Re Raja Enterprises Ltd

HCCW000014A/1976

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES WINDING-UP

NO. 14 OF 1976

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Coram: McMullin, J.

Date of Judgment: 29 March 1978

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DECISION

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1. The three summonses before me deal with the question of costs arising from my decision of the 27th May 1976 in which I reserved the question of costs for further argument should the parties find themselves unable to agree an order between them. Mr. Dicks instructed by Messrs. Hampton Winter and Glynn appears on behalf of the petitioner, the Moscow Narodny Bank, and Mr. Eddis appears for the Official Receiver who is here represented in two capacities, firstly as liquidator of Mosbert Holdings Ltd. a holding company in a group known as the Mosbert Group and which is the major shareholder in Raja Enterprises Ltd. the respondent to the Moscow Bank's petition; secondly the Official Receiver is represented as liquidator of Mosbert Acceptance Ltd. another of the Mosbert Companies and itself a creditor of Raja Enterprises. All three summonses seek orders for costs against Messrs. Hastings & Co. solicitors personally on the footing of my decision of 27th May pursuant to which it was ordered that the purported representation by Messrs. Hastings & Co. of Raja Enterprises Ltd. in opposing the petition be vacated for want of duly authorized instructions from that company, certain other consequential orders being also made. The three summonses are couched in closely similar terms. I must add that, although the point escaped my notice at the hearing and, it would seem, the notice of counsel as well, each summons affords a further example of what I can only describe as a strange carelessness affecting the procedural observances of those opposing Messrs. Hastings & Co. which, in the course of the hearing, resulted in argument concerning the accuracy of certain statements in the affidavits of Mr. Morgans and Mr. Dowson filed on the 19th July 1977 the date of filing of the present summonses on behalf of the Official Receiver. The latter two summonses closely follow the wording of that filed by the petitioner on 27th June 1976 and each summons contains a prayer couched, with slight variations, in terms that the costs claimed should include the costs "of and incidental to the application before Mr. Justice Li on 30th April 1976 ..." that Messrs. Hastings & Co. be removed from the record as having no authority to represent Raja Enterprises Ltd. Now unless I am very much mistaken in my understanding of what transpired before Li, J. on 30th April 1976 - and I rely on what counsel have told me there being no official note of the proceedings on that day - it seems quite clear that no such application was ever made to Li, J. An objection in very general terms to the locus standi of Messrs. Hastings & Co. having been made by Mr. Dicks on behalf of the petitioner, in answer to a very late attempt by counsel for Raja Enterprises Ltd. to file an affidavit opposing the petition, Mr. Mills-Owens succeeded in obtaining an adjournment for the purpose of explaining the delay by a further affidavit and a fresh date was set for the hearing of the petition. It was upon that later date - 21st May 1976 - when the petition itself and a further application by Messrs. Hastings asking for an extension of time to file the affidavit directed by Li, J. came before me - that Mr. Dicks for the first time explicitly sought an order dismissing Messrs. Hastings & Co. from the case for want of instructions a plea which was supported in general terms by Mr. Dowson and Mr. McMahon for the Official Receiver who - upon the 24th May - they were granted leave to address the court. I will assume therefore that the second prayer in each of these three summonses makes reference to the informal applications made on the 21st and 24th May 1976 and I pass from this preliminary obscurity to the substance of the present applications.

