Court grants unconditional leave to defend summary judgment application due to genuine foreign currency jurisdiction issue.

[*117] 1978 December 30

(BOYADJIS, S.D.J. AND STAVRINIDES, AG.D.J.)

IN THE DISTRICT COURT OF NICOSIA

British Overseas Engineering & Credit Co. Ltd. ,

Plaintiffs,

v.

K.M.C. Motor Holdings Ltd. and Another,

Defendants.

(Action No. 3276/78).

Civil Procedure - Summary judgment - Principles applicable - Rules 1 and 2 of Order 18 of the Civil Procedure Rules

- Leave to defend - Discretion of the Court - Defendant has to disclose facts sufficient to establish bona-fide the existence of a triable issue - Jurisdiction of Court to give judgment in foreign currency - An issue which ought to be tried - Leave to defend granted.

M. Fotiou for K. Michaelides, for the Plaintiffs.

Chr. Vakis, for the Defendants.

RULING

The ruling of the Court was delivered by:-

BOYADJIS, S.D.J.: The plaintiffs have [*118] applied under the Civil Procedures Rules 0.18 r.1 and r.2 for summary judgment as per their specially indorsed claim against the defendants for 247,852 pounds sterling with interest thereon allegedly due on a written agreement dated 29.10.76 and/or on bills of exchange and/or promissory notes.

It appears from the affidavits filed in support of the application and the documents attached thereto:- that the plaintiff company is a company of limited liability registered under the laws of the United Kingdom having its registered office in London;

that defendant 1 is a company of limited liability registered under the laws of the Republic;

that on the 29th October, 1976, a written agreement was executed between the litigants together with several other parties, whereby the company-defendant no.1, under the guarantee of defendant no. 2, undertook the payment by instalments to the plaintiffs in the manner and on the dates therein stipulated of an amount of 348,000 pounds sterling. This amount represented part of a debt then due to the plaintiffs by three other companies, namely, Kaisis Engineering Ltd., K.M.C. Ltd. and C.F.C. Commercial Finance Co. Ltd., whom the plaintiffs agreed in exchange to release and discharge from all their obligations under their said debt;

that the company-defendant no.1 accepted a number of bills of exchange, each being for an [*119] amount equal to each instalment stipulated to be paid under the said agreement. These bills of exchange were drawn by the plaintiffs and accepted by the defendant no.1 as collateral security for the said contract instalments;

that the company-defendant no.1 paid several instalments totalling £100,148 sterling and by virtue of a default clause in the agreement the whole balance of £247,852 sterling because due and payable to the plaintiffs on 7th February, 1978 with 9% agreed interest thereon from the aforementioned date.

The secretary of the plaintiff company who deposed the above facts in the main affidavit in support of the application, has also sworn that he verily believes that there is no defence to the action.

Both defendants opposed the application. In the affidavits sworn in support of the opposition it is alleged that leave to defend ought to be granted in as much as the defendants have a good and bona-fide defence to the claim and there are the following issues of law and fact to go to trial:

(i) The court has no power to give judgment in terms of the foreign currency prayed in the indorsed statement of claim which is in this respect defective; [*120]

(ii) the execution by the company-defendant no.1 of the agreement upon which the claim is based, is ultra vires its Memorandum of Association and, therefor, void; the company has no power to undertake payment of debts due by third persons;

(iii) the bills of exchange referred to by plaintiffs were negotiated in favour of the Midland Bank Ltd. who became holders thereof to the exclusion of the plaintiffs who lost their right to sue on them.

I consider it pertinent at this stage to examine the legal aspect of the case.

Order 18 r.1 (a) of the Civil Procedure Rules governs the case. It reads as follows:-

"Where the defendant appears to a writ of summons specially indorsed under Order 2, rule 6, the plaintiff may on affidavit made by himself, or by any other person who can swear positively to the facts, verifying the cause of action, and the amount claimed (if any), and stating that in his belief there is no defence to the action, apply for judgment for the amount so indorsed, together with interest (if any), or for the recovery of the land (with or without rent), or for the delivering up of a specific chattel, as the case may be, and costs. And judgment for the plaintiff may be given thereupon, unless the defendant shall satisfy the Court that he has a good defence to the action on the merits, or disclose such facts as may be deemed sufficient to entitle him to defend." [*121]

Our order 18, r.1 corresponds to the English order 14, r.1 before the latter was recast by R.S.C. (rev.) 1962 in a manner considerably widening its operation.

This summary procedure was designed to cut out the delay which the plaintiff in many cases foremerly suffered in the vindication of his rights through the raising of sham defences (see per Lord Halsbury, L.C. in Jacobs v. Booth’s Distillery Co

(1901) 85 L.T. 262), and to relieve the judges of the necessity of pronouncing merely formal judgment in matters where no true adjudication is required (see per Lord Esher M.R. in Exporte Spelman (1895) 2 Q.B. at p. 176). But judgment ought not to be allowed to be summarily signed except in the clearest cases (per Lopes, L. J. in Edwards and Another v. Davis (1888) 4 T.L.R. 385).

In a series of authorities judges were reminded that the jurisdiction of the Court under Order 14 is one to be exercised with great care so as not to preclude a party from raising any defence he may really have which is not a mere sham: AngloItalian Bank v. Wells (38 L.T.197, C.A.); Manger and another v. Cash (5 T.L.R. 271 ); Sheppards and Co v. Wilkinson and Jarvis (6 T.L.R. 13); Ford v. Harvey and others (9, T.L.R. 328); Ward v. Plumbley (6 T.L.R. 198).

In dealing with an application under Order 18, r.1 the Court may either:-[*122]

(a) give judgment for the plaintiff for the whole or any part of his claim against all or any one of the defendants; or

(b) allow all or any one of the defendants to defend the whole or any part of the claim unconditionally or subject to certain conditions stated in rule 6 of the order; or

(c) dismiss the application under r.9 (b) of the order.

If the plaintiff makes out a prima-facie case upon his affidavit and the proceedings are in order in point of form, the Court assumes jurisdictions under the order and the onus shifts on each defendant to either:-

(i) satisfy the Court that he has a good defence to the action on the merits; or

(ii) disclose such facts as may be deemed sufficient to entitle him to defend the action generally.

In practise it is enough for the defendant to disclose facts sufficient to establish bona-fide the existence of a triable issue, whereupon leave to defend must be granted to him, even though it may appear that the defendant will not be likely to succeed: Jacobs v. Booth’s Distillery Co. (supra) .

In deciding whether to give or refuse leave to defend the action the judge has to exercise his discretion: [*123]

Kypros S. Kyprianides v. Symeou Ioannou (1966) 1 C.L.R. 26 J Lord Blackburn in Walligford v. Mutual Society (1874-80) All F.R. Rep., 1386 at p. 1394 made the following observations on the principles upon which 0.14 ought to be applied:-

"He (the defendant) may fall far short of satisfying a judge that there is a defence upon the merits; still he may do so (defend the action) if he discloses such facts as may be deemed sufficient to entitled him to defend. And that raises another question altogether. There may very well be facts brought before the judge which satisfy him that it is reasonable, sometimes without any terms and sometimes with terms, that the defendant should be able to raise this question, and fight it if he pleases, although the judge is by no means satisfied that it does amount to a defence upon the merits".

The defendant need not convince the master of a definite prospect of success in his defence; a ’fair probability’ is sufficient: Ward v. Plumbley (1890) 6 T.L.R. 198.

Finally, in Knapp-Fisher v. Crisp

(1936) 3 All E.R. 560, the governing principle was held to be that where a defendant sets up a defence that is perfectly impossible in law the plaintiff is entitled to judgment under R.S.C. Order 14, but if it is not possible to say, [*124] that the question is quite unarguable, the defendant should be given leave to defend.

Although the Court is not to "try the case upon affidavits" (Saw v. Hakin (1885) 5 T.L.R.72), in dealing with an application under our Order 18, it ought to examine to a certain extent the factual and legal basis of the so-called defence set up against the claim with a view of ascertaining whether it is one which can possibly defeat the claim, for the beneficial provisions of the order "ought not to be frittered away by anything in the shape of defence or counter claim which the Court cannot consider of a substantial character":

Anglo-Italian Bank v. Wells; Anglo-Italian Bank v. Davies (supra).

