, one needed to obtain this licence. 11 At p.155 this passage appears:- "The second point with respect to the payment of the money to Singapore is that we in no way could have agreed - I would not have agreed to it not being sent there because we had extensive advice on the taxation implications of any company dealing through an off-shore entity in developing these debt defeasance funds, and unless there was a clean, obvious no strings attached break, the tax would have been 50 cents in the dollar on the loan proceeds received. 11 Although Mr Budgen was aware that in the earlier transactions, Evans and Martin had agreed to the funds being dealt with in a similar way to that which occurred in this case, he asserted (at pp.157-8) that he did not know that this was to happen in the present case until after it had occurred, although it is clear that he at least suspected the possibility of such a course occurring. See pp.176-7. He said that there were three -- 13 of 26 -- ( () ( ) \..___ _____.! 13 reasons for wanting the money to go to the first defendant's Singapore account. The first was so that he would have "some control" over the transaction. The second was to build up the trading reputation of the first defendant by virtue of its bank balances in Singapore. The third was concerned with taxation advice that the transaction would be efficacious from the point of view of the borrower only if the funds came back into Australia through an independent company in Singapore, or at least that there would be adverse tax consequences for the borrower if this were not so. Notwithstanding the alleged importance of the moneys going to Singapore, and notwithstanding Mr Budgen's fear that Mr Evans might cause them to go elsewhere, there is no independent evidence of any steps taken by Mr Budgen to safeguard his position in this regard. He says that he spoke to Mr Martin about securing the position and that he complained to Mr Evans after the event, but there is no evidence of any other step taken to ensure that the funds went to Singapore. Further, as I have said, after the event and continuing into early 1991, all parties i\ acted as if the loan agreement were still on foot. Mr Budgen was not an impressive witness. Even a perusal of the transcript reveals that he was evasive and unhelpful, and his demeanour reinforced that perception. I have no difficulty in concluding that his evidence is not worthy of credit. If anything, Mr Martin was worse. He prevaricated and temporized in a way which would be disturbing in any witness, but was particularly so in the case of a solicitor. A perusal of the transcript discloses his generally evasive approach. His -- 14 of 26 -- ( 14 assertions were similar to those of Mr Budgen, that the plaintiff's deposit had not been paid to the nominated Valiant account and that therefore he, and perhaps the first defendant were discharged from any obligation pursuant to the agreement. As I have said, there is no doubt that the plaintiff paid US$300,000 and indeed, a little more, and it was common ground that such money passed into the control of the second defendant and his firm at some time before the end of May, 1990. The money seems not to have found its way into his trust account, and the only explanation offered for this is that as the amount was in American dollars, it could not be held in that account. (_) Probably, the bank made its own arrangements as to the way in which the funds were to be held, which led to the money being ( held in New York, but at the direction of the second defendant. At the trial, the second defendant asserted that he was surprised to discover that the money was in New York and that he did not know this prior to 30 May, 1990. This assertion did not sit well with exs. 57 and 58. Exhibit 57 suggests that as early as 8 May, he was preparing to transfer the Eutech deposit to Mr Toy in the United States. Exhibit 58 indicates that on 26 May, he asserted that he held, "a further $US300,000 in A.N.Z. New York for Eutech Pty Ltd." I am satisfied that the deposit came under the second defendant's control pursuant to an arrangement between him and Evans in the context of previous similar arrangements in earlier, similar transactions for the purpose of securing the plaintiff's position until such time as the guarantee was executed by Toy and Duncan and delivered to Evans. The fact that the money was held by the bank in New York was, I -- 15 of 26 -- 15 conclude, entirely fortuitous, probably having nothing to do with the parties. Mr Martin tried to use this aspect of the matter as a smoke screen, but it is irrelevant to the action, save for the damage to his credibility caused by the inconsistency between his evidence and ex.58. Given that the money was under Martin's control and his position as solicitor for the first defendant, as director of that company and as guarantor of its liability, it is difficult ( to understand the basis of his complaint that the money did not go to the Singapore account. One might reasonably infer that it (_) u was his decision that the moneys not go there. He could have transferred the moneys to Singapore from New York before payment to Toy if passage through the Singapore account were a matter of such importance to him. Indeed, he was at great pains in his evidence to point out the ease with which money could be transferred by electronic means. His answer to this criticism was that he had been told by Evans that the moneys were to be held by him pending execution of the guarantee by Duncan and Toy and then remitted to Toy or his company in the United States. He asserted