Re Raja Enterprises Ltd

HCCW000014/1976

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES (WINDING-UP) NO. 14 OF 1976

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Coram: A.M. McMullin, Judge of the High Court

Date of Judgment:

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DECISION

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1. What is formally before me is an application to extend time for filing an affidavit. That application arose as follows: the petitioner in these proceedings, the Moscow Narodny Bank, a company with a registered place of business in Singapore, filed, on the 17th of March 1976 a petition under Sections 117(e) and 178(a) of the Companies Ordinance. The company which it was thus sought to reduce to liquidation, the present applicant, is a Hong Kong company know as Raja Enterprises Ltd. Joint provisional liquidators were appointed by order of Baber, J. on 17th March 1976 the winding-up petition being served on the company on the 19th March 1976. On 28th April 1976 - two days prior to the date appointed for the hearing of the petition - Messrs. Hastings & Co. were instructed by solicitors in Kuala Lumpur to oppose the petition, the latter solicitors purporting to act upon instructions received from a director of the company. Messrs. Hastings prepared an affidavit for this purpose and informed the other side of the intention to oppose. The solicitors for the petitioner pointed out that the proposed opposition had not been made within the time limited in the rules (viz. 7 days from the filing of the statutory affidavit in support of the petition) and they made it clear that they were not prepared to accept service of the affidavit in opposition. On 30th April 1976 - the date appointed for the hearing - Mr. Mills-Owens for the company applied for leave to file and serve the affidavit out of time. This was opposed by Mr. Dicks, acting on behalf of the petitioner, on the ground that no good cause had been shown for the delay but Li, J. ruled that the affidavit in opposition might be filed subject to the filing of a further affidavit explaining the delay, this affidavit to be filed within 7 days of the learned judge's order. In the event the explanatory affidavit was not filed within time but it was prepared and was available 3 days out of time i.e. 10 days after the order. The solicitors for the petitioner refused to accept service of this affidavit or to agree to extend time for filing it and the solicitors for the other side thereupon applied by summons before the Registrar on the 19th of May. The solicitors for the petitioner had been informed of the difficulties encountered by Messrs. Hastings & Co. in procuring the necessary affidavit from Malaysia and the latter were told that there would be no agreement to the late filing of this affidavit any more than there had been to the filing of the affidavit in opposition. On the 18th of May - there was a flurry of activity on both sides. Affidavits were filed by Mr. McMahon for the Official Receiver as provisional liquidator of Mosbert Holdings Ltd., one of the alleged directors of the respondent company; by Mr. Osborne one of the joint liquidators appointed by the court in respect of the present petition; and by Mr. Double purporting to act for the respondent company. The affidavits of Mr. McMahon and of Mr. Osborne purported to disclose facts which, if accepted, would render the opposition of the respondent company to the petition doubtful on the face of it or even wholly illusory. They are, that is to say, directed to the matters in issue on the hearing of the petition. The affidavit of Mr. Double was solely directed to explaining the failure to file within the time limited the affidavit prepared by the company's director to explain the lateness of the attempt to oppose the petition. The application before the Registrar on the 19th of May was opposed and since it was clear that matters were to be argued which would greatly exceed the projected three minutes allotted for the hearing the Registrar adjourned the hearing which therefore came before me in open court on the 21st of May.

