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Singapore Law Reports/1993/Volume 1/QUAH POH HOE PETER v PROBO PACIFIC LEASING PTE LTD - [1993] 1 SLR 14 - 7 November 1992 9 pages (1993) 1 SLR 14

QUAH POH HOE PETER v PROBO PACIFIC LEASING PTE LTD

COURT OF APPEAL CHAO HICK TIN, FA CHUA JJ AND GOH PHAI CHENG JC CIVIL APPEAL NO 32 OF 1992 7 November 1992 Companies and Corporations -- Pre-incorporation contract -- Lease agreement entered into by defendant on behalf of company prior to its formation -- Company not incorporated -- Whether defendant personally bound -- Whether plaintiffs could rely on alleged misrepresentation that company existed -- Companies Act (Cap 50, 1990 Ed) s 41(1) & (2) Contract -- Guarantee -- Whether guarantor liable under guarantee -- Terms of guarantee to be construed strictly -- Parol evidence rule Contract -- Misrepresentation -- Lease agreement -- Purported lessee company not incorporated under Companies Act -- Whether reasonable reliance on alleged misrepresentation that company existed -- Whether agent personally liable under the agreement -- Whether estoppel by convention applicable Equity -- Defences -- Estoppel by convention -- Whether applicable The respondents ('the plaintiffs') are a company providing hire-purchase financing services. By a lease agreement executed on 17 May 1983 ('the Elke lease'), the plaintiffs leased a yacht, the Elke, to Container Manufacturing Consultant Services Pte Ltd ('CMCS'). The lease was signed by one Larry Brattain, the second defendant, for and on behalf of CMCS. The first defendant was interested in investing in CMCS and was brought into the transaction by the second defendant. The first and second defendants also signed a guarantee dated 17 May 1983 whereby they guaranteed the due payment to the plaintiffs of all sums under the Elke lease. The plaintiffs received eight monthly payments under the Elke lease but thereafter, CMCS defaulted on the rental payments under the lease. The plaintiffs subsequently discovered that CMCS was not and had never been incorporated under the Companies Act (Cap 50, 1990 Ed) ('the Act'). The plaintiffs brought an action against both defendants claiming, inter alia, damages for breach of warranty of authority, negligent misstatement or deceit, and alternatively, the sums due under the guarantee. The plaintiffs obtained interlocutory judgment against the second defendant in default of appearance and proceeded with their claim against the first defendant only. The trial judge entered interlocutory judgment for the plaintiffs with damages to be assessed by the registrar. The first defendant appealed against the trial judge's decision. Held, allowing the appeal:

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The plaintiffs could not have reasonably relied on any representation by the first defendant that CMCS existed since the plaintiffs had previous dealings with CMCS and were satisfied that the company existed before the first defendant was introduced to the plaintiffs. Further, whether CMCS was or was not incorporated under the Act was a fact which could have been objectively established by making a simple search at the Registry of Companies and the registers maintained by the Registrar of Companies were available for inspection by the public. It is clear from the language of s 41(1) and (2) of the Act that where a contract is purportedly entered into by any person on behalf of a company prior to its formation, that person shall be personally bound by it prior to ratification and in the absence of ratification by the company. It is irrelevant whether the proposed company is eventually incorporated for to hold otherwise would mean that the provision in s 41(2) could be easily circumvented. As the second defendant entered into the Elke lease for and on behalf of CMCS which was non-existent, he was also personally bound by the lease under the principle in Kelner v Baxter [1886] LRCP 174 The plaintiffs having fully performed their obligations under the Elke lease on the basis that there was in existence a binding agreement, there was an unrebutted presumption that the second defendant intended to bind himself personally. The first defendant was not liable under the guarantee since it only covered sums due to be paid by CMCS to the plaintiffs and not sums due to be paid by the second defendant to the plaintiffs. A guarantee must be construed strictly according to its terms. The terms of the guarantee in this case were clear and unambiguous. The parol evidence rule prohibits the use of extrinsic evidence to vary or alter the terms of the guarantee. For the doctrine of estoppel by convention to operate in this case, not only must the parties have assumed that CMCS existed, but CMCS should also have received the benefit of the lease agreement. In this case there was no entity known as CMCS to receive the benefit. Alternatively, the plaintiffs must be able to show that the parties proceeded on the understanding that the lease agreement was between the plaintiffs and the first defendant personally. There was no evidence of such an understanding.

