CHASE MANHATTAN (ASIA) LTD v. FIRST BANGKOK CITY FINANCE LTD

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J U N C M E N T

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Kempster, J.A.

1. By instruments in writing dated 19th and 27th December 1985 First Bangkok City Finance Ltd. (FBCF), a deposit-taking company, agreed to lend to the People Plaza Co Ltd. (PPC), a company incorporated pursuant to the laws of Thailand, the sum of SF10m for a real estate development in that country. A letter of credit issued by a guarantor bank and two promissory notes each in the sum of SF5m and allowing for interest, were provide by way of security. The SF10m was paid over on 31st of the same month. The amendments implicitly imported into the 19th December documents by that dated 27th were substantial as is demonstrated by "draft amendments" submitted to the court at its request by Chase Manhattan (Asia) Ltd. (CMA).

2. Had the notes subsequently been delivered to a third party FBCF's rights under the agreement would have been suspended until redelivery. Were delivery by PPC to FBCF had no such effect. In Re a Debtor⁽¹⁾.

3. By instrument in writing dated 7th April 1986 FBCF purported to sell and equitably to assign to CMA, as from the day following and until 29th June of the same year, its interest in a moiety of the loan to PPC, in the proceeds of the letter of credit and in one of the promissory notes for SF5m in consideration of the times payment, duly made, by CMA to FBCF of SF5m. There could no legal assignment of part of a debt. In Re Steel Wing Co Ltd⁽²⁾. There was a provision requiring, FBCF to buy back the moiety for the same consideration on 30th June 1986. Upon that provision FBCF defaulted. It was insolvent.

4. On 15th September 1986 FBCF was the subject of a compulsory winding up order made on the petition of the Financial Secretary. The Official Receiver was appointed liquidator. On 15th April 1987 he issued a summons in the winding up claiming that the transaction described in the instrument of 7th April 1986 was void as against him for want of registration under section 80 of the Companies Ordinance (Cap 32) and, implicitly, that FBCF was under no liability to "buy back". In turn, CMA sought, by summons dated 12th June 1987 specific performance of a provision in the same instrument providing for the transfer by FBCF of the SF5m note by way of security against the consequences of that company's default.

5. Both applications were heard before Jones J during late June 1987 and on 9th July, after consideration, he granted the relief sought by the Official receiver and refused that sought by CMA. Against both determinations CMA appeal to this Court.

6. Section 80(2)(e) calls for the registration of charges made on the "book debts of the company". These, it is accepted, are such debts as would be entered in the books of a well conducted corporation. Necessarily the SF10m owed by PPC to FBCF would come within such parameters as would any monies owed pursuant to contract or to which, apart from contract, the company was or would become entitled pursuant to negotiable instruments in its possession or held to its order. However, promissory notes or other negotiable instruments are neither themselves book debts within the meaning of the section nor to be treated as charges, on a company's book debts if deposited to secure the repayment of monies it has borrowed. Section 80(5). Once the purchase price had been paid a sale would not give rise to a book debt. It was and is, therefore, incumbent upon the Official Receiver to demonstrate that the intration of the parties to the instrument of 7th April 1986 not what it purported to be but rather, in reality, a charge in favour of CMA on a moiety of the SF10m loan from FBCF to PPC to secure the repayment by FBCF to CNA of a loan of SF5m. Automobile Association (Canterbery) Inc v Australasia Secured Deposits Ltd (In Liquidation)⁽³⁾.

7. There is no dispute as to the law applicable which was first stated by Lord Cranworth in Alderson v white⁽⁴⁾at p 105:

Recourse may be had to "the whole of the circumstances under which the transaction came about" per Cave J in Beckett v Tower Assets Co⁽⁵⁾ at p 26. More recently Lord Wilberforce said that

"the court must .... place itself in thought in the same factual matrix as that in which the parties were".

Reardon-Smith v Hansen-Tangen⁽⁶⁾ at P 997. For the circumstances of the transaction in question, though not for evidence of the state of the corporate mind of either party, recourse may be made to the affidavits sworn by Mrs Woolley on behalf of the Official Receiver and by Mr. Harris on behalf of CMA. Like Lord Harmsworth MR in In re George Inglefield⁽⁷⁾ at p 22

"I have therefore to consider these documents as they stand, treating them fairly, and approaching them without a sinister desire to impute to then something which they do not contain".

Bad faith is not suggested.

8. No evidence was adduced to show that the document dated 7th April 1986 did not contain a true record of the transaction, whatever it was, entered into by the parties while, and here I disagree with the trial judge, the provisions for payment of interest, commission and management fees, there and in the December 1985 loan agreement respectively set out and with which it is unnecessary to burden this judgment, provided a commercial incentive exceeding the cost of borrowing both for FBCF and CMA.

9. Since FBCF could neither recover from CMA the moiety of the loan before the date provided for "buy back'' nor interest after that date and the parties were under no liability to account to each other for any profit or loss made by CMA on its sale prior thereto, pursuant to the default provisions (clause 14) of the December 1985 loan agreement, of the benefit of the moiety assigned by clause 3 of the instrument dated 7th April 1986 the terms of that document seem to me truly to demonstrate the incidents of sale rather than of mortgage or charge. In re George Inglefield⁽⁷⁾ at pp 27 and 28. In expressing this view I accept that at all material times FBCF were to retain their entitlement to receive the interest payable under the loan to PPC. In my opinion the April 1986 transaction is to be construed according to its tenor as a sale with provision for repurchase. If I am right it is not void as against the Official Receiver by reason of section 80 of the Companies Ordinance. If I am wrong any charge in favour of CMA would have determined pursuant to the provisions of clause 10 of the April 1916 instrument on 29th June 1986 at the same tine as the assignment of FBCF's interest in the moiety of the loan to PPC and in the equivalent related rights under the promissory note and letter of credit.

10. The order made by Jones J on the summons dated 15th April 1987 must be set aside in either event. I would thus allow the appeal in that regard.

11. Consideration of the appeal in relation to CMA's summons dated 12th June 1987 reveals, somewhat surprisingly, that the SF5m promissory note, the benefit of which was assigned to that company by FBCF, was never delivered to CMA duly indorsed or at all when the purchase price was paid as required by clause 7 of the 7th April 1986 instrument. Since the agreement therein comprised was part performed and CMA would have been entitled to an order for specific performance of FBCF's obligation to indorse and deliver FBCF held the note on CMA's behalf as trustees as from 8th April. But, by reason of the terms of clauses 3 and 10, the assignment of FBCF's rights in such note determined on 29th June 1986 prior to its maturity and therewith CMA's beneficial interest in it and FBCF's trusteeship. Had possession earlier been transferred to CMA that company would have been entitled, pursuant to the same clauses and by reason of FBCF's failure to a "buy back", to retain and enforce it on default by PPC; accounting to FBCF for any receipts in excess of SF5m. But these hypothetical rights, passing on delivery, do not avail CMA as regards the relief they claim. On 12th June 1987 CMA had no interest in the note. For these reasons I would dismiss the appeal against the order of Jones J refusing CMA's application for a declaration of trust.

Clough, J.A.

12. I agree.

Rhind, J.

13. I also agree.

(1) [1908] 1 KB 344

(2) [1921] 1 Ch 349

(3) [1973] 1 NZLR 417

(4) [1858] 2 De G & J 97

(5) [1891] 1 QB 1

(6) [1976] 1 NLR 989

(7) [1933] Ch 1