Re N & J International Ltd
Read the full judgment text of HCCW 29/1984 on BabelCite. This High Court CFI judgment was delivered on 29 February 1984.
1. In this case the Petitioner NCNB National Bank has presented a creditor's petition for the winding up of N & J International Limited on the grounds that (1) the company is insolvent and unable to pay its debts and (2) it is just and equitable that the company should be wound up.
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HCCW000029/1984 Commercial and Business Law Company law - petition to wind up - ex parte application for appointment of provisional liquidator - ex parte application to discharge order for such appointment with notice to petitioning creditor and Official Receiver on grounds (1) the first application should not have been made ex parte (2) material non-disclosure (3) incorrect information (4) existence of a genuine dispute as to the company's indebtedness - leave granted to file further affidavits.
IN THE SUPREME COURT OF HONG KONG HIGH COURT COMPANIES (WINDING UP) NO.29 OF 1984 ____________
___________ Coram: Hooper, J. Date of Hearing: 20, 23, 27, 30, 31 January 1984, 1, 6 - 8 and 13 February 1984 Date: 29 February 1984 ____________________________________________________________ REASONS FOR JUDGMENT MADE ON 13TH FEBRUARY, 1984 ____________________________________________________________ 1. In this case the Petitioner NCNB National Bank has presented a creditor's petition for the winding up of N & J International Limited on the grounds that (1) the company is insolvent and unable to pay its debts and (2) it is just and equitable that the company should be wound up. 2. On the 19th of January this year the Petitioner by his Counsel appeared before me, in my capacity as duty judge, and applied ex parte in Chambers for the appointment of a provisional liquidator. Having heard Counsel for the Petitioner and having been informed by him that the petition had been presented earlier that day and that a cause number had been allocated to the case and having heard the representative of the Official Receiver, and having examined the verifying affidavit as well as the affidavit in support I acceded to the application and appointed the Official Receiver as provisional liquidator. 3. On the following day an application was made to set this Order aside. The application was made ex parte with notice being given to the Petitioner's legal representative and the Official Receiver. There was at the same time a second application to restrain the Petitioner from proceeding with its petition to wind up the company until after the final adjudication on the liability, if any, of the company to the petitioner. That second application was later no longer pursued at this hearing. 4. The Order of the 19th appointing a provisional liquidator was attacked on four main grounds; (1) that the matter should not be brought ex parte because it was not a matter of great urgency, (2) there had been material non-disclosure, (3) numerous mistakes had been made in the information placed before the court and (4) there was a genuing dispute as to the company's indebtedness and the company court was not the proper court in which to resolve this dispute. 5. This application, though ex parte on Notice, was strongly opposed and leave was sought by both the Petitioner and the Official Receiver to submit affidavits to the court in reply, such leave having been given further affidavits were submitted. Leading Counsel were instructed in respect of both the Petitioner and the company and the legal arguments lasted for some seven working days. 6. I propose first to set out the history of the events leading up to the present application as they appear in the affidavits before me now. 7. On the 20th of September 1982 it is common ground that the Petitioner provided banking facilities to the company as per a letter of that date. That letter was in the following terms:
8. It appears that these facilities were used quite considerably and on the 16th of February the company sent a letter to the Petitioner purporting to pledge to the Petitioner certain ivory ship models exhibited at the Washington Navy Memorial Museum in which the value was stated to be US$6,125,000. The pledge was stated to be in consideration for the granting of additional facilities over the line of US$3,000,000. 9. On the 17th of February the company drew a bill of exchange on Gonara (Hong Kong) Limited in favour of the Petitioner. This bill was for US$1,839,420. It was presented to the bank together with a collection letter signed by the company. The collection letter contained the instruction "Purchase subject to payment". 10. On the following day the Petitioner sent to the company a letter of the same date informing the company that a sum of $1,839,420 had been credited to the company's account. This letter was in the following terms:
11. On the 24th of February 1983 the drawee Gonara (Hong Kong) Limited accepted the bill and became liable upon it. 12. On the 8th of March 1983 the company purported to pledge the same seven ivory boats referred to above to a Mr. Hans Mehr in West Germany for consideration of the granting of facilities up to D 50,000,000 or more outstanding at one time. This was contained in a letter of the 8th of March and again the value of the seven ivory ship models was stated to be US$6,125,000. 13. On the 19th of April 1983 the company drew a bill of exchange on Emcee Trading Corporation Limited of Kobe, Japan in the sum of US$930,000 in favour of the Petitioner. This bill was for 150 days D.A. from B/L and was payable through the Chartered Bank Limited at the Kobe branch in Japan. On the same day, the company signed a similar collection letter and it is not disputed that the sum of money representing the face of value of the bill was credited to the company's account. 14. Also on the 19th of April 1983 the Petitioner sent a letter to the company in the following terms:
15. On the following day the 20th of April 1983 the company sent to the bank a letter referring to the second bill of exchang in the following terms:
16. It appears that the Petitioner only agreed to continue the facilities on the company executing a charge on the cash deposit of $300,000 and also a charge on the ivory boats in the Washington Museum. In the formal documents relating to both charges it is specifically stated that the charge is in consideration of the bank agreeing to grant or continue to make available the facilities which were contained in the letter dated the 20th of September 1982. Paragraph 1.02 on each formal document is in the following terms:-
17. On the 7th of June 1983 the Petitioner sent to the company a letter of the same date in the following terms:
18. On the same date the company acknowledged receiving that letter in the following terms:
This was followed by a letter on the 17th of June to the Petitioner agreeing in principle to the contents of the Petitioner's letter of the 7th of June. It was in the following terms:
19. The two bills referred to in this letter are of course the bills which I have mentioned earlier. 20. On the 21st of June the Petitioner sent a letter to the company in respect of the Gonara bill.
21. On the following day the 22nd of June 1983 the company sent an urgent letter by hand to the Petitioner in the following terms:
22. On the 5th of July the company sent a letter to the Petitioner as follows:
23. It should be noted that the above letter referred to a confirmation dated the 22nd of June 1983 which purported to indicate that the loan should mature on the 8th of July 1983. This confirmation would appear to be inconsistent with the Petitioner's earlier demand that the amount should be paid immediately and that there would be no extension. The attitude of the Petitioner was reflected in their letter of the 5th of July in the following terms:
24. The Petitioner obviously overlooked the reference to the confirmation date in the company's letter and remedied the situation on the following day the 6th of July by sending a letter in the following terms:-
25. Also on the 6th of July the company replied to the Petitioner's letter of the 5th of July in these terms:-
26. On the 3rd of August a telex was received by the Petitioner for the attention of Mr. Gupte from Mr. Taylor of the company's solicitors Messrs Malkin Cullis and Sumption. This was in the following terms:-
27. The Petitioner's solicitors replied to this telex on the 12th of August in a telex in which they informed the company's solicitors that "they understood that payment would be made early the following week and that the Petitioner would prefer to leave consideration of whether or not extension to 2nd September 1983 can be granted or action should be taken until next Tuesday or Wednesday." 28. On the 11th of September the company in a letter signed by Mr. Jacky M. Thadani contacted the drawee of the first bill urging them to make sure the bill would be paid. It added:
29. On September the 12th, (the due date for the Emcee bill), the Petitioner sent a letter to the company in the following terms:-
30. Finally on the 5th of October the Petitioner wrote to the company in the following terms:-
31. It seems manifestly clear from the above correspondence, none of which is contested, that the company though wishing to settle the amounts due to the Petitioner was not in a position to do so. 32. There were also exhibited further letters from the company which were stated by the company to have been written "without prejudice". I will come back to those later. 33. There is evidence in Mr. Herbst's first affidavit that "from about September 1983 onwards, as a result of the fault on the part of the company in the repayment of loans, there were three or four meetings held among banks and other financial institutions which had lent money to the company. It was confirmed by all creditors in one of those meetings that the total sum owed to them by the company was in excess of US$45,000,000." 34. Eventually the patience of the Petitioner ran out and on the 23rd of November 1983 the Petitioner served on the company a statutory notice pursuant to Section 178(a) of the Companies Ordinance in the following terms:-