Cases referred to Kelner v Baxter [1886] LRCP 174 Derry v Peek (1889) 14 App Cas 337 Black v Smallwood (1966) 117 CLR 52 Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84 Legislation referred to Companies Act (Cap 185, 1970 Ed) s 35(1), (2) Companies Act (Cap 50, 1990 Ed) ss 41(1), (2) Evidence Act (Cap 97, 1990 Ed) s 93 Leslie Netto and S Magintharan (Netto & Netto) for the appellant.

4 Goon Hoong Seng and Patricia Teh (Low Yeap & Co) for the respondents. GOH PHAI CHENG JC (DELIVERING THE JUDGMENT OF THE COURT) The respondents/plaintiffs ('the plaintiffs') are a company providing hire-purchase financing services. They purchased a yacht known as the Shanti at a cost of $230,000 and leased the same to Container Manufacturing Consultant Services Pte Ltd ('CMCS') under a lease agreement executed on 14 March 1983 ('the Shanti lease') between the plaintiffs as lessor and CMCS as lessee for a term of six years commencing on 14 March 1983 at a rent of $3,820.30 per month payable monthly in advance. The Shanti lease was signed by Larry Brattain ('the second defendant') for and on behalf of CMCS. Below the signature of the second defendant are the following type-written words: 'Larry Brattain -- Director'. The plaintiffs subsequently purchased another yacht known as the Elke at the price of $508,000 and leased the same to CMCS under a lease agreement executed on 17 May 1983 ('the Elke lease') between the plaintiffs as lessor and CMCS as lessee for a term of six years commencing on 14 May 1983 at a rent of $8,438 per month payable monthly in advance. The Elke lease was signed by the second defendant for and on behalf of CMCS. The yacht 'Elke' was insured, and a licence was obtained from the Port of Singapore Authority in respect of the yacht, under the name of the appellant ('the first defendant'). The first defendant was associated with the second defendant through a Hong Kong company called Tocoma Ltd in which they were both directors and shareholders. The first defendant was interested in investing in CMCS and was brought into the transaction by the second defendant. The first and second defendants also signed a guarantee dated 17 May 1983 ('the guarantee') as co-guarantors whereby they guaranteed the due payment to the plaintiffs of all sums under the Elke lease. The guarantee is in the plaintiffs' printed form and it is printed at the end of the Elke lease. The material clause in the guarantee reads:
In consideration of [CMCS] entering into [the Elke lease] hereinbefore set out the undersigned (and if more than one jointly and severally) hereby guarantees the due payment to [the plaintiffs] of all sums of money as shall from time to time or at any time hereafter become due and payable by [CMCS] under the terms of [the Elke lease] or of any variation or extension thereof and also compliance with all other terms and conditions express or implied in [the Elke lease] to be observed and performed and also hereby indemnifies [the plaintiffs] and agrees to keep [the plaintiffs] indemnified from and against all loss, damage, costs and expenses suffered or incurred by [the plaintiffs] by reason of any breach or nonperformance by [CMCS] of any such terms and conditions on the part of [CMCS] to be observed and performed and all actions, claims and demands which may be instituted or made against [the plaintiffs] or in any way connected with or arising out of or incidental to [the Elke lease].