Applying the legal principles hereinabove set out I propose to examine the facts deposed on behalf of respondents with a view of ascertaining whether they sufficiently disclose an arguable defence. I am mindful in this respect of the obligation of the respondents to give sufficient facts and particulars to show that there is a bona-fide defence and that a general denial that they are indebted will not suffice. The defendant's affidavit must "condescend upon particulars" and should, as far as possible, deal specifically with the plaintiff's claim and affidavit, and state clearly and consisely what the defence is and what facts are relied upon as supporting it: Kypros Kyprianides v. Symeon Ioannou [*125] (supra) Yet, an argument of law gains nothing by being set out on oath and is out of place in an affidavit.

The first point raised by defendants is that of the jurisdiction of the court to give judgment in the foreign currency prayed in the indorsed statement of claim. Both sides argued extensively this legal issue and cited several authorities. I do not propose to decide the issue now in favour of either side; yet I feel that I ought to examine the authorities on the point in order to ascertain whether they clearly point towards the one side or whether there ought to be on trial on it.

In Manners v. Pearson & Son

(1898) 1 Ch. 581 Lindley MR said at p. 587;

"Speaking generally, the Courts of this country have no jurisdiction to order payment of money except in the currency of this country".

As late as 1961 Lord Denning MR. was himself quite confident about the above principle. In United Railways of Havana and Regla Warehouses Ltd., (Re) (1961 ) A.C. 10 7 he said at p, 1O68 :

"... if there is one thing clear in our law, it is that the claim must be made in sterling and the judgment given in sterling".

In 1969 Salmon LJ was equally confident and he extended it to awards by arbitrators. In Teh Hu (The), Turbo-Electrlct Bulk Carrier Teh Hu (owners) v. Njppou Salvage Co. Ltd. of Tokyo (1969) 3 All E.R. 1200, he said at page 1206: [*126]

"It is well settled that an English Court cannot give judgment for the payment of an amount in foreign currency ...Nor, in my view, can an arbitrator make an award in foreign currency except perhaps by agreement between the parties".

Thus the law stood in England when the case of Papavassiliou & Tsangarides and other v. East Meditteranean Line and Another (1974) 1 C.L.R. 183 was was decided by our Supreme Court. A. Loizou J. stated the law in Cyprus to be as follows at p.. 188 of the report:

"It seems to me that the principle of law applicable to a case where there is a claim for damages for breach of contract or for tort in terms of a foreign currency, must be converted into Cyprus pounds at the rate prevailing at the date of breach or tortious act, Furthermore, when a plaintiff sues in the Courts of Cyprus the claim the judgment must be in terms of Cyprus pounds. The aforesaid has been well settled under English Law applicable to our case, in, inter alia, the case of the United Railways of Havana and Regie Warehouses Ltd. (1960) 2 All E.R. 332, where Viscount Simonds makes an extensice analysis of the law dealing with authorities that cover a period of more than 300 years regarding the question as to what sum in sterling is recaverable by a person suing in the Courts of England, for a sum of money payable in foreign currency......."[*127]

One year later, in Schorsch Meier GmbH v. Hennin (1975) 1 All E.R. 152, C.A. Iord Denning MR. (with Lawton L J. concurring) did not follow the rule reaffirmed in the Havana Case supra). He said at p. 156-157:

"The time has now come when we should say that when the currency of a contract is a foreign currency that is to say, when the money of account and the money of payment is a foreign currency - the English courts have power to give judgment in that foreign currency; they can make an order in the form: ' It is adjudged this day that the defendant do pay to 'the plaintiff' so much in foreign currency (being the currency of the contract) or ' the sterling 'equivalent at the time of payment'. If the defendant does not honour the judgment, the plaintiff can apply for leave to enforce it. He should file an affidavit showing the rate of exchange at the date of the application and give the amount of the debt converted into sterling at that date. Then leave will be given to enforce payment of that sum".

The above decision has affected in England not only the long established rule regarding the jurisdiction of the English courts to give judgment in foreign currency, but also the equally long established rule as to the date of conversion of the foreign currency into English currency, such date being in cases of tort the date when the loss occurred (SS Celia (owners) v. [*128] ss Volturno (owners) (1921 ) 2 A.C. 544), and in cases of contract the date of the breach (Manners v. Pearson & Sons (supra)). Any revaluation of currency after that date was irrelevant (Aruna Mills v. Dhanvajmal Gobindram (1968)

1 All E.R. 113) even though it might work injustice on one party or the other (The Teh Hu (supra)).

The House of Lords dealt with the matter in late 1975 in Millangos v. George Frank (Textiles) Ltd. (1975)

3 All E.R. 801.

It was there by majority decided that where a plaintiff brought our action for a sum of money due under a contract he was entitled to claim and obtain judgment for the amount of the debt expressed in the currency of a foreign country if the proper law of the contract was the law of that country and the money of account and payment was that of the same country, If it was necessary to enforce the judgment that amount was to be converted into sterling at the date when leave was given to enforce the judgment. It followed that the plaintiff was entitled to an order that the defendants should pay him the sum due in Swiss francs or the sterling equivalent at the time when leave was given to enforce the judgment .

