China Taiping Insurance (Singapore) Pte Ltd (formerly known as China Insurance Co (Singapore) Pte Ltd) v Teoh Cheng Leong

Chan Seng Onn J:

[1] The plaintiff, China Taiping Insurance (Singapore) Pte. Ltd (formerly known as China Insurance Co (Singapore) Pte Ltd) (“the Plaintiff”) has eight heads of claims against the defendant, Mr Teoh Cheng Leong (“the Defendant”) based on two main sets of documents, viz, (a) 47 guarantees (referred to collectively as “the Guarantees”) provided by the Plaintiff to the Controller of Immigration (“the Controller”) at the request of the respective Companies (as defined in [4]) and, inter alia, the Defendant; and (b) 47 documents entitled “Indemnities” (referred to collectively as “the Indemnities”) which were executed concurrently with the Guarantees by the Defendant.

[2] The Plaintiff’s claim totalled up to $449,896.98 and comprised of eight heads of claims as follows: (i) token wages ($350,423.33), (ii) bond ($500), (iii) air tickets ($41,330), (iv)meals ($292.50), (v) lodging ($29,641.65), (vi) mattress ($399), (vii) transport ($10.50) and (viii) administrative fees ($27,300). Counsel for the Defendant confirmed twice during the trial that the Defendant does not dispute the claims for (ii) the bond, (iii) air tickets, (iv) meals, (v) lodging and (vi) mattress. The core of the dispute therefore centred on whether the Plaintiff was justified in claiming for (i) token wages, (vii) transport and (viii) administrative fees based on the Guarantees and the Indemnities. The determination of the exact legal nature of the Guarantees and the Indemnities will therefore be determinative of this issue.

[4] The factual background is undisputed. The Defendant was the director of six companies in the SME group of companies (“SME Group”), viz, (a) SME Group Pte Ltd, (b) RE & RI Logistics Pte Ltd , (c) SME Dorm Pte Ltd, (d) SME Logistics Pte Ltd, (e) RE & RI Cleaning Services Pte Ltd and (f) SME Consultancy Pte Ltd (collectively referred to as “the Companies”). The key person of the SME Group was the Defendant’s father-in-law, Mr Lim Chye Cheng, but he was not involved in the hearing.

[5] The Companies employed, inter alia, 182 foreign workers as work permit holders. Pursuant to Regulation 21 of the Immigration Regulations (Cap 133, Regulation 1, 1998 Rev Ed), the Companies were required to provide security bonds for these foreign workers in the form titled “Security Bond Form for Foreign Workers” marked “WPCM 013” (“the Security Bonds”). The Security Bonds required the Companies, as the employers of the 182 foreign workers, to place a security deposit of $5,000 per foreign worker (a) to secure the foreign workers’ compliance with the conditions of the Security Bond; and (b) to ensure observance of further conditions imposed on the employers in the Security Bond. The total security deposit for all 182 foreign workers would amount to $910,000.

[6] Instead of placing a cash security deposit of $910,000 with the Controller, the Defendant had, as stated in the Indemnities, requested the Plaintiff to provide Guarantees to the Controller whereby under Clause 1 of the Guarantees, the Plaintiff was to “guarantee and undertake as principal debtors to pay to [the Controller] at any time forthwith, on demand” the security deposit originally required under the Security Bond. Thus, the Companies’ requirement to furnish a security deposit of $910,000 with the Controller under the Security Bond was dispensed with because of the Plaintiff’s Guarantees to the Controller. The Guarantees dated between 28 November 2007 and 19 December 2008 were for various sums ranging from $5,000 to $85,000.

[7] In consideration of the Plaintiff’s Guarantees, the Defendant executed concurrently (ie, on the same day) the Indemnities to:

The Indemnities were similarly dated between 28 November 2007 and 19 December 2008. It is noted that these Indemnities (and the corresponding Guarantees) have identical terms setting out their obligations and differ only as to the quantum of the security deposits and the companies involved.

