Re Sun Hung Kai Bank Ltd

HCMP002967/1984

On an application for an order of mandamus directed to the Registrar of Companies, the applicants asserted that A Limited had, immediately prior to its liquidation, created an equitable charge in favour of the applicants by an oral agreement and deposit of Title Deeds. The applicants submitted to the Registrar for registration particulars of the charge under section 80(1) of the Companies Ordinance by completing Form IV and submitting a bundle of copy documents. The Registrar declined to register without an order of the court.

Held, granting the relief claimed:-

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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Coram: The Hon. Mr. Justice Hunter.

Dates of Hearing: 1st and 8th March 1985.

Date of Delivery of Judgment: 3rd April 1985.

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JUDGMENT

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1. This is an application by Sun Hung Kai Bank Limited for an order of mandamus directed to the Registrar of Companies requiring him to register a charge under section 83(2) of the Companies Ordinance. It raises a problem of considerable niceity and difficulty.

2. The facts asserted by and relied upon by the applicants can be summarised as follows. They loaned one million dollars to Advance Finance Limited (the company). This sum became repayable on 6th January 1984. On 5th January the company asked for more time. The applicants orally agreed with the company to extend its time to the end of February upon the terms that the company would provide further security to the applicants such security to consist of sub-mortgages of a number of properties particulars of which were to be given to the company's solicitors. The sequence of events thereafter was as follows:

3. The letter concluded: "In the circumstances we cannot register this charge without a court order."

4. The relevant provisions of the Ordinance at the material dates were:-

5. Regulation 2 of the Company's (Forms) Regulations provides as follows: "The forms contain in the schedule with such variations, and additions as the circumstances of the particular case may require, shall be used for the purposes of the Ordinance, and the particulars contained therein are hereby prescribed as the particulars required under the Ordinance." The particulars given in Form IV are as above set out.

6. The legislative purpose of this group of sections is tolerably clear. It is to warn a person proposing to give credit to a company of the risk of being postponed to a secured creditor. The company has to give this warning by providing information for inclusion on a public register, and by keeping its own register from which copies of any instrument may be obtained. It is intended to operate when the company is trading. On liquidation this purpose is spent. The position between secured and unsecured creditor then "crystallizes" per Buckley J. in Re Mechanisations (Eagles-Cliffe) Limited (1966) Ch. 20 at p. 36.

7. Liquidation here both preceded and provoked the attempted registration. It can thus be seen as an act of pure formality. Although of no trading purpose it still has decisive significance. When a charge is sought to be created as late as this in a company's history real questions arise as to its validity and as to whether it can survive the winding up avoidance provisions. But unless section 80 is complied with these real questions are not even reached. This applies to all charges including those that are oral and equitable Re Wallis and Simmonds Builders (1974) 1 All E. R. 561.

8. Perversely, it is at this moment of inutility, that the inadequacy of these statutory provisions is revealed. If liquidation had been delayed a short time, Letter 4 might have been countersigned. This would have produced an instrument evidencing an agreement for a charge, which would readily fit the statutory framework. If liquidation had been delayed somewhat longer, a document substantially in the terms of the draft legal charge before me would probably have been executed, with the same result. Although in the course of negotiations leading up to the execution of such a document, companies must have frequently entered into binding equitable mortgages, I was not surprised to be told by the Registrar that applications to register such charges are extremely rare. It will usually be more convenient only to register the final document. It may also be safer where a little time elapses between the equitable and the legal. It is only where negotiations are interrupted e.g. by some external intervention such as liquidation, that this problem arises.

9. At the outset it gives rise to two questions, namely:-

(1)    The breadth of meaning to be given to the word "instrument" depends upon the context in which it is used. This context suggests a narrow meaning. The association between the word "instrument" and the delivery of an original document to the Registrar is apparent as a matter of construction, and confirmed by practice and authority. The intent is that an original instrument is to be delivered to the Registrar, if it exists, together with the prescribed particulars. The original instrument may create the charge e.g. in the words of the footnote to the Form, it may be a "trust deed, mortgage, debenture etc." It may only evidence a charge created by deposit e.g. a Memorandum of Deposit. I think that the word instrument covers these two categories of original documents and does not extend to every document e.g. letters or copy letters, which may evidence the terms of some oral agreement for a charge. I therefore accept the submission originally advanced by both parties that none of the submitted documents were instruments, and that the first instrument which might have been created was Letter 4 when it had been countersigned. I reject the Registrar's alternative submission that Letter 4, the original of which was clearly in the possession of the company, constituted an instrument in its present form.

