Active Base Ltd v. Roderick John Sutton and Others
Read the full judgment text of FACV 14/2009 on BabelCite. This Court of Final Appeal judgment was delivered on 26 November 2009 before Bokhary PJ, Chan PJ, Ribeiro PJ, Litton NPJ, Lord Walker of Gestingthorpe NPJ.
Company law – registration of charges – Companies Ordinance (Cap 32) s.83(2) – whether Registrar's certificate conclusive as to date of creation of charge for all Ordinance purposes – whether for s.267 purposes, date of creation of floating charge within 12 months of winding-up – indoor management rule – Royal British Bank v. Turquand – whether lender put on inquiry of irregularity in board meeting approving loan and debenture – Active Base Limited agreed to lend HK$50 million to Moulin Global Eyecare Holdings Limited, a Bermuda-incorporated Hong Kong-listed company, to finance its acquisition of a 56% interest in Eye Care Centres of America, Inc – Moulin was insolvent at least from 31 December 2004 and was later wound up – the loan and debenture were signed on 24 February 2005 and the loan was advanced on 25 February 2005 into the account of Moulin's subsidiary Oaktree Investment Ltd – the debenture, a first floating charge over Moulin's undertaking, was not registered until 7 June 2005, and the Registrar of Companies' certificate under s.83(2) stated the debenture was dated 6 May 2005 – the Liquidators of Moulin rejected Active Base's proof of debt on the ground that the Loan Agreement was unenforceable because the requisite board resolution was not validly passed, and that the debenture was invalid under s.267 of the Companies Ordinance – first ground: the courts below found that Active Base, through its director and solicitor, had been put on inquiry of the lack of a properly notified Moulin board meeting (the minutes of which had been drafted by the lender's solicitor listing only the five Ma family directors, before Active Base had even decided whether to lend to Moulin or to the chairman personally), defeating reliance on the indoor management rule – held: the primary facts were fairly capable of supporting the inference; concurrent inferential findings of fact will not be reviewed on final appeal save in special circumstances (Sky Heart Ltd v. Lee Hysan Co. Ltd) – Active Base's attack on the first ground failed – second ground: whether the s.83(2) certificate is conclusive for all Companies Ordinance purposes as to the date of creation of a charge, including for the purposes of s.267 – held: the language of s.83(2) is unqualified and general and the certificate is conclusive for all Companies Ordinance purposes; the creation date is the date specifically named in the certificate – since the debenture was dated 6 May 2005 under the certificate, and the loan was advanced on 25 February 2005, the debenture could not fall within the cash-paid exception to s.267 and was invalid against the Liquidators – appeal dismissed with costs.
Legal issues: Whether Active Base was put on inquiry of the irregularity arising from the lack of a properly notified Moulin board meeting · Conclusive effect of a s.83(2) Registrar of Companies certificate as to the date of creation of a charge
Outcome: Appeal unanimously dismissed with costs.
Cited by 3 cases
|
FACV No. 14 of 2009 IN THE COURT OF FINAL APPEAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION FINAL APPEAL NO. 14 OF 2009 (CIVIL) (ON APPEAL FROM CACV NO. 279 OF 2008) _____________________
_____________________ Between:
_____________________ Court : Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Mr Justice Litton NPJ and Lord Walker of Gestingthorpe NPJ Date of Hearing : 9 November 2009 Date of Judgment : 26 November 2009 _____________________ J U D G M E N T _____________________ Mr Justice Bokhary PJ : 1.There are two main aspects to this appeal. The first is a challenge – pressed by the appellant and resisted by the respondents – to concurrent findings of fact. It has been well settled since the decision in Sky Heart Ltd v. Lee Hysan Co. Ltd (1997-98) 1 HKCFAR 318 that this Court will not review concurrent findings of fact save in special circumstances. The challenge in the present case is not to any finding of primary fact. It is to an inference drawn from the primary facts proved or admitted. That, the appellant contends while the respondents dispute, renders the present circumstances special. 2.As for the second main aspect of this appeal, it consists of an issue over whether – as the appellant disputes while the respondents contend – a certificate issued by the Registrar of Companies under s.83(2) of the Companies Ordinance, Cap.32, is conclusive for all Companies Ordinance purposes as to the date of the creation of the charge in respect of which it is issued. 3.Section 83 reads :
The “Part” referred to in s.83(2) is Part III of the Companies Ordinance. Part III deals with the registration of charges, and consists of sections 80 to 91. Section 80 requires, upon pain of the charge being rendered void, that within five weeks after the creation of a charge by a company, the particulars of the charge, including the date of the instrument creating the charge, be delivered to the Registrar of Companies for registration. 4.If a s.83(2) certificate is conclusive for all Companies Ordinance purposes, then it would be conclusive for the purposes of s.267 of the Companies Ordinance which reads :
