Mosbert Acceptance Ltd v. Chang Shin Chuen
Read the full judgment text of HCA 3980/1979 on BabelCite. This High Court CFI judgment was delivered on 14 January 1982.
1. Each of the plaintiffs in these two actions is a company incorporated in Hong Kong with limited liability. In both cases a winding-up order was made in 1976, and these proceedings are brought by the plaintiff companies in liquidation through the Liquidator who is the Official Receiver.
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HCA003980/1979 Summons to Strike Out under Order 18 rule 19:
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________________________________ Coram: Hon. LIU, J. in Chambers. Date: 14 January 1982 ___________ JUDGMENT ___________ 1. Each of the plaintiffs in these two actions is a company incorporated in Hong Kong with limited liability. In both cases a winding-up order was made in 1976, and these proceedings are brought by the plaintiff companies in liquidation through the Liquidator who is the Official Receiver. 2. In Action 3979, it is alleged that the plaintiff paid to the defendant HK$3,285,000, and in Action 3980 the allegation is that the plaintiff paid to the defendant U.S.$2,839,291. In substance, it is claimed that in between late 1973 to mid-1975 these companies made payments of a mammoth sum to the defendant, and on behalf of the plaintiffs in liquidation, by these two actions the Official Receiver as Liquidator seeks to recover a total of over HK$20 million from her. 3. In the journals of these two limited companies, each alleged payment to the defendant was entered as a loan. Save for two payments both on the 28th March 1975, one of U.S.$100,000 and the other of U.S.$56,250, which were recorded as payments to "Dr. J.T. McAlister on your behalf", the rest of these payments were allegedly all direct transmissions of company's funds to the defendant either by way of a transfer into her bank account or a cheque drawn in her favour. 4. Under Order 18 rule 19 of the Rules of Supreme Court and the inherent jurisdiction of the Court, the defendant in each action applies to have these Statements of Claims struck out. The basis of her compalints is closely similar. Hence, by consent her applications in these two actions were heard and dealt with simultaneously. 5. At the inception, there were a great number of complaints, but in the course of submissions, concessions were made on behalf of the plaintiffs by Mr. Chadwick : All allegations of loans or breaches of contract were expressly disavowed, and counsel had it placed on record that there was no independent allegation of misfeasance or breach of trust or duty other than that inherent in the alleged ultra vires nature of these payments said to have been made outside the authorized objects of the companies. Therefore, the pleadings together with the particulars given must be viewed in the light of these concessions. 6. The plaintiffs relied on the book entries as evidence of fund movements, but they made no admission to the descriptions of the nature of the transactions as recorded. Having alleged payments of monies to the defendant, in each action the plaintiff proceeded to plead in its final version of paragraph 3 of the Statement of Claim as follows :-
7. In essence, so stated counsel categorically, each plaintiff's case is that these payments to the defendant were gratuitous payments not made within any of the authorized objects of the company. The defendant is therefore left in no doubt as to what case she has to meet, but it still has to be examined what case has been set up on the pleadings, viz. whether "gratuitous payments" have been sufficiently pleaded and if they have, whether the plaintiff need go beyond the bare assertion that these payments were ultra vires the companies. 8. The relevant objects clauses in the Memoranda of both limited companies are almost identical with the exception of sub-clause 3(x) in the Memorandum of the Mosbert Acceptance Limited in Action 3980. For the sake of convenience, references will be made to the sub-clauses in the Memorandum of Mosbert Acceptance Limited. 9. The defendant conceded by her counsel that sub-clause 3(y) of the Memorandum of Mosbert Acceptance Limited authorized merely the lending of money but not the making of gratuitous payments. It was also common ground that gratuitous payments fell to be expressly regulated by sub-clause 3(v) and sub-clause 3(11) whereby they were permissible only for specific purposes unconnected with matters ventilated by the defendant and are therefore irrelevant to my considerations. It was further acknowledged that there was no ancillary power in the Memorandum of either of the plaintiff companies which authorized, in express terms, the making of gratuitous payments and that in sub-clause 3(nn) are found the only ancillary powers, in general terms, for making gratuitous payments. But those general ancillary powers are admittedly, by the very terms of their creation, only exercisable for purposes which are incidental or conducive to the attainment of the company's substantive objects. 