ACCORDANCE LTD v. FAIRTIME LTD AND OTHERS

IN THE COURT OF APPEAL

1987, No. 67
(Civil) 

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J U D G M E N T

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Silke, V.-P.:

This is the judgment of the Court.

1. Accordance Limited - "the plaintiff" - owns property.  It was the owner of the 3^rd, 4^th, 5^th, 6^th and 8^th floors of International Plaza buildings - "the property".  Until September 1985, Yong Po Choo - "D2" - was a director and until August 1985, Quek Tech Huat - "D3"  and Ricky Li Wo Sang - "D4" - were directors of the plaintiff.  They were the sole directors. 

2. Fairtime Limited - "D1" - has as one of its directors D2.

3. By a company Resolution dated 17^th September 1984, D2, D3 and D4 as directors of the plaintiff approved an Assignment to D1 of the property for a consideration of $50.3 million. By resolution, D2 was authorised to execute the Assignment. On 18^th September 1984 she did.

4. By a Debenture dated the 18^th October 1985, D1, purporting to act as beneficial owner, granted a charge of the property by way of a first priority fixed charge in favour of Chow Tai Fook Jewellery Company Limited – "D5".  This was in consideration of a loan by D5 to D1 in the sum of $40 million.  Repayment of the loan was to be on 19^th October 1987. 

5. By writ issued on 11^th March 1986, and amended on 17^th February 1987, the plaintiff claimed against D1 and D5 (a):  a declaration that the Deed of Assignment is null and void and of no effect;  (b):  an order that the registration of the Deed of Assignment at the Land Office be vacated; (c):  a declaration that the Debenture was not effective to create any charge, whether legal or beneficial, over the property and (d):  an order that the registration of the Debenture in the Land Office be vacated.  The plaintiff also sough alternative declarations in respect of D1 and made claim against D2, D3 and D4 with which we are not presently concerned.

6. The plaintiff bases its claims on breach of trust and breach of fiduciary duties by its then directors D2, D3 and D4 – it is alleged that the true value of the property at the time of the Assignment was about $150 million – and that D1 took with knowledge of those breaches.

7. D5 filed a Defence and Counterclaim on 25^th March  1986, amended on 10^th February 1987, which alleged (a):  that the loan of $40 million to the 1^st Defendant was a legal mortgage by way of legal charge made in good faith and without notice of the alleged or any breach of fiduciary duty or other misconduct on the part of any of the Directors of the plaintiff or of the "knowledge" of D1;  (b):  asserted that the rights and interest of D5 were not affected by the claim of the plaintiff;  (c):  counterclaimed for a declaration in terms that their interest in the property was binding on both the plaintiff and D1 and all others and that they were unaffected by the plaintiff’s claim.

8. On 6^th May 1987, Mayo J. had before him a summons brought by D5 asking:

(1) under O.14 for judgment on its counterclaim;

(2) under O.19 r.2 for judgment in default of defence to counterclaim;

(3) under O.18 r.19 for a striking out of the statement of claim.

The Plaintiff company issued a time summons in respect to the Defence to counterclaim.  Mayo J. entered judgment for D5 on its Counterclaim and stuck out the statement of claim.  The plaintiff’s summons was not proceeded with.

9. The plaintiff now appeals.

10. It is not contested that D5 was the equivalent of an innocent third party purchaser for value without notice.  For the purposes of this appeal it is accepted that the Assignment was not one authorised by the plaintiff and that D1 took with knowledge.

11. The main issue before Mayo J was:  Is the Assignment void or is it unauthorized and voidable, the plaintiff having taken no action to avoid it.  The judge found D5’s arguments on this convincing and held that the plaintiff had no arguable case against D5 and that there should be judgment on the Counterclaim.

12. Miss Eu enthusiastically adopted the judge’s reasoning and at first blush this was an attractive submission.  It is her prime contention that there was no incapacity in the plaintiff to do the act:  it was an act outside the power of the directors because they acted in breach of their fiduciary duty, but, as regards the plaintiff it is voidable only and therefore gives a valid interest to the bona fide purchaser who, without notice, is not concerned with whatever occurred as between the plaintiff, its directors and D1.

13. In support she relies on Bamford v Bamford(1) and in particular, on the dicta of Russell L.J. at page 242, to show that an act done purportedly on behalf of the company, although outside the authority of its directors is nonetheless effective until and unless the company takes steps to avoid it.

14. The facts and the considerations in Bamford v Bamford1(1) differ from those in this instant case for there the Court had for consideration the issue whether, accepting a mala fide act of directors in the allotment of shares, that allotment could be ratified by a general meeting of shareholders.

15. Mr. Bunting has persuasively, and in the teeth of judicial intervention, submitted that void or voidable is not the only issue and, indeed, is not the decisive one for he says that given the accepted circumstances there was no  valid transfer of any interest to D1, there was no contract and, there being no contract, there was nothing D1 could pass to D5 as consideration for the loan.

16. Mr. Bunting bases his submission on Rolled Steel Products (Holdings) Limited v British Steel Corporation and another(2), the effect of which he submitted was that as the assignment was not the deed of the plaintiff being mala fide and an abuse of their powers by the directors, no interest in land is passed to the knowing D1.  Therefore, no interest was created which was capable of being charged since D1 could acquire no rights under the transaction.

17. The test generally in applications of this nature is that only in plain and obvious cases should there be a striking out of pleadings and only where there is clearly an arguable case should summary judgment be entered.

18. Paying due respect to the views of the trial judge, we ask ourselves whether Mr. Bunting has shown that there is, at least, an arguable case.  We are aware that if the law is so clear then the duty of the Court, even if protracted argument is entailed, is to say No – you are not going on to trial.

19. We are not persuaded that this is so here.  We are not at this point concerned with what the final outcome may be but we cannot say that the plaintiff has no prospect of success.  We are not inclined to be quite so dismissive of Rolling Mills as was the judge. 

20. We think this matter should to go trial.  Accordingly, we allow the appeal, set aside the judgment and orders made in the Court below on the summons of D5 of 29^th October 1986 and give the Plaintiff leave to serve and file out of time a reply and defence to counterclaim – within seven days.

Representations: