Chan Fung-yuk v. Hong Kong Shaukiwan Tsui King Lau Restaurant Ltd

HCA000527/1978

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Coram: Zimmern, J.

Date of Judgment: 18th July, 1978.

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JUDGMENT

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1. In this matter the plaintiff claims against the defendant, a private company, the sum of $41,000.00 being money payable by the defendant to the plaintiff for money lent from 25th May, 1974 to 31 at December, 1976.

2. The defence served by the defendant company in this case is based on the classic defence of debitum in praesenti solvendum in future, admitting the debt but saying that the time was not due for repayment. The ground on which, and there is only one, that the defendant says the debt was not due for repayment is as pleaded, and I read it out.

3. Let it be noticed right away, that the defence does not deny that, save for the resolution, the admitted debt was not repayable on demand. I say that because there is no allegation in the defence stating that at the time the directors agreed to lend the company money that they had agreed either inter se or with the company that the sums lent would not be repayable until an ascertained date or upon the happening of an event - let the event be, as an example, when the company is in the position to repay. Nothing of that sort at all. The defence is based simply on the resolution passed at the Annual General Meeting held on the 23rd day of December, 1977.

4. The defendant, who opened the case by agreement, produced the minutes of the Annual General Meeting of 23rd December, 1977, and the resolution relied on is Resolution 4, and the agreed translation reads:

5. The plaintiff's answer to this is. Firstly, no such resolution was ever passed. No such resolution was even suggested or mentioned at the Annual General Meeting. Secondly, even if it was mentioned or passed that resolution is incapable of giving rise to the defence in which the defendant says it does give rise. I will deal with the second matter first.

6. Sitting as judge, I have to construe these words and resolve whether they could bear the meaning given to these words by the defendant. The defendant says, by these words all the directors of the company have represented to the company that they will not demand repayment but will wait until the directors have resolved that the company was in the position to pay the debt. This is how the defendant has put it. On the face of the defence before me, if counsel for the plaintiff had applied to me to strike out the defence for disclosing no reasonable defence I would have acceded to the application. I repeat Paragraph 5.

"By a resolution passed at the Annual General Meeting held on 23rd December, it was, inter alia, unanimously resolved that the repayments to the defendant company's directors in respect of the said loan made to it, to be deferred until such time as the defendant company should pass a resolution to that effect."

This is a new proposition of law to me, that in the case of money owing by a corporation, the corporation could, as if by a wave of the wand, pass a binding resolution to the effect that there need not be any repayment until a date or happening of an event fixed by the company at meeting. There was no allegation that the plaintiff was present at the meeting or had agreed to any such resolution. However, counsel for the defendant in his opening had emphasized the presence of the plaintiff at the Annual General Meeting and this became common ground so nothing further need be said about the non-pleading of a material particular.

7. As I construe this resolution, if there was one, it means no more than an expression of a decision that the directors will look into the matter of repayment of the debts owing by the company when the company's financial condition becomes better. There is no representation or promise by the lenders as to their rights to demand repayment. Counsel for the defendant relies heavily on the Snelling Case⁽¹⁾ wherein the case of Re William Porter & Co. Ltd.⁽²⁾ was mentioned at page 89 as follows:

"Following a resolution passed by the directors of a company that no directors' fees be paid until a further resolution was passed, the trustee in bankruptcy of the governing director submitted a proof in the liquidation of the company for subsequent fees due to the director. The liquidator rejected the proof. Simonds J. held that the company was not a party to any agreement with the directors and that the West Yorkshire case [1911] 2 K.B. 326 did not apply."

Applying the above here, there was no agreement between the company and the shareholders.

8. What the judge went on to say was this. He said:

"However, the directors, by assenting to the postponement or abrogation of their rights, had induced the company to a course of conduct from which it could have abstained."

He, therefore, upheld the rejection of the proof by the liquidator.

9. Mr. Woo, for the defendant says the plaintiff, by assenting to the postponement of his right to demand for the debt, had induced the company to a course of conduct from which it could have abstained. He could have been right if such a resolution had been passed but I cannot read the words of this resolution, if it was passed at all, to mean what he wants it to mean. Therefore, I hold, on the construction of the resolution that this argument fails.