2. At this hearing Mr. Dicks for the petitioner took the preliminary point that the affidavit of Mr. Double, on which it was proposed to base the respondent's opposition to the petition, and which though not yet admitted in evidence has nevertheless been read and referred to both before Li, J. on the 30th of April and before myself on the present hearing, does not disclose that Messrs. Hastings & Co. are in fact acting in this matter upon instructions from any person entitled to oppose the petition. For this purpose he relies upon the contents of the affidavits of Mr. McMahon and Mr. Osborne as showing that the respondent company's opposition is without legitimate foundation in fact or law. He has referred me also to certain authorities for the proposition that once such an objection is taken it is for the party alleging retainer to show its legitimacy. Principal among those is the decision in Maries v. Maries⁽¹⁾. So far as the latter point is concerned it appears to me that the preferable authority is that relied upon by Mr. Mills-Owens, a line of cases commencing long before Maries v. Maries⁽¹⁾ with Richmond v. Branson & Sons⁽²⁾ and concluding with the decision in John Shaw & Sons (Salford) Ltd. v. Shaw⁽³⁾ and Banco De Bilbao v. Reg⁽⁴⁾. Mr. Mills-Owens contends that these cases establish that where want of authorisation to act for a party is alleged such an allegation must be made the subject of separate and substantive proceedings by way of summons or motion. However, in Daimler Co. Ltd. v. Continental Tyre Co.⁽⁵⁾ - on which Mr. Mills-Owens also relies - it was held that if at the hearing of an action it appears that the plaintiff could not have authorised the action, it ought to be struck out. This latter decision, indeed affords the petitioner the strongest authority for what on the face of it seems a bold and surprising tactic. It is not denied that Mr. Mills-Owens is instructed by Messrs. Hastings & Co. nor that Messrs. Hastings & Co. have indeed received instructions to oppose from Messrs. Allen & Gledhill, solicitors in Malaysia. It is, I think, not contested that the latter have their instructions from a Mr. Choh Yet who professes to be a director of Raja Enterprises Ltd. In the normal course of events one would think that such circumstances could disclose no doubt as to the authority and the legitimacy of retainer. I will deal later with the factors which are urged against its legitimacy but first I will deal with the procedural point.

3. I am satisfied that the authorities establish (a) that in most cases a challenge to the legitimacy of an opponent's retainer must be by way of summons or motion separately instituted for that purpose; but that, (b), if, on the hearing of an action the objection is made and the facts unequivocally disclose a want of proper authority in a solicitor's instructions the court, may and ought to consider that objection and if it is sustained, strike out the action. My difficulty in dealing with this matter has arisen principally from the fact that I am not at the moment concerned with the hearing of the petition at all. I have not, strictly speaking, even advanced to the point where I am dealing with the substantial application before me - the application for an extension of time to file and serve Mr. Double's second affidavit. Nevertheless, I have permitted not only the affidavits of Mr. McMahon and Mr. Osborne to be read and referred to but have received from those deponents in court a quantity of information concerning the dealings which the Official Receiver's offices has had with the respondent company and other companies within the Mosbert Group. Strictly speaking this is information which should also have been on affidavit and it is information which bears primarily upon the merits of the petition. On the face of it therefore there is much to be said for Mr. Mills-Owens' objection that the court has heard only one side of the case and that he should be given at least an opportunity of replying upon affidavit or otherwise to the many damaging allegations made against the status of his purported client and consequently against the status of his own instructions. I can only say that I am mindful of the need to see that justice is done to both sides and that, having permitted the application of Mr. Dicks to be taken by way of preliminary objection in this way, I am aware that it can be successful only if, upon the matters placed before me coupled with what is admitted expressly or impliedly, or at any rate not denied upon the other side, it is clear beyond question that those professing to instruct Messrs. Hastings could not legitimately have done so.

4. The objections taken to the mandate of Messrs. Hastings & Co. have been many and varied but they may be said to reduce to three principal complaints. Firstly, it is said that the originator of Messrs. Hastings instructions - Mr. Choh Yet, who professes to instruct the solicitors as a director of the respondent company, is not in fact a director at all and, that being the case, the root of authority dissolves since it has not been alleged that he is authorised by virtue of any other connection with the company to instigate opposition to the proceedings. This was the special burden of the address of Mr. Dowson, who was permitted to address the court on behalf of the Official Rexeiver as liquidator of Mosbert Holdings Ltd. a company at present being wound up by him.

5. Secondly, it is said that, on available evidence, including the respondent company's own showing in affidavit, the company is so clearly insolvent and unable to pay the debts that even if Choh Yet is clothed with the authority of a director the state of the company is enough on its own to show that no valid grounds exist for opposing the petition and that any instructions given in that behalf must patently have been so insubstantial and wanting in regard for the interests of creditors and shareholders alike that the solicitors were no more justified in accepting such instructions then was Mr. Choh Yet in giving them. This was principally the line taken by Mr. McMahon of the Official Receiver's Office who, by permission of the court, addressed on behalf of Mosbert Acceptance Ltd. - one of the creditors of the respondent company - and also on behalf of a number of other creditors. It should be said however that Mr. Dowson and Mr. Dicks (for the petitioner) also dwelt at some length on the financial inadequacy of the company as an indication of the unreality of the attempt to oppose the petition.

6. Before turning to the third major objection - which appears to me to constitute the decisive consideration upon the present application is to be decided, I should say that very weighty matters indeed were advanced in support of the first two objections. Leaving aside many subsidiary factors in the way in which the affairs of Raja Enterprises Ltd. have been conducted and which might be said to give rise to legitimate suspicion of the honesty of its present apparent struggle to survive, I will mention only the following items. Firstly, there is the fact that on 1st January 1976 a return made to the Companies Registry under s.158 of the Companies Ordinance shows only two directors of Raja Enterprises Ltd. viz. : Horace Felix Paglar (who I am told is an employee of the company) and Mosbert Holdings Ltd. The latter passed into the hands of the Official Liquidator by order of the court on 7th February 1976. Yet shortly after this a further return was received by the registry - dated 17th February 1976 - which purports to show that Mosbert Holdings Ltd. resigned from the directorate of Raja Enterprises Ltd. on 13th February 1976 and, further, that four other directors, including Mr. Choh Yet, had been appointed on 12th February 1976. Mr. Dowson points out that the resolutions resulting in these alleged cheques were made after he had stepped into the shoes of Mosbert Holdings Ltd. as liquidator and that therefore since neither he nor anyone else representing Mosbert Holdings for the liquidator - the then custodian of the interests of the shareholders - authorized this move or was present at the meetings when these resolutions were passed, such resolutions must be null and of no effect. This would, he says, be enough to annul the validity of the appointment of Mr. Choh Yet and a scrutiny of the company's returns, available at the registry, would have put the Hong Kong solicitors on inquiry as to the true status of their instructions from Malaysia.

7. As to the second major objection, that relating to the state of the company's solvency, Mr. McMahon draws attention to the affidavit of Mr. Double - which Mr. Mills-Owens seeks to introduce and rely upon on the hearing of the petition - in which it is said (para. 4) that the principal ground for opposing the petition is that the company has assets which if realised will be sufficient to pay off all its creditors and leave a balance over for the shareholders. On this he makes 2 points. Firstly he relies on the principle enunciated at page 460 of the 13th Edition of Buckley On the Companies Acts where the nature of commercial insolvency is being considered in relation to the provisions of s.223 of the English Act. That section is for material purposes the same as s.178 of Cap. 32. The principle is put in these terms:

"The particular indications of insolvency mentioned in paras (a), (b) and (c) are all instances of commercial insolvency, that is of the company being unable to meet current demands upon it. In such a case it is useless to say that if its assets are realized there will be ample to pay twenty shillings in the pound: this is not the test. A company may be at the same time insolvent and wealthy."

Even assuming that Mr. Choh Yet is a director empowered to give instructions to solicitors no director, Mr. McMahon says, can be heard to oppose a petition on the ground that the company is not insolvent, and no solicitor should accept instructions on such grounds when those instructions themselves reveal a patent case of commercial insolvency.

8. Secondly, he says that the very message by telex from the Malaysian solicitors which Mr. Mills-Owens produced at the first day of hearing and on which he relied to show that the company has succeeded in making arrangements for the repayment of the outstanding loan of $230,718.60 U.S. to the petitioner, itself discloses that the land known as Taman Intan, the company's principal - and as I understand its only - asset, has been so dealt with that this asset cannot in any case be presently realized. Mr. Dowson elaborated upon the same theme when he detailed the history of the land from the time of its purchase by Raja Enterprises Ltd. in March 1973. Indeed it would appear to be undisputed that the respondent company has so behaved that it might fairly be said to have attempted to sell itself body and soul - the animating spirit represented by its share voting power having been disposed of to Mosbert Holdings in December 1973 and its substance - the land - made the subject of an agreement for sale and purchase to another Mosbert Company - Mosbert Berhad - on the 17th January 1974. (the latter transaction was in fact in breach of a specific provision forbidding such a sale, contained in the instrument of charge executed by the respondent company in favour of the petitioning bank to secure a loan in January 1973).