[8] During the period between February 2009 and June 2009, the Companies requested the Plaintiff’s assistance to repatriate the 182 workers to prevent the forfeiture of the entire security deposit under the Security Bonds by the Controller. The Companies had breached the conditions of the Security Bonds by failing in the upkeep and maintenance of the 182 foreign workers (ie, by failing to provide lodging and meals to these foreign workers), and by failing to repatriate them. Although it was the Controller who was named in the Guarantees, parties agreed that it was the Ministry of Manpower (“MOM”) who was entitled to have the entire $910,000 security deposit for the 182 foreign workers forfeited. However, instead of an automatic forfeiture of the whole sum, the Plaintiff was called upon by MOM to assist in resolving the problems of housing, meals, transport and unpaid wages for the 182 workers and in their repatriation. In order to mitigate the loss, the Plaintiff agreed to cooperate with MOM to avoid the forfeiture of the entire $910,000 in security deposits. The Defendant admitted that he knew that the Plaintiff was carrying out direct negotiations with MOM. He had attended one meeting with the Plaintiff and MOM where he was informed “of the steps that the Plaintiff would be taking, pursuant to [its] discussions with MOM”. The Defendant admitted that he did help ascertain the “token wages” even if he disputed whether the “token wages” reflected the true amount of unpaid wages of the workers. He stated that he helped the Plaintiff because in doing so, he would also be helping himself by reducing the amount of the claims. The Defendant also signed on some of the payment records of the foreign workers.

[9] There was an agreement between MOM and the Plaintiff set out as follows in an email from Jeanette Har of MOM to the Plaintiff dated 28 February 2009:

Therefore, pursuant to the agreement with MOM, the Plaintiff incurred a total cost of $449,896.98 through the eight heads of claims as set out in [2] which it now claims should be repaid by the Defendant under the Indemnities.

[10] Three witnesses gave evidence at trial, viz, (i) Mr Foo Jong Meng, the Deputy Director of Labour Relations of the MOM (“Foo”); (ii) Ms Lee Ah Teng Josephine, the Claims Manager for the Plaintiff (“Lee”), giving evidence for the Plaintiff; and (iii) the Defendant giving evidence for himself.

[11] The main premise of the Plaintiff’s submission was that the Guarantees were “on-demand guarantees, ie. payable upon demand without requirement of proof of any default on the part of the Companies or linkage to the Security Bond”. MOM was therefore entitled to call upon the Security Bonds and have the Plaintiff disburse the $910,000 security deposit even without a default of the Security Bonds. The obligations under the Security Bonds were irrelevant to the liabilities of the Plaintiff and the Defendant under the Guarantees and Indemnities.

[12] In the present case of a clear default of the Security Bonds, MOM had informed the Plaintiff that it would call upon the Security Bonds if the Plaintiff did not assist and pay for unpaid salaries, housing, meals, transportation, air tickets and mattresses. Therefore, the Plaintiff made the payments and incurred expenses as stated above in [2] in good faith pursuant to an agreement with MOM in order to mitigate the full extent of loss under the Guarantee. The Plaintiff had full discretion to compromise any claim or demand which could be taken against the Plaintiff under Clause 2 of the Indemnities (“compromise clause”), which states as follows:

[13] Furthermore, combined with Clause 1 of the Indemnities which states that “any demands or claims as aforesaid shall as between [the Plaintiff] and [the Defendant] be conclusive evidence that the sum demanded or claimed is (are) properly due and payable”, what the Plaintiff had paid under the Guarantees as stated in [2] represents the full extent of the Defendant’s liabilities to the Plaintiff under the Indemnities.

[14] In essence, the Defendant argued that the Plaintiff can only claim those heads of claim that are specifically spelled out under the Security Bonds, ie, bond, air tickets, meals, lodging and mattress. However, token wages, transport and administrative fees are not covered under the conditions of the Security Bonds and therefore cannot be claimed under the Indemnities. This is because the liabilities under the Guarantees and Indemnities are inextricably linked and necessarily circumscribed by the conditions of the Security Bonds.