The plaintiffs received (a) ten monthly payments under the Shanti lease for the period from 14 March 1983 to 13 January 1984; and (b) eight monthly payments under the Elke lease for the period from 17 May 1983 to 16 January 1984. Thereafter, CMCS defaulted on the rental payments under both leases. The plaintiffs subsequently discovered that CMCS was not and has never been incorporated under the Companies Act (Cap 50, 1990 Ed) ('the Act'). The plaintiffs brought an action against the first and second defendants claiming, inter alia:
(a) damages for breach of warranty of authority, negligent misstatement or deceit; and

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(b) alternatively, the sums due under the guarantee executed by both the first and second defendants as co-guarantors for the payment of all sums due to the plaintiffs under the Elke lease.

The plaintiffs having obtained interlocutory judgment against the second defenin default of appearance, they proceeded with their claim against the first defendant only. The learned Lai Siu Chu JC who heard the action entered interlocutory judgment against the first defendant with damages to be assessed by the registrar. Damages were assessed by the registrar on 1 July 1992 at $913,995.44. The first defendant has appealed against the decision of the learned judicial commissioner. The learned judicial commissioner held that in so far as the Elke lease is concerned:
(a) the said lease was a pre-incorporation contract under s 41(1) of the Act and the second defendant was personally bound by the said lease under s 41(2) of the Act and also under the principle in Kelner v Baxter [1886] LRCP 174 (b) as the second defendant had defaulted under the said lease both as principal debtor and as guarantor, the first defendant was liable to the plaintiffs as guarantor for the second defendant's obligations under the said lease and also as the second defendant's co-guarantor; (c) the first defendant was also liable to the plaintiffs for breach of warranty of authority; and (d) although there was negligent misrepresentation on the part of both the first and second defendants, she was not satisfied that the plaintiffs had discharged the much higher burden of proof required for fraudulent misrepresentation as laid down in Derry v Peek (1889) 14 App Cas 337

Before us, counsel for the first defendant contended, and the plaintiffs' counsel conceded, that the learned judicial commissioner was wrong in holding that the first defendant was liable to the plaintiffs for breach of warranty of authority as the Elke lease was not entered into by the first defendant on behalf of CMCS and he did not hold himself out as having any authority to commit CMCS to the said lease. On the issue of negligent misrepresentation, the learned judicial commissioner said (at p 16G):
On the plaintiffs' claim based on misrepresentation, I find that there was negligent misrepresentation on the part of both defendants. I am however not satisfied that the plaintiffs have discharged the much higher burden of proof required for fraudulent misrepresentation: Derry v Peek (1889) 14 App Cas 337.

It was contended by counsel for the first defendant that the learned judicial commissioner did not state what representations were made by the first defendant and that having regard to the evidence given by the plaintiffs' managing director, Thomas Lars Enslow ('PW1') that he could not remember the details of the discussion he had with the first defendant during their first meeting on 29 March 1983, the learned judicial commissioner erred in finding that the first defendant knew that CMCS was not incorporated. Counsel for the first defendant further contended that the learned judicial commissioner also failed to give sufficient or any weight to a letter dated 21 February 1983 from the second defendant to the plaintiffs written on CMCS's letterhead which shows that PW1 relied on the representations made by the second defendant in this letter for his belief that CMCS was incorporated. We will now set out the evidence on this point which is summarized by the learned judicial commissioner at of the grounds of judgment:
PW1 testified that on or about 29 March 1983 he met the first defendant for the first time. The lunch meeting was to enable PW1 to assess the financial standing of the proposed lessee for the yacht which

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at that time he understood to be the first defendant. ... Although he was unable to produce the same at the trial, PW1 recalled that at their lunch meeting the first defendant gave him a namecard from CMCS. The first defendant told PW1 that he was working for a shipping company Integrated Agency Pte Ltd (he also gave PW1 a namecard of this company) and that he would be taking up full employment with CMCS.