9. Now while these several objections, singly and in combination, might be said to constitute good ground for holding that Mr. Choh Yet was without authority to instruct Messrs. Allen & Gledhill, I have kept in mind that some reply might be made to them upon affidavit or otherwise were the respondent given an opportunity to do so; a reply which might be capable of rebutting these allegations or at any rate of showing them in a different light. I must add that I am very doubtful of the success of such an enterprise but because I am dealing with a situation in which one side only has so far had an opportunity of bringing up its heavy guns I might on these ground have felt reluctant to shut the parties for whom Mr. Mills-Owens appears out from any further hearing. It might not be beyond the ingenuity of Mr. Choh Yet or those instructing him, to supply reasonable answers to the serious objections urged against his position as spokesman for the company. But when I turn to consider the third major objection - that put up by Mr. Dicks - it seems to me, when the whole of the rather confusing material concerned principally with the merits of the petition itself is set on one side, that there then emerges finally into view one plain and simple reason, patent upon the undisputed facts, which obliges me to uphold to Mr. Dicks' objection.

10. Mr. Mills-Owens, as I understand him, concedes that if the Official Receiver is indeed the beneficial owner (as liquidator of Mosbert Holdings Ltd.) of virtually all the shareholding power of the respondent company and was so at the date when Mr. Choh Yet purported to instruct Messrs. Allen & Gledhill to oppose the petition then, on the principle enunciated in Marshall's Valve Gear Co. Ltd. v. Manning, Wardle & Co. Ltd.⁽⁶⁾ and the several other cases appearing in footnote 2 to para. 766 of Volume 7 of the 4th Edition of Halsbury, the Official Receiver as majority shareholder in Raja Enterprises Ltd. is the proper person to represent the company for all purposes of litigation. In these circumstances he and not Choh Yet or any other officer of the company would be the only legitimate source of instructions for any such purpose. It is also conceded that Mosbert Holdings is the registered owner of 4,199,998 of the 4,200,000 of the issued and paid up shares in Raja Enterprises Ltd.

11. What is urged in favour of the validity of Mr. Choh Yet's instructions to Messrs. Allen & Gledhill is that there may have been a legitimate transfer of all these shares to another company prior to the winding up of Mosbert Holdings Ltd. - such transfer not yet having been registered - so that the Official Receiver may not in fact be the representative of the shareholders. This suggestion is dealt with in para. 2 of Mr. McMahon's affidavit. Be it noted that it is upon this one slender thread that the legitimacy of the instructions given by Mr. Choh Yet hangs. Mr. McMahon puts it that there is a strong probability that the whole of the issued share capital is owned beneficially by Mosbert Holdings Ltd. by virtue of a share certificate dated 8th October 1973 in favour of Mosbert Holdings showing a figure of 41,199,998 shares and a certificate for 2 shares in the name of Mosbert Finance Nominees Ltd. dated 22nd March 1973 both of which are in the possession of the Official Receiver as liquidator of Mosbert Holdings. This is indeed to put the matter cautiously. The annual return for Raja Enterprises Ltd. as at 31st December 1975, filed with the registry on 13th January, 1976 shows this shareholding to be unchanged. Mr. Dicks puts the matter much further. He points out that even new the putative respondent (i.e. Mr. Choh Yet purportedly speaking for Raja) has been able to do no more than suggest that there may have been a lawful transfer of the Mosbert Holdings shares to another company - Singapore Trading Co. (pte.) Ltd. a company incorporated in Brunei. Then counsel enlists s.71 of the Companies Ordinance which provides that a share certificate under the common seal of the company shall be prima facie evidence of the title of the named member to the shares set out in it. This, he says, means the whole of the title to the shares not just the legal title. I think that he is right and that where this evidence exists it must be dislodged by positive evidence showing the ownership to be in someone else. Whether he is right to press this presumption to the full length of an estoppel is to my mind more doubtful. I would hesitate to agree that the passage on which he relies at para. 389 of the 4th Edition of Halsbury could, in the circumstances here, take him to the length he contends for, viz. that the company (as represented by Choh Yet) would in virtue of the certificate be estopped from showing that there had been a valid transfer.