Primary facts 5.Taking them from the primary facts proved or admitted before Kwan J (as she then was) sitting in the Companies Court and affirmed by the Court of Appeal (Le Pichon JA and A Cheung and Poon JJ), the circumstances of the present case may be outlined as follows. The appellant, Active Base Ltd (“Active Base”), is a licensed money lender. Most of the loans which it made were short-term loans. The 1st respondents (“the Liquidators”) are the joint and several liquidators of the 2nd respondent Moulin Global Eyecare Holdings Ltd (“Moulin) which is a company in compulsory liquidation. 6.Active Base is a wholly-owned subsidiary of a listed company, namely Tomorrow International Holdings Ltd (“Tomorrow”). Through a company beneficially owned by him, a Mr Chan Yuen Ming held 61.5% of the shares in Tomorrow. But he was not a director of Tomorrow or Active Base. At all material times Active Base’s directors were Ms Yvonne Louie, Ms Irene Wong, Mr Tam Wing Kin and Mr Yau Tak Wah. Each of them was also a director of Tomorrow. Of Active Base’s four directors, Ms Louie and Ms Wong were the ones who bore primary responsibility for Active Base’s lending activities. Ms Louie’s responsibility was to negotiate terms with borrowers. If and when Active Base’s board decided that a loan was to be made, Ms Wong would be responsible for the execution of the decision. 7.Ms Louie and Ms Wong were also on the board of two other listed companies controlled by Mr Chan. One of these other two listed companies was Swank International Manufacturing Co. Ltd which was in the same line of business as Moulin, namely the design, manufacture and sale of optical products. 8.Moulin had been incorporated in Bermuda in May 1993, and had acquired a listing on the Hong Kong Stock Exchange in October that year. It was a substantial multinational. As has already been mentioned, its line of business was the design, manufacture and sale of optical products. 9.At all material times the position in regard to the shareholding in Moulin and the composition of its board was as follows. One-third of the shares in Moulin were held, directly or indirectly, by or for the benefit of members of the Ma family. That was principally through a private Ma family company, Sharp Merit International Ltd. Moulin had ten directors. Five were members of the Ma family, each an executive director. They were : Mr Ma Bo Kee (the chairman); his brothers Mr Ma Bo Fung and Mr Ma Bo Lung (each a vice chairman); and two sons of his, namely Mr Cary Ma (the chief executive officer) and Mr Dennis Ma. Of the five Moulin directors who were not members of the Ma family, two were executive directors while three were independent non-executive directors. Under the Hong Kong Stock Exchange’s rules governing the listing of securities (“the Listing Rules”), a listed company must have at least three independent non-executive directors on its board. 10.In late 2004, Moulin entered into an agreement in partnership with a private equity firm to acquire Eye Care Centres of America, Inc (“ECCA”), the third largest operator of optical retail stores in the United States, for US$450 million plus transaction costs. Moulin was to acquire a 56% interest in ECCA. It was public knowledge that the acquisition was due to be completed in the first quarter of 2005. As it turned out, the acquisition was completed on 1 March 2005. The acquisition was to be financed in part through borrowings, the injection required from Moulin for the acquisition being one of US$97.4 million (made up of an equity contribution of US$73.4 million and a US$24 million pro rata contribution to transaction costs). 11.Prior to February 2005, Active Base had not had any dealings with Moulin. But Active Base had had dealings with Mr Ma Bo Kee, having previously made three loans either to him personally or to a private Ma family company. All were short-term loans, with repayment within a few days. Those loans were made on 30 March 1998, 27 March 2002 and 30 December 2003 respectively. They had been handled by Ms Louie and Ms Wong for Active Base. 12.Sometime in the last week of February 2005, Mr Ma Bo Kee approached Mr Chan for a personal loan of HK$50 million. Mr Chan declined to make the loan himself but referred the request to Ms Louie to consider if Tomorrow would be interested in making it. In a telephone conversation between Mr Ma Bo Kee and Ms Louie, he asked for an urgent personal loan of HK$50 million for three months. He indicated that the money was required to complete Moulin’s acquisition of ECCA scheduled to take place at the end of February. Ms Louie said that she preferred a loan to Moulin. In a subsequent telephone conversation, Ms Louie insisted that Tomorrow was only prepared to lend to Moulin and would require a debenture as part of the security. 13.Nevertheless, Mr Ma Bo Kee requested Ms Louie to reconsider a personal loan. He asked that, given the urgent need for the loan, solicitors be instructed to prepare the loan documentation pending her decision. 14.Ms Louie discussed the matter with Ms Wong. And Ms Wong instructed the solicitor Mr Bosco Tso, whose firm Messrs Bosco Tso & Partners was then acting for Active Base, to prepare two sets of loan documentation : one for a loan by Active Base to Moulin and the other for a loan by Active Base to Mr Ma Bo Kee. On 22 February 2005 Mr Tso opened a file for such loans. Both sets of draft loan documentation – one a company loan set and the other a personal loan set – were provided in the course of negotiations. 