that he understood that Evans had directed him not to pay the funds to the first defendant. These directions were said to have been given both orally and in writing. Exhibit 16 (which relates to the Eutech transaction) discloses Evans' position on the matter. As I have said, I am satisfied that he was acting pursuant to an agreement reached with Martin as to the mechanics of the transaction. In para.2 of that letter, Mr Evans said:- ''I do not wish to release this deposit agreement to you until I have received from you an executed \ -- 16 of 26 -- 16 counterpart reflecting the changes resulting from an application for a half-unit rather than the full unit. I understand that you have spoken to Colin Finkle of Barclays concerning the transfer of the funds to your trust account. In accordance with our previous arrangements, these funds are not to be released to Valiant Holdings, Austral Holdings or David Toy until Eutech has received a collateral guarantee of contract executed by Messrs Toy and Duncan and the insurance policy in respect of the deposit agreement." On 29 May, 1990 Martin forwarded the executed guarantee and on 30 May, Mr Evans wrote to his client indicating that he had , ( approved clearance of the funds from the Martins' trust account to the trust account of David Toy in Los Angeles. (See ex.21.) On that day, Mr Martin wrote to his bank authorising them to () transfer $US300,000 to Mr Toy's account in Los Angeles and the balance of $6,000 to his own trust account. Although Mr Evans could not recall the specific conversation, I accept that there was an oral authority given by him to transfer funds after the letter of 29 May (ex. 17). ( Whilst ex.21 suggests that Mr Evans understood that the funds were going to Mr Toy and that he authorised such transfer, that does not cause me to conclude that he was directing such a result. The second and third defendants assert that Mr Evans, on behalf of the plaintiff, was trying to exclude the first defendant from the transaction and to deal directly with Mr Toy. I do not accept this assertion. Clearly, Evans was concerned to prevent disbursement of the money before receipt of the executed guarantee, but there is no evidence, apart from the defendants' allegations, that he wished to direct the funds away from the first defendant and to Toy. I reject the assertion by Martin that Evans gave any such oral or written direction. \ ' -- 17 of 26 -- c () 17 The second defendant also said that his failure to safeguard the first defendant's position and his own was a result of his being overwhelmed by the fact that he was dealing with Messrs Allen, Allen and Hemsley, perceived by him to be the largest firm of solicitors in the country, and Mr Toy, perceived by him to be a well-respected and senior American legal practitioner. He said also that he was overwhelmed by his position as trustee of $US300,000. He claimed that in those circumstances, although fearful that the first defendant would be excluded from the transaction, he felt unable to take any steps to safeguard the first defendant's position or his own. The third defendant also offered no real explanation for his failure to protect his own and the first defendant's position. He knew of what had happened in previous transactions and was, with the second defendant, in control of the first defendant. Notwithstanding his alleged fears, he took no step to bring about the result he now claims was vital to his interests other than to express his concern to the second defendant. It is impossible to accept the explanation offered by either man. I do not accept that it was important to either of them or to the first defendant that the funds go to the Singapore account. The absence of any positive attempt to bring about that result renders the whole account improbable. It is unlikely that, given their knowledge of earlier transactions, they would have left the outcome to chance or to Mr Evans if their claims about the importance of this matter were true. Mr Martin was in a particularly good position to enforce compliance with the contract, acting as he was for Valiant, and yet he acquiesced in -- 18 of 26 -- 18 the course of events which occurred and of which he now complains. Notwithstanding that Budgen and Martin were in effective control of Valiant, Valiant also took no step to ensure that the money went to Singapore. I conclude that the first defendant agreed , to the funds being received by the second defendant's firm to await delivery of the executed guarantee and that thereafter, the moneys were held by the second defendant for the first defendant. The first defendant was not concerned to ( pay the money into the Singapore account and did not do so. The \ second defendant knew that this course was to be followed and agreed to it as a director of the first defendant, as its c) solicitor and as guarantor. As to the third defendant, the matter is not quite so clear, but the second and third defendants were in control of the first defendant, and I see no reason to assume that the third defendant was not taking an appropriate interest in the transaction. l. ',/ Indeed, he conceded that he discussed with Martin the possibility of the funds by-passing Singapore. There is no suggestion of any dispute between the second and third defendants as to the conduct l_ of the first defendant in the transaction and no evidence (other than from Budgen and Martin) of any contemporaneous dissatisfaction with events. Budgen also knew of the course of events in earlier transactions. I conclude that he knew that the funds were not going to Singapore and agreed