10. Mr. Chadwick submitted that material facts in support of allegations of gratuitous payments had been sufficiently pleaded and that it was perfectly legitimate merely to assert that these gratuitous payments were ultra vires the company without any real need to state the obvious in the form of negative averments, e.g. that the gratuitous payments were outside sub-clause 3(y) which by its very nature of authorizing the lending of money must be inconsistent with such payments, that these gratuitous payments did not fall within the ambit of sub-clause 3(v) or sub-clause 3(11) which authorise gratuitous payments only for specific purposes and that these gratuitous payments could not be made under sub-clause 3(nn) which permits funds to be applied only for purposes incidental or conducive to the attainment of the substantive objects of the company. Exclusion in its entirety must necessarily shut out any or any relevant integral parts. 11. Mr. Scott for the defendant declined to be drawn into further arguments on what could have appeared in the Statements of Claim. It was urged on behalf of the defendant : first, that there was no or no sufficient allegation of "gratuitous payments" and secondly, that even assuming "gratuitous payments" as having been adequately pleaded, it would still have been incumbent on the plaintiffs to set out specific facts for condemning these dispositions as unauthorized and thus ultra vires. In another words, it was not enough, so ran counsel's argument, for the plaintiffs to make a general negative averment that none of these gratuitous payments came within any of the authorized categories, but the plaintiffs must positively assert how each of these payments was said to be ultra vires. In this connection, Mr. Scott further argued that the plaintiffs must also plead facts to preclude all these applications of monies from any possible lawful exercise of an implied power incidental or conducive to each company's substantive objects. Further, it was strenuously pressed by Mr. Scott that come what may, there was an express power in sub-clause 3(x) in Action 3980 "to deal with the monies of the company not immediately required" and that moreover the plaintiff in that action had not yet sought to make the allegation that the monies in these payments were in fact immediately required. There is no equivalent of sub-clause 3(x) in the Memorandum of the other company, Stable Investment Limited in Action 3979. I should mention that the defendant also challenged the sufficiency in pleading as regards the alleged payments to Dr. McAlister in Action 3980. 12. I set out below what seems to be well-established principles for delineating the precise limits of consensus in these applications:
13. The following proposition of law as posed by Mr. Chadwick was not conceded by the defendant :
14. I was led through the oft-quoted passage in In re Lee, Behrens & Co. Ltd.,(1) Parke v. Daily News Ltd.,(2)Charterbridge Corporation Limited v. Lloyds Bank Ltd. And Another(3) and an unreported judgment of the English Court of Appeal.(4) 15. The Lee, Behrens case was concerned with the exercise of an implied power in the grant of a yearly pension of £500 to the widow of a former managing director. At page 51 of the report, Eve, J. stated the principles as follows :
16. In Parke, on ex-gratia payments by way of compensation to former staff for their loss of employment and pension rights, at page 954 of the report Plowman, J. reached the following conclusions :
17. These two cases, Parke and Lee, Behrens, both dealt with the exercise of an implied power. They were not directly concerned with the attainment or pursuit of a substantive object expressed in the Memorandum. 18. The Charterbridge case and the case of Horsley & Weight are cases on the exercise of an express power for a substantive object authorized in the Memorandum. In Charterbridge, a legal charge executed by the company in favour of a bank was sought to be impugned. It was held that the legal charge and the preceding guarantee were created pursuant to an express power conferred by the company's Memorandum and were not thus entered into for any purposes outside the scope of the company's business. With reference to the passage in the judgment of Eve J. in Lee, Behrens case quoted in extenso above, Pennycuick, J. doubted in Charterbridge if the judge in fact intended to apply his third and last test to express powers and took the view that even if Eve, J. did so intend, that part of his observations was plainly obiter. At page 70H to 71B, Pennycuick J. said :
19. In delivering the main judgment in Horsley & Weight, at page 11 G/H Buckley, L.J. shared the same critical view of Mr. Justice Eve's passage in Lee, Behrens. See also page 16 A-C. In Horsley & Weight, a pension policy taken out by the company for the benefit of an ex-director was in issue. Buckley, L.J. came down heavily in favour of the ex-director and held that even accepting the acquisition of the pension policy as being purely gratuitous, it was taken out and paid for in pursuance of a substantive object in the Memorandum of the company. See page 18F of the unreported judgment of the English Court of Appeal. 20. Confining themselves to the exercise of an express power authorized by the Memorandum of a company, the Courts in Charterbridge and Horsley & Weight rejected the third test of Eve, J. in Lee, Behrens case. But it would appear that that third test remains good law in the case of an implied power. Similarly, for implied powers the conclusions reached by Plowman J. in Parke v. Daily News Ltd. do not seem to have been in any way disturbed. 21. In conclusion, the remaining legal proposition advanced by Mr. Chadwick but not conceded by Mr. Scott seems to me to be well founded for gratuitous payments not expressly authorized by the Memorandum of a company. 