15.Sometime during the late afternoon of 23 February 2005, the directors of Active Base made the decision that the loan should be granted to Moulin and not to Mr Ma Bo Kee personally. Ms Wong informed Mr Ma Bo Kee of the decision in the morning of 24 February 2005. 16.The following events had taken place on 23 February 2005 :- (1) Ms Michelle Lam (Mr Ma Bo Kee’s sister-in-law who had acted as the treasurer of the Moulin group) faxed Ms Wong a list naming Moulin’s ten directors. And Ms Wong forwarded the list to Mr Tso. (2) It would appear that Ms Lam had at least two telephone conversations with Ms Wong that day. As to these conversations, Ms Wong said this in her witness statement :
(3) After speaking to Ms Lam, Ms Wong instructed Mr Tso to prepare draft minutes for the requisite board meeting to be held on the following day, 24 February. Mr Tso prepared the draft minutes later the same day. He was not asked to draft the notice of board meeting. (4) Moulin faxed Ms Wong the account details of its subsidiary Oaktree Investment Ltd (“Oaktree”) together with instructions to pay the proceeds into Oaktree’s account. (5) Mr Tso was informed on 23 February that the board meeting would be held on 24 February by telephone conference and that only the five Ma directors would “attend”. Both Ms Wong and Mr Tso knew that the Listing Rules required that a listed company have at three independent non-executive directors on its board. 17.On 24 February 2005 the following events took place :- (1) That morning Ms Wong informed Mr Ma Bo Kee of Active Base’s board’s decision to grant the loan to Moulin only. (2) Then sometime before lunch Ms Lam arranged with Ms Wong for the loan documents to be signed at around 4:30 that afternoon and for the loan to be drawn down on the following day, 25 February. (3) Ms Wong then advised Mr Tso of that by telephone. (4) Mr Tso then finalised the loan documents. (5) Then in the late afternoon or early evening, Ms Wong and Mr Tso attended Moulin’s offices for the execution of the loan documents. Mr Ma Bo Kee, Mr Cary Ma, Ms Lam and Moulin’s financial and accounts secretary Ms Linda Ng were present. (6) At that execution meeting Ms Lam told Mr Tso that the board meeting had been held. But he was not told – and he did not ask – at what time the meeting was held. (7) Ms Wong was told that as for the Moulin directors who were not in Hong Kong, they could sign the documents and fax the signed pages back to Hong Kong. She agreed to this but made it clear that all documents had to be signed before any money would be advanced. 18.So much of the minutes of the Moulin board meeting of 24 February 2005 as Le Pichon JA set out in her judgment reads as follows :-
The Ma Lit Kin and Ma Hon Kin referred to in those minutes are Mr Cary Ma and Mr Dennis Ma respectively. 19.On 24 February 2005 two documents were, in Mr Tso’s presence, signed by Mr Ma Bo Kee and Mr Cary Ma of Moulin and affixed with Moulin’s common seal. One was an agreement for a three-month loan for HK$50 million by Active Base to Moulin (“the Loan Agreement”). And the other was a debenture securing that loan by way of a first floating charge over all Moulin’s undertaking, property, assets, goodwill, rights and revenues (“the Debenture”). The Debenture was not dated until 6 May 2005. Although it was sent to Mr Tso for registration, it was not registered until other solicitors for Active Base took over the matter and had the Debenture registered on 7 June 2005. On that date, pursuant to s.83(2), the Registrar of Companies issued a certificate (“the Certificate”) the body of which reads :
20.Sometime before lunch on 25 February 2005, Ms Wong received certain documents from Moulin by fax. These included four signed pages of the loan documents, complete with the signatures of the three Ma directors who were not in Hong Kong. Ms Wong executed the corporate loan documents on behalf of Active Base later that afternoon. And the HK$50 million was then transferred from Tomorrow’s bank account into Oaktree’s account. 21.Moulin had been insolvent at least since 31 December 2004. It defaulted on the payments of interest due under the Loan Agreement on 24 March and 24 April 2005 and on the repayment of principal due thereunder on 24 May 2005. A creditor’s petition was presented against it on 21 June 2005. This was followed by the appointment of provisional liquidators on the 23rd of that month and then the making of a winding-up order on 5 June 2006. As at the time of the first instance hearing in April 2008, the Liquidators estimated that Moulin’s creditors were likely to receive about HK$2.36 billion less than what they were owed. Liquidators’ rejection of the proof of debt affirmed by the courts below 22.Active Base sought to prove in Moulin’s liquidation. On 21 June 2006 it lodged a proof of debt for HK$76,500,780.82 (“the Proof of Debt”). But on 4 January 2007 the Liquidators rejected the Proof of Debt. Active Base challenged that rejection, invoking the process provided for by s.200(5) of the Companies Ordinance and rule 95 of the Companies (Winding-up) Rules. By two summonses, one dated 26 January 2007 and the other dated 8 March that year, Active Base asked the Companies Court to (i) reverse the Liquidators’ rejection of the Proof of Debt, (ii) declare the Loan Agreement valid and enforceable against Moulin and the Liquidators and either (iii) declare the Debenture likewise valid and enforceable or (iv) extend time for its registration. 