It follows from this decision that:-

(i) the Havana Case (supra) has definitely ceased to be good law in England;

(ii) in actions before the English courts to enforce a foreign money obligation the date of conversion into English currency ceased to be the [*129] date of the breach and has been substituted by the date when leave is given to enforce the judgment expressed in foreign currency;

(iii) the English courts have jurisdiction to give judgment in the currency of a foreign country only in cases where:-

(a) the claim is one based on an obligation of a money character to pay currency of a foreign country; and

(b) the proper law of the contract is the law of that foreign country; and

(c) the money of account and payment is that of the same foreign country or possibly of some other foreign country.

Conclusion (iii) above is further supported by Jean Kraut AG v. Albany Fabrics Ltd. (1977) 2 All E.R. 116.

One of the questions raised in the present case is to what extent, if any, is the law in Cyprus as laid down by our Supreme Court in 1974 in Papavassiliou Case (supra) affected by the two English decisions decided only a year later in Schorsch Case (supra) and in Miliangos case (supra) which reversed the previous English decisions including Havana Case (supra) upon which Papavassiliou Case relied. Have the 1975 English decisions reversed the decision of our Supreme Court and am I or am I not bound by the latter? [*130]

In my opinion the above legal question is not one which ought to be tried summarily; it is certainly not a mere sham which should not go to trial.

But even if I were to hold here and now that I am bound to follow Miliangos Case (supra) the evidence so far placed before me in the affidavits is not enough to lead me to the, conclusion that the proper law of the contract upon/which the money obligations in the present case is based is English Law. Photo-copy of this contract has been annexed (it has not been referred to as exhibit) to the supplementary affidavit sworn on behalf of the applicants. Leaving aside the formal contravention of r.20 and r.21 of Order 39 of the Civil Procedure Rules made in this respect, there is nothing in this contract to show either where it was executed or whether the English or any other law has expressly been chosen to be the law that governs it. Examining the contract with a view of ascertaining objectively from the context thereof the intention of the parties in this respect, one might perhaps argue that the grouping of its elements as reflected in its formation and in its terms indicates that the contract is more 'localised' in Cyprus rather than in England and Cyprus rather than English Law should be the primary system of law to govern it or,in other words, the proper law thereof. The issue in its present context has not been in fact argued before me and it suffices to say that on the evidence already adduced no finding can be made that the proper law of the contract is English [*131] law; such a finding is a pre-requisite to the jurisdiction of the Court to give judgment in foreign currency under the Maliangos Case.

In his address to the Court, learned counsel for the plaintiffs suggested that even if the endorsed statement of claim is defective in that it is throughout expressed in pounds sterling, this is a formal defect which can be cured by amendment. Yet, he did not move the Court for any particular amendment. Be that as it may, should I order an amendment in any specified terms on my own motion in the circumstances of the present case? And in what words or terms such amendment ought to be? The rate of conversion of the pounds sterling into Cyprus pounds is flunctuating and such rate on any given date is a question of fact of which I can have no judicial notice and which should be averred in the statement of Claim so that the other side may check it and comment upon it, if they so wish. And which ought to be the date of conversion in my proposed amendment since I have decided to leave this issue to go to trial where both sides would have the opportunity to argue fully their submissions? I do not think that this is a proper case for the Court to frame and direct any amendment of plaintiff's pleadings ex proprio motu.

It follows from all the above that in the exercise of my relevant discretion, I rule that the first issue raised by the defendants is one which ought to be tried and leave to defend ought to be given them. [*132]

In view of my ruling on the first issue it becomes superfluous to rule on the other two grounds of defence set forth by the defendants. Yet, pursuant to authority, I am bound to deal with them at least shortly, in case I am held to be wrong on the first ground of defence on appeal.

