Re Axona International Credit & Commerce Ltd

HCCW000026B/1983

COMPANIES (WINDING UP)

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Coram: The Honourable Mr. Justice Jones in Chambers.

Dates of hearing: 15th & 16th May 1984

Date of delivery of judgment: 1st June 1984

Mr. Charles Ching, O.C. & Mr. A. Allman - Brown (Johnson, Stokes & Master) for Applicant.

Mr. M. Bunting (Wilkinson & Grist) for Company.

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JUDGMENT

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1. The applicant Trident Investment Co. Ltd. (hereafter referred to as Trident) apply by a summons dated the 2nd November 1983 for leave to commence proceedings against Axona International Credit & Commerce Limited (who I will call Axona) which is a company in liquidation. The application is made under Section 186 of the Companies Ordinance Cap. 32 which provides:-

"    When a winding-up order has been made, or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except by leave of the court, and subject to such terms as the court may impose."

2. Axona was a deposit taking company incorporated in Hong Kong and was formerly known as Bancom International Limited. Axona was ordered to be wound up on the 4th March 1983. Trident was also incorporated in Hong Kong and was formerly known as S.E.I. Trading Company Limited. Before Axona was wound up it had extended credit facilities to Trident up to US$550,000.

3. Trident's cause of action relates to monies lent  to Axona in 1982 and for debts that were assigned to them in respect of which notice has been given to Axona. Axona disputes the claim on the ground that the borrower was BIL (Vila) Bank Limited (hereafter referred to as the Bank) a company incorporated in Vanuatu. At the material time Axona lent monies to Trident whilst Trident placed deposits with or to the order of Axona. The principal purpose for placing the deposits was to enable Axona to comply with the provisions of the Deposit-taking Companies Ordinance Cap. 328. It is contended by Trident that the deposits were available for set off. During 1982 the total amount placed on deposit was approximately the same sum that was borrowed from Axona.

4. Proceedings were instituted in the Supreme Court of Vanuatu by Trident against the Bank in 1983 for the recovery of the sum of us $446,496.69 which relates to the loans claimed against Axona. Judgment in default of delivery of a defence was obtained against the Bank on the 21st February 1983, but no money has been recovered under the judgment. The Bank has since been wound up.

5. On the 10th May 1983 Axona through one of their joint liquidators entered into a deed of compromise with Trident. The material terms of the deed are as follows:

"1.      In consideration of Trident agreeing at the request of Axona to stay independent proceedings against RIL(Vila) Bank Ltd., to support Axona in petitioning for the winding up of BIL(Vila) Bank Ltd. and to disclose to Axona all information in the possession of Trident in relation to BIL(Vila) Bank Ltd. (such disclosure to be made as soon as practicable after the date hereof), Axona hereby agrees and undertakes with Trident that: -

2.      As security for the obligations of Trident to make payment to Axona as provided for above, Trident shall make available to Axona either one of the following securities within 7 days of the date hereof which shall be in form and substance satisfactory in the reasonable opinion of Axona.

3.      Notwithstanding anything to the contrary, it is hereby expressly agreed and declared that the obligations of Trident to make payment to Axona in accordance with the terms of this Deed are expressly subject and without prejudice to any rights which Trident may have whether by way of set off or otherwise (which are not admitted by Axona) to the intent that in the event of such set off or other right being effective against Axona, the amount payable by Trident hereunder shall be reduced by the amount in respect of which such right has been exercised. For the avoidance of doubt, any monies received by Axona from Trident or pursuant to the security for such payment provided by or on behalf of Trident shall be paid to the credit of a separate deposit account maintained in the joint names of Axona and Trident pending final determination of any set off or other rights of Trident in connection therewith. Provided that, unless before 3rd November 1983 or such other date as agreed to in writing by Trident and Axona, the rights of Trident shall have been finally determined or Trident shall have commenced against and served on Axona proceedings to determine such rights and such proceedings shall not have been abandoned or otherwise concluded, Trident shall be deemed to have abandoned all such rights and shall not be entitled thereafter to make any claim on Axona in respect thereof. All moneys held in the joint account and all interest thereon shall thereupon belong absolutely to Axona and form part of the assets of Axona which are distributable among its creditors and Axona shall be entitled to uplift all such moneys from the joint account and to place them in the Axona liquidation account."

In accordance with the deed Trident paid the sum of US$ 411,000.95 to Axona on the 3rd November 1983. No extension of time to commence proceedings under the deed has been granted.

6. By the present summons Trident seeks leave to institute proceedings against Axona for damages in the alternative for breach of contract, negligence, fraud, misrepresentation, conspiracy to injure and or an injunction relating to five deposits made through Axona with the Bank. A draft statement of claim claims a declaration that Axona was indebted to Trident on the 2nd February 1983 in the sum of US$586,923.25, and for an order that US$411,000.95 be set off against this amount.

7. Mr. Ching counsel for Trident indicated that he might wish to amend his claim to include a prayer for debt. Mr. Bunting objected to any amendment being made unless an undertaking was given that it would only take effect from the date of the application. He submitted that if the amendment was deemed to relate back to the date of the document, the 2nd November 1983, Axona would be deprived of an accrued defence namely that proceedings were not commenced in time. In my view provided that the general nature of the claim is set out I do not consider that it has to be specifically pleaded at this stage. Support for this proposition is found in Re Cuthberts Lead Smelting Company (No. 2) 1866 Weekly Notes 154 which was cited by Mr. Ching. The issue of amendment does not therefore arise.

8. Abundant evidence was produced by way of facility letters and other documents to show that Trident made loans to Axona and that the Bank acted as the nominee of Axona. In fact Mr. Bunting who appeared for Axona did not seriously argue to the contrary. Trident have clearly established that they have a good arguable case against Axona on the facts.