2. At the hearing before me on the 21st and 24th May 1976 the assault upon the position of Messrs. Hastings & Co. was mounted from three distinct angles. Their instructions were said to be patently illusory (a) because the purported opposition to the petition was urged on the ground that Raja Enterprises could pay off its creditors whereas, it was argued, the available evidence showed that it was truly insolvent; (b) because the instructions to Messrs. Hastings & Co. from the Malaysian solicitors, Messrs. Allen & Gledhill emanated from a person - Choh Yet - purporting to be a director of Raja when, it was said, the evidence on record showed that it was in a high degree unlikely that he had any such authority; (c) because the Official Receiver, as liquidator of Mosbert Holdings Ltd. and through it effectively in control of virtually the entire shareholders voting power in Raja Enterprises Ltd, was supporting the petition. In my decision of the 27th May 1976 I dealt with these and certain subsidiary matters, but in declaring Messrs. Hastings & Co. disentitled to persist in opposition to the petition on the instructions of the putative director Choh Yet via those of Messrs. Allen & Gledhill, I based myself solely on the third of these there reasons. It is true that I expressed considerable doubt as to the legitimacy of Choh Yet's claim to speak for the company but I cannot agree with counsel for the Official Receiver that there is implicit in that decision a finding that Choh Yet was at no time clothed with the authority of a director. Although I have before me further affidavits from both the contesting sides since the hearing in May 1976 I do not think I would be justified in advancing any further in the direction of a conclusion upon Choh Yet's status at the time when he instructed Messrs. Allen & Gledhill to oppose, even though my doubts remain as lively as before. If those doubts have not increased despite Mr. Eddis' orderly and convincing deployment of the materials which essentially are the same as those put before me in more piecemeal fashion in 1976 neither are they in any way abated by the absence, notwithstanding the lapse of nearly two years, of any further or more convincing explanation from the other side of the several inconsistencies and other inadequacies in the documentary evidence led in support of the validity of Messrs. Hastings' instructions. I do not propose to recapitulate the several aspects of that evidence which nevertheless occupied the greater part of the hearing before me on this question of costs. I think it proper to restrict my decision upon this question wholly to the ground upon which my earlier decision was founded. Indeed I find it strange that even counsel for the petitioner in the present hearing directed his attack principally against the status of Choh Yet as director whereas in May of 1976 his contest of Choh Yet's authority was founded principally on the contention that since the Official Receiver, in the person of Mosbert Holdings, was supporting the petition neither Choh Yet nor any other person claiming to be a director of Raja could any longer oppose the majority shareholders even if the validity of the alleged status of director was conceded. My note of the argument at that time records that Mr. Dicks described this as the "linch-pin" of his argument while, as a secondary matter, he wished, equally with Mr. Dowson and Mr. McMahon to contest - on evidential grounds - the validity of that status.

3. Now it seems to me abundantly clear that once it was established that the Official Receiver as controller of the affairs of Mosbert Holdings Ltd. had given his voice in favour of the petition, that being for all legal and practical purposes the unanimous voice of the Raja shareholders, the pretentions of Choh Yet to be a source of instructions to solicitors were wholly dissolved. In this connection it seems to me to matter not a whit - although a good deal was said upon the subject - that Mosbert Holdings may no longer have been a director of Raja at the date of the purported instructions to Messrs. Hastings & Co. though I must say, without finally deciding the matter, that the available evidence points rather the other way. But even if it did not that would not be a factor vitiating the overriding authority of the Official Receiver. A majority shareholder need not be a director to retain the final say in such a matter as a winding up petition. Once his vote in the matter is given those residuary powers of directors upon which Mr. Mills-Owens relies, citing the Union Accident Insurance Co. Case⁽¹⁾, fall away. The fact is therefore that on the 21st of May 1976 when the position of the Official Receiver in relation to the petition was unequivocally announced by the counsel for the petitioner the only way left open to the aspiring respondent to persist in opposition was by challenging the authority of the Official Receiver to speak for the company. And that is precisely what Mr. Mills-Owens attempted to do over the ensuing two days of hearing. Basing himself principally upon materials exhibited to an affidavit of Mr. McMahon he endeavoured to show enough to raise a doubt as to the possibility that the beneficial ownership of the shares in Raja Enterprises had been disposed of to another company prior to the appointment of the Official Receiver as provisional liquidator of Mosbert Holdings Ltd. In the event this effort failed and I made a positive finding to that effect.