The second ground of defence is that the agreement upon which the claim is based is ultra vires the memorandum of associations of the company. The facts disclosed to substantiate this allegation is the context of the agreement itself and a memorandum of Association which has been filed together with the defendant's supplementary affidavit and is therein referered to as exhibit.

Although both sides argued extensively their respective case with reference to the objects clause of this Memorandum, I have later noticed that the company to which it refers is not the one that executed the agreement. Whereas the name of the company-defendant I and the name of the company-party to the subject-matter agreement is "K.M.C. Motor Holdings Ltd.”, the Memorandum of Assosiation produced is that of "Kaisis Holdings Ltd". There is no evidence to show either that the two aforesaid names are the successive names of the same company or the relation, if any, between the two companies. The defendants failed therefore, in their duty to disclose enough facts to satisfy me that there is reasonable ground for them - to say that the agreement is ultra-vires the

company and void - . Their allegation alone is not enough and is in [*133] fact without factual foundation to support it even

prima facie.

The last allegation of the defendants is that by the indorsement of the bills of exchange made by the plaintiffs in favour of the Midland Bank Ltd., the former ceased to be holders in due course or entitled to sue upon them and that the company-defendant 1 has been thus exonerated from its liability on the said bills towards the plaintiffs.

According to the agreement upon which the Claim is based, the bills were accepted by the Companydefendant 1 only as collateral security for the payment by the latter of the corresponding instalments under the agreement. Furthermore, it is expressly provided in clause 2 of the agreement that:-

". ... and in the event of K.M.C. Holdings (defendant 1) making default of payment of any sum due under this agreement BOECC (the plaintiffs) shall be entitled to transfer or negotiate the said bills of exchange and the transferee or holder shall take the said bills of exchange free from equities and defences as a holder in due course. Neither the taking of such bills of exchange nor the transfer or negotiating thereof shall suspend or prejudice the remedies of BOECC under this agreement".

Only eight of the bills of exchange have been produced in Court and are now before me Exhibits 1-8. [*134] Counsel for plaintiffs stated in Court that the other bills are in England and he undertook to bring them here and file them with the Registrar of the Court. Until this day the other bills have not been filed.

The plaintiffs admit the negotiation of the bills but they argued that it is an indorsement only for collection purposes and they continue to be holders of the bills in due course, The transfer or indorsement complained of is in the following words: "Pay Midland Bank Ltd or order”. The indorsement is not dated. So it cannot be said on the material now before me whether they were transferred before or after the defendants made default of payment of their agreed instalments. If the said transfer was not made merely for collection and if it was effected before the defendants were in default with their contract instalments, this might or might not "suspend or prejudice the remedies of BOECC under this agreement".

This is another factual and legal issue which in my opinion the defendants are entitled to argue at the trial, irrespective of whether their prospects of success thereon might be weak. It cannot be said that it is a mere sham.

If the defendants were to earn the opportunity of continuing their opposition to the plaintiff’s claim on their last aforementioned allegation or ground of defence alone, I would have been inclined, in exercise of my relevant discretion, to grant them only conditional [*135] leave to defend, the conditions being either to lodge the money in Court or to furnish other security in respect thereof. Yet, I am of opinion that the issue of the jurisdition of the Court to give judgment in foreign currency is very real and bonafide and it should be allowed to go to trial unconditionally.

In the exercise of my discretion whether the leave to defend ought to be with or without any conditions in the circumstances of the present case, including the large amount involved, I have been guided by the following words of WILLS J In Wing v.Thrurlow (1893) 10 T.L.R. 53: "Unless we are prepared very nearly to give judgment for the plaintiff we ought not to impose conditions which may prevent the trial of the action". The phrase was more recently echoed by Davies, L.J. in Ionian Bank Ltd. v. Coureur (1969) 1 W.L.R. 781. Finally, Greer, L.J. in Powszechny Bank v. Paros (1932) 2 K.B. 353, pointed out that where the plaintiff is not entitled to judgment outright he cannot be given judgment conditionally.

In the result, unconditional leave is granted to both defendants to defend the action.

Vakis; On the questions of costs of the application I have agreed with my learned colleague that none of us should claim any costs.

Fotiou: I agree.

Court: Pursuant to the partie’s agreement, there shall be no order as to costs.

Leave to defend

action granted.