35. The three-week period expired without any payment being made or any challenge as to the correctness of the sum stated therein. 36. From the 12th of September 1983 up till the present time at least sixteen actions have been brought by various creditors against the company in the Supreme Court as follows:-
37. On the 19th of January the petition was presented and an application was made for the appointment of a provisional liquidator which application was granted. 38. In view of the contents of the various letters and the attitude of the company throughout the middle of last year and towards the end of last year one can only view with suspicion the present apparent change of attitude. 39. A highly technical argument has been advanced by Mr. Ching in an attempt to establish that the company has a bona fide defence to the claim of the petitioner and that therefore the company's court is the wrong forum to determine this dispute. He maintains that the Petitioner is bound by its pleading and specifically refers to paragraph 6 of the petition where the cause of action is pleaded as follows:-
40. Central to Mr. Ching's argument is the contention that the company's liability, if any, arose from non-payment of the bills of exchange, the purchaser of a bill of exchange purchases it with all risks, but the Petitioner is not basing its claim on the bills concerned, but on the facilities letter. He argues that neither of the two bills of exchange in question fall within the precise terms of facilities letter and that therefore the Petitioner has no case. 41. Mr. Litton maintains that the Petitioner is perfectly entitled to bring its claim on the basis of the facilities letter because there was always a primary obligation on the part of the company to repay the advances credited to its account by the Petitioner. It is his contention that the bills of exchange must be regarded as security for advances made. 42. Now I think it is clear from Re Union Accident Insurance Co. Ltd. [1972] 1 All Er 1105 that there are two matters which are relevant, where a provisional liquidator has been appointed and the company seeks to discharge the Order appointing him. 43. The court should first decide whether the Petitioner has made out a good prima facie case for a winding up petition. If the answer is No the Order should be discharged. If the answer is Yes, then the court should go on to consider whether in the individual circumstances of the case it is right that a provisional liquidator should have been appointed. If not, then the Order should be discharged but if it is then the application for his discharge should be dismissed. 44. Any views which I express now on whether the Petitioner has made out a good prima facie case are provisional because I am not hearing the petition. 45. Has the company made out a good prima facie case 46. For a winding up? 47. The petition has been verified by affidavit. 48. In paragraph 6 of the Petition as has been seen it is stated that the company was on 31st October 1983 indebted to the Petitioner in a sum of US$2,942,142.32 in respect of banking facilities together with interest thereon pursuant to an agreement evidenced by this facilities letter of 20th September 1983.
49. Rule 26 of the Companies (Winding Up) Rules provides for the verification of the petition by affidavit and that such affidavit "shall be sufficient prima facie evidence of the statements in the petition". 50. Unless, therefore, anything has been revealed in the evidence produced at the present application to discharge, the Petitioner must have made out a good prima facie case. 51. As I understand the argument advanced on behalf of the company it is that in the light of the evidence now before the court the Petitioner has not made out a good prima facie case and on this ground the Order appointing the provisional liquidator should be discharged. In support of this argument it is contended that the Petition must be confined to its pleading and that pleading does not reflect a true cause of action and that it cannot therefore be said that there is a debt which is now due or rather was due at the date of presentation of the petition. The reason why the petition does not reflect a true cause of action is because liability, if it arose at all; arose on the two bills of exchange and that those two bills of exchange were not within the terms of the facilities letter. It is Mr. Ching's contention that the discounter of bills of exchange purchases them with all risks. That being so the true cause of action, if one existed at all, was an action on the bill of exchange and not for repayment of a loan. 52. I think first of all it is necessary to consider the words of the facilities letter with a view to ascertaining what is meant. The words:
suggests that the Petitioner has agreed to make advances to the company. So does the word: "Interest" where it appears in Paragraph B of the pricing paragraph. 53. However, the word "discounting" suggests that the bill will be purchased by the bank at a discount. This suggestion is to some extent reinforced by the use of the word "purchase" in the pricing paragraph. Yet if the bills are to be purchased by the bank there is no need for a line of credit because any sum credited to the company's account will be purchase money and not money advanced. 54. The distinction between discounting and money lending was explained by the Privy Council in Chow Yoong Hong and Choong Fah Rubber Manufactory [1962] A.C.209. Lord Devlin delivering the judgment of their Lordships said at p.215
55. The difference between interest and discount was explained in the following passage from the same judgment:
56. There is a provision in the facilities letter in the following terms:
This is strongly indicative of an advance, because if it was a discount there would be no accrual of interest, the price would be fixed once and for all at the time when the bill was "discounted". 57. Having studied the facilities letter and having considered the Privy Council case I have reached the conclusion that Mr. Litton is right and that the arrangement in the facilities letter was indeed a facility whereby money was advanced to the company and that the bills were intended to give the bank security for the amount of that advance. This conclusion is supported also by the correspondence and in particular by the telex of the 3rd August from the company's own solicitors. 58. That being the case although it might be possible for the bank to pursue its remedies on the bills of exchange, it is not obliged to do so and is perfectly within its rights to pursue the company for the return of the money advanced at any time. 59. It is Mr. Ching's argument that since the two bills of exchange in this case did not fall precisely within the terms of facilities letter therefore the bank was precluded from basing its action or claim on the facilities letter. 60. In my view there is no merit in this submission. It is true as it now appears from the further information placed before the court in the subsequent affidavits that the first bill which was drawn on Gonara (Hong Kong) Limited was not drawn upon an affiliate company of the company. There is uncontradicted evidence however that this cheque was presented to the Petitioner by the company under the arrangement set out in the facilities letter and on the representations of Mr. Mirchandani that Gonara (Hong Kong) Limited was an affiliate company. The bank did not know that it was not an affiliate company and indeed they complained about this when they found out as has been seen in the correspondence. The fact that the company delivered a bill to the bank which did not comply with the strict conditions laid down by the bank (which provisions were obviously for the bank's own security) does not alter the fact that an advance was made under the line of credit established in the letter of the 20th of September. In my view, the Petitioner was perfectly entitled to base its claim on the facilities letter. 61. So far as the second bill is concerned it is Mr. Ching's argument that since it was not endorsed with recourse to the company as was required by the facilities letter, it was also outside the terms of that letter and that the Petitioner could not base its claim on the facilities letter. 62. I found this argument no more convincing. The company had made it quite clear in the collection letter relating to this bill that the Petitioner retains recourse against the company in the event of dishonour and to my mind it is irrelevant whether there was such an endorsement or not on the bill itself. The bill was clearly delivered under the arrangement set out in the facilities letter and the advance made. 63. In my view the Petitioner was always entitled to claim refund of the sums advanced together with interest accrued thereon within the terms of the facilities letter. 64. It seems clear on the affidavits that the company also accepted the fact that it was liable to repay these advances, and indeed there was a board meeting of the directors of the company on the 17th of June 1983 whereby it was "mutually agreed" at the board meeting to comply with the terms of the letter of the Petitioner dated the 17th of June 1983. The bank has persistently requested payment of the money due and the company while not disputing its liability has failed to pay. It is only when a petition is presented to this court and a successful application is made for the appointment of a provisional liquidator that the company has come before this court and raised all sorts of technical arguments in an attempt to have that Order discharged. 