12. However that may be, it matters not. Mr. Mills-Owens pins his hopes in this regard upon three documents: (1) the resolution dated 9th December 1974 by the directors of Mosbert Holdings resolving that all the 41,200,000 shares in Raja Enterprises Ltd. be transferred to Singapore Trading Co. (Pte.) Ltd. Brunei; (2) the document purporting to be a deed of trust in favour of Singapore Trading Co. (Pte.) Ltd. but unsealed; (3) a purported instrument of transfer of the shares to that company which is blank to the extent that it is undated and does not contain the name of the transferee. Mr. Dowson has pointed out that the declaration of trust has not been stamped and therefore could not in any event be enforced. To that must be added - although the point went unnoticed at the hearing - that neither the alleged trust deed nor the instrument of transfer was stamped and therefore by virtue of the provisions of s.7(1) of the Stamp Ordinance neither of these documents ought even to have been received in evidence.

13. For all that, if I thought that there was a reasonable possibility that, given the opportunity, the putative respondent to those proceedings - and by that I mean the company as purportedly represented by those instructing Messrs. Hastings & Co. - could show that the beneficial title in these shares was no longer in Mosbert Holdings Ltd. I would be slow to refuse Mr. Mills-Owens the right to be heard in opposition to the petition. It is to his credit - and that of his solicitors - that over the weekend which intervened upon the hearing of this matter he endeavoured to clear the situation by communicating with the solicitors in Malaysia. The only fruit of that last ditch effort - and one uncomplainingly laid before this court - was that he was informed that there was a dispute as to the ownership of the shares. Nothing, that is to say, appears to be available to give substance to the illusory promise of the incomplete, part blank, unsealed, unstamped unregistered documents which constitute the only shred of material alleged to show that Mr. Choh Yet or any other officer of Raja Enterprises Ltd. is in a position to override the unanimous voice of the company as represented by its voting power, now in the hands of the Official Receiver. I agree with Mr. Dicks that the circumstances here are equally clear against authorised retainer as they were in the Daimler Co. v. Continental Tyre & Rubber Co.⁽⁵⁾ case. I must conclude therefore that, however it came about, whether by the inherent complications of the affairs of these many related companies or by virtue of the difficulties of communication between many advisers in different countries or by these factors in combination, Messrs. Hastings & Co. do not have authority from Raja Enterprises Ltd. to oppose the petition. The application to extend time for filing the explanatory affidavit is therefore nugatory and must fall with every other motion in the proceedings made in the name of the company at the instance of Mr. Choh Yet.

14. For completeness I should add that I have considered the point made by Mr. Mills-Owens in dealing with Mr. Dicks' contention that once the company is shown to be insolvent the petitioning creditor is entitled to the court's order ex debito justitiae. Mr. Mills-Owens points out that if arrangements were shown to be in train which gave a better hope of payment than would a winding-up order the court may at the request of the company adjourn the petition. (Gore Brown on Companies 42nd Edition P.911). I do not intend to go over the many objections taken to the offer of settlement adumbrated in the telex message, although I think there may be substance in the suggestion that Mr. Choh Yet is there shown to be acting in several contradictory interests. What is more important to my mind is that - even if this is an offer to pay the petitioner's debt - this petitioner is not the only creditor involved and I doubt that the court would be willing to grant an adjournment for the benefit of one creditor and to the possible detriment of all the rest. That is, however, by the way. For the reasons already given I hold that Mr. Dicks' application must succeed and the adjournment is refused.

Representation:

(1) (1854) 23 L.J. C1. D.S. 154

(2) (1914) 1 Ch. 968

(3) (1935) 2 K.B. 113 (C.A.).

(4) (1938) 2 K.B. 176 (AT P. 192).

(5) (1916) 2 A.C. 307.

(6) (1909) 1 Ch. 267