23.A direction was made for the cross-examination of deponents. The hearing, at which each side called a number of witnesses, took nine days in April 2008. By a decision handed down on 4 June 2008, Kwan J (“the Judge”) dismissed Active Base’s summonses with costs. On 21 May 2009 the Court of Appeal dismissed Active Base’s appeal against that decision, and made an order nisi as to costs in favour of the Liquidators. On two grounds 24.The courts below decided against Active Base on two grounds. Of these, the first is that Active Base is not entitled to rely on the apparent regularity of the execution of the loan documents because it had been put on inquiry of an irregularity, namely, the lack of a properly convened board meeting by Moulin to (i) approve entering into the Loan Agreement and issuing the Debenture and (ii) authorise Moulin’s signatories to sign the same. And the second ground is that the Debenture is invalid under s.267 of the Companies Ordinance. If Active Base’s attack against the first ground fails, the Debenture would necessarily fall by reason of Active Base having been put on inquiry of the irregularity of the Moulin board meeting at which the issuance of the Debenture was approved. So unless Active Base’s attack against the first ground succeeds, this appeal would fail whether or not the second ground on which the courts below decided against Active Base is sound in itself. If Active Base’s attacks against both grounds succeed, it would be not only a creditor but also a secured one. First ground 25.On the first ground, what the Judge said as to the lack of a properly convened board meeting is that
26.Active Base does not challenge the concurrent findings that the Loan Agreement was signed without actual or implied authority. Nor does Active Base dispute that its reliance on Moulin’s bye-laws and the rule in Royal British Bank v. Turquand (1856) 6 El & Bl 327 is subject to the condition that it had not been put on inquiry of any irregularity arising from the lack of a properly notified board meeting. What Active Base challenges are the concurrent findings that Active Base, through its director Ms Wong and its solicitor Mr Tso, had been put on inquiry of such irregularity. That is how Active Base attacks the first ground on which the courts below decided against it. The Liquidators resist that attack. Second ground 27.Turning to the second ground, one begins by noting that Moulin had been insolvent since at least 31 December 2004 and that the petition for its winding-up was presented on 21 June 2005. So whether the Debenture is taken to have been created on 24 February 2005 or is taken to have been created on 6 May 2005, it would have been created within 12 months of the commencement of the winding-up. And that means that the Debenture is rendered invalid by s.267 except, if the exception to the section applies, to the extent provided for by the exception. Since the loan was advanced on 25 February 2005, it would come within the exception to s.267 if the Debenture is taken to have been created on 24 February 2005 when it was signed by Mr Ma Bo Kee and Mr Cary Ma of Moulin and affixed with Moulin’s common seal. But it would not come within that exception if it is taken to have been created on 6 May 2005 as the Certificate says and therefore after the loan had been advanced on 25 February 2005. 28.The Judge and the Court of Appeal were not of like mind as to when the Debenture is to be taken to have been created. Nevertheless and crucially, both of the courts below were of the view that the effect of the Certificate is that the Debenture is to be taken to have been created after 25 February 2005 when the loan was advanced. It is on that view of the Certificate’s effect that the courts below arrived at their conclusion on the second ground on which they decided against Active Base, namely that the Debenture is rendered invalid by s.267 and does not come within the exception thereto. Active Base attacks the second ground by arguing that the Certificate does not have that effect. The Liquidators resist that attack. Reasons why the courts below found that Active Base had been put on inquiry 29.As to why the Judge found that Active Base, through its director Ms Wong and its solicitor Mr Tso, had been put on inquiry of the irregularity arising from the lack of a properly notified board meeting, her reasons may be taken from paras 115 to 117 of her judgment. At paras 115 and 116 she said this :
Given the reference to “none of” the other directors, the presence of the word “not” immediately preceding the word “attend” in the last sentence of para.115 of the Judge’s judgment is obviously due to a clerical error. 30.As Bowen LJ (later Lord Bowen) famously said in Sanders Bros v. Maclean & Co. (1883) 11 QBD 327 at p.343, “[c]redit, not distrust, is the basis of commercial dealings”. And relying on what Steyn J (as Lord Steyn then was) said in Barclays Bank plc v. Quincecare Ltd [1992] 4 All ER 363 at pp 376 e-f and 377 b-f and what Millett J (as Lord Millett then was) said in Macmillan Inc v. Bishopsgate Investment Trust plc [1995] 1 WLR 978 at pp 1014G-1015D, counsel for Active Base invited the Judge to bear in mind that the law does not impose too burdensome an obligation of inquiry on lenders and that trust, not distrust, is the basis of their dealings with customers or borrowers. As to that, the Judge said this (in para.117) :