4. So far as the petitioner is concerned therefore Messrs. Hastings & Co. had between the 30th April 1976 and 27th May 1976 persisted in an endeavour to resist the petition upon instructions which ultimately turned out to have no substance in fact. They had warranted their authority to act, they were in breach of that warranty and even though innocent of any malice or mala fides in the matter they became - on the principles enunciated in Yonge v. Toynbee⁽²⁾ - Nurse v. Durnford⁽³⁾ and Newbiggin-by-the-Sea Gas Company v. Armstrong⁽⁴⁾, potentially at least, liable to answer to the petitioner for all the costs incurred by it deriving from their persistence in opposition after the 30th April notwithstanding that they were apprised on that date of a challenge to their authority to act for the company. I cannot regard the decision in the earlier case of Thomas v. Finlayson⁽⁵⁾ as affording a convincing counter to this line of strong authority which establishes that a solicitor is at risk in taking instructions notwithstanding the fair seeming of the source from which they come and his bona fides in accepting them.

5. Nevertheless, costs remain a matter of the court's discretion and there is in the present case a complicating feature which does not seem to be squarely covered by the circumstances of any of the cited authorities. It has been strenuously argued by both Mr. Dicks and Mr. Eddis that after the 30th April the onus rested fully on Messrs. Hastings & Co. to establish their authority by diligent pursuit of the nature and validity of the source of their instructions though the somewhat tangled affairs of these several linked companies. As a general principle I would not demur to that, but there is another side to the picture. On the 30th April Mr. Dicks did no more than make it clear that he was not accepting the authority of his opponent's instructions. Mr. Dowson who was present in court on a watching brief basis for the Official Receiver said nothing at all. One might have expected that the crucial point - the point on which my earlier decision eventually turned - might then have been made perfectly plain viz. : that no one could legitimately claim to be representing Raja Enterprises Ltd. save the Official Receiver himself on the basis of his then position as provisional liquidator of Mosbert Holdings Ltd. Mr. Mills-Owens with corresponding vigour has pressed the point that the status and attitude of Mosbert Holdings was never drawn to the attention of those instructing him until the hearing before me in May 1976. As he puts it "unanimous voice" of the company (Raja Enterprises) did not declare its identity and intentions until the 11th hour - he would say the 24th May when Mr. Dowson addressed me but I do not think that is quite correct because Mr. Dicks on the 21st May announced the position of the Official Receiver in the matter and went on indeed to rest his case principally upon it. Mr. Mills-Owens points out that Messrs. Hastings were never apprised of the winding up proceedings concerning Mosbert Holdings Ltd. and furthermore that no notice of intention to support the petition was filed on behalf of that company as had been done for Mosbert Acceptance Ltd. All of this is patently true. Now therefore at this date and notwithstanding the many days of hearings in chambers, the exuberant supply of information upon affidavit and the many submissions, there remains, even now, an element of doubt as to whether upon the 30th April there existed between the opposing parties a genuine area of dispute which was not then so patently resolvable by demonstration either of the inadequacy of Choh Yet (or any other purported director) as a source of instructions or of the unassailability of the position of the Official Receiver as a supporter of the petition as to render further opposition wilfully rash. The best I can do in the face of this silence is to discern the probabioities of the situation from what appears to have been done thereafter. I take it as some support for the view that the Official Receiver may not himself have been entirely sure of his position on the 30th April that Mr. McMahon was dispatched to Malaysia where he interviewed Choh Yet and a man called Roy Lim on the affairs of Raja generally. I am to some extent working in the dark on this matter because Mr. McMahon's affidavit does not state the date of his visit to Malaysia but refers to it as "a recent visit". I have assumed, I hope correctly, that that means some date between the 30th April and the 18th of May the date of filing the affidavit. This affidavit of the 18th May 1976 was the fruit of the information obtained on that visit and paradoxically it appears to have been that information - relating to the alleged transfer of the Raja shares by Mosbert Holdings to another company - which underlay both the first clear and confident declaraction of support for the petition by the Official Receiver in the company's voice and Mr. Mills-Owens' last ditch effort to sustain the worth of his instructions. In the event I found that he failed. No doubt Choh Yet is ultimately responsible for the difficulty in which