65. One of the arguments, which is very much a last ditch argument, based on affidavits which were put in during the hearing of the present application is that since service of the statutory notice the company received two confirmation notes dated 30th November 1983 from the Petitioner, one relating to the Gonara bill and one relating to the Emcee bill. It is said that by these confirmation notes, the Petition "rolled over" the amount outstanding in respect of each of these bills from 30th November 1983'"to mature 30th December 1983", this extension was duly accepted by Mr. Thadani on behalf of the company; no fresh demand was made by the Petitioner for repayment after 30th December 1983 and hence the liability of the company has not arisen. 66. This contention which was contained in an affirmation of Mr. Thadani evoked immediate response from Mr. Herbst on behalf of the Petitioner. 67. He deposed to the fact that the one purpose served by the confirmation is the fixing of interest for the period specified therein. It was not intended that the confirmation should serve as an agreement or as an offer to extend the maturity date of a loan or the maturity date of a bill of exchange. The maturity date referred to in the confirmation is simply the date up to which interest at the rate specified in the confirmation has been calculated. 68. Mr. Herbst also deposes to the fact that he has searched through the Petitioner's files but could not find any customer copies or confirmation copies of the confirmations and that he believes that neither were returned by the company whether signed or otherwise. There is some support for this in the fact that the Petitioner's copy of the same documents bears a printed endorsement "This confirmation will not be signed". 69. Apparently it was thought that there was some merit in this last ditch argument because Mr. Thadani came back with a further affirmation on behalf of the company supported by an affirmation from his secretary as to the practice in the company with regard to these confirmations. 70. In my view there is no merit in this last ditch argument because for one thing the 'confirmations' refer to a "loan" which as I understand it is not part of the company's case. Secondly it is clear from the correspondence and in particular the letter from the Petitioner to the company dated the 6th July 1983 that the company was informed that the confirmation contained only "an internal settlement date". 71. The receipt of that letter has never been challenged and the company could have been under no illusions as to the purpose of the confirmations after that date particularly in view of the letters of the 19th April, the 21st June and the 12th September that no extension would be granted. 72. I am not impressed with this last ditch argument, but in any event cannot see that it effects the liability of the company as at the 19th January 1984, the date of the presentation of the petition. 73. I hold that there was and is a good prima facie case for the winding up of the company on the grounds of insolvency. 74. The second ground upon which the Petitioner bases its petition is that it is just and equitable that the company should be wound up. This ground is based partly upon the previous ground and partly on the allegation that with intent to defeat or delay the claims of the Petitioner and other creditors Mr. Mirchandani departed from the colony and has since refused to return unless each of the banking creditors of the company provided to the company a written undertaking not to restrain Mr. Mirchandani from departing from the colony. 75. I have already indicated that I am satisfied that the Petitioner has established a good prima facie case in respect of the first ground and as that is part of the second ground it follows that there must also be a good prima facie case in respect of the second ground. 76. However, I wish to add some remarks about the allegation relating to the attitude of Mr. Mirchandani the chairman and permanent director, who it is said had the actual or effectual control of the company. 77. Mr. Herbst states in his 1st affidavit paragraph 9 that "From about September 1983 onwards as a result of default on the part of the company in repayment of loans there were 3 - 4 meetings held amongst banks and financial institutions which had lost money to the company. It was confirmed by all the creditors in one of these meetings that the total sum owed to them by the company was in excess of US$45 million." In paragraph 9 he states that 2 of these meetings held on 19th and 22nd October 1983 the Petitioner together with other creditors present were supplied with letters from the company requesting the Petitioner and the other creditors to agree to a moratorium in respect of the indebtedness not to restrain Mr. Mirchandani from leaving the colony after his return to the colony. 78. Mr. Thadani in paragraph 5(iii) of his 1st affirmation takes exception to the production of "without prejudice" letters to the court as follows:-