31.The reasons given by the Judge for finding that Active Base had been put on inquiry commended themselves to the Court of Appeal. Mrs Justice Le Pichon JA, with whose judgment A Cheung and Poon JJ agreed, said this :
View of the courts below on the Certificate’s effect 32.As to when the Debenture was created, the Judge, who regarded a s.83(2) certificate conclusive for all Companies Ordinance purposes, took the view that effect of s.83(2)
33.The Court of Appeal took the view that the effect of s.83(2) was to deem conclusively for all Companies Ordinance purposes that the Debenture was created on its date as given in the Certificate, namely 6 May 2005. As to that, Le Pichon JA, speaking for the Court of Appeal, said this :
Thus both courts below were of the view that the Debenture had been created after 25 February 2005 when the loan was advanced and that, therefore, Active Base could not bring its case within the exception to s.267. 34.As can be seen, both of the courts below were of the view that a certificate of a charge’s registration is conclusive for all Companies Ordinance purposes as to the date on which the charge was created. The difference between them is as to whether the creation date is to be taken to be, as the Judge thought, an unknown date within the period allowed for registration or, as the Court of Appeal thought, the date named in the certificate as the charge’s date. Active Base’s argument that it had not been put on inquiry 35.Mr Daniel Fung SC for Active Base contends that the circumstances of the present case are not fairly capable of supporting the view that Active Base had been put on inquiry of any irregularity. His submissions on this part of the appeal are along the following lines :-
Active Base’s argument as to the date of the Debenture’s creation 36.As to the date of Debenture’s creation, Mr Fung’s submissions on Active Base’s behalf may be outlined as follows :-
Concurrent even though inferential 37.There is of course a difference between primary findings of fact and findings of fact reached by drawing inferences from primary facts proved or admitted. Intermediate appellate courts are naturally better (or less badly) placed to review the latter than they are to review the former. That is because the advantages of receiving all the evidence at first-hand do not operate as powerfully in regard to inferential fact-finding as they do in regard to primary fact-finding. Even so, where findings of fact reached at first instance have been affirmed on intermediate appeal, they become concurrent findings of fact whether they are primary or inferential. As was said in the Sky Heart case at pp 334I-335A,
Even where concurrent findings of fact are inferential, they will not be reviewed by this Court save in special circumstances. Whether there is evidence on which to find a fact is a question of law 38.Of course, as was said in Akai Holdings Ltd v. Ernst & Young [2009] 2 HKC 245 at p.291C-D (citing Devi v. Roy [1946] AC 508 at p.521 and ADS v. Brothers (2003) 3 HKCFAR 70 at p.84F), the question of whether there is evidence on which to make a finding of fact is a question of law. 39.The non-Ma directors had not been notified of the Moulin board meeting held to approve the entering into of the Loan Agreement and the issuing of the Debenture. But Active Base contends that the circumstances are not fairly capable of supporting the view that it had been put on inquiry of that lack of notice. In other words, Active Base contends that there is no evidence on which to find as a fact that it had been put on such inquiry. If that contention is right, then the findings of fact to that effect, though concurrent, are open to review and should be reversed. Concurrent findings on the “on inquiry” issue stand 40.Are the primary facts proved or admitted fairly capable of supporting the view that Active Base, through its director Ms Wong and its solicitor Mr Tso, had been put on inquiry of the lack of a properly convened Moulin board meeting to approve entering into the Loan Agreement and issuing the Debenture? As to that, it is to be observed that Mr Tso in effect admitted under cross-examination that he knew that there were only two ways in which Moulin could have validly approved entering into the Loan Agreement and issuing the Debenture. One was a circular resolution signed by all the directors. And the other was a resolution passed at a board meeting of which all the directors had been notified. Yet he drew up minutes for a Moulin board meeting attended only by the Ma directors. 41.That the non-Ma directors could have been outvoted through the use of Mr Ma Bo Kee’s chairman’s casting vote to break any deadlock in favour of the Mas is nothing to the point. Notice of a board meeting cannot be withheld from directors on the basis that they would be outvoted anyway. 