Messrs. Hastings & Co. now find themselves. That is no answer to the claim against them but I think Mr. Mills-Owens is right when he says that, so far as the question of costs is concerned, the want of instructions - on the basis of my previous decision - should be regarded as established only from the moment when Mr. Dicks speaking for the Official Receiver made the position of Mosbert Holdings Ltd. in relation to the petition plain to Messrs. Hastings & Co. i.e. on the 21st May the first day of the earlier hearing before me. In other words, although it was no doubt the intention of the Official Receiver to support the petition as liquidator from the onset of his powers in that regard I can only deduce from his silence on the 30th April and thereafter that it was only after the return of Mr. McMahon that he felt himself unequivocally placed to do so. I will therefore not make any order as to costs against Messrs. Hastings Ltd. either in favour of the petitioner or of the Official Receiver in relation to the proceedings of the 30th April nor of the adjournment granted on that day nor of any step taken in the interim up to the 21st May. But for everything which transpired thereafter up to the hearing of the present summonses concerning costs I find that Messrs. Hastings & Co. are personally liable to reimburse the petitioner and the Official Receiver. I think however that a distinction is to be drawn between the case of these two claimants as to the merits of their respective claims. Whatever may have been the true basis of the objection taken by Mr. Dicks on the 30th April I do not think it was incumbent upon him, or rather upon those instructing him, to alert Messrs. Hastings & Co. as to the possible significance of the winding up proceedings in train in respect of Mosbert Holdings. I cannot indeed be sure that the petitioner was even aware of them. It may well have been aware of them but there is nothing on the record to show that fact. On the other hand the Official Receiver - whatever residual doubts he may have entertained on the 30th April or thereafter as to his own powers vis-a-vis Raja Enterprises Ltd., must have been aware that it was, at least very likely that he was in possession of a trump card and this must have become a certainty upon the results of Mr. McMahon's visit to Malaysia in May. One would have thought that immediately after Mr. McMahon's return from Malaysia some communication with Messrs. Hastings & Co. would have been at least desirable apprising them of the support by the Official Receiver of petition and the likely strength of it or at least underlining the patent weakness of any opposition that might be offered to it. It may be that Messrs. Hastings would nevertheless have continued in contention but they would at least have had a greater opportunity to pinpoint the source of their peril and to counter it if possible than they were afforded by the narrow exigency of the circumstances with which they were confronted on the 21st of May when for the first time they were apprised of the stance of Mosbert Holdings in the matter and it became necessary to look further than the assurances of Messrs. Allen & Gledhill and the affidavit of Choh Yet. I do not say that Mr. Double did all that could have been done to confirm the propriety of his instructions; certainly he might have regarded the status of Choh Yet more narrowly and made further inquiry concerning him but my decision now, as earlier, does not turn upon the status of Choh Yet and, up to the appearance of Mr. McMahon's affidavit it was not unreasonable for Messrs. Hastings to suppose that there was no effective challenge to those instructions from the direction of Mosbert Holdings and the Official Receiver. I think that the Official Receiver might, if only as a matter of prudence and courtesy, have made some shift to test the effect of the result of his Malaysian researches on Messrs. Hastings & Co. considerably before the 21st of May. Indeed had it been possible for Mr. Dowson to do that on 30th April though I think it was not - it might well have been that, given three weeks to check the situation themselves, Messrs. Hastings would prudently have withdrawn from the fray. I think therefore that the petitioner is entitled to have the costs of and arising from the hearing and determination of the several applications taken before me on 21st and 24th and 27th of May 1976 to be paid by Messrs. Hastings & Co. personally and I order, on the basis of the decision in Fernee v. Gorlitz⁽⁶⁾, that such costs be taxed and ascertained as between solicitors and client. For the reasons given above however I think the appropriate order in respect of the Official Receiver, under both of his summonses, is that he is likewise to have the costs of and arising from the hearing and determination of the several applications as aforesaid such costs to be paid by Messrs. Hastings & Co. but in his case the costs to be taxed and ascertained upon a party and party scale only.

Representation:

(1) (1972) 1 W.L.R. 640.

(2) (1910) 1 K.B. 215.

(3) 13 Ch. D. 769.

(4) 13 Ch. D. 310.

(5) 19 Weekly Reports 255.

(6) (1915) 1 Ch. Div. 177.