Re Maf Credit Ltd

HCMP000560/1977

IN THE SUPREME COURT OF HONG KONG

MISCELLANEOUS PROCEEDINGS

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Coram: Mr. Commissioner Liu, Q.C. in Court.

Date of Judgment: 26th September, 1977

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JUDGMENT

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1. In these proceedings, Manhattan Borneo Finance and Trust Corporation Limited (hereinafter referred to as "MBF"), a Borneo private company in compulsory liquidation, by its Provisional Liquidator appointed by the High Court of the State of Brunei seek to move the Court for rectification of the Members Register of MAF Credit Limited (hereinafter referred to as "MAF") in connection with 15,048,000 ordinary MAF shares of HK$1 each. By a summons filed in these proceedings on the 22nd September, 1977, San Imperial Corporation Limited (hereinafter referred to as "San Imperial") apply to be joined as a party under Order 15 Rule 6 of the Rules of Supreme Court.

2. The sequence of events is set out below in chronological order:

3. Form these facts, the determination of San Imperial and MBF is equally evident, one with a view to halting the registration and the other successfully securing registration.

4. Mr. Lane for San Imperial launched a peripheral attack on the background of these 15,048,000 shares with microscopic care. ANL was the exclusive nominee of some of CHOO Kim-san's shareholdings, and at the time when these shares were handed to Mr. Lau by Mr. Choo for MBF's loan security in early August, 1976, they were then beneficially owned by Mr. Choo. The following facts were narrated by counsel for San Imperial with grave scepticism:-

5. Counsel for San Imperial refrained from making any allegation of fraud or impropriety, but it was contended that the surrounding circumstances were enough to put MBF to strict proof in these proceedings that the said 15,048,000 shares were in fact so transacted and delivered as loan security. Criticisms levelled at the lack of reference to the said 15,048,000 shares in the Loan Agreements and other documents brought to the notice of this Court appear to stem from a failure to appreciate the possibility of an equitable charge. Strong emphasis was unnecessarily placed on the mammoth assets of the two Indonesian companies charged by the debentures; the modulating value of the non-crystallized asset of a trading enterprise and the pitfalls of a floating charge also seem to have been overlooked. Commercial institutions have, not infrequently, to match rules and regulations with commensurate maneuvres, and an offer of a man's own shares as security for loans made by a company in his control is certainly not beyond the acceptable code of decorum in the sometimes intricate and sophisticated affairs of business of to-day.

6. It is plain that San Imperial have not taken the stand of a rival claimant to the beneficial interest in these 15,048,000 shares; nor indeed have they remotely disclosed any legal interest in the matter before the Court i.e. registration of transfers. It has never been canvassed in this suit that San Imperial is a "necessary party" who ought to have been joined so as to have these proceedings properly instituted. Mr. Lane relied exclusively on Order 15 Rule 6(2) (b) (ii) which may be conveniently set out below:-

"At any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application order any of the following persons to be added as a party, namely, any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter."