79. Mr. Ching supports Mr. Thandani's contention and argues that it was wrong to mention anything that happened at these meetings. 80. Mr. Litton on the other hand argues that this evidence was admissible and draws support from the following passage from Chipson on Evidence 13th Edition paragraph 19-11:-
81. Reference is made to the case of Re Daintrey [1893] 2 Q.B. 116 in which it was sought to prove an act of bankruptcy by the production of a letter marked 'Without prejudice' Vaughan Williams L.J. giving the judgment of the Divisional Court said at p.118:-
82. Their Lordships held that the letter was admissible to prove the act of bankruptcy and did prove a clear act of bankruptcy. 83. Mr. Litton relies on this judgment and argues that the letters exhibited by Mr. Herbst show conclusively that the company could not pay its debts. 84. Mr. Ching draws the distinction that the act of bankruptcy was the letter itself and that there is no corresponding provision in the companies legislation. 85. It is my view that the 2 letters were always admissible to prove the threat that Mr. Mirchandani would not return to the colony unless the undertaking was given. I would go further and say that in my view the admissibility of the letters and communications depended upon the existence of a dispute or negotiations pending between the parties and whether the letters were bona fide written with a view to its compromise. 86. In the present case during the period in question there was no dispute as to the debt. There was no dispute as to when payment should be made (As can be seen from the correspondence). The question arises as to whether it can be said that the company was sending the letters bona fides with a view to settlement of a dispute or negotiations. Evidence which has since come to light as a result of the Official Receiver being appointed provisional liquidator suggests that the letters were not written bona fide with a view to settlement of a dispute or negotiations. A statement in the correspondence marked "without prejudice" refers to receivables due from India "in excess of 12 million". If this refers to the receivable "In the region of US$26 million" due from India mentioned in paragraph 9 of Mr. Thadani's first affirmation, then it indicates that the company's representatives are not very precise with their representations. Neither of these figures is reflected in the statement of account which the Official Receiver obtained from the company's auditors. Exhibit A 87. It seems to me that in the light of the official Receiver's discoveries there is good reason to believe that the letters were not written bona fide with a view to settlement but were intended to prejudice the Petitioner by referring to receivables which did not exist in an attempt to get it to agree to something to its disadvantage. 88. That being so they were admissible not only to prove the attitude of the company but also to show clearly the admitted indebtedness of the company. 89. It is a reasonable inference from the above that the reason for Mr. Mirchandani's refusal to return to the colony is as Mr. Herbst has contended "With intent to defeat or delay the claims of the Petitioner and other creditors". 90. I hold that the Petitioner has established a good prima facie case for the winding up of the company on the second ground that it is just and equitable that it should be wound up. 91. The next question I must consider is whether in the circumstances of this case it is right that a provisional liquidator should have been appointed. 92. In Re Union Accident Insurance Company Limited it was held that the court's powers to appoint a provisional liquidator were not limited to cases where special circumstances existed such as danger to assets or proof of insolvency. 93. In that case a provisional liquidator was appointed on an ex parte application to protect the company's assets even though the company was not insolvent, the court having taken into account other factors such as the public interest. In that case it was held that the public interest required that the solvency of the company should be maintained or the company wound up before its liabilities exceeded its assets. 94. If it were a proper exercise of the discretion provided by the corresponding section to section 193 of our Companies Ordinance to appoint a provisional liquidator on an ex parte application where there was no evidence that the company was insolvent, then a fortiori it was a proper exercise of that discretion where there is a good prima facie case that the company is insolvent. Indeed insolvency is one of the special circumstances specifically referring to in the above case where it was argued it would be right to make the Order. 95. I am of the view that it was right in the circumstances of this case to make the Order on that ground alone. 96. There were however other matters upon which the appointment was sought. They are set out in paragraphs 10 to 15 of Mr. Herbst's first affidavit.