(2)    Unfortunately as it seems to me, the draftsman of Form IV did not follow the wording of the section. The section asks for the prescribed particulars plus the instrument (if any). The Form in column 1 assumes the existence of an instrument. Since the prescribed particulars are what the Form requires, it seems to me inevitably to follow that in the absence of an instrument no particulars are in fact prescribed in relation to the subject matter intended to be covered by column 1, namely the date and description of the charge.

10. The case therefore turns upon the way in which this statutory lacuna is to be filled. Have the applicants performed their statutory duty by delivering to the Registrar a bundle of documents which they say showed the date and nature of the charge contended for? Or, is the Registrar right in ultimately contending that this practice is insufficient, that the applicants must put this information by way of particulars in the answer to column 1 itself, and that such omission is here fatal?

11. On the applicant's behalf Mr. Neoh submitted that the applicants had fulfilled their duty under section 80 (1). At its highest this was a duty to deliver "prescribed particulars" and where no such particulars were in fact prescribed the applicants could only do their best. Section 83(1)(b) set out the information that the Registrar had to place upon the register. This includes the date of the charge, but curiously not its description. It was wrong, and quite unfair to the applicants, to read this Form as though the heading to column 1 was amended to read: "Date and Description of the Mortgage or Charge, and of the Instrument (if any) creating or evidencing the same". He accepted that the references to the registration of letters in the correspondence was misconceived, as unlike the Lands Register the Companies Register was a register of charges not documents. But he submitted that it was sufficient to put forward by way of particulars the copy documents in fact listed. They spoke for themselves. Their effect was conveniently summarised in Letter 4. The letter of 14th March did not purport to amend the particulars. It was no more than a constructional aid offered to the Registrar drawing attention to the important letters and indicating how the applicants said they should be read.

12. Mr. Fleming for the Registrar repeated first the argument advanced by letter that the applicants had not sufficiently shown a prima facie charge. Two submissions were advanced at opposite ends of the same spectrum. The first was that the Registrar's function was administrative and not judicial. The second was that the word "if" in the phrase "if the charge is a charge created by the company" in section 83(1)(b)(i) posed a question as to the prima facie validity of the charge, which the Registrar had to answer. I was reminded of the advice given to the Jenkins Committee and recorded in paragraph 302 of its report as to the onerous potential obligation of the Registrar for breach of an "absolute duty", which I take to mean statutory duty. Specifically it was submitted that the Registrar here was put upon inquiry by the words quoted in Letter 2, which it was submitted negative any intention to create an equitable charge by deposit.

13. I have no hesitation in rejecting the second submission. The word "if" is not interrogatory of the Registrar. I think it is simply used to describe the two alternative situations, dealt with in the sub-section, which may be asserted by the applicant. The validity of the charge is a matter arising between chargor and chargee. It is not one for the Registrar. He is in no position to find facts or to pronounce upon validity. His certificate is conclusive only of registration. It does not go to the accuracy of the particulars recorded. This is because these particulars do not touch or affect the validity or construction of the charge. Another reason is that if the charge is oral he is in no position whatever to check any of the particulars put before him. These principles clearly emerge from a series of decisions in England where the statutory provisions are identical namely: National Provincial Bank v. Charnley (1924) 1 K. B. 431: Re Eric Holmes (Property) Limited (1965) Ch. 1052, Re Mechanisations (Supra) and Re C. L. Nye Limited (1971) Ch. 442.

14. Further the Registrar's submissions in this case illustrate to my mind the dangers of assuming a duty which is riot his. The formula used in Letter 2 is one I believe often used by solicitors to ensure that no act of theirs alone can be relied upon as creating an equitable charge by deposit. But without presuming upon any possible future decision of another court, I would very much doubt whether such formula could negative a prior agreement by the solicitors' client such as is asserted here. I am minded to think that if the Registrar were to refuse to register a charge upon an erroneous view of its validity, his risk of being exposed to liability in damages for negligence is greater than his risk of being found liable in damages for any breach of statutory duty under section 83, cp. Minister of Housing v. Sharp (1970) 2 Q.B. 223.

15. The Registrar's first submission is, I think, more nearly correct. Section 83(1) imposes two statutory duties namely first to keep a register and secondly to enter particulars upon it. The effect of these provisions was considered in the authorities above mentioned and particularly in Charnley's case. Bankes L.J. said: "It is not disputed, as I understand it, that the object of the legislature in requiring delivery to the Registrar of the instrument as well as the particulars, is to enable him to form an independent judgment in reference to what he ought to put on the, register before he in fact registers it". p.443. Later he said, "the Registrar is appointed as the tribunal to decide what shall be put upon the register". p.444. Scrutton L.J. having quoted the equivalent of section 80(1) went on: "That makes the avoidance depend on the neglect to send in the particulars. The neglect to register the charge will not make it void. Then when the Registrar has got the particulars and the instrument creating the charge, he is to enter in the register, not the particulars delivered by the company, but ....." and he goes on to set out the column headings in the Form. p.447. Finally Atkin L.J. cited with approval this passage from the judgment of Cozens-Hardy M. R. in Re Yolland (1908) 1 Ch. 152 (referring to the Registrar) "That means not merely that he has done his mechanical duties".