Further, at pp 9D-10 of the grounds of judgment, the learned judicial commissioner said:
I have dealt with PW1's evidence. I shall now consider the evidence of the first defendant. He testified that he met PW1 on 29 March 1983 at the second defendant's request. He was told by the second defendant that all financing arrangements for the yacht had been finalized and he (the first defendant) would not have to fork out a cent and all he had to do was to sign the lease as guarantor as a favour to the second defendant. The first defendant denied that he had told PW1 at that first meeting about his assets in detail let alone that he owned a house at Faber Crescent; he had merely said that he resided at the address which property was owned by his wife. He testified that there was then only a general discussion about golf and the only reason he told PW1 about his assets was because he was asked; he did not volunteer the information as such. However, he admitted under cross-examination that he knew the purpose of PW1's questions was to assess his credit standing as a guarantor. At their second meeting over golf, the first defendant said there was no discussion about the yacht, only about golf. The third meeting was the lunch meeting when the lease was presented to him and the second defendant for signature; the first defendant said there was not enough time for him to read the document. As with the guarantee, the first defendant did a favour to the second defendant in obtaining insurance coverage for the yacht and in registering the yacht in his own name; the insurance premium and registration fees were paid by the second defendant. He denied that he represented to PW1 that CMCS existed let alone that he gave a namecard of the company to PW1; he was never a partner of the partnership.

At of the grounds of judgment, the learned judicial commissioner made the following finding:
... I believe it is more likely than not that the first defendant did say that he would leave the services of Integrated Agency Pte Ltd to join CMCS and that he handed a namecard bearing the company's name to PW1. Although my decision is not necessarily based on this finding, the evidence clearly shows that the plaintiffs were led to believe that CMCS existed and that the first defendant would be working for the company because of what had been told to PW1 by the first defendant.

It seems to us that even if the first defendant did make the representation that he was going to work for CMCS, the plaintiffs could not reasonably have relied on that representation for their belief that CMCS existed. Firstly, on the evidence before the court below, the plaintiffs had already entered into the Shanti lease with CMCS, presumably relying on the representations contained in the letter dated 21 February 1983 sent by the second defendant to the plaintiffs. The plaintiffs were already satisfied that CMCS existed. Secondly, the question whether CMCS is or is not incorporated as a company under the Act is a fact which could be objectively established by making a simple search at the Registry of Companies, and the registers maintained by the Registrar of Companies are available for inspection by the public. It is significant to note that PW1 said in cross-examination that he could not recall the details of his discussion with the first defendant at their meeting on 29 March 1983. In our view, the learned judicial commissioner, in deciding that the first defendant led PW1 to believe that CMCS existed, had not given sufficient consideration to the matters we have just referred to. Next, we shall deal with the issue whether the first defendant is liable under the guarantee for the debt owed by CMCS which is non-existent. On this issue, the learned judicial commissioner said (at p 13B):
On the plaintiffs' claim against the first defendant as guarantor, I find for the plaintiffs. I do not accept the defence contention that the first defendant is not liable because the principal debtor, namely CMCS, did not exist. I agree with the submission of counsel for the plaintiffs that the lease is a pre-incorporation contract under s 41(1) of the Companies Act (Cap 50) (s 35(1) under the 1985 Ed) and the second defendant is personally bound under s 41(2) thereof prior to incorporation. Alternatively, the second defendant would have been equally liable under common law ( Kelner v Baxter (1866) LRCP 174). As the second defendant has defaulted under the lease both as principal debtor and as guarantor, it follows that the first defendant is liable to the plaintiffs as guarantor for the second defendant's principal obligations under the lease and also the latter's co-guarantor.