[15] There is only one main critical issue in this case – what are the Plaintiff’s and Defendant’s obligations vis a vis each other under the Guarantees and Indemnities? The Defendant submits that the liabilities under the Guarantees and Indemnities are circumscribed by the conditions of the Security Bonds, while the Plaintiff submits that the conditions of the Security Bonds are irrelevant. The exact legal nature of the Guarantees and the Indemnities is therefore determinative of this issue. The legal analysis will be as follows:

Main Issue 1: What are the Plaintiff’s and Defendant’s obligations vis a vis each other under the Guarantees and Indemnities?

[16] The parties tended to argue legalistically that because a certain document is an on-demand guarantee, a guarantee or an indemnity, certain obligations will naturally follow such a labelling of the document. This presumes that the titling of the document as a “guarantee” becomes determinative of the nature of obligations within the document itself. However, that is putting the cart before the horse because whether the document is an on-demand guarantee, a guarantee or an indemnity depends on the very nature of the obligations undertaken in the documents themselves. The importance of the contractual construction of the documents to determine their true nature was emphasised by Lord Diplock in Moschi v Lep Air Services Ltd [1973] AC 331 at 346 and 349:

[17] The Plaintiff’s case is that the Guarantees are on-demand guarantees, also known as demand guarantees, first demand guarantees, performance guarantees or performance bonds (see Low Kee Yang in The Law of Guarantees in Singapore and Malaysia (LexisNexis 2 Ed, 2003) (“The Law of Guarantees in Singapore and Malaysia”) at p 361). The nomenclature of “on-demand guarantees” or “performance guarantees” may be misleading because these undertakings are not in actual substance guarantees as the essential collateral nature of a guarantee is not present. The undertaking in an on-demand guarantee is unconditional and independent. This was emphasised by the Court of Appeal in American Home Assurance Co v Hong Lam Marine Pte Ltd [1999] 2 SLR(R) 992 (“American Home Assurance”) at [41]:

[18] In Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 at 166 (“Edward Owen”), an archetype of a performance bond or performance guarantee was stated as follows “[w]e confirm our guarantee… payable on demand without proof or conditions” [emphasis added]. Lord Denning (ibid at 171) compared a performance guarantee to a letter of credit and stressed that the performance guarantee must be paid out according to its terms :

[19] It is important also to note the English Court of Appeal judgment in Marubeni Hong Kong and South China Ltd v Mongolian Government [2005] 1 WLR 2497 (“Marubeni”), where it was held that in construing a guarantee given outside the context of a banking instrument, the absence of language appropriate to a performance bond or something having similar legal effect created a strong presumption against the parties’ intention to create a performance bond. In Marubeni, the material document was found to be a guarantee instead of a performance bond because the wording of the obligation under the material document was consistent with a secondary obligation and conditional upon default by the buyer. The wording (at Marubeni at [31]-[32]) stated that the obligation only arose if the “amounts payable under the agreement [are] not paid when the same becomes due” [emphasis added] and this is reinforced by the following pledge of “the full and timely performance and observance by the buyer of all the terms and conditions of the agreement”.

[20] It was stressed by the Court of Appeal in American Home Assurance at [49] that the terms of the document need to be construed in light of the parties’ intentions, especially the commercial objectives of the documents executed. As the Court of Appeal stated (ibid at [49]), the clear commercial objective of the performance bond in American Home Assurance was to provide the respondent with “recourse to a ready source of funds” in the event of unsatisfactory or non-performance of the shipyard’s obligations. Therefore what was required was “for a third party to issue performance bonds which would enable the respondent to obtain payment irrespective of the position between them and the shipyard” [emphasis added]. As stated pithily in The Law of Guarantees in Singapore and Malaysia at p 361 in the context of performance bonds, “[t]he commercial intention is simple enough – to secure a third party payment obligation that is as good as cash”.