10. I turn now to the first matter. I really do not have to deal with it in view of my construction of the language of the resolution alleged but seeing that allegations have been made by both sides, I shall deal with it. I have not the slightest hesitation in holding that this resolution, shown in the minutes, was added after the meeting had been held, and it was probably added after the plaintiff, on 9th January, had asked for the repayment of his loan.

11. The defendant called four witnesses (including the Managing Director) to tell the court of how the minutes were made, how the resolution arose. Looking at the minutes or a translation of it, as a whole, I can see that these minutes were not recorded in accordance with the evidence of the four gentlemen called by the defendant, that is, that Leung Ping recorded the proceedings live or contemporaneously.

12. The evidence of the two plaintiff witnesses (including the plaintiff himself) was that Leung Ping was handed a sheet of paper by the Managing Director, and he, in the course of the meeting, just copied the contents of the sheet into the minute book. Now I will give my reasons why I accept the plaintiff's version.

13. It is customary in meetings of Chinese companies, partnerships, for the members to sign their presence in the minute book. It is customary to name the Chairman and put down the recorder's name. All that was done, but immediately after that we have in the minutes these words: "Report to be announced" - can anyone, taking a contemporaneous minute, record such words? - "Report to be announced." Then goes on: "The Chairman gives a report on the business of the company in 1977. He said that the business is quite all right." Then the next paragraph: "Matters to be discussed." These and "Report to be announced" are all words of preparation for a meeting and support the plaintiff's version.

14. Now I will come to the reason why I do not believe that the repayment of money was ever mentioned at all at the meeting. The minutes deal firstly, with the business of the company. We have here: "The Chairman gives a report on the business of the company in 1977. He said that the business is quite all right." I fully accept that, in a private company of this nature, the law is not usually fully complied with. It was common ground in this case that the Year's accounts with the auditor's report were not presented but only the previous month's accounts were laid. Now if the meeting had discussed the matter of these debts, I have no doubt in my mind that the discussion would have taken place at the very beginning, when the accounts and the business were being discussed, by the Chairman. Three of the defence witnesses said they were quite clear it was not dealt with then and it came out of the blue when Ting, the Chairman and Managing Director, at the end suddenly brought it up. Nobody expected it, nobody knew he was going to bring it up. It was not voted on but nobody objected to it.

15. No reasonable explanation has been given by Ting, I repeat, reasonable, has been given to me why this matter should have been brought up at the end of the meeting or at all. The repayment of loans is strictly within the province of the directors of the company. The shareholders of a company have no power to interfere with the directors' day-to-day running of the business. Why was it brought up? It was not because a shareholder was asking about the loans and their repayment. Why put it to the shareholders when it was something within the exclusive province of the directors. Certainly, in my view the whole alleged resolution was an absolute absurdity, manufactured for the defence of this case and written into the minute book after the Chairman had signed it. This is fully, in my view, supported by the original minute book - where the Managing Director, having signed underneath the last minute, as was his custom to do, when we suddenly have in this particular minute, Resolution 4 being written in the Chinese language, right up to the signature, and as there was not enough room left for two characters before overwriting on to the signature, the writer wrote the last four characters in two vertical columns of two characters each instead of four horizontally. Leung Ping the recorder could give no explanation when cross-examined by counsel for the plaintiff as to why he did that. The answer, to my mind, is obvious, he could not overwrite on to the Managing Director's signature.

16. I have listened carefully to the four witnesses for the defendant and the two witnesses for the plaintiff including the plaintiff himself and I accept the evidence of the two witnesses for the plaintiff. For reasons given there will be judgment with costs for the plaintiff in the sum of $41,000.00 with interest from the date of writ until today at eight per cent per annum.

Representation:

Mr. Edward Chan (Hastings & Co.) for the plaintiff.

Patrick Woo and Whitehead (T.M. Chow & Co.) for the defendant.

(1) [1972] 1 A.E.R. 79

(2) [1937] 2 A.E.R. 361