16. These citations show that the Registrar's function is not purely administrative. He keeps the register and has to determine what particulars go on it. This necessitates an exercise of some judgment. He has to consider the terms of any instrument submitted, and decide for himself whether the applicant's particulars suffice or whether he should substitute his own. If he were to receive an instrument together with a copy of Form IV in which column 1 was left blank, I think he would be entitled, (if so minded) to say to the applicants that the prescribed particulars were incomplete and that they must first complete column 1, to aid his reading of the instrument. The question here is whether he can adopt the same attitude when the applicant tenders not an instrument but a bundle of documents. Can he say to the applicants that where no instrument exists compliance with the Ordinance requires them to do one or other of two things namely:-

17. This question seems to have been answered in favour of the Registrar by Mervyn Davies J. in Reg. v. Registrar of Companies Ex Parte Esal (Commodities) Limited in a decision given on 13th November 1984. Only The Times Newspaper report of this decision was available at the hearing, and I am indebted to the applicants' solicitors for obtaining and supplying me since with a full transcript. The facts of the case are complex, but it would seem that the delivery of a bundle of documents on 29th February 1984 was ultimately relied upon by both the applicants in that case and the Registrar himself "as constituting the 'prescribed particulars' and 'instrument (if any)"' p. 24E. As here, the learned judge concluded that there was no instrument, and therefore no call for the delivery of any original document, p. 26C. He accepted also that particulars of the charge could be extracted from the documents delivered. But he found against the applicants, whose arguments were supported by the Registrar. He said: "It seems to me that it is not open to the applicant for registration to disregard Form 47 (the Form IV equivalent) and expressly or impliedly to ask the Registrar to read a bundle of other documents. ..... The applicant for registration must initiate the setting out of the particulars that have to be supplied by using a Form 47. ..... Here the (applicant) did, of course, make use of a Form 47. But when one reads (column 1) as completed, it is plain that the (applicant) did not give the "date and description of the instrument creating or evidencing the mortgage or charge".

18. I regret that I am unable to agree with this reasoning or to follow this conclusion. Both in that case and here the applicants in my view were not "disregarding" the relevant form. They were faced with a defective form which was not apposite to their circumstances and were doing their best to fill the gap. I do not think it is right to read into the Form a requirement for particulars in the absence of an instrument. Incomplete statutory provisions such as these fall to be construed benevolently. I do not think it is right to penalise the applicants for putting too much information before the Registrar. In this ambiguious statutory context the greater should include the less. I do not think that this conclusion imposes any unreasonable additional burden upon the Registrar. This copy bundle makes simplier reading than many complex charges. It is I think tolerably clear from the submitted documents that the applicants were asserting what could be summarised as "an equitable charge on the terms of Letter 4 perfected by deposit of Title Deeds by 13th January 1985." In short I think that in the absence of any instrument the submission of these documents was equivalent to the submission of particulars in those terms. The Registrar is of course entitled to ask questions if a bundle of documents is submitted to him, and to consider, and use as aids to construction of such submitted documents, letters received both during and after the statutory period, e. g. the letter of 14th March.

19. In my judgment, therefore, the Form IV as submitted by these applicants met the requirements of section 80, and the Registrar was wrong to refuse registration upon the basis of the inadequacy of the particulars in column 1. Conversely I think that the applicants are tied to the particulars in fact given in column 3. Had they been registering an instrument the applicants would have been covered and possibly protected by the decision in Charnley. But where as here one property, i.e. No. 8, is apparently deliberately omitted in the material column 3, I do not think that the Registrar can properly be asked to read it back in from the documents enumerated in column 1.

20. I should add that had I been asked, I think I would have been prepared to have reached the same conclusion by a different path. If I am wrong above, my extracted summary of the documents would involve either remedying an omission or correcting a misstatement in the original particulars. Either step can be taken under section 86. Having regard to the dates here, which plainly distinguish this case on the facts from both the Eric Holmes and the Mechanisations cases, and to what I said about formality, I can see no impediment to this course.

21. There must, therefore, in my judgment be an order for mandamus directing the Registrar to register this charge.

Representation:

Mr. Anthony Neoh instructed by M/s Woo, Kwan, Lee & Lo for Applicant.

Mr. David Fleming, Crown Counsel, (Legal Department) for Respondent.