[21] The terms of the Guarantees provided by the Plaintiff and addressed to the Controller are set out below:

[22] Undoubtedly as stated in [6] above, the commercial purpose of the Guarantees was to provide the Controller or MOM with a third party payment obligation from the Plaintiff that was as good as the cash that would have been held otherwise by the Controller or MOM as the cash security deposit. Each of the Guarantees is in reality an on-demand performance bond that is similar in nature to a promissory note. Clause 1 under the Guarantee makes it clear that the Plaintiff will pay the Controller the cash security deposit contracted for “on demand” without any conditions, and thus the obligation to pay was not contingent on the Companies (or for that matter the Visit Pass Holders) having breached any of the conditions under the Security Bonds. Although the term “guarantee” was used in the Guarantees, it was clear that the Plaintiff was not undertaking to perform only upon the default of the Companies but as a “principal debtor” with a primary liability. There was no need for an actual default by the Companies under the Security Bonds. The only condition was that under Clause 4 where the demand has to be made in “writing” but such a condition is not truly a condition and should be treated only as a procedural matter (see Court of Appeal in Bocotra Construction Pte Ltd and others v Attorney-general [1995] 2 SLR(R) 262 at [24] (“Bocotra”)). Thus, the obligations under the Guarantees were unconditional on-demand bonds that were in substance similar to the performance bonds in Edward Owen and American Home Assurance.

[23] It should be further noted that with Clause 3 as stated in [21], the obligations under the so called Guarantees to MOM are no longer characteristic of what is normally expected of guarantees, where guarantors are usually discharged from their obligations under the guarantee if the obligations of the principal guaranteed by the guarantor are varied or altered.

[24] In the Defendant’s submissions, he did not address the legal nature of the Guarantees, ie, whether it was only a guarantee or an on-demand guarantee. The Plaintiff noted that the Defendant did not question the meaning and intent of the Guarantees to the Plaintiff. Counsel for the Defendant confirmed during the re-examination of Lee that he did not cross-examine Lee on Clause 1 of the Guarantees at all. The Defendant’s point simply is that the Guarantees refer to the Security Bonds and therefore are circumscribed by the conditions under the Security Bonds. In Bocotra at [7], the bank was obligated to pay the respondent “forthwith on demand any sums not exceeding in… upon receipt of any written notice”. The Appellants in Bocotra, similar to the Defendant in this case, tried to argue that a separate contract qualified the right of the respondent to pay a demand on the performance bond because the recital in the performance bond made reference to a separate contract as follows:

[25] The Court of Appeal in Bocotra held at [22] that there was no “incorporation” clause in the performance bond and that the:

[26] The Court of Appeal’s reasoning in Bocotra is equally apposite here. As seen in [21] above, while the recital of the Guarantees made references to the conditions under the Security Bonds, these conditions were clearly not incorporated into the operative clauses in the Guarantees to qualify the Controller’s right to make a demand on the Plaintiff. I therefore found that on a construction of the Guarantees, they were on-demand performance bonds and the Plaintiff’s liabilities under the Guarantees were independent and not circumscribed by the conditions in the Security Bonds. The full implications of this will be examined further under Issue 1 (c).

[27] The Plaintiff stated that the Indemnities were in substance indemnities and not guarantees as claimed by the Defendant. I noted that when the Defendant was cross-examined about the importance of being a guarantor instead of an indemnifier under the Indemnities, he admitted that he was “not able to tell”. When used in its widest sense, a contract of indemnity can include a contract of guarantee – however, the distinction between the two is crucial in three main aspects, viz, (i) the guarantor’s liability is co-extensive with the principal but an indemnifier is not affected even if the principal contract is void or unenforceable, (ii) the guarantee must be evidenced in writing (see s 4 of the Statute of Frauds 1677 (c 3) (UK) and s 6 of the Civil Law Act (Cap 43, 1999 Rev Ed) but an indemnity need not be, and (iii) a guarantor will be discharged from liability in certain circumstances that an indemnifier will not.