to that course. In any event, I am not satisfied that non-payment of the deposit to the Singapore account was sufficient to discharge the guarantors. In the decision of the High Court in Ankar Pty Ltd v. National Westminster Finance (Australia) Ltd (1987) 162 C.L.R. -- 19 of 26 -- I ( 19 549, especially at pp. 558-562, the majority, (Mason ACJ, Wilson, Brennan and Dawson JJ) demonstrate the different approaches which have been taken to the question of discharge. Their Honours identify two main approaches to the problem, one based upon actions of the creditor affecting the rights or duties of the surety without consent; the other based upon whether, on the proper construction of the contract, there has been a breach of its terms sufficient to justify the guarantor in determining it. In the present case, the obligation upon the plaintiff, at the highest for the defendants, was to deposit the funds in the nominated bank account in Singapore if so requested by the first defendant. The first defendant made no such request. Clearly, the first defendant agreed to the funds taking a different course. In the absence of such a request, there was no obligation upon the plaintiff to deposit the funds in Singapore. While it is clear that the deposit of funds with the first defendant was an integral part of the overall transaction, it does not follow that the passage of those funds through the Singapore account was also critical to the transaction. If a timely request were made for such deposit, the plaintiff would have been obliged to comply with it. However, in the absence of such a request, payment of the funds to the first defendant was sufficient compliance with whatever obligation there was under the contract to make the advance in question. In other words, deposit in the Singapore account was not the only possible method of performance of the plaintiff's obligation. It is true that there is no other express promise to make the advance, but such a promise is implicit in the agreement as a whole. The better -- 20 of 26 -- 20 view is that there was no variation to the obligation imposed by the contract. The course adopted by Evans and Martin was in accordance with its terms, there having been no request by the first defendant to pay the money to the Singapore account. If I am wrong in that view, then it is, in any event, clear that the plaintiff and the first defendant agreed to any variation inherent in the adoption of the course of conduct in question. The second and third defendants argued that if the plaintiff and the first defendant agreed that the money not go to the Singapore account, then that was an oral variation of the contract and ineffective by virtue of the provisions of cl.16 \'-,,) <j which requires "express written consent" to any amendment. Quite clearly, in the absence of statutory proscription, there is no reason in principle why parties to a contract cannot vary orally the terms of a written agreement, including such a term. Even if I were of the view that there had been a variation to the l_) contract, cl.16 would not render it ineffective. It is implicit in what I have already said that the second and third defendants also agreed to this course. There is no question of discharge [ of the guarantors. In any event, as the funds were always intended to pass under Toy's control, I am quite satisfied that even if the plaintiff were responsible for the funds not going to Singapore, that conduct was not such as to alter the sureties' rights or duties. I should add that it was not suggested that Toy received the funds in the United States other than in the capacity and for the purposes contemplated by the agreement. The alteration in the mode of performance was insubstantial and not prejudicial in -- 21 of 26 -- 21 any sense to the sureties. I reach this conclusion by reference only to the terms of the contract. The attempts by the second and third defendants to demonstrate the contrary by reference to extraneous factors reinforced me in this view. Taking the other approach discussed in Ankar (supra), on the proper construction of the contract, breach of the term requiring the deposit of the money in the Singapore account was not a breach entitling any party to determine it. It was also submitted by the second ~ defendant that the cause of action failed for lack of a prior l·. \j demand upon the first defendant. There are a number of answers to this argument. The first is that cl.17(a) of the agreement expressly excludes demand upon the first defendant as a condition precedent to liability in the guarantors. The second answer is that exs.19 and 52 seem to be sufficient demand if demand be necessary. It was argued that the reservation of rights at the end of the second paragraph in some way deprived ex.52 of status as a demand, but I cannot so read the letter when it is taken as a whole. No point was taken concerning any absence of demand upon the guarantors, but in any event, ex.19 is appropriate for that purpose, and again, cl.17(a) does not require demand upon the guarantors in that capacity, although demand may be necessary prior to action to enforce their obligations as principal obligors created by the second part of cl.17(a). As I have said, ex.19 fulfils that role. Further, commencement of proceedings against the first, second and third defendants constituted a demand directed to all three of them. It is arguable that if a demand were necessary and no demand was made prior to action, the cause of action had -- 22 of 26 -- I)l ( : j 22 not accrued at the date of issue of the writ. Although the writ was issued on 17 