It was contended by counsel for the first defendant that the learned judicial commissioner was wrong in holding that the second defendant was liable as a principal debtor under the Elke lease under s 41(2) of the Act when the plaintiffs' counsel had conceded at the court below that that subsection applies only if CMCS was subsequently incorporated. He also submitted that it is unclear from s 41(2) whether the failure by the company, for whose benefit the contract is purportedly entered into, to ratify the contract would result in frustration of the contract. Counsel for the first defendant further contended that the rule in Kelner v Baxter [1886] LRCP 174 does not apply in our present case since the second defendant signed the single composite document for the Elke lease and the guarantee not only 'for and on behalf of the lessee' but also as a guarantor in his personal capacity, and he could not at one and the same time be a principal debtor and a guarantor. If the second defendant did not become a principal debtor under the Elke lease by virtue of the said statutory provision or under the common law, the first defendant cannot be held liable under the guarantee. Section 41(1) and (2) of the Act (numbered as s 35(1) and (2) in Cap 185, 1970 Ed) reads:
(1) Any contract or other transaction purporting to be entered into by a company prior to its formation or by any person on behalf of a company prior to its formation may be ratified by the company after its formation and thereupon the company shall become bound by and entitled to the benefit thereof as if it had been in existence at the date of the contract or other transaction and had been a party thereto. (2) Prior to ratification by the company the person or persons who purported to act in the name or on behalf of the company shall in the absence of express agreement to the contrary be personally bound by the contract or transaction and entitled to the benefit thereof.

In our view, it is clear from the language of s 41(1) and (2) of the Act that where a contract is purportedly entered into by any person on behalf of a company prior to its formation, that person shall be personally bound by it prior to ratification and in the absence of ratification by the company. It is irrelevant whether the proposed company is eventually incorporated for to hold otherwise would mean that the provision in s 41(2) could be easily circumvented. Unscrupulous persons can easily escape liability under a contract by refusing to incorporate a company for whose benefit the contract is purportedly entered into. In the present case, the Elke lease was signed by the second defendant for and on behalf of CMCS, which was not incorporated and therefore did not ratify the agreement. We do not see how we can hold that the second defendant is not personally liable under the lease simply because there is no ratification by CMCS. Since the second defendant in the present case entered into the Elke lease for and on behalf of CMCS which is non-existent, we are of the opinion that he would also be personally bound by the lease under the principle in Kelner v Baxter [1886] LRCP 174. Kelner 's case1 was considered by the High Court of Australia in Black v Smallwood (1966) 117 CLR 52 and at of the report, Barwick CJ, Kitto, Taylor and Owen JJ, in a joint judgment said:
Kelner v Baxter was cited as an authority for the proposition that there is a rule of law to the effect that where a person contracts on behalf of a non-existent principal he is himself liable on the contract. But we find it impossible to extract any such proposition from the decision. In that case it appeared from the contract itself that the defendants had no principal; they had purported to enter into a contract on behalf of the 'proposed Gravesend Alexandra Hotel Co' and the fact that they had no principal was obvious to both parties. But it was not by reason of this fact alone that the defendants were held to be liable; the court proceeded to examine the written instrument in order to see if, in these circumstances, an intention should be imputed to the defendants to bind themselves personally, or, perhaps, to put it another way whether the intention being sufficiently clear that a binding contract was intended, there was anything in the writing inconsistent with the conclusion that the defendants should be bound personally. The decision was that, in the circumstances, the writing disclosed an intention that the defendants should be bound.

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As Erle CJ said: 'It cannot be supposed ... that the payment was contingent on the formation of the company by 28 February. The paper expresses in terms a contract to buy. And it is a cardinal rule that no oral evidence shall be admitted to show an intention different from that which appears on the face of the writing. I come, therefore, to the conclusion that the defendants, having no principal who was bound originally, or who could become so by a subsequent ratification, were themselves bound, and that the oral evidence offered is not admissible to contradict the written contract.' ... We should add that we fully agree with the observations of Fullagar J in Summergreene v Parker (1950) 80 CLR 304 concerning the basis of the decision in Kelner v Baxter. He said: 'I do not myself think that Kelner v Baxter or any of the cases cited affords any assistance in the present case. Where A, purporting to act as agent for a nonexistent principal, purports to make a binding contract with B, and the circumstances are such that B would suppose that a binding contract had been made, there must be a strong presumption that A has meant to bind himself personally. Where, as in Kelner v Baxter, the consideration on B's part has been fully executed in reliance on the existence of a contract binding on somebody, the presumption could, I should imagine, only be rebutted in very exceptional circumstances. But the fundamental question in every case must be what the parties intended or must be fairly understood to have intended. If they have expressed themselves in writing, the writing must be construed by the court. ...