[28] The main difference between a guarantee and indemnity is that the obligation of a guarantor under a guarantee is always subsidiary to the obligation of the principal debtor, who remains primarily liable to the creditor. However, the contract of indemnity is “a contract by one party to keep the other harmless against loss”, which is an obligation of primary liability and is independent of the liability of the principal debtor (see Yeoman Credit Ltd v Latter [1961] 1 WLR 828 at 830-831). The High Court in S Y Technology Inc v Pacific Recreation Pte Ltd [2007] 2 SLR(R) 756 at [23] cited the English Court of Appeal decision in Argo Caribbean Group Ltd v Lewis [1976] 2 Lloyd’s Rep 289 for one significant aspect with regards to an indemnity, which is as follows:

This is significant in construing the Indemnities because the Indemnities were clearly only between two parties – the Plaintiff and the Defendant. Although at the portion of the signature in the Indemnities, the Defendant is stated as “Guarantor”, it is clear that the main language of the obligations shows that the Defendant’s liabilities were that of an indemnifier and not a guarantor. The Defendant could not reasonably be construed as a guarantor because there was no principal liability which his liabilities could be ancillary to. The Defendant was not guaranteeing performance of a third party; the Defendant was promising to indemnify the Plaintiff against any payments incurred by the Plaintiff “arising from or in connection with [the Plaintiff’s] issue of the Bonds”.

[29] Such a primary liability to indemnify is encapsulated in the main obligation of the Defendant towards the Plaintiff, which is stated as follows in the Indemnities, where the Defendant together with some other persons:

[30] The Indemnities were given “in consideration of [the Plaintiff] agreeing at my/our request [ie. the Defendant’s request] and the request of [insert name of one of the Companies] to issue a Security Bond No. … (hereinafter called “the Bond”), in favour of the Controller of Immigration (hereinafter called “the Beneficiary”) for the sums of Singapore…”. Therefore, considering the commercial circumstances, what is stated as “with [the Plaintiff’s] issue of the Bonds” under the Indemnities must be reasonably construed to be the Guarantees that the Plaintiff gave to the Controller in lieu of the cash security deposits required under the Security Bonds. These Guarantees were executed concurrently with the Indemnities and it was common ground between the parties that the Indemnities were executed by the Defendant in consideration of the Plaintiff executing the Guarantees. This is as described in Geraldine Andrews & Richard Miller, Law of Guarantees (Sweet & Maxwell, 5 Ed, 2008) at p 590 in which as a “condition of giving a performance bond, the bank or surety company will invariably require a counter-indemnity from the person whose performance it secures.”

[31] If that is so, and given the absolute discretion conferred on the Plaintiff to compromise in good faith all claims and demands as encapsulated in the compromise clause (see Clause 2 of the Indemnities at [12] above), the Plaintiff is clearly entitled to be indemnified by the Defendant under the Indemnities against “whatsoever” and “howsoever” amounts that the Plaintiff had paid out to the Controller pursuant to the demands made by the Controller under the Guarantees. The Defendant himself admitted that the Plaintiff had the right to compromise before or after a call on the bond is made. He also admitted that the Plaintiff had not done anything which was wrong, unnecessary or inexpedient in their efforts to reduce the total amount that could be called by the Controller.. I have found no evidence of any bad faith on the part of the Plaintiff when it exercised its discretion to compromise with the Controller and pay out the agreed sums to avoid having the Controller call on the full amounts under the various Guarantees.

Issue 1 (c): Are the Plaintiff’s and Defendant’s obligations circumscribed by the Security Bonds? Even if so, will the Plaintiff’s claim still succeed under the Guarantees and Indemnities?