42.As to the suggestion that Ms Wong and Mr Tso may have believed that the non-Ma directors had been given notice of the board meeting in question, it is to be observed that there is no evidence from either of them or indeed any other source that they had held any such belief. Nor is there any evidence from either of them or any other source that they believed that a Moulin board meeting including the non-Ma directors had been held by teleconference sometime on 24 February 2005 prior to their ie Ms Wong and Mr Tso’s attendance at Moulin’s offices that afternoon. It was on 23 February 2005 that Ms Wong asked Mr Tso to draft minutes leaving out the non-Ma directors. And he admitted to having completed such drafting by the evening of 23 February 2005. 43.It is submitted on Active Base’s behalf that the “on inquiry” inference rests solely on the fact that the minutes which Mr Tso drafted at Ms Wong’s request did not include the non-Ma directors. Despite the skill with which Mr Fung advanced that submission on Active Base’s behalf, I am unable to accept it. 44.The fact that those minutes did not include the non-Ma directors does not stand alone. There are a number of other facts to be borne in mind. They include the following :-
45.In my view, the primary facts proved or admitted are, putting it at its lowest, fairly capable of supporting the inference concurrently drawn by the courts below that Active Base, through its director Ms Wong and its solicitor Mr Tso, had been put on inquiry of the non-Ma directors not having been notified of the crucial board meeting. The concurrent findings of fact represented by that inference cannot be disturbed. They stand. So Active Base’s attack on the first ground fails, and this appeal must therefore be dismissed. Certificate conclusive for all Companies Ordinance purposes 46.Such dismissal is irrespective of whether a s.83(2) certificate is, as the Liquidators contend and the courts below held, conclusive for all Companies Ordinance purposes or, as Active Base contends, conclusive only for the purposes of Part III of that Ordinance. Nevertheless, this issue, which has been argued before us, should be pronounced upon. 47.Mr Fung’s reliance on the words “when created” in s.267 can be disposed of at once and easily. He rightly accepted, upon it being pointed out to him by Lord Walker of Gestingthorpe NPJ in the course of the argument, that those words obviously refer to the charge having been a floating charge when it was created. 48.In my view, a s.83(2) certificate is conclusive for all Companies Ordinance purposes. There is nothing in the language of s.83(2) that limits its application to Part III only. The language is unqualified. It is general. And the date on which a charge was created is important for all purposes. That such date should be readily ascertainable from a certificate for some purposes but open to question for other purposes would lead to confusion that the legislature cannot sensibly be considered to have countenanced. No such dichotomy can be derived from the words of the legislation or any policy attributable to it. 49.As has already been noted, the Judge thought that the date of the charge’s creation is to be taken as an unknown date within the period allowed for registration while the Court of Appeal thought that the date of the charge’s creation is the date named in the s.83(2) certificate as the charge’s date. In my view, the Court of Appeal is right. The creation date is the one specifically named in the s.83(2) certificate. After all, the whole purpose of such a certificate is to provide certainty. Conclusion 50.For the foregoing reasons, I would, despite Mr Fung’s skilful arguments, dismiss this appeal. And I would dismiss it with costs (Active Base having accepted that it must pay the other side’s costs unless successful in its attack against the first ground on which it lost below). Mr Justice Chan PJ : 51.I agree with the judgment of Mr Justice Bokhary PJ. Mr Justice Ribeiro PJ : 52.I agree with the judgment of Mr Justice Bokhary PJ. Mr Justice Litton NPJ : Introduction 53.Two broad issues arise on this appeal: (1) whether a debt of $50 million plus accrued interest was owed by the Company to the lender and (2) whether a floating charge on the assets of the Company was validly created in favour of the lender and enforceable by the lender against the Company in liquidation. 54.The first issue arises from the loan agreement dated 24 February 2005. Its validity falls to be determined under the general law governing the liability of corporations, irrespective of the fact that the Company is now in liquidation. The second issue lies within a different compass: It is governed by the statutory regime dealing with charges created by companies prior to liquidation, under the provisions of the Companies Ordinance, Cap. 32. The debt of $50 million and accrued interest 55.The loan agreement was executed on 24 February 2005 in the offices of the Company in Kowloon Bay. On behalf of the Company it was signed by its two principal officers: Mr Ma Bo Kee (chairman of the board, president of the Company and executive director) and Mr Ma Lit Kin (chief executive officer and executive director). Their signatures were witnessed by Mr Tso, the lender’s solicitor. The company seal was affixed to the document in the presence of the two officers. Present on this occasion was Irene Wong, an executive director of the lender, Michelle Lam, treasurer of the Moulin group of companies and Linda Ng, the Company’s accounts secretary. 