97. It is now clear that Mr. Herbst's belief in paragraph 11 that a receiver had been appointed was incorrect although Lloyd's Bank have proceedings afoot in which such an appointment is sought. 98. Mr. Ching has informed the court that
99. Mr. Litton accepts this. 100. Mr. Herbst's conclusion on the invalidity of the Lloyd's debenture is also under attack. 101. However be that as it may there was in my view sufficient information before the court (without considering Mr. Herbst's erroneous conclusions) for the appointment of a provisional liquidator. It was obviously in the interests of the whole class of creditors that the assets of the company should be collected and protected and the liabilities reduced and trading stopped. There was a hearing set down on the 24th January in which one creditor was attempting to get its hands on the assets. 102. It is my judgment that in the circumstances of this case it is right that a provisional liquidator should have been appointed. 103. The discharge of the provisional liquidator is sought on the grounds:-
104. So far as the first point is concerned it would seem that there is more urgency about the need to protect the assets in this case than there was for the collection of assets in the Re Union Accident Insurance Company Limited case where the provisional liquidator was also appointed on an ex parte application. I am told that the practice in Hong Kong is that the application for such an appointment is always made ex parte on a creditor's petition. Mr. Ching accepts that that is the practice but argues that it is not a correct practice. It seems to me that each case must be decided on its own set of circumstances, but in a situation where a company is still trading despite a very substantial indebtedness, an ex parte application is appropriate and in the present case it was especially appropriate in view of the size of the indebtedness and the attitude of the company and its controlling officers. 105. I now come to the allegation of non-disclesure. 106. The first allegation of non-disclosure is contained in Mr. Thadani's affidavit paragraph 4(i). It is claimed that the Petitioner did not disclose to the court that the first bill was drawn on Gonara (Hong Kong) Limited which was not an affiliate of the company. In my judgment there was no need for the Petitioner to disclose this fact because of the evidence that the advance was within the terms of the facilities letter and the fact that the company delivered a bill which did not comply with the bank's conditions (for its own security did not take the cause of action outside the facilities letter. 107. The second allegation of non-disclosure is that the Petitioner had obtained judgment against the Gonara (Hong Kong) Limited. However it is clear from the affidavits now before me that although judgment was obtained against that company it turned out to be a hollow judgment and no sum of money was recovered as a result of it. In these circumstances it was not necessary for the Petitioner to disclose that fact. 108. The third complaint regarding non-disclosure is that the Petitioner did not disclose to the court the fact that the Petitioner had taken security from the company in the form of these two charges dated the 13th of May 1983 on a cash deposit of $300,000 and on the seven ivory boats displayed at the museum in Washington. However it is clear from the affidavits which have been presented to the court that the Petitioner has not taken any action in respect of this security. I agree with Mr. Litton that the Petitioner is not bound to realise the security, it may seek repayment of the whole outstanding debt. I hold that the company was not bound to disclose a security which it hadn't realised. It will be seen later that even if the company had been under a duty to disclose the existence of its security there is very good reason to believe on the information now before the court that the value of that security was grossly overstated by the company and that on a true valuation it fell far below, not only the upper limit of the credit facility but also the total outstanding debt to the Petitioner. 109. The final allegation of non-disclosure is that the Petitioner did not reveal to the court the "state of play" in respect of the civil actions lodged against the company. It is said that the company has obtained unconditional leave to defend two of the actions and that a third action has been repeatedly adjourned in order to enable the Chartered Bank to amend its claim. In an affirmation by Mr. Thadani of the company it is stated that all actions are being vigorously contested and that there are no judgments. Quite apart from the fact that members of the public are not entitled to examine all the documents on a court file and in particular orders made in Chambers, I cannot see that this is a material point. The existence of a large number of actions in the High Court against the company in respect of substantial debts whether the actions are being defended or not, is of itself a matter which the court can properly take into account. I do not see how the failure of the Petitioner to inform the court of the Registrar's Orders in three of the actions could be regarded as non disclosure. Members of the public are not entitled to obtain copies of orders made in Chambers RSC 0.1.r.4(2). 110. So far as errors or mistakes are concerned Mr. Thadani on behalf of the company has in paragraph 5 of his first affidavit listed a number of matters about which he complains in this context. I have examined his complaints very carefully and there can be no doubt that there were matters put before the court which were not completely accurate. His complaints are directed really to paragraphs 10 and 11 in the affidavit made by Mr. Herbst to which I have already referred. I will come back to these. 