22. I turn next to the specific complaints of the defendant. It was charged that none of the alleged gratuitous payments had been pleaded or sufficiently pleaded as such. My attention was also drawn to the fact that the payments to the defendant were all documented in the companies' journals as loans and were thus on the face of these entries inconsistent with the allegation of gratuitous payments. In essence, the attack levelled at the pleadings was that paragraph 3 in each of the Statements of Claim made no valid assertion of "want of consideration", on which the allegation of "gratuitous payments" was founded. Paragraph 3 pleads : "No consideration moved to the plaintiff" and "the plaintiff received no benefit". It was criticised as being grossly inadequate on account of the traditional definition of "consideration" which concentrates on the requirement that "consideration" is either some detriment to the promisee or some benefit to the promisor. It was submitted that an allegation of want of consideration could not be supported by an incomprehensive averment of merely that no consideration moved to the plaintiff. 23. However, of the allegation that no consideration moved to the plaintiff in paragraph 3 of the Statement of Claim in each action, the plaintiff has delivered Further and Better Particulars as follows :
That is a negative pregnant as it could mean or be understood to mean that consideration moved from the defendant to no one else but the plaintiff. These Particulars given in the form of a negative expression imply or carry with then an affirmative proposition in the sense last stated. But in my view, the hiatus in that negative pregnant has been effectively plugged by paragraph 3 of the Statement of Claim that "No consideration moved to the plaintiff for all or any of the said payments". In my judgment, paragraph 3 of the Statement of Claim coupled with the Particulars delivered thereunder does constitute a reasonably clear assertion that there was no consideration whatsoever for any of the said payments which were therefore gratuitous. 24. The last portion of paragraph 3 of the Statement of Claim, "The plaintiff received no benefit therefrom" would seem to be ambiguous. It cannot be properly said that the plaintiff received no benefit from the payments themselves. It must have meant that the plaintiff derived no benefit from the payments or in respect of the payments or that no benefit resulted by the payments to the plaintiff. Even without the aid of this last portion of paragraph 3 as properly understood, paragraph 3 of the Statement of Claim in each action and the Particulars aforesaid have, in my view, sufficiently pleaded gratuitous payments. 25. The defendant further argued that even if gratuitous payments had been sufficiently pleaded, express power for making these payments was to be found in sub-clause 3(x) of the Memorandum of Mosbert Acceptance Limited, which was allegedly a free-standing objects sub-clause providing inter alia for "dealing with the monies of the company". 26. Virtually at the conclusion of the objects clause 3, we have an express declaration commonly known as the Cotman v. Brougham(5) formula that "each of the preceding sub-clauses shall be construed independently of and shall be in no way limited by reference to any other sub-clause and that the objects set out in each sub-clause are independent objects of the Company". As to this declaration, much capital was sought to be made by the defendant on the observations of Buckley, L.J. in Horsley & Weight at page 9H :
It was contended that sub-clause 3(x) must be deemed to contain substantive objects "unless the subject matter of that paragraph (was)of its nature incapable of constituting (any) substantive object". 27. Mr. Chadwick adopted a different approach to sub-clause 3(x) on the force of an observation of Harman, L.J. in In re Introductions Limited(6): "You cannot have an object to do every mortal thing you want, because that is to have no object at all." It was submitted that sub-clause 3(x) possessed the same attribute in the broadest possible terms and that therefore the powers it contained could not be elevated into objects. The Introductions case involved a sub-clause empowering the company in general terms to borrow, and the question there was whether a similar express declaration in the objects clause had the effect of converting the power to borrow into an object. Accepting counsel's submission that borrowing could not stand alone but must be associated with a legitimate purpose of the company, it was held inter alia that the power to borrow was "not an independent activity or an end in itself but had to be for some purpose" within the ambit of the substantive objects authorized by the Memorandum. Unlike the sub-clause to borrow in Introductions, sub-clause 3(x) "to invest and deal with the monies of the Company not immediately required" has a purpose of its own to serve and cannot be fairly condemned as being senseless as an independent activity. Standing on its own, to invest or deal with the company's general reserve, for the time being not needed, is an end in itself. Investing or dealing with such surplus funds need not be allied with some other transaction or purpose. In my judgment, the subject-matters in sub-clause 3(x) have not been shown to be, of their nature, incapable of constituting separate substantive objects. I hold, in agreement with Mr. Scott, that sub-clause 3(x) contains substantive objects for Mosbert Acceptance Limited. 