IDMISTON LTD. v. ASIAN MASTER ENTERPRISES LTD

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J U D G M E N T

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Cons, V.-P.:

1. This is an appeal against the refusal of Penlington J, to make an order for security of costs under Section 357 of the Companies Ordinance. Strictly speaking these are three appeals, against hree refusals, but the three applications were taken together below by reference to one set of proceedings and we have done the same in this Court. I should also say that several Notices of Motion were filed on behalf of the Defendant Companies, and returnable before us this morning, but they have not been proceeded with.

2. The background to the appeal is chat the Plaintiff was acquired as a shelf company by Mandarin Resources Ltd., itself a publicly listed company, although believe trading in its shares is currently suspended. The object of the acquisition was to take over the loan portfolio of another subsidiary of Mandarin, which was registered as a deposit-taking company, and which Mandarin wished to sell. It did so after the loans had been duly assigned to the Plaintiff.

3. The Defendant Company had been the recipient of one of the loans. The Plaintiff sues for repayment.

4. The Defence filed alleges that repayment has already been made by means of a set-off involving transactions between Mandarin and a Liberian company, Tomax Investments Corporation. By the Reply the Plaintiff counters that the transactions referred to are fraudulent, being part and parcel of a larger fraud perpetrated by one Ho Hua Min and his nephew David Cheng, who at all material times were in control of Mandarin and the other com involved. It is put forward as a scheme to syphon off the assets of Mandarin and its subsidiaries into the private companies of  Ho, to the detriment of Mandarin's shareholders.

5. It was against that background that he judge below came to his decision. In doing so he said, amongst other things, -

"It does seeks to me that there is substantial support for the allegation made by the Plaintiff that Ho Hua Min has indeed been guilty of massive fraud and that it was Ho who does control the defendant companies. I am satisfied there is considerable evidence to indicate that Mandarin and the plaintiff have been the victims of this fraud."

I may mention in passing that there has been no challenge in this appeal to he judge's conclusion in these respects.

6. The judge then went on to consider individually the factors suggested in Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd.⁽¹⁾ and concluded -

"Here, taking into account all the factors referred to in Sir Lindsay Parkinson and Co. Ltd. v. Triplan Ltd. and the evidence contained in the various affidavits filed herein, while it would seem that there is a chance that the plaintiff, if unsuccessful, would not be able to pay the defendant's costs, I do not consider I should exercise lay discretion to make an order for security."

I take the reference to "the evidence contained in the various affidavits" to relate back to the passage have already quoted with regard to "massive fraud".

7. It has been suggested by Mr. Barlow, on behalf of the Plaintiff, that the judge exercised his discretion, as it were de bene esse, assuming, without actually deciding, that he had jurisdiction founded: on the Plaintiff's want of means. with respect I do not think that was so. I think the judge was satisfied that the Plaintiff may be unable to pay costs if the Defendant is successful in its defence. Mr. Barlow suggested then that, even so, his conclusion was not justified on the evidence. With respect again I would not agree. The Plaintiff was very coy in the affidavits as to its means, but it did admit to borrowing money in order to bring the proceedings, so that it seems to me unlikely to have money to cover the Defendant's costs should it lose them.

8. The judge's exercise of his discretion is attacked by Mr. Chang, who appears for the Defendant Company, on three fronts. At one stage he opened a fourth, but eventually abandoned it. I fines it convenient to deal with the third, or subsidiary, point first. It depends upon the comments of Megarry, V.C., in Pearson v. Naydler⁽²⁾

"It seems plain enough that "the inability of the plaintiff company to pay the defendant's costs is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it."

9. Mr. Chang suggests that although the judge Look inability to pay into account as one factor, he did not give weight as a substantial factor. With respect to him I am unable to accept the suggestion. The judge mentions it in clear words on two occasions. I am not persuaded that he did not give it substantial weight.

10. The two other points, and which Mr. Chang referred to as his main grounds of appeal, do not find mention in the Notice of Appeal. i take this opportunity to remind counsel who come late into appellate proceedings that they have a duty to consider the Notice of Appeal already served, and if it does not accurately reflect the grounds on which they intend to rely, they should take appropriate steps with a view to amendment, giving notice of their intention to counsel on the other side. If they do not, it may place counsel on the other side, as it did Mr. Barlow today, in considerable difficulty.

11. The first main ground derives from Parkinson factor No.6 -

"Has the Plaintiff's want of means been brought about by any conduct by the defendant?

The judge's answer was -

"On the affidavit evidence there is every reason to believe such is the case."

12. Mr. Chang suggests that the judge was mistaken; the want of means is not attributable to the Defendant's conduct, but is the natural result of the situation. Put in my own words, it is the natural result of the Plaintiff's birth and upbringing. It came into this world with no more than $20 Sudscriber's capital; all that its parent company gave it was the right to recover a loan made to the Defendant Company by the Plaintiff's own sister company. Thus the Plaintiff's lack of the resources could no way be laid at the door of the Defendant Company.

13. It is a submission that is attractive on the face of it, but will be met when I turn to the next point. It is a cold theoretical argument which loses its force when brought into the warmth of reality.

14. The second main ground is that the judge took into account what I might call "the overall fraud" suggested, a fraud which includes the making of the loans on which the Plaintiff now relies; the judge should have had regard only to that part of the fraud as would be necessary to destroy the allegation of repayment.

15. Mr. Barlow suggests that the overall fraud is apt to be considered because it is introduced into the pleadings by way of the Plaintiff's Reply. Quite apart from that I would for myself see no reason for the judge to restrict himself as suggested. It is usual in the exercise of a discretion for a judge to take into account all the circumstances of the case. And when, for example a judge is considering the true construction of a contract, he May, if necessary, take into account the matrix of circumstances in which that contract was made. So, it seems to me, when considering an application of this nature; he should be able to take into account the matrix of circumstances in which the action is brought, to see what at this stage of the proceedings the interests of justice demand.

16. That, I think, was what the judge was doing when he referred to the Plaintiff's lack of means as being brought about by the conduct of the Defendant. He was looking at the mater in the round, as though it were a true family situation, including the position of the parent Mandarin as well as that of the child Plaintiff. He felt that 'the whole family had been impoverished by what he saw on the evidence before him as the Defendant's conduct. In my view, he was entitled to make that approach.

17. For my part, I would therefore not interfere with manner in which he exercised his discretion.

Clough, J.A.:

18. I agree and there is nothing I wish to add.

Power, J.A.:

19. I also agree.

(1) [1973] 1 Q.B. 609

(2) [1977] 1 W.L.R. 899 at 906G