AGRICULTURAL DEVELOPMENT BANK v. WEST LAUREL CO. LTD. & ORS

J U D G M E N T

DR. TWUM, J.S.C.: This is an appeal from the judgment of the Court of Appeal given on 13 June 2006.

The facts that spawned the litigation between the parties may be summarised as follows: The Agricultural Development Bank, the plaintiff-respondent (hereinafter called the bank), carried on banking business in Ghana and had a branch in Takoradi. The head office was of course in Accra. West Laurel Co Ltd, the first defendant-appellant (hereinafter called the first defendant) carried on business with the bank at the Takoradi branch. Subsequently, a third account was opened by the first defendant in Kumasi.

In or about 1993, the first defendant entered into two separate contracts with South Korean companies for the sale and shipment of Ghana timber of various species to them. In order to assure the first defendant that the timber would be paid for the companies instructed their bankers to open two commercial letters of credit in favour of the first defendant. These were numbered as CF 93054f154 and 54732f07006, respectively. The first defendant did not have sufficient money to finance the said contract and it applied for ¢200 million (¢200,000,000) overdraft from the bank for the purpose. The application was approved. The approval letter contained a number of conditions such as the interest payable thereon and its validity period. One other condition was that "all proceeds from the letters of credit should be channeled through the first defendant's accounts with the respondent (the bank). The first defendant agreed to all these conditions in its letter of acceptance of the overdraft. It is common cause that the first defendant was really not a timber producer. Consequently, it sub-contracted the actual production, haulage and shipment of the logs to some 200 producers. There was some controversy about how much these producers got paid for. More about this anon!

The litigation

on 24 July 1997, the bank instituted proceedings in the High Court, Sekondi, against the first defendant and three others, namely, the second, third and fourth defendants-appellants jointly and severally. The gist of the bank's cause of action was that at the request of the first defendant it allowed the first defendant to overdraw its current account maintained with it up to a limit of ¢200 million. The bank averred that the repayment of the overdraft was secured by buildings owned by the third, fourth and fifth defendants, all directors of the first defendant company