In the present case, the second defendant, purporting to act as agent for a non-existent principal, namely, CMCS, purported to enter a binding agreement with the plaintiffs. In these circumstances, the plaintiffs having fully performed their obligations under the Elke lease on the basis that there is in existence a binding agreement, there is an unrebutted presumption that the second defendant intended to bind himself personally. The next question which arises for our determination is whether the first defendant is liable for the sums due to be paid by the second defendant to the plaintiffs under the Elke lease. We think not. Under the guarantee, the first defendant guaranteed jointly and severally with the second defendant all sums due to be paid by CMCS to the plaintiffs. The guarantee did not cover sums due to be paid by the second defendant to the plaintiffs. It was submitted by counsel for the plaintiffs that the first defendant cannot contend that he had only agreed to guarantee the obligations and liabilities of CMCS since he admitted in cross-examination that he would have been agreeable to stand as guarantor even if the second defendant and not CMCS had been the principal debtor. As such, the variation in the guarantee is of no consequence or prejudice to the first defendant. No authority was cited for this proposition. We are unable to accept this con. A guarantee must be construed strictly according to its terms: see 20 Halsbury's Laws of England (4th Ed) para 151. Furthermore, the terms of the guarantee in our present case are clear and unambiguous. The principal debtor is CMCS and not the second defendant. The parol evidence rule prohibits the use of extrinsic evidence to vary or alter the terms of the contract of guarantee: see s 93 of the Evidence Act (Cap 97, 1990 Ed). Estoppel by convention Before us it was contended on behalf of the plaintiffs that the first defendant had made certain representations to the plaintiffs during the course of dealing between the first defendant and the plaintiffs, and that the first defendant is therefore estopped from denying that there was a company called CMCS and that he is liable on the guarantee. This contention was raised in the court below but the learned judicial commissioner did not find it necessary to deal with it. The plaintiffs' arguments are as follows: the learned judicial commissioner found that the first defendant knew or had reason to know that CMCS was not incorporated at the material time. The evidence of the plaintiffs' managing director, Thomas Lars Enslow ('PW1') was this. PW1 said he had met the first defendant for the first time on 29 March 1983. The first defendant handed him a namecard at the first meeting although he was unable to produce the same at the trial. The first defendant told PW1 that he was working with a shipping company called Integrated Agency Pte Ltd and that he would be taking up full employment with CMCS. The learned judicial commissioner accepted PW1's evidence. The lease was signed by the second defendant on behalf of CMCS on 17 May 1983 and the first defendant was the witness to the second defendant's signature to the lease. Both the first and second defendants signed as co-guarantors under the guarantee. It was contended by counsel for the plaintiffs that the first defendant should

9 not be allowed to deny the existence of CMCS and thus escape liability under the guarantee. He referred us to the United Kingdom Court of Appeal's decision in Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84 at p 122 where Lord Denning MR said:
The doctrine of estoppel is one of the most flexible and useful in the armoury of the law. But it has become overloaded with cases. That is why I have not gone through them all in this judgment. It has evolved during the last 150 years in a sequence of separate developments: proprietary estoppel, estoppel by representation of fact, estoppel by acquiescence, and promissory estoppel. At the same time it has been sought to be limited by a series of maxims: estoppel is only a rule of evidence, estoppel cannot give rise to a cause of action, estoppel cannot do away with the need for consideration, and so forth. All these can now be seen to merge into one general principle shorn of limitations. When the parties to a transaction proceed on the basis of an underlying assumption -- either of fact or law -whether due to misrepresentation or mistake makes no difference -- on which they have conducted the dealings between them -- neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands.