July, 1991 with a statement of claim endorsed upon it, an amended statement of claim was delivered on 27 September, 1991. Even if the cause of action against the first, second and third defendants, or any of them had not accrued at the date of issue of the writ, the delivery of the second statement of claim (which delivery has not been challenged) would amount to the addition of a cause of action, the demand contained in the writ being sufficient to found it. Order 32 r.1(6) provides that a cause of action may be so added notwithstanding that it arose after the issue of the writ. It was also argued that by ex.52, the plaintiff granted an extension of time, discharging the guarantors. As Griffith CJ pointed out in Queensland Investment and Land Mortgage Co Ltd v. Hart Robinson & Barker (1895) 6 QLJR 186 at p.192:- "It is settled that an extension of time granted to a principal debtor does not discharge the surety unless the extension is granted by a 'binding agreement'. The exact meaning of that expression is perhaps open to question. It was said by Wood VC in Tucker v. Laing that 'nothing short of a creditor putting himself in such a position that he could not sue the principal debtor would be sufficient to discharge the surety from his obligations.'" It is by no means unusual for a creditor to make demand, specifying a date by which the due sum must be paid. This is a mechanism for indicating the time frame within which the creditor proposes to proceed, thus allowing the debtor to resolve the matter by payment before action. Such a demand cannot be construed as an agreement to extend time, if for no other reason, then because of the absence of consideration. -- 23 of 26 -- [ \ 23 Both the question of absence of demand and the question of the granting of time are also answered in another way. The second and third defendants have accepted a primary obligation to indemnify the plaintiff pursuant to cl.17(b) of the contract. The plaintiff has certainly suffered a loss as a consequence of the first defendant's failure to perform its obligation to repay the deposit. The status of the second and third defendants as principal obligors implies that they may be sued if the first defendant has not paid. It was faintly suggested that such a claim would fail because any loss was caused by the plaintiff's default, but my findings exclude such an argument. Pursuant to cl.3 of the agreement, the deposit was recoverable not later than 120 days after the date of the agreement (that is 15 May, 1990). It was to bear interest at 8 per cent per annum, but the commencing date for the accrual of interest is not specified. We know from ex.24 that the funds were transferred to the A.N.Z. bank on 24 May, 1990. We also know that interest which accrued on those funds whilst with the A.N.Z. bank was paid to Toy rather than to the plaintiff. It I therefore is appropriate that the deposit bear interest at 8 per cent per annum from 24 May, 1990. A question arises as to whether it should continue to bear interest at that rate notwithstanding the decline in interest rates over the last couple of years. Eight per cent was probably not a particularly high rate in 1990 and 1991, but it was the agreed rate. Although it may now be somewhat higher than the market rate, it is appropriate that it continue to be the applicable rate as it was agreed by the parties. I therefore give judgment against the -- 24 of 26 -- \ / 24 first, second and third defendants in the sum of US$300,000 with interest at 8 per cent per annum from 24 May, 1990 to the date of judgment the eighth day of April, 1994, a further sum of US$93, 106. The total judgment is therefore in the sum of US$393,106. As to the fourth and fifth defendants, their liability depends upon the proper construction of ex.3. Both Duncan and Toy guaranteed the performance by the first defendant of its obligation as to the due and punctual repayment of all moneys without any requirement for previous demand, either upon the first defendant or the fourth and fifth defendants. They also guaranteed and undertook to perform the other obligations of the first defendant, without the need for demand upon the first defendant, but upon demand by the plaintiff upon them. They deny demand, but ex.19 was adequate for this purpose. Again, for the reasons set out above, I consider service of the writ to be a sufficient demand in any event. I am also satisfied as to the facts alleged in paras.1, 2, 3 1 4 1 5 1 6 1 7 1 11 1 11 A 1 1 2 1 1 3 1 1 4 1 1 5 1 1 6 1 1 7 and 1 8 Of the amended statement of claim. I am satisfied as to the facts alleged in para.5A, subject to the qualifications outlined above arising out of the funds being held in New York rather than at the Beenleigh branch of the bank. As to the facts alleged in the two paragraphs numbered 14 and paragraph 15 of the defence of the fourth and fifth defendants, for the reasons I have already given, those matters afford no defence to the claim. In those circumstances, there will be judgment against the fourth and the fifth defendants in the sum of US$300,000. For -- 25 of 26 -- 25 the reasons which I have already given, interest should be awarded at eight per cent per annum from 24 May, 1990 until the date of judgment, a further sum of US$93,106, giving a total judgment of US$393,106. In the action, there will judgment for the plaintiff against the first, second, third, fourth and fifth defendants in the sum of US$393,106 and costs. In the case of the fourth and fifth defendants, the costs will be limited to the costs up to and ~ including the first day of the trial. \ [ _) -- 26 of 26 --