28. However, as Mr. Chadwick rightly pointed out that sub-clause 3(x) merely authorized the dealing with monies of the company "not immediately required". Sub-clause 3(x) is not a provision for monies unwanted. The phrase "monies not immediately required" presupposes that they would one day be required though not immediately. It cannot, in my view, be said that monies not immediately required may be freely disposed of so as to permanently deprive the company of the use thereof, particularly when the other object in the same sub-clause 3(x) is investment. In conclusion, sub-clause 3(x) is unrelated to any gratuitous payments and can be of no avail to the defendant in Action 3980. I should reiterate here that the equivalent sub-clause in Action 3979 is couched in different terms which were conceded by Mr. Scott to be of no comfort to the defendant. 29. By indorsing the conclusions reached by Plowman J. in Parke case, I have in effect adjudicated on the question as to whether the plaintiff must plead facts on how or the circumstances in which the alleged gratuitous payments came to be made. In my judgment, once a case of "gratuitous payments" ultra vires the expressed objects has been pleaded, as I have held it is, the plaintiff in each action need not further specify the very transaction or transactions in which such alleged ultra vires payments were made; nor would the plaintiffs be required to exclude, by pleading further material facts, these alleged payments from every possibility of their having been made in the exercise of any implied power. In my view, the plaintiffs need merely plead such material facts as would establish a prima facie case of gratuitous payments not expressly authorized by the Memoranda. Upon proof the court "will inquire into the motives actuating any (of such) gratuitous payment (s) and the objectives which it is intended to achieve", and the court would uphold these payments only if the transactions were "reasonably incidental to the carrying on of the company's business" and "done for the benefit and to promote the prosperity of the company". It would be for the defendant in each action to satisfy the court that these proven gratuitous payments should be upheld. 30. I take the view that apart from the alleged payments to Dr. McAlister, in each case the plaintiff has by its pleading disclosed a good cause of action. 31. Finally, I turn to the alleged payments to Dr. McAlister in (v) and (vi) of paragraph 2 of the Statement of Claim in Action 3980. These alleged payments are evidently different in the sense that they have not been truly pleaded to be payments allegedly made to the defendant. The other alleged payments in both actions have been maintained to be payments passed to the defendant's account or by way of cheques payable to the defendant, although none of the plaintiffs admits the nature of each payment or transaction as recorded. But in the case of the two alleged payments to Dr. McAlister, in terms of passage of funds it is in my view blatantly inaccurate for the plaintiff in Action 3980 to make a bald assertion at the commencement of paragraph 2 of its Statement of Claim that these monies were "paid to the defendant" whilst in fact they are being alleged in the following sub-paragraphs (v) and (vi) as having been paid by cheque to "one John T. McAlister on behalf of the defendant". Therefore, the facts as pleaded do not in truth even begin to suggest that there were direct payments to the defendant. It has not been pleaded that the defendant herself received these payments or that the same were made at her request, which is an essential ingredient for attaching the defendant with liability. In my view, no good cause of action has been disclosed in respect to these two alleged payments to Dr. McAlister. Hence, the allegations in respect of these two alleged payments must be struck out. 32. There has been some shifting of front in the course of these proceedings. The plaintiffs' real intention was finally driven home just about half way through the applications. In addition, I have not found favour with the plaintiff's contention on the alleged payments to Dr. McAlister in one action. It would appear that the proper and fair order for costs in these applications should be that each party to pay its/her own costs. 33. I order (1) That the allegations in respect to payments to Dr. McAlister be struck out, (2) That the defendant's summons to strike out and for consequential relief in respect to the rest of the Statement of Claim in each action be dismissed and (3) That there shall be no order as to costs.
(1) [1932] 2 Ch. 46 (2) [1962] 1 Ch. 927 (3) [1970] 1 Ch. 62 (4) In the Matter of Horsley & Weight Limited, (No.004006 of 1976) judgment of which was delivered on the 30th July, 1976. (5) [1918] A.C. 514 (6) [1970] 1 Ch. 199 at p.209B-C Representation:
Action No. 3979/79 & 3980/79
Date when Judgment was delivered: 14th January, 1982.
Cases cited by Counsel for Defendant but not mentioned in the Judgment: 1. Competitive Insurance Co. Ltd. v. Davies Investment Ltd. [1975] 1 WLR 1240 Actual cases cited in the Judgment: 1. In re Lee Behrens & Co. Ltd. [1932] 2 Ch. 46 2. Parke v. Daily News Ltd. [1962] 1 Ch. 927 3. Charterbridge Corporation Ltd. v. Lloyds Bank Ltd. and another [1970] 1 Ch. 62 4. In the matter of Horsley & Weight Ltd. (no. 4006/76 Judgment) which was delivered on 30.7.76 5. Cotman v. Brougham [1918] A.C. 514 6. In re Introductions Ltd. [1970] 1 Ch. 199 at p.209B-C.
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