111. Mr. Thadani also complained in paragraph 5(v) that there was no evidence before the court of any presentation of the bills of exchange or of protest in the case of the foreign bill. In view of what I have said before it is my judgment that this point has no validity. 112. In paragraph 5(vi) of his affirmation Mr. Thadani also complains about the suggestion in paragraph 12 in Mr. Herbst's affidavit that the successful plaintiffs in the Supreme Court actions will gain priority over other unsecured creditors. 113. Mr. Thadani claims that even if judgment were to be obtained by any of the other banks against the company such judgment would not give such bank priority. Mr. Ching also supports Mr. Thadani's affidavit and argues that there is no merit in paragraph 12 of Mr. Herbst's affidavit. 114. Mr. Litton concedes that as a matter of law a person who obtains judgment does not obtain priority in the event of a winding-up, but he has drawn the court's attention to the difference between the English rules relating to execution of a judgment and the Hong Kong Laws. He points out that in England there is no order 45 rule 14(1). That rule enables the court at the time of giving judgment, on the verbal application of the party in whose favour the judgment is given, to order immediate execution thereof without the issue of a writ of execution. Thus says Mr. Litton if execution is obtained immediately it may not be possible at a later stage to recover all assets seized as a result of such an Order. He suggests that it may well be as a result of this provision that the practice has grown up in Hong Kong on a creditor's petition for creditors to apply for the appointment of a provisional liquidator ex parte. Certainly the existence of a large number of actions for substantial sums against a particular company and the existence in the laws for immediate execution without the issue of a writ of execution does place the assets in some jeopardy. It may be difficult to recover assets once seized and subsequent litigation by the liquidator to recover such assets may not be fruitful and yet may at the same time be expensive. 115. I have already said that quite apart from the incorrect information there was sufficient information in the affidavits before me to justify the appointment of a provisional liquidator. Should the presence of incorrect information in paragraphs 10 and 11 of the affidavit of Mr. Herbst justify the discharge of the Order appointing the provisional liquidator? 116. Mr. Ching has referred to a not in an Australian textbook as follows:-
I have not been informed of the details of that case but it seems to me that whether the appointment is discharged or not depends on the extent of the errors and on the present or otherwise of evidence independent of the incorrect information which justify the appointment. It is a matter of discretion. 117. Mr. Ching relies on Bloomfield v Serenyi [1946] 2 All LR 646 which stresses the duty on a solicitor as an officer of the court when appearing before the court on an ex parte application (In that case an application under R.S.C. Oll for leave to serve out of the jurisdiction) to examine with care the material put before him before he allows to be made an affidavit upon which the court must necessarily rely. 118. The editorial note points out that on the facts in that case there was no proper case for the application of R.S.C. Oll r 1(g), and there was therefore no room for the application of the principle laid down in Ellinger v. Guinness, Mahon & Co. [1939] 4 All Er.16 that non disclosure of a material fact on the application is not in itself a sufficient ground for setting aside the application unless there has been an attempt to deceive the court. 119. I consider that in the case of non-disclosure or incorrect information the court always has a discretion to discharge an order made ex parte. Whether it does so or not depends on the individual circumstances of the case and the seriousness of the non disclosure or errors in relation to the particular case. 120. In the present case I do not consider that there was any material non-disclosure. So far as the errors are concerned there was sufficient evidence before the court to make the Order independently of the incorrect information. 121. I consider that the protection of the whole body of creditors is a factor the court should take into account when exercising this discretion. Taking all the above into account I do not consider it would be right to discharge the order. 122. With regard to the Petitioner's security it must be a matter of real concern to the Petitioner that Mr. Thadani in his 1st affirmation paragraph 4(iii) puts a valuation of US$7 million on these ivory boats whereas the Petitioner has obtained an independent valuation from Christies giving their value as US$88,500. 123. It must also be a matter of real concern that there is evidence that the company appears to have pledged the same boats irrevocably to two different creditors. 124. It must be a matter of real concern that the statement of account obtained from the companies auditors puts the total indebtedness of the company as at the 31st October 1983 in the region of 47 million US dollars. 125. It must be a matter of real concern that there appears to be substantial differences between the representation of the Director of the company and the situation revealed in the statement of account. 126. It must be a matter of real concern that a great deal is owing to the company by its own affiliate companies according to the statement of account.
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