56.The $50 million was said to be for the purpose of providing short term finance to the Company, available by way of drawdown within 3 days, if certain conditions were met. The repayment date was 24 May 2005. The agreement envisaged that the drawdown of the entire sum would take place on the day following the execution of the agreement and that the money would be paid to a wholly-owned subsidiary of the Company, Oaktree Investments Ltd. 57.Clause 4 of the agreement, under the heading “Condition and Precedent and Availability”, stated that the facility would become available to the Company when the lender had received, among other things, a certified copy of the resolution of the board of directors approving the borrowing upon the terms of that agreement. 58.The whole of the $50 million was drawn down on 25 February 2005. 59.On its face the loan agreement was a valid and enforceable contract binding upon the Company. Apart from the signatures of its two principal officers, the document bore the Company’s seal. Section 20 of the Conveyancing and Property Ordinance, Cap.219, provides that a document is deemed to be duly executed if it purports to bear the seal of the company affixed in the presence of two members of the “board or body”. The liquidation 60.The Company went into liquidation in June 2005. 61.On 5 June 2006 the lender submitted its proof of debt claiming repayment of the principal of $50 million plus accrued interest totalling $76,500,780.82. This was rejected by the liquidators. 62.The main focus of the liquidators’ adjudication was the fact that the solicitor Mr Tso had in February 2005 been instructed to prepare two sets of documents: One for a loan to the Company, the other for a personal loan to the chairman Mr Ma Bo Kee. The liquidators in their notice of adjudication referred to the fact that in 2005 the Company had issued proceedings (HCA 1083 of 2005) in which its case as pleaded was this: The true intent of the parties was to make a personal loan to the chairman; the two persons who purported to execute the documents (Mr Ma Bo Kee and Mr Ma Lit Kin) had no authority to do so; for a transaction of this nature, the Company’s Bye-laws required a resolution of the board of directors and, to the knowledge of the lender, there was none. The proceedings 63.At the hearing before Kwan J a great number of issues were raised by counsel, many of a highly nebulous character. The judge disposed of them with admirable efficiency. At the end of the day the judge concluded that the agreement was unenforceable. Her reasoning can be summarized thus:
64.By the time the matter reached the Court of Appeal, points (1) and (2) in the paragraph above were no longer in contention. The question that remained was whether, in the circumstances of the case, the lender was entitled to rely upon the apparent regularity of the transaction as appeared on the face of the loan agreement and was not bound to inquire whether acts of internal management were regular; see the formulation of the rule in Turquand’s case to this effect by Lord Simonds in Morris v. Kanssen [1946] AC459 at 474. The law 65.The law is clear. As a matter of general principle the lender has no duty to look after the interests of the corporate borrower. It can assume that when senior officers of the corporate borrower act as agents to execute a legal document on its behalf, those officers have lawful authority to do so. The borrower would be contractually bound on their signatures. The lender is not obliged to inquire into the actual authority of those officers. The fact that, as things turned out, those officers lacked authority cannot affect the rights of the lender. This is a salutary rule of law. As Mason CJ said in Northsider Developments Pty Ltd v. Registrar General (1989 – 90) 170 CLR 146 at 164, this rule protects and promotes business convenience which would be at hazard if persons dealing with companies were under the necessity of investigating their internal proceedings in order to satisfy themselves about the actual authority of officers and the validity of instruments. 66.But this rule has its limits. Where, as things turned out, those officers had no authority at all, the corporation would be at risk. Great harm might ensue. Hence, if there were circumstances which would lead a reasonable lender to inquire into the authority of the officers (“put upon inquiry” is the expression used in the books) and he did nothing, he cannot rely upon the rule. As Lord Simonds said in Morris v Kanssen (supra) at 475, he cannot presume in his own favour that things are rightly done if inquiry that he ought to make would tell him that they were wrongly done. The facts of this case 67.I have had the advantage of reading in draft Mr Justice Bokhary PJ’s judgment. The sequence of events relevant to this appeal is set out in paras15 to 20 of his judgment and need not be repeated here. As is clear, it was only in the late afternoon of 23 February 2005 that the lender made the decision to lend to the Company and not to Mr Ma personally. And it was only in the morning of 24 February that Mr Ma was told this. The documents were signed sometime in the early evening in the Company’s offices that day. A crucial finding 68.As the evidence shows, when the various persons ultimately attended the Company’s offices to sign the loan documents Michelle