RE CROWNHALL INVESTMENTS LTD. (IN LIQUIDATION)

Headnote

The summary procedure of s. 211 of the Companies Ordinance is not available to "outsiders" or where the company's entitlement is in dispute.

----------------------

J U D G M E N T

----------------------

Sir Derek Cons, Ag. C.J.:

1. We have dealt with these two appeals together, as did the judge below, because the issues in each are identical. Both are brought by companies in liquidation. Both have the same liquidators. We understand that the liquidations are virtually concluded, save for the matter underlying these appeals, namely a claim by the liquidators for $492,380 and several million shares in Lucky Man Properties Ltd. currently held by a third party, Asian Oceanic Nominees Ltd. ("Asian Oceanic"). The liquidators already have the certificates to the shares, but seek completed transfer documents in their favour.

2. The claims rest on allegations that the money and shares were received by Asian Oceanic from officers of two companies with the knowledge that the officers were acting in breach of their fiduciary duties and with knowledge that Asian Oceanic had not provided any consideration therefor. If either o?these allegations is made good it follows that Asian Oceanic is holding the money and/or the shares as constructive trustees.

3. On 7th April this year the liquidators issued three summonses against Asian Oceanic under s. 211 of the Companies Ordinance, Cap. 32, which provides:

"The court may, at any time after making a winding-up order, require any contributory for the time being on the list of contributories, and any trustee, receiver, banker, agent or officer of the company to pay, deliver, convey, surrender, or transfer forthwith, or within such time as the court directs, to the liquidator any money, property, or books and papers in his hands to which the company is prima facie entitled."

4. The summonses were returned before Jones, J., on the 1st May. Objection was immediately taken on behalf of Asian Oceanic that the judge had no jurisdiction, in the sense that the circumstances did not fall within the provisions of the section and thus the judge had no authority to exercise his discretion one way or the other. The judge disagreed, and although he made no decision then, has given, we are told, directions towards that end.

5. Objection has been renewed in this Court and is put in two ways. First it is said that the section is available only against those classes of person named therein, who can compendiously be described as "insiders"; secondly that it is not available when there is a dispute to the claim put forward.

6. We may mention here that it seems to us beyond argument that the judge below did accept that there was a genuine dispute in the present instance. A suggestion, tentatively broached at one stage by Mr. Barlow for the liquidators, that on the evidence before him the judge was quite wrong to do so, was later expressly not pursued.

7. Authority for the first proposition, which was not taken in the court below, is to be found in the old case of In re United English and Scottish Assurance Co. ex parte Hawkins 1868 LR 3 Chancery Appeals 787 in which Page Wood, L.J., @ 790 observed:

"The object of the enactment was to prevent the expense of the company bringing actions against the persons named, who are its own contributories and officers, and ought not to be extended to other persons. I say this the more confidently since the two cases, Hollingsworth's Case (3 De G. & Sm. 102), and Cox's Case (3 De G. 180)."

8. That approach was adopted recently in the Supreme Court of Victoria in Re High Crest Motors Pty. Ltd. (1978] 3 ACLC 564 by Harris, J., @ 576:

" In my opinion, the English cases to which I have referred and, especially, the observation of Page Wood LJ in Re United English & Scottish Assurance Co, supra, at 790, show that for over a century, it has been the accepted view that under the sections of the English companies' legislation which correspond with s 263(3), the persons against whom an order may be made are all persons who either derive their authority from the company or are accountable to it. This view is adopted in Palmer's Company Precedents 17th ed 1960 Pt 2 p 260, where it is stated that the section in the English Act gives 'no jurisdiction as against outsiders'.

In my opinion, s 263(3) should be construed in the same way as the English sections which have been referred to. In my opinion, the words in s 263(3) 'any contributory trustee, receiver, banker, agent or officer of the company' all refer to persons who can conveniently be described as 'insiders', which is the opposite of the word used by Palmer to describe those who are not within the section."

9. Mr. Barlow submits that the persons mentioned in the section are not sufficiently ejusdem generis to form a particular class and that the words should be given their full and natural meaning. Authority, however, is against him. The learned editors of Buckley on the Companies Acts, 14 ed., @ 623, relying upon Re Imperial Land Co. v. Marseilles (1870) LR 10 Equity 298, restrict "banker" to one who holds "for and not adversely to the company"; and the judgment of the Vice-Chancellor, Sir J.L. Knight Bruce, in Hollingsworth's Case 3 De G. & Sm. 102 leaves no room for manoeuvre. Referring to suggested facts indistinguishable from those alleged in the present instance, he said at p. 402:

"If the evidence had appeared to me sufficient to support this contention, so far as mere matter of fact is concerned (which it has not done), I should still have thought that a trusteeship, so merely constructive, was not within the meaning of the section."

10. The second proposition finds its origin in the judgment of Buckley, L.J., with which Lord Reid, C.J., agreed in the case of In re Palace Restaurants, Ltd. [1914] 1 Chancery 492 @ 500:

"But if a dispute is raised whether the company is entitled or not there is nothing in the section empowering the Court or the liquidator to determine that question. If the liquidator asserts against the solicitor that the solicitor is indebted to the company, that must be prosecuted I think in the same way as in the case of any other person."

11. Although strictly speaking an obiter dictum, this has always been accepted as a correct statement of the law: see Buckley on the Companies Act, 14 ed., @ 623; Gore-Browne on Companies, 44th ed., Vol. 2 @ para. 34.5.2.; High Crest Motors @ 567 and 580^,; and Re London Iron and Steel Co. [1990] BCLC 372 @ 375.

12. Re London Iron and Steel turned upon s. 234 of the Insolvency Act 1986, a section closely similar to the English equivalent of s. 211, but which replaces the words "to which the company is prima facie entitled" with the words, "to which the company appears to be entitled". This change was sufficient, in the opinion of Warner, J., to distinguish Palace Restaurants and allow the dispute in that instance to be decided under the summary procedure.

13. The learned judge below appears to accept that Re London Iron and Steel has not changed the position. But in his view the effect of Re Palace Restaurants was superceded in 1937 by the enactment, inter alia, of rule 210 of the Companies (Winding-up) Rules:

"In all proceedings in or before the court, or any Registrar or officer thereof, or over which the court has jurisdiction under the Ordinance and rules, where no other provision is made by the Ordinance or rules, the practice, procedure and regulations shall, unless the court otherwise in any special case directs, be in accordance with the rules and practice of the court."

14. With respect we are unable to agree. The decision of their lordships in Re Palace Restaurants appears to us to turn exclusively upon the words of the section itself and not to have been affected by any supposed lack of other machinery within that field of legislation. In any, event, legislation similar to rule 210 was in place in England at the time: rule 201 of Companies Rules 1903.

15. Whatever might be the position could these two questions be approached afresh, uninhibited by previous decision, it seems to us that the authorities have been accepted for too long for this Court now to depart from what they so clearly establish. We therefore allow the appeals and make an order dismissing the summonses in question. We make also an order nisi that the appellant have its costs here and below.