High Court · Decided 31 August 2009

Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd and Another and Another Suit

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[2009] SGHC 197Case no. Suit 774/2004, 763/2004

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Belinda Ang Saw Ean J:
Introduction
[1] Chia Teck Leng (“Chia”) was an inveterate gambler who unremittingly resorted to cheating and forgery in order to fuel and sustain his gambling addiction. For more than four years, whilst employed as the Finance Manager of Asia Pacific Breweries (Singapore) Pte Ltd (“APBS”), he deceived the Singapore branch offices of five international banks, by using his employer’s name to obtain substantial credit and loan facilities purportedly made to APBS which he misappropriated. His fraud was audaciously conducted from his employer’s premises during working hours. Chia was not called to give evidence. However, he was obviously able to commit and sustain this fraud for more than four years through a combination of confidence, interpersonal skills, guile and quick wittedness; and finally above all, by creating a façade of normalcy through his orchestration of honouring intermittent payments to the banks until he was found out after his arrest on 2 September 2003 by the Commercial Affairs Department. The use which Chia made of his employer’s name in order to borrow with ease from the banks was just as much a fraud on APBS as it was on the banks. Chia hoodwinked his employer and others with whom he worked. In doing so, he misappropriated S$53m from APBS. Chia was eventually convicted of cheating and forgery and sentenced to 42 years imprisonment.
[2] Civil proceedings were duly brought against APBS by four international banks for the frauds Chia practised on them. The four banks, as victims of Chia’s fraud, had understood that they were dealing with Chia as an employee of APBS. The plaintiff in Suit No. 774 of 2004 (“Suit 774”) is Skandinaviska Enskilda Banken AB (Publ) (“SEB”). The plaintiff in Suit No. 775 of 2004 (“Suit 775”) is Mizuho Corporation Bank Ltd (“Mizuho”). The plaintiff in Suit No. 763 of 2004 (“Suit 763”) is Bayerische Hypo-Und Vereinsbank Aktiengesellschaft (“HVB”). The plaintiff in Suit No. 781 of 2004 (“Suit 781”) is Sumitomo Mitsui Banking Corporation (“Sumitomo”). Chia was also sued by the banks. He did not defend the actions.
[4] The claims in Suit 774 and Suit 763 are for the repayment of the loans misappropriated by Chia on the footing that (a) he had actual or ostensible authority to enter into the various credit and loan facilities on behalf of APBS, and as such, APBS was contractually liable to repay the outstanding loans and interest (“the agency issue” in the contract claim); (b) damages on the basis that APBS as Chia’s employer was vicariously liable for his fraud (“the vicarious liability issue” in the tort claim); and (c) damages in tort for negligence against APBS (“the negligence claim”). Claims (a) and (b) are common to both banks. Claim (c) is made by HVB alone. Separately, SEB has an alternative claim against APBS in restitution (“the restitution claim”). APBS has denied liability in respect of all the claims. It has also brought a counterclaim in restitution, for knowing receipt and dishonest assistance against SEB.
[5] This judgment is my decision on Suit 774 and Suit 763. Although the two actions are separate and each action arose from different factual matrices, and that different considerations apply to each separate case, there are important common legal questions that affect them all. In addition, some of the legal issues also overlap. For case management considerations, direction was given that evidence adduced at the trial in one action may be used in the other action where the evidence adduced in one action is relevant to the pleaded case in the other action. Obviously, evidence adduced in the one action that is to be used in the other is subject to the usual evidential rules on admissibility and hearsay; and the weight of the evidence must necessarily be circumscribed by the opportunity available to the opponent to test the evidence by cross-examination. Again for case management considerations, SEB began its case first and gave evidence. HVB followed thereafter. APBS opened its case and concurrently led evidence for both actions. In this judgment, any differences between the banks are distinguished and dealt with separately.
[6] For convenience, I shall refer to the plaintiffs in Suit 774 and Suit 763, collectively as “the banks” and, where necessary, individually by name. It is appropriate to state at the outset that even though many issues and arguments have been advanced, most of them are peripheral; as such, they do not need to be explored in detail, and in some instances, not at all. However, some points are, nevertheless, relevant in that they throw light upon the central issues to be resolved. In the circumstances, the approach taken in this judgment is to discuss factual issues, and to make findings upon them, that the court considers are important to resolve the central issues in the respective actions. To adopt any other approach would make this judgment unnecessarily longer and even more burdensome than it otherwise would be. The same approach is adopted in respect of the many authorities cited by the parties. It must be noted that I have taken into account the various disputes recounted in the evidence when deciding the central issues even though I have not made specific findings on each and every one of them.
The witnesses
[7] Three witnesses gave factual evidence on behalf of SEB. They were Mohammad Ali Mohd @ Eddie Amin (“Amin”), Valerie Hui Yin Tan (“Valerie Tan”) and Gerard Lee Cheow Khim (“Gerard Lee”). The witnesses of facts called by HVB were Matthias Zimmermann (“Zimmermann”), Tan Hwee Koon (“Hwee Koon”), Peter Vassiliou (“Vassiliou”) and Cheah Soo Lee. The witnesses of facts called by APBS were Christopher Leong Chi How (“Christopher Leong”), Teo Hun Teck, Jimmy Tan Haw Kong (“Jimmy Tan”) and Quek Peck Leng. There were seven expert witnesses. Of the seven, David Norman Hudson (“Mr Hudson”) and Tan Boon Hoo (“Mr Tan”) gave expert evidence, on behalf of APBS, in relation to banking practice and procedure. Mr Paul James Laurence Rex (“Mr Rex”) gave expert evidence, on behalf of HVB, in relation to banking practice and procedure. Mr Terence Michael Potter (Mr Potter”) gave expert evidence, on behalf of HVB, on the system of internal controls in corporations. Mr Stephen Armstrong, on behalf of HVB, testified on the pre-employment screening that could have been done prior to hiring Chia. On the quantification issue in relation to the claim in restitution, Mr Kon Ying Tong (“Mr Kon”) gave expert evidence, on behalf of SEB, and Mr Goh Thien Pong (“Mr Goh”) gave expert evidence on behalf of APBS. I will be considering the evidence of the witnesses in this judgment in relation to the issues to be decided. Where required, I will record my impression of the witnesses, and my assessment of the evidence of the witnesses.
The undisputed facts
[8] In the course of the judgment, I will deal with the facts that are strictly relevant to discuss the factual issues, and to make findings upon them. Notably, APBS does not challenge the various visit reports or call memoranda produced by SEB and HVB respectively. The reports are the bank officers’ notes of meetings with Chia. Discussions on the different credit and loan facilities that Chia orally requested from time to time were recorded and they formed the basis of the applications put up to the various departments or committees in the banks for consideration and approval. A summary of the events leading to the facilities granted by SEB and HVB respectively are set out in Appendix I to this judgment. Notably, APBS accepts the banks’ account of the different reasons given by Chia for the company requiring the credit and loan facilities. However, APBS takes issue with the reasonableness and/or plausibility of the reasons, arguing that there were “red flags” or warning signs that the banks failed to appreciate, and their misfortune was the consequences of their failure to take proper precautions. Significantly, an important feature of the case is the standard requirement of the banks that its corporate borrowers provide certified extract of the relevant minutes that recorded the board resolution approving the particular transaction and authorising execution of the contractual documentation including giving individuals signing delegated authority to sign it. This standard requirement was imposed as a “condition precedent” or “pre-condition” in the SEB facility letters and the HVB’s Agreement for an Amortising Term Loan (“the HVB loan agreement”) (see [19] - [23] below).