In the Amalgamated Investment & Property Co case [1982] QB 84, the plaintiff company had executed a guarantee in favour of the defendant bank to secure advances to its subsidiary company, ANPP. For exchange control purposes, advances were channelled to ANPP via a subsidiary of the bank in the Bahamas called Portsoken. The loan therefore appeared in the banks' books as a loan to Portsoken and in Portsoken's books as a loan to ANPP. In reliance upon the parties' belief that the plaintiffs were bound under the guarantee to discharge any indebtedness of ANPP to Portsoken, the bank allowed the loans to remain outstanding despite opportunities to call them in. In an action by the plaintiff company's liquidator for a declaration that they were not liable under the guarantee or otherwise, the Court of Appeal held, inter alia, that the plaintiffs were estopped by convention from denying that they were bound to discharge the indebtedness of ANPP to Portsoken because the parties had in their course of dealing, acted upon the agreed assumption that the plaintiffs were liable for the loan. Estoppel by convention was described by Brandon LJ in the Amalgamated Property case [1982] QB 84 at p 130E in the following terms :
Two main arguments against the existence of an estoppel were advanced on behalf of the plaintiffs both before Robert Goff J and before us. The first argument was that, since the bank came to hold its mistaken belief in the first place as a result of its own error alone, and the plaintiffs had at most innocently acquiesced in that belief which it also held, there was no representation by the plaintiffs to the bank on which an estoppel could be founded. The second argument was that, in the present case, the bank was seeking to use estoppel not as a shield, but as a sword, and that that was something which the law of estoppel did not permit.

I consider first the argument based on the origin of the bank's mistaken belief. In my opinion this argument is founded on an erroneous view of the kind of estoppel which is relevant in this case. The kind of estoppel which is relevant in this case is not the usual kind of estoppel in pais based on a representation made by A to B and acted on by B to his detriment. It is rather the kind of estoppel which is described in Spencer Bower and Turner, Estoppel by Representation (3rd Ed, 1977) at , as estoppel by convention. The authors of that work say of this kind of estoppel, at :
'This form of estoppel is founded, not on a representation of fact made by a representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed.' Applying that description of estoppel by convention to the present case, the situation as I see it is this. First, the relevant transactions entered into by the plaintiffs and the bank were the making of new arrangements with regard to the overall security held by the bank in relation to both the UK and Nassau loans. Secondly, for the purposes of those transactions, both the bank and the plaintiffs assumed the

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truth of a certain state of affairs, namely that the guarantee given in relation to the Nassau loan effectively bound the plaintiffs to discharge any indebtedness of ANPP to Portsoken. The transactions took place on the basis of that assumption, if the assumption had not been made, the course of the transactions would without doubt have been different.

Those facts produce, in my opinion, a classic example of the kind of estoppel called estoppel by convention as described in the passage from Spencer Bower and Turner, Estoppel by Representation, which I have quoted above, and so deprive the first argument advanced on behalf of the plaintiffs of any validity which, if the case were an ordinary one of estoppel by representation, it might otherwise have. We do not think the principle enunciated in the Amalgamated Investment & Property case [1982] QB 84 applies to the present case. In that case, the parties knew the loan was being made to ANPP through Portsoken and assumed this would be covered by the wording of the guarantee. Since the loan proceeded on that basis, the parties were estopped from denying the truth of the facts so assumed. The advances did find their way to the intended borrower and the court found that it would have been unjust to allow either party to insist on the strict interpretation of the original contract. For estoppel by convention to operate in the present case, the parties must not only have assumed that CMCS exists, but CMCS should also have received the benefit of the lease agreement, but in the present case there was no entity known as CMCS to receive the benefit. Alternatively, the plaintiffs must be able to show that the parties proceeded on the understanding that the lease agreement was between the plaintiffs and the first defendant personally. There was no evidence of such an understanding. Accordingly for the reasons given above, the appeal is allowed with costs here and below. The security deposit is to be paid out to the first defendant's solicitors. <6> Appeal allowed.

Reported by Joan Francis