9. However, Mr. Bunting contends that Trident is time barred under Clause 3 of the deed as the summons for leave is not a "Proceeding" to determine the rights between the parties. On the other hand Mr. Ching says that this approach is too narrow and technical. The meaning of "proceeding" was considered in Eastern Holdings Establishment of Vaduz v. Singer & Friedlander Ltd. (1967) 1 W.L.R. 1017 where it was held that an interpleader summons came within the definition.  In the course of his judgment at page 1021 Buckley J. said:-

"       I see considerable force in Mr. Godfrey's argument that interpleader proceedings are not, in the strictest sense, proceedings against anybody, and that, in the present case, the interpleader summons is not a proceeding against the first claimant, the company in liquidation, but is a proceeding the object of which is to extricate the second defendant from the embarrassment of being sued, or being likely to be sued, by more than one party in respect of the same subject-matter, and also having as its object to put the claimants in a position in which, if they are going to insist upon their claims, they should do so in this action.

While it is true that the defendant does not claim any relief in the strict sense against any of the claimants, the object of the interpleader summons is to relieve the defendant of the risk of being sued independently of this action by the claimants, or either of them, and, in that sense, I think, the defendant does seek some relief, I do not say, perhaps, against, but in relation to, the company in liquidation. Indeed, I am not sure that it is not really accurate to say that it seeks relief against the company in liquidation. At any rate, it seems to me that, as a matter of convenience, if nothing more, there is much to favour the view that section 231 should be construed as extending to an application of this kind, so that the companies court, which is the court that controls matters connected with the winding up of this company should be seized of the whole of this dispute, which seems to be one of considerable complexity, from the earliest stages.

This is not, of course, a question which can be decided by reference merely to the convenience of the parties or what is practically desirable in the particular circumstances of this case, but the considerations which arise in this case do lead me to think that section 231 ought to be construed widely, and sufficiently widely to embrace an interpleader summons. In my judgment, upon the true construction of the section, the issue of an interpleader summons to which a company in liquidation is a respondent is a proceeding against that company and one which cannot be made consistently with section 231 without the leave of the companies court being first obtained.".

When the deed was entered into it was clearly envisaged by the parties that any proceedings to be taken against Axona would require the sanction of the court under Section 186 which is the equivalent of Section 231. Although the summons for leave does not determine the rights between the parties it is a necessary procedural step that will eventually lead to an adjudication upon the dispute provided that leave is granted. I would respectfully follow the decision of Buckley J. and adopt a broad view in construing the meaning of proceeding in preference to the literal interpretation sought by Mr. Bunting. As a result I consider that the summons for leave is a proceeding against the company within Section 186.

10. It now remains for me to decide whether leave should be granted for a separate action to be commenced or whether Trident should prove in the liquidation. Mr. Bunting submitted that it was necessary to advance special reasons before leave is granted, and that in the absence of such reasons Trident should prove in the liquidation.

11. The exercise of the court's discretion in granting leave was considered in In re Aro Co. Ltd. (1980) 1 Ch. 196 which was cited by Mr. Bunting. Brightman L.J. in his judgment at page 209 said: -

"       The dispensing power in section 231 is not in terms dependent on the plaintiffs' establishing the status of secured creditors, but on the exercise of the court's discretion. The discretion is conferred by the words "except by leave of the court and subject to such terms as the court may impose."  In section 325(1)(c) the discretion exercisable by the court in favour of the execution creditor is conferred by the words "the rights conferred by this subsection on the liquidator may be set aside by the court in favour of the creditor to such extent and subject to such terms as the court may think fit. The nature of this latter discretion has been considered in three recent cases."  In In re Grosvenor Metal Co. Ltd. [1950] Ch. 63, 65, Vaisey J. said: "The section seems to give the court a free hand to do what is right and fair according to the circumstances of each case." In In re Suidair International Airways Ltd. (1915) Ch. 165, wynn-Parry J. adopted the same construction of the subsection, as also did Pennvcuick J. in In re Redman (Builders) Ltd. [1964] 1 W. L. R.   541. We consider that those cases were correctly decided. The only appreciable difference between the wording of the two sections is that section 325 includes the words "to such extent as well as the words "subject to such terms." This appears to us a trivial distinction on which to found a decision that the discretion under section 231 is somehow narrower than the discretion under section 325. We adopt the definition of the discretion under section 325 as applied in the three cases mentioned and we consider that the discretion of the court under section 231 gives the court an equal freedom to do what is right and fair in the circumstances. .

This passage was quoted by Mervyn Davies J. in Re Exchange Securities & Commodities Ltd. and others (1983) Butterworths Company Law Cases 186 which was referred to by Mr. Bunting. In his judgment at page 195 Mervyn Davies J. had this to say when he considered the submissions of counsel for the respondent:-

12. Mr. Ching replied that special reasons are evidenced by the requirement in the deed for the commencement of proceedings in order to determine the rights of the parties. Accordingly he submitted that in these circumstances a proof in the liquidation would not be admitted unless proceedings are instituted. Nevertheless the court has an unfettered discretion under Section 186 for the parties cannot waive compliance with its requirements, see Wilson v. Banner Scaffolding Ltd. and another, The Times 22nd June 1982.

13. Essentially the case that Trident seeks to bring is a claim for the recovery of a debt and to establish a right of set-off. In my judgment these issues can be conveniently determined in the liquidation. This procedure should be quicker and less expensive. No special reasons have been shown to justify the institution of a separate action. Accordingly I hold that Trident should prove in the winding-up. The application is therefore refused.

Representation:

Mr. Charles Ching, O.C. & Mr. A. Allman - Brown (Johnson, Stokes & Master) for Applicant.

Mr. M. Bunting (Wilkinson & Grist) for Company.