[9] Chia’s fraudulent activities involved cheating his employer, APBS, and the banks. It is common ground that Chia provided false documents and forged certified extracts of the different board resolutions to the banks to obtain credit and loan facilities. It is not disputed that the banks relied on the forged mandates thinking that they were genuine. The series of fraud on the banks involved the creation of credit and loan facilities that were not recorded or reflected anywhere in the books and balance sheet of APBS. The bank accounts with SEB, namely the US$ Account No. 709XXXXX and S$ Account No. 709XXXXX opened in 1999 and operated solely by Chia, were in the name of APBS with Chia as sole signatory (hereafter collectively referred to as “the SEB Accounts” or individually as “the SEB US$ Account” or SEB S$ Account”). Tay Yong Kwang J in the criminal trial of Chia noted that moneys drawn from the credit and loan facilities between 1999 and 2003 were channelled into the SEB Accounts. Chia transferred a large part of those moneys to his personal bank accounts (Account Nos. 022-XXXXXX-X and 001-XXXXXX-X) with DBS Bank Limited (“DBS Bank”) in Singapore, before making remittances to casinos in Australia, United Kingdom, Hong Kong, Malaysia, Cambodia and the Philippines for his gambling activities there. Separately, Chia misappropriated S$53m from APBS. At the time of Chia’s arrest, moneys purloined from the company’s bank account with Oversea-Chinese Banking Corporation Limited (“OCBC”) had been returned with interest into the same bank account (“OCBC Account”) ostensibly on “maturity” of fixed deposits placed with Citibank NA (“Citibank”). The movement of funds in and out of the various bank accounts like the OCBC Account and the SEB Accounts was a façade to give the impression to SEB that the SEB Accounts were actively used. It is understood that a collective sum of S$117m remains owing to the four international banks, HVB, SEB, Mizuho and Sumitomo, under their respective banking facilities.
[10] In its Opening Statement, SEB accepts that Chia hoodwinked his subordinates, who were co-signatories of the OCBC Account, to countersign a total of 22 cheques that enabled Chia to draw on the OCBC Account. SEB’s claim in restitution concerns 18 OCBC cheques. Chia had procured the signatures of the other co-signatories by misrepresenting the purpose of the drawings. The APBS fraud also involved the creation of false lists of time deposits known as “Schedule of Fixed Deposits Committed” to deceive Chia’s subordinates into believing that the surplus funds which represented cash in excess of the company’s operational requirements were placed with Citibank on time deposits to earn interest. In reality, no surplus funds were placed on fixed deposits with Citibank. The moneys were diverted and misappropriated by Chia to fund and settle his gambling activities and debts, and to service the loans from SEB and the Japanese banks. APBS did not discover the misappropriation as Chia returned the principal and interest ostensibly on “maturity” of the fixed deposits.
[11] I now turn to the credit and loan facilities granted by the banks. Brief details of the facilities are as follows.
The facilities granted by SEB (“the SEB Facilities”)
[12] The first of the SEB Facilities was an overdraft facility (“OD facility”) in the sum of S$500,000. A foreign exchange dealing line (“FX Line”) with a settlement limit of US$5m was also made available to APBS. The facilities were orally requested by Chia on 28 December 1998 before he officially joined APBS on 20 January 1999. On 22 January 1999, SEB’s officers met Chia at APBS’s corporate headquarters. The OD facility and FX Line were approved on 1 February 1999. On 3 February 1999, Chia handed to SEB the following documents: (a) signed Facility Letter dated 2 February 1999; (b) account opening documents; and (c) a certified extract of the board resolution passed on 25 January 1999. On the same date, the SEB US$ Account and the SEB S$ Account were opened in the name of APBS with Chia as sole signatory. The certified extract of the board resolution passed on 25 January 1999 was returned to Chia as it was not in order, and a replacement certified extract of the board resolution passed on 3 February 1999 was handed to Amin on February 1999. The OD facility was for three months. It was extended in April 1999 from May 1999 to August 1999. On 21 July 1999, SEB extended the OD facility to 30 November 1999.
[13] Between October and November 1999, Chia requested an increase of the OD facility to S$3m. He also requested an increase of the settlement limit of the FX Line to US$10m. By way of an Amendment Letter dated 11 November 1999, SEB offered the increases sought by Chia. On 12 November 1999, Chia handed to SEB the following documents: (a) signed Amendment Letter dated 11 November 1999; and (b) certified extract of the board resolution passed on 12 November 1999.
[14] On 12 June 2000, Chia requested a short-term loan facility of US$8m. Approval was given by SEB’s Regional Credit Committee, and by way of a Facility Letter dated 26 June 2000, SEB made an offer for the Money Market Facility (“MM Line”) in the sum of US$8m. On 28 June 2000, Chia provided SEB with relevant documents including (a) the signed Facility Letter dated 26 June 2000; and (b) certified extract of the board resolution passed on 27 June 2000.
[15] On 6 November 2000, Chia requested SEB to increase the MM Line to US$10m. SEB approved the application and the offer was made by way of an Amendment Letter dated 13 November 2000. On 22 November 2000, Chia handed to SEB (a) the signed Amendment Letter dated 12 November 2000; and (b) certified extract of the board resolution passed on 20 November 2000.
[16] On 9 May 2002, Chia requested a further increase of the MM Line to US$15m. He also requested a medium term loan of US$20m. SEB was not agreeable to grant the medium term loan, but agreed instead to increase the MM Line by an additional US$5m to US$15m. Chia then asked for the MM Line to be increased to US$25m rather than US$15m. SEB agreed, and by way of an Amendment Letter dated 24 July 2002, SEB offered to increase the MM Line to US$25m. On 7 August 2002, Chia handed to SEB (a) the signed Amendment Letter of 24 July 2002; and (b) certified extract of the board resolution passed on 2 August 2002.
[17] In January 2003, Chia again requested an increase in the MM Line to US$50m. SEB did not approve this request.
[18] As at 24 October 2002, a total sum of US$25m was drawn down from the MM Line. It is SEB’s case that the drawing instructions issued after 24 October 2002, namely, the two drawing instructions made on 24 March 2003 for US$13m, and on 21 May 2003 for US$12m, were rollovers of the drawings made earlier (see [324] below). SEB is seeking judgment for US$26,559,371.94 due and owing under the MM Line as at 31 August 2004; or alternatively, S$29,468,723.30 being moneys drawn down from the MM Line and unjustly received by APBS at the expense of SEB.
[19] It was a common and standard requirement of SEB to ask, on each occasion a facility was granted or increased, for a certified extract of the corporate borrower’s board resolution. That standard requirement was couched and expressed in terms of a condition precedent of the facility. Specifically, the Facility Letter dated 2 February 1999 for S$500,000 overdraft read as follows:
[20] There was a similar condition precedent for the FX Line offered in February 1999. It read as follows:
[21] A similar condition precedent appeared in the Facility Letter dated 26 June 2000 for the MM Line in the sum of US$8m, and it read as follows:
[22] As for the increases to the existing facilities, two of the Amendment Letters called for board resolutions: (a) SEB’s letter dated 13 November 2000 to amend Facility Letter dated 26 June 2000; and (b) SEB’s letter dated 24 July 2002 to amend Facility Letters dated 26 June 2000 and 13 November 2000. The last paragraph of the SEB’s letters concluded as follows:
Loan granted by HVB pursuant to the agreement for an amortising term loan dated 21 March 2003 (“the HVB Facility”)
[23] Attempts to start a banking relationship with APBS began in 2001, but the earlier approach was not successful. In August 2002, discussions restarted between HVB and Chia, and this led to HVB granting in March 2003, a three-year amortising term loan for US$30m in the name of APBS. A formal loan documentation entitled “Agreement for an Amortising Term Loan” and dated 21 March 2003 was signed by Chia and witnessed by HVB’s Hwee Koon (“the HVB Facility” or “the HVB loan agreement”). The loan was drawn down on 25 March 2003 purportedly to finance a new bottling line. The loan was disbursed to the SEB Accounts. It was a condition precedent of the HVB Facility that the corporate borrower furnishes to HVB a certified true copy of the borrower’s board resolution. Clause 2 of the HVB loan agreement read as follows:
The claim in contract: The agency issue
General
[24] At the forefront of the banks’ case and central to their arguments is the authority of Chia which formed the basis of the claims in contract and in tort. In the contract claim, the question for decision is whether the SEB Facilities and the HVB Facility are binding on APBS so as to be enforceable by the banks against APBS. The answer to that question rests on the authority of Chia, whether classified as actual or ostensible authority, to bind APBS. The banks concentrate on two “internal documents”, namely, the “Position Description” for the job of Finance Manager and the 1998 Group Treasury Policy dated 23 July 1998 (“1998 GTP”) which was revised in the year 2000 by the Group Treasury Policy dated 28 November 2000 (“2000 GTP”), to argue that the “internal documents” as a matter of construction do not limit the scope of Chia’s actual authority to enter into the SEB Facilities and the HVB Facility. However, relevant to the authority debate is the important standard requirement for a certified extract of a board resolution approving the particular transaction and authorising execution of the contract including giving individuals signing delegated authority to sign it. One consideration in the authority debate is the effect this standard requirement, if any, on the “internal documents”. A question that arises is whether the office of Finance Manager and head of finance carried with it implied actual authority or ostensible authority to enter into the SEB Facilities and HVB Facility without the sanction of the board. One other pertinent question on ostensible authority is whether the banks’ standard requirement for a certified extract of a board resolution itself sidelined the application of First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194 (“First Energy”), which was not a forgery case, but upon which the banks placed heavy reliance.
[25] Specifically, the banks argue that Chia had deceived the banks by putting forward forged documents as genuine, and in doing so Chia was acting within his actual or ostensible authority. In examining this main issue, which depends on the normal principles of the law of agency, I have to first look at Chia’s actual authority (express or implied) given the arguments advanced by the banks, and then his ostensible authority. In the end, the case as I see it turns solely on Chia’s apparent authority.
Overview of the positions taken by the parties on the agency issue
SEB’s case
HVB’s case
[27] Chia’s actual authority (express or implied) included:
(a) dealing, liaising and communicating with banks including HVB in relation to the HVB Facility;
(b) submitting to banks the requisite facility documents and/or executing the same including the HVB Facility documents;
(c) providing instructions to banks on the operation of the facilities and accounts; and
(d) making representations to banks on the requirements, requests and decisions of APBS, including the representation that the documents submitted to the banks are genuine and APBS’s board had approved the HVB Facility.
[28] In so far as HVB accepted the forged board resolution as the authorisation for APBS to enter into the HVB Facility, HVB was relying on Chia’s representation that the certified extract of the board resolution was genuine and duly executed. In making such a representation, Chia was doing something he was actually or ostensibly authorised to do. Neither the presence of fraud or forgery, nor the Group Treasury Policy (which was internal and not disclosed to the banks at the material time) would affect the arguments on ostensible authority. In dealing with the banks, including representing that the documents submitted were genuine, Chia was doing what a Finance Manager would normally do. APBS is, therefore, liable in contract to repay the sum of US$32,002,332.85 (outstanding as at 20 September 2004) under the HVB Facility together with contractual interest at the rate of 5.036% per annum from 21 September 2004 to the date of actual payment.
APBS’s case
[29] APBS denies that Chia was acting within his authority, actual or ostensible. It was not within Chia’s authority to negotiate with the banks for banking facilities, forged board resolutions and documents, make himself sole signatory, and to deliver the forged documents to the banks in respect of the facilities. In closing submissions, APBS maintains that:
(a) The financial functions of APBS comprised accounting, costing, budgeting, payroll and bookkeeping. Treasury functions were outsourced to F&N Group Treasury. Chia’s finance functions were purely operational; he ensured the proper use and operation of APBS’s existing bank accounts and facilities, and he would only deal with banks with which APBS had an authorised relationship.
(b) It was not Chia’s responsibility to provide the banks with the constitutional documents and board resolutions.
(c) What caused the fraud was the banks’ willingness to take on huge unwarranted risks and lack of due diligence.
(d) APBS never once represented that Chia had any authority as alleged.
(e) In any event, the forged board resolutions constituted a nullity to begin with, particularly when the forgeries concerned are those in a “strict” sense, and not in a “loose” sense as distinguished by case law.
Actual authority (express or implied)
Express authority: The forged mandate
[30] Actual authority in its express form is conferred where the company through its board of directors passes a resolution that expressly gives consent to the director or officer concerned to act on its behalf to negotiate and execute a particular contract. This is the most certain way to ensure that the person signing has authority, and the situation here was no different as the banks had asked for the appropriate board resolutions. In Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 (“Hely-Hutchinson”), Lord Denning MR (at 583) said:
[31] As stated, the undisputed evidence is that the banks required the credit and loan facilities discussed with Chia to be referred to the board of APBS for approval (see [19] - [23] above). Amin recalled passing to Chia, on his first visit to Chia’s office on 22 January 1999, the account opening forms as well as a sample board resolution. In the case of HVB, Hwee Koon sent to Chia on 5 March 2003, HVB’s checklist for account opening documents which listed down, amongst other documents required by the bank, a certified copy of the board resolution to authorise the acceptance of the facility. Clearly, the banks and Chia were talking to each other in the full knowledge and expectation that, at the end of the discussions, express authority to conclude the transaction in the form of an appropriately worded board resolution must be provided. The banks duly imposed as a condition precedent of the facilities offered, production of certified extracts from the minutes of the directors’ meeting to ensure that the appropriate resolutions have been passed approving the transactions, authorising execution of the transactions and giving the individuals signing delegated authority to sign the contracts. The condition precedent calling for the certified extract of a board resolution in and of itself carries the implication, and I so find, that the banks appreciated and knew that Chia had no actual authority to bind the company, and that the power to give approval to an application for a loan and to execute the documents necessary to give effect to the transaction was the domain of the board of APBS. A point to note is that the banks had also asked for and were given certified copies of APBS’s Memorandum and Articles of Association. It is clear from the Articles of Association of the company that the borrowing powers are to be exercised only by the directors. In other words, the company requires the consent of the directors to borrow money for the company’s purposes. It is not disputed, and the evidence is, that without a board resolution, the banks would not have gone ahead with the transaction.