7. MBF are now armed with the share certificates and the thirteen duly executed Transfer Forms which have been presented for registration. Counsel's critical remarks on the transfer of these 15,048,000 shares are not well founded and, in my view, fall far short of inducing any state of suspicion. San Imperial are in no position to challenge the status of MBF as transferees and as such entitled to be registered. They possess no first-hand knowledge as to why or how these shares came into the hands of MBF, but it is submitted that by reason of the surrounding circumstances MBF should not be allowed to be registered until they have proved to the Court's satisfaction that these shares were delivered to them as loan security. That argument is obviously fallacious. Then Mr. Lane urged that San Imperial was entitled to be joined as their interests would be affected. Judgment for $1,641,000.00 was obtained by San Imperial against CHOO Kim-san on the 31st August, 1977, and counsel submitted that joinder of San Imperial was such as would enable the Court to effectually and completely adjudicate upon and settle all the questions involved in the cause or matter. It should not be forgotten that the cause or matter in these proceedings is the registration of the 15,048,000 MAF shares. It is not disputed that "prima facie, the Plaintiff is entitled to choose the person against whom to proceed, and to leave out any person against whom he does not desire to proceed" ⁽¹⁾ and that generally he cannot be compelled to proceed against other persons whom he has no desire to sue. However, counsel for San Imperial relied heavily on the case of Dollfus Mieg Et Compagnie S.A. v. Bank of England⁽²⁾ where the Bank of England held for safe custody 64 gold bars for the allied Governments pending their ultimate disposal, and the Plaintiff in that action claimed delivery of the gold bars. After the sale of 13 of those gold bars in error had been exposed, the foreign Governments applied to be joined as defendants to the action. That the proprietary right of an intervener must be directly affected by the proceedings was not doubted in principle. At page 42, Wynn-Parry J. had this to say in his judgment: "The Applicants (the foreign Governments) will retain the possession and control over the remaining bars of gold, and will be able to dispose of them. In other words, although the applicants do not assert title to the bars of gold, the result of the successful intervention by them would be that, as between the Plaintiffs and themselves, they would, for all practical purposes be the owners". It is thus quite clear that the right of an intervener must be at least akin to the proprietary right of an owner of the subject matter in suit. Mr. Lane sought to expand this principle by referring to Gurtner v. Circuit⁽³⁾ where it was held that whenever the determination of an action between two parties would directly affect a third person's legal rights or his pecuniary interest, the Court has a discretion to order him to be added for the effectual and complete adjudication on all the matters in issue. In that case, the Motor Insurers' Bureau had given an unqualified undertaking to the Minister of Transport to pay to an injured pedestrian all sums remaining unpaid 7 days after he obtained a judgment against any driver in respect of his liability from negligent driving of a motor vehicle. The defendant driver had immigrated to Canada and could not be located for service. The Plaintiff obtained substituted service on the absent Defendant, and the Motor Insurers' Bureau applied to be joined. Diplock L.J. at p.603 E/F commented: "I desire to emphasize that my judgment in the present case is based upon the special position of the Bureau under its contract with the Minister. What reasons influenced the Government to adopt is oblique and extra-statutory way of imposing liability upon the Bureau, despite legal complications this involves, I do not know. But the Court has accepted as it is and try, so far as permitted by the rules, to make it work with justice to the Bureau as well as to the persons for whose benefit the Minister made the contract. Nothing that I have said is intended necessarily to have any wider application than to this unique legal situation resulting from the Minister's contract with the Bureau. I prefer to decide other cases on their own different facts when they arise." Subject to such guarded language, the learned Lord Justice had earlier decided at p.602 G that "Clearly the rules of natural justice require that a person who is to be bound by a judgment in an action brought against another party and directly liable to the Plaintiff upon the judgment should be entitled to be heard in the proceedings in which the judgment is sought to be obtained. A matter in dispute is not, in my view, effectually and completely 'adjudicated upon' unless the rules of natural justice are observed and all those who will be liable to satisfy the judgment are given the opportunity to be heard." Lord Denning M.R. observed at p.595 D/E: "It seems to me that when two parties are in dispute in an action at Law, and the determination of that dispute will directly affect a third person in his legal rights or in his pocket, in that he will be bound to foot the bill, then the Court in its discretion may allow him to be added as a party on such terms as it thinks fit." and at p.596 D/E: "It is thus apparent that the Motor Insurers' Bureau are vitally concerned in the outcome of the action. They are directly affected, not only in their legal rights, but also in their pocket. They ought to be allowed to come in as defendants. It will be most unjust if they were bound to stand idly by watching the Plaintiff get judgment against the Defendant without saying a word when they are the people who have to foot the bill."

8. It is not suggested that any legal rights or proprietary interest of San Imperial will be affected, let alone directly affected. No argument has been advanced that San Imperial has any rights akin to the proprietary rights of an owner to these 15,048,000 MAF shares. The result of these rectification proceedings will not directly affect San Imperial's pocket, and their position can, by no means, be equated with that of the Motor Insurers' Bureau in Gurtner v. Circuit, ⁽⁴⁾. The highest Mr. Lane for San Imperial can legitimately put his submission is that registration might possibly hinder the enforcement of their judgment against Mr. Choo, and to this aspect I will return.

