Court of Appeal's judgment of particular interest both for company law and civil procedure and for the law of evidence in banking disputes.
Trambako Holdings Ltd and Others v. Alpha Bank Cyprus Ltd — Civil Appeal No. 87/2018, Court of Appeal of Cyprus, 25 November 2024
Bench: D. Kitsios, M. Ambizas, M. Toumazi, JJ. (unanimous judgment)
By its judgment dated 25 November 2024, the Court of Appeal of Cyprus allowed the appeal brought by our firm's clients, set aside the first-instance judgment of the District Court of Larnaca in Action No. 191/2011 and dismissed the bank's action, with costs both at first instance and on appeal (€5,400 plus VAT) awarded in favour of the appellants. The judgment is of particular interest both for company law and civil procedure and for the law of evidence in banking disputes.
Background
In 2018, Alpha Bank Cyprus Ltd obtained a first-instance judgment against two companies and an individual, on the basis of loan agreements and banking facilities allegedly granted to the first company, guaranteed by the second company and the individual. In their Statement of Defence, the defendants had denied the execution of the disputed agreements, had put the bank to strict proof of both their execution and their contents, and had advanced the specific positive averment that the agreements had not been signed by the companies' authorised organs, in breach of their articles of association and/or in excess of their powers (ultra vires).
At the first-instance hearing, the Court refused to allow the evidence of the forensic handwriting expert called by the defence in relation to the signatures on the agreements, as well as the evidence of a certified accountant regarding the alleged outstanding balance, and entered judgment in favour of the bank.
The preliminary issue: death of the sole director and counsel's authority
Before the hearing of the appeal, the bank applied for its dismissal under Part 41.9 of the Civil Procedure Rules, arguing that, following the death of the appellant companies' sole director, who still appeared as an officer in the register of the Registrar of Companies, there was no longer any valid authority given to counsel to pursue the appeal.
The Court of Appeal rejected the application, on reasoning of broader practical significance:
First, since the authority given to counsel had been duly granted and its validity was not in dispute, the subsequent death of the director was an internal matter of the company concerning its decision-making, which did not affect the continuation of the valid authority already given for the filing and prosecution of the proceedings.
Secondly, the Registrar of Companies does not determine the status of a company's directors, it is for the company itself, following its own prescribed procedures, to appoint or remove its directors. The fact that registration of the change of director remained pending before the Registrar could not justify what would in substance amount to a deprivation of the right of access to justice.
Thirdly, the Court of Appeal invoked section 174 of the Companies Law, Cap. 113, which establishes the presumption of regularity of a director's acts, notwithstanding any defect that may afterwards be discovered in his appointment or qualifications.
Finally, the Court of Appeal recalled that the power to strike out an appeal under Part 41.9 is exercised only on specific grounds, where the appeal is inadmissible, frivolous, manifestly unfounded or brought for the purpose of delaying the administration of justice, none of which underpinned the bank's application.
The merits: the burden of proving execution of the agreements
On the merits, the Court of Appeal examined as a matter of priority grounds of appeal 1, 3 and 7, which concerned the refusal to admit the handwriting expert's evidence, the burden of proving execution of the agreements, and the violation of the right to a fair trial.
The Court of Appeal found that none of the bank's witnesses had any personal knowledge, nor did they offer even hearsay evidence, as to who had signed the disputed agreements on behalf of the companies and whether that person was authorised to do so. Although counsel for the bank had stated at first instance that he would call a witness specifically on the manner in which the agreements were signed, no such witness was ever produced and the bank's case was closed without proof of execution.
Of particular significance is the Court of Appeal's approach to the absence of cross-examination. The trial court had taken the view that, since the defendants had not challenged the signatures through cross-examination, the burden of proof had shifted to them. The Court of Appeal, applying Hellenic Bank Finance v. E.T. Autospares Enterprises Ltd (1998) 1 C.L.R. 843, made clear that a failure to cross-examine does not amount to an admission in relation to matters on which the witness gave no evidence at all: counsel for the appellants had nothing to cross-examine on regarding the signatures, since the bank's own witnesses had made clear from the outset that they knew nothing about the preparation and signing of the agreements. The rule that failure to cross-examine on a material part of the evidence generally amounts to an admission presupposes the existence of substantive evidence on the issue in dispute.
Furthermore, the Court of Appeal held that the appellants' pleaded case of improper execution of the agreements remained live and was never abandoned, on the contrary, relevant suggestions were put in cross-examination. The signatures on the agreements were a matter in issue, and the defence handwriting expert's evidence should therefore have been allowed. Depriving the appellants of the right to adduce evidence in support of their pleaded case constituted a violation of the right to a fair trial under Article 30 of the Constitution and Article 6 of the ECHR.
The outcome
The Court of Appeal concluded that the evidence adduced did not justify a finding that the disputed agreements had been executed and that the bank had failed to discharge the burden of proof it bore. The appeal succeeded, the first-instance judgment was set aside and replaced with a judgment dismissing the action, with costs at first instance and on appeal in favour of the appellants.
Practical takeaways
The judgment confirms that in bank actions on loans and guarantees, where the execution of the agreements is expressly disputed in the pleadings, the mere production of the documents as exhibits is not sufficient, the bank must adduce positive evidence proving that the signatures were placed by duly authorised persons. At the same time, it makes clear that the failure to cross-examine a witness cannot operate as an admission on matters about which the witness gave no evidence, and that the death of a company's sole director does not overturn an authority validly given to its lawyers to pursue legal proceedings, irrespective of any pending update of the register of the Registrar of Companies.
Our firm represented the appellants in these proceedings. This note is for information purposes only and does not constitute legal advice.