[32] Chia provided mandates purportedly as satisfactory assurance that the board of APBS had approved the transactions and gave Chia specific authority to execute singly on its behalf the contracts and to open the SEB Accounts in the name of APBS. However, in reality, there were no actual board approvals. The certified extracts were forged – they had not been executed by the persons who had purportedly signed them. Chia’s “authority”, if at all, emanated from the forged resolutions which his employer was not privy to. What is the effect of this evidence?
[33] The certified extracts of the various board resolutions were false, and they were of no legal effect. APBS through its board of directors did not approve the SEB Facilities and HVB Facility, nor formally authorised Chia to enter into any of the facilities on its behalf. In my judgment, the invalidity of the SEB Facility Letters and HVB Facility signed by Chia followed as a matter of law from the fact that the delegated authority to Chia was a forgery. In Stoney Stanton Supplies (Coventry) Ltd v Midland Bank Ltd [1966] 2 Lloyd’s Rep 373, a forged mandate was used to open an account in the name of a company. The court held that there was no banker and customer relationship between the bank and the company. Similarly, in Ruben v Great Fingall Consolidated [1906] AC 439 (“Ruben”), the secretary of the defendant company had forged the names of two directors on a share certificate and had affixed the company’s seal without authority. The secretary obtained a loan of £20,000 through a firm of stockbrokers using the shares as security, and then absconded. The brokers claimed that the company was estopped from relying on the secretary’s fraud to resist the claim. The House of Lords held that the brokers could not recover.
[34] Therefore, in the absence of any express authority to act for the particular purpose of the transaction in question (in this case to establish a banking relationship with the banks by opening the SEB Accounts, and by binding APBS in respect of the SEB Facilities and HVB Facility), it follows, quite rightly and I so hold, that there was no implied actual authority which typically arose incidentally for the effective execution and performance of the express authority in the usual way.
[35] As to whether a forged document is a nullity for all purposes, or is estoppel an exception that can be set up against a principal for the fraudulent act of the agent if the agent was acting within his ostensible authority, the matters outlined here are discussed below under the heading “Ostensible Authority”.
General authority of the Finance Manager
[36] This part of the judgment discusses the question whether the “internal documents” as a matter of construction allowed Chia to commit APBS to the SEB Facilities and the HVB Facility without the sanction of the APBS board. The banks’ arguments on general authority of the Finance Manager are as follows. Counsel for HVB, Mr Alvin Yeo, SC (“Mr Yeo”), points out that Chia was described in the “Position Description” for the job of Finance Manager as a member of senior management, and his duties include directing and controlling APBS’s financial activities, determining funding requirements and managing relationships with banks and financial institutions. In addition, APBS had said that Chia as Finance Manager was also required to perform the duties set out in the 1998 GTP which was revised in the year 2000 by the 2000 GTP. For convenience, the 1998 GTP and 2000 GTP are collectively referred to as “the GTP”. Mr Yeo’s point is that Chia was authorised by the GTP to place short term fixed deposits, and that meant that Chia, so the argument develops, would necessarily have had to deal, liaise and communicate with banks and submit (or arrange to submit) the requisite documentation to the banks in his usual course of work. Given all these matters on the extent of Chia’s duties as head of the Finance Department, the internal documents like the “Position Description” for Finance Manager and GTP are to be given a sufficiently wide interpretation to cover the entry into the HVB Facility. A second and separate argument canvassed by both Mr Yeo and counsel for SEB, Mr Steven Chong, SC (“Mr Chong”), is that Chiai would and did have the (actual) usual authority for representing that the board resolutions and documents he submitted to the banks were genuine.
[37] Mr Yeo submits that other representations were made to HVB. They include:
(a) APBS was interested in negotiating for the HVB Facility;
(b) APBS’s board had approved the HVB Facility;
(c) APBS’s board had authorised Chia to execute the HVB loan agreement and the Notice of Drawdown;
(d) The bank account into which the amount under the HVB Facility was to be disbursed was a genuine account.
[38] Mr Chong seeks to rely in these civil proceedings some of the facts in Tay Yong Kwang J’s decision in the criminal trial against Chia (see PP v Chia Teck Leng [2004] SGHC 68); in particular, Tay J’s description of Chia as the “commander of the guards” and not “a mere corporate sentry”. Tay J noted that Chia was “the man responsible for all financial, accounting and bookkeeping matters of APBS”. Mr Chong starts off by saying that given Chia’s position in the APBS hierarchy, the evidential burden of establishing facts to support the defence raised by APBS, namely, the lack of authority in Chia, is on APBS. In the absence of APBS calling evidence to contradict Tay J’s description of Chia as the “commander of the guards” in the company, Mr Chong urges the court to adopt the same findings as to Chia’s unrestricted authority within the finance department of APBS. It is said that matters in the statement of facts admitted by Chia in support of the charges brought against Chia are to be taken as correct and admissible in these proceedings in the absence of evidence adduced by APBS. SEB also relies on Chia’s statements in mitigation as Chia’s admission that what he did was what he was allowed to do by APBS. I pause here to comment that if the statements have any evidential value (and I have reservations as to their admissibility), they would in the context of apparent authority fall on the side of the notion of a self-authorising agent. It is trite law that representations by Chia as to his own authority cannot assist the banks. Ostensible authority of Chia must be founded on words or conduct of the company and that topic will be discussed later in this judgment.
[39] Counsel for APBS, Mr Davinder Singh, SC (“Mr Singh”), explains that within APBS, the Finance Manager heads the finance department of APBS, and it is the most senior finance position within APBS. He answers to the General Manager but he also has a functional reporting line to the Finance Director of APBL. Apart from short-term placements of surplus funds in fixed deposits, the finance department’s responsibility was to manage the day to day finance of the operations. As such, the finance department (and hence Chia) was not empowered to perform “treasury” functions like:
(a) sourcing, negotiating and documenting credit and other banking facilities;
(b) managing forex, money and capital market funding;
(c) liaising with banks for the purpose of opening and closing bank accounts, changes of signatories and bank guarantees.
[40] Mr Singh said that the Agreement to provide Corporate Services signed in 1988 (“Corporate Services Agreement”) passed responsibility to the F&N Group Treasury to arrange the opening of bank accounts and/or acceptance of facilities, which included communication of board approvals to the banks.
[41] The banks disagree arguing that there is nothing in the GTP that expressly prohibits the Finance Manager from being involved in negotiations, discussions or communications with banks (whether solely or together with the F&N Group Treasury) for facilities or bank accounts. The Corporate Services Agreement was merely to provide “back-up services” in dealing with banks and other financial institutions in the provision of funds and other banking and credit facilities. Contrary to the position adopted by APBS, the internal documents like the GTP and the “Position Description” for the job of Finance Manager as submitted did not limit the scope of Chia’s actual authority. The banks’ assertions on the specific duties or matters that justify the conclusion that Chia was authorised (express or implied) to bind his employer as a senior employee of APBS relate to:
[42] The banks’ arguments have to be taken at two levels: express actual authority and implied actual authority. At the first level, the contention is that the “internal documents” are to be given a sufficiently wide interpretation to cover the authority to enter into the SEB Facilities and HVB Facility. At the second level, the argument is that it is to be inferred that Chia was authorised to commit the company. Professor Reynolds in Bowstead & Reynolds on Agency (Thomson Sweet & Maxwell, 18 Ed, 2006) (“Bowstead”) describes, usual authority (ie, implied actual authority) at para 3-024 in the following manner:
[43] The short answer to the general authority question posed in [36] is clearly no. It must be remembered that the banks uncompromisingly required board resolutions to cover the SEB Facilities and the HVB Facility, and imposed the requirement as a condition precedent. As such, it is my view that it is not an argument open to the banks to validly make that Chia had general authority under the “Position Description” for Finance Manager and the GTP to enter into the SEB Facilities and HVB Facility and bind APBS. The testimony of Zimmermann, HVB’s head of International Desk at the material time, which is of general application, summed up the thinking and sentiments of the banks on the importance of a board resolution. Zimmermann said that the banks would talk to anyone from an organisation with some knowledge of what the corporate borrower wanted, but the banks, ultimately, would want to see a board resolution empowering specific individuals to commit the company to the transaction. HVB would still insist on a board resolution even if it had been negotiating with the Chief Executive Officer, or a director. The board resolution could give to either the same person the bank had been speaking to, or to a different individual or individuals delegated authority to sign and act on the company’s behalf. In cross-examination, Zimmermann explained:
[44] In any event, there are obstacles, both legal and factual, in the way of the banks’ attempt to rely on the terms of the “Position Description” for Finance Manager, and the rules and guidelines in the GTP in support of the general authority of the Finance Manager to bind APBS so as to enforce the SEB Facilities and HVB Facility against it. In this regard, the focus is on, and depends upon, the contractual relationship between Chia and APBS. Naturally, what he does within the course and scope of his employment provides some evidence of his actual authority.
(1) The first consideration
[45] It is an undisputed fact that Chia deceived the banks and his employer. The use of his employer’s name was just as much a fraud on the banks as it was on APBS. As the evidence from the banks’ factual witnesses clearly indicated, the reputation and creditworthiness of a corporate borrower is of great importance. The banks were generally concerned with the standing and financial soundness of APBS, and this included its cash-flow position. In my judgment, it has not been established that APBS was aware at the material time that its surplus funds were misappropriated by Chia. Neither has it been established that APBS was aware that credit and loan facilities were obtained in its name. As an aside, I note that Tay J stated in the criminal trial of Chia that the credit and loan facilities were obtained from the banks without the consent and knowledge of APBS. Coming back to the evidence before me, the company’s knowledge of the fraud in question must be based on the rules of attribution, and no particular person in APBS has been identified as the person whose knowledge is attributable to the company as its directing mind. It is, consequently, not clear whose impropriety should be under scrutiny. In any case, in its Opening Statement, SEB accepts that Chia hoodwinked his subordinates who were co-signatories of the OCBC Account to countersign OCBC cheques that enabled Chia to draw on the OCBC Account for the alleged purpose of placing surplus funds on fixed deposits with Citibank. Notably and it is common ground that there is no record of the SEB Accounts in the company’s financial records, and the bank was not asked to provide audit confirmation of the borrowings. SEB was not named as one of its principal bankers in the 1999 and 2000 Annual Reports of APBS, and the Directors’ Report and audited financial statements for the financial years 2001 and 2002. Only OCBC was named as APBS’s principal banker. Reliance on bank statements relating to the credit facilities that were sent to the company’s address but “intercepted” by Chia as well as the OCBC advices showing the remitting bank as SEB are insufficient to prove APBS’s knowledge. Undeniably, Chia as employee breached his duty of fidelity and good faith owed to his employer.
[46] In my judgment, Chia’s fraud on his employer and the banks is necessarily determinative of the banks’ authority debate. This is because Chia’s actual authority (express or implied), if any, is impliedly subject to a condition that it is to be exercised honestly and on behalf of the principal. Essentially, fraud nullifies actual authority of the agent as was the case here, and I so hold. If legal authority is needed, I refer to Hopkins v TL Dallas Group Ltd [2005] 1 BCLC 543 (“Hopkins v TL Dallas”). Lightman J reiterated the principle at [88] as follows:
[47] Lightman J at [89] concluded:
[48] In the result, applying the principles stated, the case as put up by SEB and HVB respectively in reliance on the provisions of the “Position Description” for Finance Manager and the GTP as bases of actual authority, whether express or implied, to enter into the SEB Facilties and HVB Facility is unfounded and is accordingly rejected. It is also clear, and I so find, that Chia in putting forward the forged documents as genuine was not acting within his actual authority, whether express or implied.
(2) The second consideration
[49] The issue of Chia’s authority has to be considered and determined at the time of the particular transaction in question. The duties and responsibilities gathered from the “Position Description” for the job of Finance Manager and the GTP are inconclusive. What Chia was exactly required to do within the course of and scope of his employment would provide some evidence of his actual authority (express or implied). Accordingly, evidence must be led by the banks (and this legal and evidential burden has not been discharged) on what Chia was exactly asked to do, and in fact did, and whether his employer acquiesced in what he did. There is Christopher Leong’s evidence that Chia had no authority to carry out treasury functions, and that he did not have authority to communicate board approvals including board resolutions.
(3) The third consideration
[50] This consideration follows from the second. Each specific duty, individually or in combination, relied upon by the banks to support the conclusion that Chia was authorised (express or implied) to bind his employer are factually and legally unsustainable. If anything, the duties gathered from the internal documents, namely the “Position Description” for Finance Manager and the GTP as a matter of construction do not confer any relevant authority upon Chia in the way contended by the banks. The banks’ contention suggests that Chia as the head of the finance department would be authorised to enter into any credit or loan facility involving a commitment of any size, and the only qualification was that it be for the day to day operational needs of the company. I am unable to accept this contention because it is not justified by the wording of the “internal documents” or commercial logic for supposing that the employee can do anything of the kind to expose the company to unlimited risks. I will now deal with the banks’ assertions on the specific duties of Chia that are mentioned in [41] above.
[51] SEB claims that it was Chia’s duty to source for and to secure adequate banking facilities on behalf of APBS. HVB confines its main assertion to Chia’s implied actual authority to, inter alia, represent and warrant the authenticity of the board resolution and documents. However, Mr Yeo submits that the GTP is merely a “guideline”, and that there is nothing in there that expressly prohibits the Finance Manager from being involved in negotiations or to communicate with the banks (whether solely or together with F&N Group Treasury). HVB also takes issue with the fact that the Corporate Services Agreement only contractually obliged F&N to provide “back-up services in dealing with banks and other financial institutions in the provision of funds and other banking and credit facilities”.
[52] In my view, the provisions in the GTP are rules rather than guidelines. It is clear from the language of cl 3.4 that Chia was required to perform the duties set out in the 1998 GTP. Clause 3.4 of the 1998 GTP provides:
[53] As a matter of construction, cl 3.4 deals with new or increases in existing credit facilities. I agree with Mr Singh that it is only after the new or increased credit facilities are put in place that the Finance Manager takes over the management of the facilities. It is not disputed that as Finance Manager, Chia was responsible for ensuring that “each business unit has adequate banking facilities” and to “manage relationships with … banks and other external financial institutions”. However, that responsibility does not come with the right or discretion to ignore or override cl 3.4, and this construction is reinforced by cl 1.0 of the 1998 GTP which requires APBS, unless authorised by its parent APBL, to operate within the four corners of the 1998 GTP. This is clear from cl 1.0 which provides as follows:
[54] SEB points out that nothing in the GTP (including cl 3.4) or any other document prohibits the board of APBS from directly sourcing for banking facilities without going through F&N Group Treasury. This is probably correct in a qualified sense. Christopher Leong’s answer in cross-examination by Mr Yeo is confined to the powers of the board of APBS.
[55] Contrary to the position adopted by the banks that the “internal documents” do not limit the scope of Chia’s actual authority, the important distinction here is between the APBS board’s prerogative to source for and obtain credit facilities which is very different from saying that the Finance Manager is similarly empowered without prior sanction. As stated, any deviation by the APBS board of the GTP requires approval from the Chief Executive Officer of APBL as stipulated by cl 1.0 of the 1998 GTP (see [53] above). To illustrate, the internal arrangement within APBS is such that even an APBS executive director, General Manager or Finance Manager must seek APBS board and APBL’s clearance before proceeding in a manner contrary to cl 3.4 (ie, bypassing F&N Group Treasury). A failure to do so would mean that the individual did not possess the actual authority to directly source for credit facilities. This is clear illustration that Chia was not given implied authority by the acquiescence of APBS as he had to seek prior board approval and clearance before proceeding.
[56] The matters illustrated in [55] above is consistent with Christopher Leong’s testimony that the APBS finance department and its finance manager did not have authority to perform treasury functions which included sourcing, negotiating and documenting credit and other banking facilities and liaising with banks for the purpose of opening and closing bank accounts. Treasury functions as described were the responsibility of F& N Group Treasury.
[57] The banks contend that key officers of APBS have actual authority to approach and deal with banks including the discussion of an intended facility with a bank notwithstanding the GTP. Mr Chong quoted the expert witnesses, Mr Hudson and Mr Tan, who testified on behalf of APBS as agreeing that there was nothing wrong with Chia being the first point of contact and that Chia as the Finance Manager would be the proper person with whom the banks could have discussions with on financial matters. SEB also point to the fact that it was “well-known” within APBS’s finance department and APBL that Chia was openly dealing with Citibank, and not through the F& N Group Treasury. I make three observations.
[58] First, I agree with Mr Chong that the bank saw Chia as the first point of contact, and that was all. I have earlier at [31] referred to the respective testimonies of Amin and Hwee Koon that each talked with Chia in the full knowledge that at the end of the discussions board approval to cover the transaction was required. I have also referred to Zimmermann’s testimony on this topic (see [43] above). Any argument that builds narrowly on the question of the general authority of the Finance Manager incidental to the particular position without regard to the condition precedent imposed by the banks is not open to the banks to make. It is factually unreal and misleading
[59] Second, as stipulated, any deviation from cl 1.0 of the 1998 GTP required the sanction of both APBS and APBL. It is not the banks’ case that there was an approved departure from cl 1.0. Furthermore, in the context of cl 3.4 of 1998 GTP, the Finance Manager’s general authority to liaise and discuss with banks on matters relating to the existing accounts does not include the specific function like sourcing of new credit and loan facilities. Notably, as I have stated, there is no evidence adduced by the banks on what Chia was actually asked to do and did, and whether his employer acquiesced in what he did (see [49] above).
[60] Third, Chia’s direct dealings with Citibank (which related to the reactivation or operation of a deposit account) was not compelling evidence in favour of the banks. One should not confuse authority to source for general banking facilities to deposit surplus funds and borrowing facilities. The two (deposit and borrowing) are quite distinct and SEB’s approach to conflate the two is wrong and misleading. The responsibility for borrowing has been “devolved” to F&N Group Treasury. Even if APBS’s board had the power to recall back this function, but until that was done, the responsibility remained with F&N Group Treasury. Notably, a director of APBS is not empowered to borrow on behalf of the company unless authorised by the board; what more in the case of the Finance Manager who is not a director but only a senior employee of a department. In the circumstances, Chia did not possess the actual authority (express or implied) to approach the banks on his own for new credit facilities without reference to APBS’s board (ie, authorised by APBS’s board). It is not surprising to find as was the case here evidence of the banks requiring from APBS certified extract of minutes of board meeting to ensure that the appropriate resolution has been passed approving the loan facility, authorising execution of the contract and giving selected individuals signing delegated authority to sign it. The true limit of Chia’s authority would have been marked by the express authority given to him as the agent named in the resolution, if the certified extract of the board resolution was genuine. Significantly, and I repeat cl 3.1 of the 1998 GTP explicitly states that “the terms and conditions of all borrowings of APBL and [APBS] must be approved by the [APBL’s] Board of Directors”.
[61] APBS admits that Chia had actual authority to place in fixed deposit surplus funds in excess of the operation needs of APBS. As stated earlier, placing money in fixed deposit is different from borrowing money for the company.
[62] The assertion here is best understood as an argument that is being put forward on alternative bases. The concept of usual authority is understood in two senses as explained in First Energy where Steyn LJ said (at 201):
[63] The first assertion is that as Chia was someone who had actual authority to deal with banks, he would also have the implied actual authority for representing that the documents he submits to banks were genuine. The second assertion, in the alternative, is that APBS had conferred apparent or ostensible authority on Chia to represent the genuineness of the board resolutions. The question there is whether Chia by putting forward forged documents as genuine was acting within his apparent authority. The latter inquiry extends to whether an agent who has no apparent authority to conclude a particular transaction binding on the employer as was the case here can still be held out as having apparent authority to make representations of fact such as to the authenticity of the resolutions and documents, or communicate the approval of the board. The second assertion is discussed in other sections of this judgment under the heading of “Ostensible Authority”.
[64] In this section of the judgment, the assertion that Chia was someone who had actual authority to deal with banks on APBS’s financial requirements, and hence, he would have the implied actual authority for representing that the documents he submits to banks are genuine, is confined to usual authority in the first sense explained by Steyn LJ. I have already held that Chia did not possess any actual authority (express or implied) to negotiate and commit the company on the SEB Facilities and HVB Facility. To repeat, so far as actual authority is concerned, it is affected by the agent’s fraud (see Hopkins v TL Dallas). It follows that there is no legal basis for the assertion that Chia had implied actual authority to represent the authenticity of any board resolutions or to put forward certified extracts of board resolution as genuine.