9. Mr. Mills-Owens for MBF relied on In re I.G. Farben-industrie A.G. Agreement⁽⁵⁾. In that case, Bayer, the well-known drugs manufacturers, applied for certain patents standing in the name of Farbenindustrie, a German company, to be vested in them, Bayer. The intervener, Boots Drugs Company, applied to be added as a party to the application. Boots had been granted a licence in respect of some of the patents in question. It was held by the Court of Appeal that a commercial interest in the proceedings would not entitle a person to be added as a party. The trial judge added Boots as a party, and Lord Greene, M.R. at p.44 criticized the trial judge as follows: "Morton J., while accepting the view that Boots's interest was merely a commercial interest, clearly thought it desirable that the Court should have before it somebody to argue that point. With all respect to him, that did not give him jurisdiction to call in somebody to argue it for him as amicus curiae and to add as a party to the summons somebody who had no legal interest in its result. It would be equally suitable to call in the first person whom one happened to meet in the street."

10. Plainly, San Imperial cannot be said to be directly affected by these proceedings in their legal rights or in their pocket. They are not directly concerned in the outcome of the registration sought. San Imperial obtained a judgment for $1,641,000.00 against Mr. CHOO Kim-san on 31st August, 1977, and their sole interest lies in the enforcement of that judgment which cannot, in my view, be materially affected by the registration of these 15,048,000 MAF shares. Mr. Lane was content not to address the Court on the possibility of a Stop Notice under Order 50 Rule 11 or a Prohibitory Order under Order 50 Rule 15, but he submitted that a registration of these 15,048,000 MAF shares would render the recovery of the judgment debt by his clients more tortuous. It can hardly be contested that the registration of the said 15,048,000 MAF shares would in some way materially affect San Imperial in their pursuit of the fruit of their judgment. I have made reference to a Stop Notice under Order 50 Rule 11 and a Prohibitory Order under Order 50 Rule 15 issued at the instigation of a beneficial owner of company stock including a judgment creditor who has obtained a Charging Order Absolute upon the contingent equitable interest of a judgment debtor in such stock. And I need not stress too strongly that if San Imperial ever succeeds in reinstating the Charging Order on appeal, the same 15,048,000 MAF shares may still be charged on the same allegation.

11. There is yet a further authority to which I need refer. It is the case of Adam v. Bank of England⁽⁶⁾. The Plaintiff in that case sought a declaration against the Bank of England that he was entitled to effect a transfer of inter alia certain bank stock on which Charging Order Absolute was made. Joyce J. observed that whether the Bank was bound to permit the transfer in the face of the Charging Order Absolute was unarguable and commented that there was no necessity for the judgment creditor, who had a mere equitable interest by virtue of the said Charging Order Absolute, to be joined as a party to the action. Even if San Imperial were able to show any pretence of a right to be joined, the circumstances in this case which I do not propose to repeat would favour the exercise of my discretion adverse to their interest. Furthermore, the said 15,048,000 shares now applied to be registered represent 52% of the issue capital of MAF, and San Imperial presently hold a meagre 23%. It is not a hollow insinuation that if the registration of the 15,048,000 MAF shares could be held in abeyance, San Imperial would be in a position to rule the day for months to come. I am perfectly satisfied that even if San Imperial had been able to show any pretence of a right to be joined, it would neither be a proper nor a satisfactory course to take, in the exercising my judicial discretion, to join them as a party to these proceedings. The conduct of San Imperial is far from being commendable, and a more stringent order of costs should be made to reflect the displeasure of this Court.

Representation:

Mr. Mills-Owens instructed by Deacons for Manhattan Borneo Finance.

Mr. Will iam Lane instructed by Messrs. Philip K.H. Wong for San Imperial Corporation Limited.

Mr. Kotewall instructed by LIU, CHAN & LAM for MAF Credit Limited.

(1) p.180 White Book 1976, marginal reference 15/6/7.

(2) [1951] 1 Ch. 33

(3) [1968] 2 Q.B. 587.

(4) ibid.

(5) [1944] 1 Ch. 41.

(6) (1908) 52 S.J. 682.