Lam told Mr Tso that the board meeting had been held. This, in my judgment, is a crucial finding. There is here a fine balance between competing interests to be weighed. To what extent should the lender (here through the knowledge of its agents Irene Wong and Mr Tso) be astute to suspect lack of capacity on the part of the borrower’s officers? How far must an outsider doubt the veracity of the treasurer of the Moulin group when she made a positive assertion that a board meeting had been held? True, the arrangements had to be made in a hurry that day, since Mr Ma was only told in the morning that a personal loan was impossible. But, as Mr Fung SC strenuously argued, there was still time for a board meeting to be held in the course of that day, albeit that some of the Ma family directors were known to be overseas. 69.If things stood simply as summarized in the paragraph above, there is no doubt in my mind that the rule in Turquard’s case would apply. But there was more. Mr Tso, the previous day, had been asked to draft minutes of the Company’s board meeting, at a time when a decision had yet to be made as to whether the personal loan to Mr Ma was to go ahead. The board to his knowledge consisted of 10 persons: 5 members of the Ma family, 2 executive directors not members of the Ma family, and 3 independent non-executive directors. Mr Tso, in drafting the minutes of a meeting yet to be notified and held, was asked to put only the names of the 5 Ma family members as “present”, at a time when he had no reason to believe that the other 5 members, and in particular the 3 independent non-executive members, were unavailable: And not only unavailable to attend a meeting, but could not even be contacted for a teleconference. The inference would seem irresistible that the staff members handling the matter for the Company had intended at the outset to exclude the non-Ma family members of the board from any knowledge of the transaction. And, as the truth emerged in the course of the investigation by the liquidators, that is precisely what happened. That, of course, is hindsight. Nevertheless, some suspicion should have been aroused in the minds of Irene Wong and Mr Tso on 23 February that a gross irregularity was in contemplation: Suspicion reinforced by their knowledge that the $50 million was supposedly required by the Company to complete the ECCA acquisition deal in the United States and yet, there was Mr Ma, pressing for a personal loan. 70.The question therefore boils down to this: Was Michelle Lam’s statement made on the evening of 24 February, that a board meeting had been held, enough to dispel the suspicion that ought to have been lurking in the minds of Irene Wong and Mr Tso? Evaluation in the lower courts 71.This question, put in various ways, was considered in the courts below. In para.112 of Kwan J’s judgment she said:
72.Later on in her judgment she said that there was “something intrinsically suspicious” about the request on 23 February to draft minutes “to be signed only by the directors related to Ma Bo Kee” (para.116): A suspicion which (though the judge did not expressly say so) was insufficiently dispelled by Michelle Lam’s statement the next day that a board meeting had been held. The judge said that it was “imperative” for Mr Tso and Irene Wong to “seek an explanation from Moulin before proceeding further.” 73.On appeal, the Court of Appeal affirmed Kwan J’s decision and approached the matter in the same way: Ms Lam had told Mr Tso (on 24 February) that the board meeting had been held, but he was “not told and he did not ask the time of the meeting …” (para.17(6) of Le Pichon JA’s judgment). This, in the opinion of the Court of Appeal, was not enough, having regard to the circumstances of the case. A matter of degree 74.To what extent a lender has been put upon inquiry is a matter of degree as to which tribunals of fact might properly differ. Mr Fung SC at the hearing before us argued thus: The loan was needed to complete the ECCA acquisition in the USA, to everyone’s knowledge; here was the treasurer of a publicly-listed company making a positive statement that a board meeting had been held to authorize the transaction: Why should the lender doubt her words? This is not capable of an easy answer. Had the Court of Appeal come to a different conclusion I might well have formed the view that the outsider was not obliged to inquire further. As a matter of general principle courts should not be too demanding in requiring vigilance from outsiders to detect lack of capacity on the part of company’s officers. But, given the concurrent findings of the two courts below, the principle enunciated in Sky Heart Ltd v. Lee Hysan Co. Ltd (1997-98) HKCFAR 318 requires that this Court leaves those findings alone. The Debenture 75.As to the matters arising from the debenture, I agree with Mr Justice Bokhary PJ’s judgment and have nothing to add. Conclusion 76.I would dismiss the appeal with costs. Lord Walker of Gestingthorpe NPJ : 77.I agree with the judgment of Mr Justice Bokhary PJ. Mr Justice Bokhary PJ : 78.The appeal is unanimously dismissed with costs.
Mr Daniel R. Fung SC, Ms Catrina Lam and Mr Gary Lam (instructed by Messrs Vincent T.K. Cheung, Yap & Co.) for the appellant Mr Barrie Barlow SC (instructed by Messrs Richards Butler) for the respondents |
Other judgments that cite this case