[65] Moreover, Christopher Leong testified that Chia as the finance manager did not have the authority to communicate board approvals to the banks. This was the responsibility of F& N Group Treasury. Christopher Leong also clarified that board resolutions and constitutional documents would be handed over to the bank concerned by F&N Group Treasury (see his testimony set out in [74] below). He explained that this function was not expressly stated in the Corporate Services Agreement, but was a long and established practice. I have no reason to disbelieve Christopher Leong’s testimony on this long and established practice borne out of a special relationship between F&N and APBS. Evidence of previous practice within a company would assist the court in determining what Chia as Finance Manager of APBS is reasonably expected to do within the context of the company. There is equally no countervailing evidence to the contrary, and I also found Christopher Leong to be a reliable witness. He came across as a fair-minded witness who gave his evidence in an impartial manner.
[66] In fact, the banks’ own evidence did not undermine Christopher Leong’s testimony. In HVB’s case, Zimmermann said that it did not matter by whom and how the board resolution was despatched. Hwee Koon said that even if the board resolution was delivered by courier, she would accept the board resolution as valid but would call Chia as a matter of courtesy to thank him for it. HVB would check and verify the certified extract of the board resolution. Again, the point here is that HVB’s banking support department checked the documents received. Whether banking support checked properly is another matter.
[67] Gerard Lee of SEB (head of Counterparty Risk Management (“CRM”) at the relevant period) agreed in cross-examination that the mere fact that it was the finance manager who had sent the forged documents to the bank was not sufficient by itself to satisfy the bank that board approval had been given. This is because CRM’s officers were required to check and verify the documents including the certified extract of the board resolution upon receipt. Gerard Lee’s answers in cross-examination are as follows:
[68] SEB’s evidence is that CRM checked the documents and it was satisfied that they were “sufficient”. Whether the CRM had checked properly is another matter, but the point here lies in SEB’s evidence that documents that seek to establish a legal relationship between bank and the borrower must be checked.
[69] In addition, the banks’ standard requirement for the corporate borrower to provide a certified extract of a board resolution covering the transaction is objective evidence militating against their assertion that Chia had implied actual authority (incidental to his employment as Finance Manager) to warrant or put forward to the banks forged document as genuine. From this standard requirement, it is first plain that Chia as Finance Manager did not have actual authority (express or implied) to open bank accounts or borrow on behalf of the company unless so empowered by the board. Clause 3.1 of the 1998 GTP also explicitly states that “the terms and conditions of all borrowings of APBL and [APBS] must be approved by the [APBL’s] Board of Directors”. Zimmermann confirmed on behalf of HVB that without board approval, HVB would not have gone ahead with the credit and loan facilities. SEB’s position is no different.
[70] Second, the banks did not look upon Chia as someone with authority to warrant the genuineness of the certified extracts of the board resolutions. This is because the banks had expressly spelled out in the condition precedent clause the persons whom they regarded as being qualified to certify as a true copy the extract of the board resolution. For example, in cl 2.1.1 of the HVB loan agreement, certification of the extract of the board resolution was to be by a duly authorised officer (see [23] above). SEB had also asked for certification by a duly authorised officer or certification by either the chairman of the board, director or company secretary (see [19] - [22] above). Glaringly absent from the list of officers is the Finance Manager. The implication one draws from this is that the chairman of the board, director or company secretary are persons with direct and first-hand knowledge of the board meeting and of the resolution that was passed approving the particular transaction. The chairman of the board and the directors would know whether or not the directors had in fact resolved this in the terms of the board resolution. The company secretary whose function is to maintain accurate minutes of the resolutions of the directors is well placed to give the requisite certification. I am reinforced in my conclusion by Steyn LJ’s observations in First Energy. Steyn LJ in First Energy stressed on the importance of first-hand knowledge at 204:
[71] As a reminder, one has to view the perspective of facts as they appeared to the banks at the relevant time that the transactions were purportedly accepted, and not as they subsequently appeared to the banks after Chia’s arrest. The evidence is that it did not matter to the banks that the certified extract of the board resolution was not delivered by the finance manager. With that in mind, and from this perspective, certification in itself by an appropriate individual with personal knowledge of the terms of the board resolution runs counter to the banks’ present assertion that Chia was authorised to indicate by communicating some consent on the part of the board of APBS to the transactions. Chia was not generally required at board meetings and, hence, did not have first-hand knowledge of board meetings. How could he then have implied actual authority to represent that the certified extracts of the board resolutions were genuine and the contents recorded in them were true; or to communicate the board’s approval?
[72] At all material times, the clear evidence is that the banks decided to accept the various certified extracts of the board resolutions on the strength of the certification, ostensibly signed by directors of the company that the matters stated in the extracts had been passed as recorded, and it was not because Chia was putting forward forged documents as genuine. This verification of the documents point runs counter to the argument of Chia’s implied actual authority to warrant that the certified extracts of the board resolutions were genuine or that the board had approved the transactions. The banks’ position on verification of the signatures on the certified extracts of the board resolutions is discussed later (see [137] to [170] below). Suffice it to say that two important points - (i) verification of the certified extracts of the board resolutions received by the banks also include, in my judgment, checking the identity, designation and signature of the signatories to ensure that they have been properly executed, and (ii) the banks’ case on Chia’s ostensible authority (which will be addressed later) – run up against the same difficulties no less formidable than the allegation of implied authority under discussion here.
[73] In response, SEB relies on cl l 3.5 of the 1998 GTP which it says places responsibility on Chia to ensure that APBS meets all stipulated obligations and financial covenants under borrowing facilities. SEB also referred to SEB’s Facility Letter dated 26 June 2000 for the MM Line where in cl 18(b), SEB stipulated that “the execution and performance of this Facility Letter has been validly authorised by the appropriate corporate actions of the Borrower and when executed and delivered to the Lender will constitute valid and binding obligation of the Borrower in accordance with its terms.”
[74] The arguments there are misconceived. Consideration of the effect of cl 13.5 of the 1998 GTP, or cl 18(b) of the Facility Letter without reference to the terms of the condition precedent is akin to putting the cart before the horse. If anything, the terms of the condition precedent precede the operation of other clauses, and until the terms of the condition precedent are satisfied, none of the other clauses take effect. Moreover, cl 18(b) on the face of it is not intended to replace the operation of the condition precedent in question. Clause 13.5 cannot replace the bank’s clear stipulations for certification. In my view, the argument fails on the ground of circularity. In addition, I accept Christopher Leong’s testimony on cl 13.5. In re-examination, he explained:
[75] In my judgment, for the reasons stated above, Chia had no implied actual authority to represent or warrant the genuineness of the certified extracts of the board resolutions, or to communicate to the banks board approval of the transactions. Furthermore, what instilled in the banks the impression that the certified extracts of the board resolutions were genuine and in order came from and was founded purely on the banks’ own narrow and limited verification of the certified extract of the board resolutions (see [137] – [170] below), and their own perceived comfort that APBS is a sound and cash rich company.
Conclusion on actual authority (express or implied)
[76] As far as actual authority is concerned, it is affected by Chia’s fraud. Consequently, the SEB Facilities and HVB Facility were not executed by Chia with actual express authority from APBS. In addition, Chia, as Finance Manager of APBS did not have actual implied authority to negotiate and commit the company on the SEB Facilities and HVB Facility. He also did not have implied authority to represent or warrant the authenticity or genuineness of the certified extracts of the board resolutions or to communicate the approval of the board.
Ostensible authority
Basis of apparent or ostensible authority
[77] Ostensible or apparent authority is the outward appearance of the authority of the agent as others see it (per Lord Denning in Hely-Hutchinson at 583). Of concern here is the type of representation where the appointment of the agent to the position carries with it a usual authority to bind the principal. Professor Reynolds in Bowstead at para 8-018 explains that this type of representation is of a general nature and more difficult to maintain than a case of genuine apparent authority:
[78] In the context of ostensible authority, the concept of usual authority in play, as was the case here, concerns “the principal’s conduct in clothing the agent with the trappings of authority was such as to induce a third party to rely on the existence of the agency” (per Steyn LJ in First Energy at 201). Thus, if the only holding out by APBS to the banks was to invest Chia with the title of “Finance Manager”, the representation which the banks is relying upon would be the representation that Chia has the powers usually enjoyed by a finance manager in a corporation similar to APBS.
[79] As to the scope of the usual authority of a finance manager in a corporation similar to APBS, evidence will have to be adduced as was the case in Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd (“The Raffaella”) [1985] 2 Lloyd’s Rep 36 (see also Bowstead at para 8-018 on the need to call evidence at [77] above). In that case, the litigants adduced expert evidence on the usual authority of the manager of a credit department. Evidence of the powers usually enjoyed by a manager in the credit department of a bank is needed as often the holding out or representation by the company consists solely of the fact that the company has appointed the person to a particular office (at 41). The only relevant inquiry as Brown-Wilkinson LJ pointed out is as to the powers normally enjoyed by branch managers in general (at 41). In The Raffaella, the inquiry was wider since the holding out there consisted of a course of conduct beyond the description of the office the agent was holding. Ultimately, the overall evidence has to be looked as part and parcel of the whole course of the principal’s conduct in order to decide whether the totality of the principal’s actions constituted a holding out of the agent as possessing the necessary authority (at 41).
[80] The onus of proving ostensible authority is on the banks. It is important to bear in mind that the banks must fulfil the four factors in the well-known judgment of Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (“Freeman & Lockyer”). They are (at 506):
Continuing, Diplock LJ explained:
Other relevant passages from the judgment of Diplock LJ (at 503) and (at 505) states as follows:
[81] With these principles in mind, I now turn to the allegations raised by the banks.
Representation
[82] The nub of the banks’ case on ostensible authority is the alleged representation or holding out by APBS (which was intended to be acted on and was in fact acted on by them) that it was within Chia’s apparent authority to warrant the genuineness of the documents presented to them; or to communicate the board’s approval of the transactions. The dispute under consideration has two parts to it. The first part of the consideration, the legal inquiry, is whether a forged document is a nullity for all purposes, or is estoppel an exception to the forged documents still having legal effect. The second part of the consideration arises if estoppel is an exception, and the question is whether Chia as Finance Manager would ordinarily have apparent authority to communicate board approval; or to represent or warrant the board resolution as genuine.
[83] Of the four factors identified by Diplock LJ, the factor we are really concerned with is representation (see [80] above).
Forgery and apparent authority
[84] The legal inquiry as stated is whether a forged document is a nullity for all purposes, or is estoppel an exception to the forged document still having legal effect. It is convenient to first set out the arguments of the parties.
(1) The contentions
[85] Mr Singh argues as a preliminary issue of law that a forged board resolution is a nullity for all purposes, and accordingly, no estoppel on a forged document can be raised since the company had not made a representation to anyone. Mr Singh says that there are no Commonwealth cases where a court actually held that a company is bound by a forged board resolution on account of an agent’s ostensible authority. In particular, the cases do not support the concept of ostensible authority in instances of strict forgeries involving counterfeit signatures and company seals. The reasons for these are: (a) it is impossible for any company to prevent a fraud of the nature of Chia’s, whereas it is relatively simple for the banks to have done so; (b) it would be absurd if all kinds of employees can be argued as having the authority to bind their employers, regardless of whether they sit on the board; and (c) to say that individuals not sitting on the board have authority to represent the genuineness of board resolutions effectively gives such individuals licence to act without the authority of the board as they can set their own limits of authority through forged board resolutions. The decision of Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 (“Northside Developments”) has distinguished cases of “strict” forgeries (actual counterfeit signatures) which are complete nullities and “loose” forgeries (not involving counterfeit signatures) for which a company could still be bound if the agent is held to have ostensible authority. On an examination of the cases, it can be seen that in all the occasions in which the courts have upheld ostensible authority the circumstances did not feature “strict” forgeries. In other words, the distinction in law is between forgery and abuse of authority.
[86] APBS distinguishes the cases referred to by the banks. The following cases had either nothing to do with forgery, or had the necessary holding to constitute a representation:
(a) In Lloyd v Grace, Smith & Co [1912] AC 716 (“Lloyd v Grace Smith”), there was no issue that the firm represented the clerk as in charge of all conveyancing matters and that the widow relied on him. The clerk had acted within his ostensible authority.
(b) In Freeman & Lockyer, the board of directors had knowledge of and authorised the acts of the Managing Director.
(c) First Energy did not involve forgery, and in that case the senior manager was actually authorised by the bank to negotiate with the plaintiff and had many face-to-face negotiations with the plaintiff’s representative to discuss the project.

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Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd and Another and Another Suit

Laws this judgment relies on

Grounds of decision

Introduction

The witnesses

The undisputed facts

The facilities granted by SEB (“the SEB Facilities”)

Loan granted by HVB pursuant to the agreement for an amortising term loan dated 21 March 2003 (“the HVB Facility”)

The claim in contract: The agency issue

General

Overview of the positions taken by the parties on the agency issue

SEB’s case

HVB’s case

APBS’s case

Actual authority (express or implied)

Express authority: The forged mandate

General authority of the Finance Manager

(1) The first consideration

(2) The second consideration

(3) The third consideration

Conclusion on actual authority (express or implied)

Ostensible authority

Basis of apparent or ostensible authority

Representation

Forgery and apparent authority

(1) The contentions