[32] Following the analysis of Issues 1(a) and 1(b), the Plaintiff’s and Defendant’s obligations under the Guarantees and Indemnities are not circumscribed by the Security Bonds. Whether or not there has been a breach the conditions of the Security Bonds is irrelevant to the Plaintiff’s and Defendant’s obligations. As long as there is a demand under the Guarantees, the Plaintiff is obliged to pay whatever amount the Controller or MOM wants the Plaintiff to furnish up to a maximum of $910,000; and under the Indemnities, the Defendant is liable to indemnify the Plaintiff for whatsoever payment has been incurred by the Plaintiff under the Guarantees. The Defendant himself rightly admitted during cross-examination that he is liable to indemnify the Plaintiff even if the Plaintiff exercised its right to compromise what is required to be paid under the Guarantee:

[33] Even if the Guarantees and Indemnities were indeed circumscribed by the conditions under the Security Bonds, I would still have found for the Plaintiff for all eight heads of its claim. Under the Security Bond, any sum “to the extent of the sum deposited” under the Security Bond can be forfeited in the event that any of the conditions of the Security Bond is breached. The Controller or MOM can thus call for and forfeit any amount it wants up to a maximum of $910,000. This is accepted by the Counsel for the Defendant:

[34] The Defendant therefore conceded that if the Controller had called for the forfeiture of the entire security deposit of $910,000 for all 182 workers (based on the security deposit required of $5,000 per worker) and the Plaintiff had not compromised but had paid out $910,000 on the Guarantees, the Defendant would nevertheless still be liable to indemnify the Plaintiff for the amount paid out of $910,000. However according to the Defendant, the Plaintiff in exercising its right to compromise, exceeded its powers by paying for token wages, transport and administrative fees that were not spelt out as conditions in the Security Bonds. This reasoning of the Defendant is strange since firstly, the Plaintiff’s right to compromise is at the Plaintiff’s “absolute discretion” in Clause 2 of the Indemnities as long as it is exercised in “good faith” and is “necessary or expedient or desirable”. Secondly, the conditions of the Security Bond itself do not limit the extent of forfeiture in respect of each breach – as long as there is one breach of the conditions of the Security Bond, the Controller is entitled to claim a forfeiture up to the full amount of the security deposit. There is no such restrictive clause in the Guarantees, Indemnities or Security Bonds that the Controller is entitled to demand and Plaintiff is entitled to pay an amount only to the extent of each breach of the conditions. As the Defendant rightfully conceded above, if the Controller had just asked for a part call of $449,000 without breaking down its claim, the Defendant cannot even begin an action to ask the Plaintiff to justify what it has paid out under the Guarantees. Quite significantly, the Defendant admitted that part of the Plaintiff’s right to compromise under the Indemnities included “paying for wages if it resulted in [the Defendant] paying less than $910,000”, and with that, the Defendant had practically admitted the rightfulness of the Plaintiff’s claim.

[35] It was highlighted at trial that the present format (which was not relevant to this case) of the Security Bond required by MOM, which was updated on 1 January 2010, states explicitly that it is a condition of the employer to pay outstanding salaries to the workers before repatriation. As stated by Foo, MOM’s position for the previous version (relevant to this case) of the Security Bond before the update was that if an employer’s only failing was in not paying the salaries of the workers, this would not be a breach of the Security Bond and would not be sufficient in itself for MOM to call for a forfeiture of the security deposit. Even if it is accepted that an employer’s obligation to pay the salaries of the foreign workers is not a condition of the Security Bond, this however is not such a hypothetical case. It is common ground that the Defendant did breach the obligations for the “upkeep and maintenance” and “repatriation” of the 182 foreign workers, which were conditions of the Security Bonds as set out below:

[38] On the Defendant’s evidential point that the Plaintiff failed to prove its case because it failed to prove the relevant Security Bonds, I found that this was irrelevant since the main analysis from Issues 1(a) and 1(b) showed that the Security Bonds were immaterial to the Plaintiff’s case. Also, it must be recognised that the sample of the Security Bond provided in the Plaintiff’s Core Bundle of Documents is a statutorily provided template; there is no suggestion that the relevant Security Bonds differed from the statutory norm. Furthermore, counsel for the Defendant confirmed at the start of the trial that the Defendant was not disputing the authenticity of the documents in the Plaintiff’s Core Bundle, which included a sample of the Security Bond, but reserved the right to cross-examine on the contents of the same. Counsel for the Defendant did not object to the use or the relevance of this sample of the Security Bond during the trial, and he even used it as the basis of his cross-examination. The Defendant himself referred to the same sample of the Security Bond in his affidavit and treated the conditions stated therein as being identical to those in the Security Bonds granted by the Companies to the Controller. In fact, MOM’s entitlement to call for any sum up to the maximum of $910,000 of the security deposit under the Security Bonds was accepted by both parties. It was also not disputed between the parties that the Defendant had clearly breached the “upkeeping and maintenance” and “repatriation” conditions of the Security Bonds, which were based on the sample provided. Therefore, even if the conditions of the Security Bonds were material, I would have found that the Plaintiff proved its case.

[39] The commercial circumstances of an insurer like the Plaintiff giving a performance bond to the Controller in exchange for the dispensation of the Companies’ obligation to provide cash security deposits under the Security Bonds appears to be a relatively common situation in Singapore. The insurer protects itself from any loss that may arise from the issuing of such a performance bond to the Controller by ensuring that the directors of the companies concerned concurrently execute an indemnity to indemnify the insurer against the payments that the insurer will have to pay out in the event the Controller calls on the performance bond.

[40] The Defendant admitted that he understood that as a director of the Companies, he was required to execute the Indemnities to the Plaintiff for the Guarantees for the Security Bonds and that he was “guaranteeing the due performance of these [C]ompanies of their obligations under the Security Bonds”. He “did not have any issues with this, as the business of the SME Group appeared to [him], to be thriving” and he “therefore signed these [Indemnities], without raising any issues or reservations”. The Defendant may have signed the Indemnities under the belief that the management of the SME Group was secure under his father-in-law and therefore there was little risk of him ever having to indemnify the Plaintiff. However, the Defendant cannot escape from the legal consequences of the Indemnities which he had signed and it was clear from the cross-examination that he understood that the obligation he personally undertook was a heavy and wide-ranging one. This is a clear instance of directors of companies needing to be careful of and to comprehend the full extent of their liabilities when they undertake obligations as an indemnifier. This is especially so when the Defendant had taken legal responsibility for the due performance of these Companies when he was not involved with the management of the Companies.

[41] The Defendant’s proposed interpretation of the relationship between the Guarantees, Indemnities and Security Bonds is not only impractical but one that is inconsistent with the very language and commercial purpose of the documents. The Defendant accepted that if the Plaintiff had not made efforts to reduce the sum forfeited and instantly paid out the $910,000 on the Guarantees, he would be liable to reimburse the $910,000. However, in the event the Plaintiff tries to negotiate and compromise the claim, the Plaintiff can only compromise the claim within the constraints of the conditions specified in the Security Bonds itself. Under such a restrictive interpretation, which is not supported by the documents, an insurer should perhaps avoid attempting to compromise the claim and instead automatically allow forfeiture of the full amount – because the risk of compromising the claim outside its authority falls entirely on the Plaintiff – although it may have acted in good faith to compromise the claim in a way that mutually benefits both the Plaintiff and Defendant. As I found at [34] and [37], the Plaintiff’s right to compromise is an absolute one and even if the right to compromise is qualified by the conditions of the Security Bonds, the Indemnities are drafted widely enough to subsume all eight heads of the Plaintiff’s claim as stated in [2]. Even if I had accepted that the Guarantees and the Indemnities were circumscribed by the conditions of the Security Bonds, I found that the eight heads of claim were “arising from or in connection with” the breach of the “upkeep and maintenance” and “repatriation” conditions of the Security Bonds and the Plaintiff was entitled to be indemnified.