Chase Manhattan Bank

• Jurisdiction: British Virgin Islands
• Court: Court of Appeal (British Virgin Islands)
• Judge: Byron, J.A.,Robotham, C.J.,Bishop, J.A.
• Judgment Date: 01 January 1986
• Neutral Citation: VG 1986 CA 1
• Docket Number: Civil Appeal No. 5 of 1984
• Date: 01 January 1986

Court of Appeal

Robotham, C.J., Bishop, J.A., Byron, J.A. (Acting)

Civil Appeal No. 5 of 1984

Chase Manhattan Bank

and

Circle Corporation Ltd.

H. McW. Todman, Q.C., and Paul Webster for appellant.

J.S. Archibald, Q.C. and Janice Creque for respondent.

Company Law - Debenture — Interpretation of deed of debenture — Regular payments provided for in deed of debenture signed by respondent to obtain a loan from the appellant bank — Whether it provided for an unconditional promise to pay on demand — Court held that the method of interpreting the deed was the reasonable main test, and according to the ordinary meaning of the provisions in the debenture, the amount owned was payable on demand.

1 Byron, J.A. (Acting): On 7th March, 1980, the respondent executed a Deed of Debenture No. 73 of 1980 in favour of the appellant in consideration of the appellant lending it the principal sum of US$216, 000.00. The terms of payment and the arrangements for securing the payment were stipulated in the said Deed which provided in clauses 1, 3, and 7 as follows:

2 Clause 1:

The borrower covenants with the bank that the borrower will on demand pay to the bank the said principal sum or such part thereof as now is or shall from tune to time be owing by the Borrower or by the borrower jointly with another in partnership or otherwise and whether as principal or surety to the bank anywhere upon banking account or upon discount or other account or for any other matter or thing whatsoever including interest commission and all other banking charges and so that interest shall be computed according to the usual mode of the bank in dealing with loan accounts as well after as before judgment obtained hereunder.

3 Clause 3:

The borrower as beneficial owner hereby charges with the said payments its undertaking and all other its property whatsoever and wheresoever real and personal both present and future including its uncalled capital by way of floating security.

4 Clause 7:

The principal moneys hereby secured shall become immediately payable in any of the following events:

• (a) If the borrower make default for ninety days in the payment of interest hereby secured and the bank before such interest is paid by notice in writing to the borrower call in the said principal moneys.

• (b) If distress or execution be levied or issued against the Borrower and is not paid off within seven days.

• (c) If the Borrower shall cease or threaten to cease to carry on business.

• (d) If the receiver shall be appointed of the borrower's assets or any part thereof.

5 The respondent made regular payments to the appellant and fulfilled the other conditions of the Debenture. On 30th November, 1983, the appellant wrote the respondent demanding payment in the following:

“In accordance with Clause 1 of Debenture No. 73 of 1980 made between Circle Corporation Limited and Chase Manhattan Bank, N.A., we hereby demand payment by Wednesday, December 7, 1983 of the total outstandings plus interest due by your company. The balances outstanding as at November 29, 1983, were as follows:

Loan — $91,500.00 plus interest from October 26, 1983

Overdraft — $79,234.06 plus interest from November 26, 1983.

We regret that failure to settle on or before the above date would leave the bank with no other alternative but to take further action as it deems appropriate.

We trust that this course of action would not become necessary ….”

6 There was some further correspondence between the parties. On the 15 ^th December 1983; the respondent commenced these proceedings. On 8th August 1984, the High Court after trial declared that the demand made by the appellant on 30th November 1983 was unlawful and restrained, the appellant from interfering with the respondent's property or assets in pursuance of the said demand.

7 It was against both of these Orders that the appellant has appealed. The particular findings of the learned trial Judge which have bean challenged by this appeal are as follows:

AIn my view the plaintiff's covenant to pay in Clause 1 although not expressed to be subject to Clause 3 in effect is so limited as that clause creates a floating security. The essential element of a floating security is that it remains dormant until the plaintiff ceases to operate its business ….

The plaintiff was operating its business at the date of the demand and none of the events specified in Clause 7 had occurred. In my opinion the demand made by the defendant is improper…”

8 Counsel for the appellant submitted that if a person has covenant to pay money on demand it cannot be unlawful for the other party to call on the provision to pay on demand and that the court must make the distinction between a covenant to pay on demand, and security, and not treat. a demand as an effort to enforce the security.

9 Counsel for the respondent submitted that Clause 1 of the Debenture was qualified by Clause 7 of the Debenture and therefore did not embody an unconditional promise to pay on demand and accordingly the appellant was not at liberty to make demand until the respondent had default under Clause 7.

10 The issue which this Court has to decide turns on the meaning that is to be given to the Deed of Debenture and in particular Clause 1, 3 and 7.

11 In Halsbury Laws of England 4th Edition Volume 12 at paragraph 1459 some guidance is given on the objective of the Court in interpreting a written instrument, in these terms:

“The object of all interpretation of a written instrument is to discover the real meaning of the author, the written declaration of whose mind it is always considered to be. Consequently, the construction must be as near to the minds and apparent intention of the parties as possible, and as the law will permit.”

12 At paragraph 1469 of the same Volume the learned authors deals with the method to be followed in order to discover the real intention of the parties:

AIt is a rule of construction applicable to all written instruments that the instrument must be construed as a whole in order to ascertain the true meaning of its several clauses, and the words of each clause must be so interpreted as to bring them into harmony with the other provisions of the instrument, if that interpretation does no violence to the meaning of which they are naturally susceptible. The best construction of deeds is to make one part of the deed expound the other, and so to make all the parts agree. Effect must, as far as possible, be given to every word and every clause.@

13 We were referred to many other texts from learned writers and many cases setting out various and well established tenets of construction of documents. One such principle which was advocated was that the court should look at the aim of this commercial transaction as a guide to interpreting its meaning, as in the case of Prenn v. Simmonds, [1971] 3 All E.R 237 where it was necessary to construe the phrase “profits available for dividends@. The judgment in that case relied on the commercial background and objective aim of the transaction to give meaning to that phrase. This proposition was more fully expounded by Lord Wilberforce in Reardon Smith LinoLtd. v. Hansen — Tangen; Hansen — Tangen v. Sanko Steam Co [1976] 3 All E.R 570. To use his own words at page 574:

A When one speaks of the intention of the parties to a contracts one is speaking objectively — the parties cannot themselves give direct evidence of what their intention was — and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly, when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties ….”

14 And after considering some authoritative judgments he concluded at page 575:

AI think that all of their Lordships are saying, in different words, the same thing- what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were.”

15 In considering the...