TRIDENT INVESTMENT CO LTD v. AXONA INTERNATIONAL CREDIT AND COMMERCE LTD

COMPANY LAW. Application under section 186 of the Companies Ordinance (Cap.32). Discretion. Decision on a point of construction.

                Creditors sought leave by their summons to commence an action for unliquidated damages against a company which was being wound up by the court. The judge hearing the application, in the course of which claims were advanced grounded in debt, ordered:

The creditors appealed on the basis that their claim would be time-barred pursuant to the terms of a deed concluded between the parties if they were not granted leave and sought to amend their summons. The company cross-appealed.

Held (dismissing the appeal and allowing the cross-appeal):-

IN THE COURT OF APPEAL

BETWEEN

___________

JUDGMENT

___________

Kempster, J.A.:

1. Trident Investment Co Ltd (hereinafter called "Trident" appeal from an order of Jones J.made on 1st June last refusing leave to commence proceedings against Axona International Credit & Commerce Ltd (hereinafter called "Axona''); which company had been the subject of an order for winding-up by the Court on 4th March 1983. The application to the learned judge was made pursuant to section 186 of the Companies Ordinance which reads:

"When a winding-up order has been made, or a provisional liquidator has been appointed, no "action or proceeding shall be proceeded with or commenced against the company except by leave of the court, and subject to such terms as the court may impose. "

The proceedings sought to be taken and for which Trident could not have proved in the liquidation were:

                "For damages for:-

relating to five several deposits made through Axona International Credit & Commerce Limited (in liquidation) with BIL(Vila) Bank Limited (in liquidation) -"re Berkeley Securities⁽¹⁾; In re Islington Metal Works⁽²⁾.

Although the summons was issued and served on 2nd November 1983 for hearing on 15th of that month by reason of various vicissitudes it did not effectively come on for hearing until 15th of May 1984.

2. The terms of the Order appealed against were:-

Not only does Trident appeal, still seeking liberty to commence an action against Axona, but Axona seeks to support part of the Order of 1st June in the terms of a notice served pursuant to 0.59 r.6(2) of the Rules of the Supreme Court and cross-appeals against those other parts which purport to allow Trident to submit a proof of debt in Axona's liquidation and to reserve the costs.

3. In his reserved judgment the learned judge treated the summons as if amended to reflect a draft Statement of Claim, exhibited to an affidavit sworn on 10th March 1984, wholly inconsistent with the terms both of the summons and of a draft generally indorsed writ exhibited to an earlier affidavit sworn on 4th November 1983 which in no way substantiated the claims mentioned in summons and writ. The common deponent stated in the later affidavit that "at this stage the application for leave is limited to the claim for repayment of loans". Mr. Ching, who appeared for Trident, sought to resile from this statement and to amend the summons insofar as any amendment could save his application and appeal.

4. Jones J. found that Trident had a good arguable cause of action against Axona in debt on the basis of the draft Statement of Claim and the affidavit of 10th March 1984. Nonetheless he held that it would be quicker and less expensive for Trident to prove for the monies owing in the liquidation. This was an exercise of judicial discretion in circumstances where the court had a free hand to do what was fair and right. An appellate court will not interfere unless it be shown, sometimes by necessary inference, that the judge has misconstrued the relevant law or facts.

5. Mr. Ching concedes that the case of Re Cuthberts Lead Smelting Co. (No. 2)⁽³⁾, contrary to the understanding of the learned judge, is not authority for the proposition that the applicant's case is not required specifically to be pleaded on a section 186 application. The summons, by way of analogy with the old form of Chancery Bill of Complaint, should be the equivalent of a Statement of Claim. No lesser degree of particularity will afford the judge a proper basis for the exercise of his discretion.

6. Both Trident and Axona are incorporated in Hong Kong; the latter being a deposit-taking company. Trident deposited monies with BIL(Vila) Bank Limited at Axona's direction in order to assist it to comply with the provisions of the Deposit-taking Companies Ordinance and, in turn, borrowed substantially equivalent sums from Axona. Disputes arose between them. Trident sued BIL(Vila) Bank Limited to judgment in Vanuatu.

7. On 10th May 1983 Axona, by one of the joint liquidators, and Trident concluded a deed of compromise whereby Axona agreed to accept in full and final settlement of its claims against Trident 75 per cent of all principal, interest and any other sum due. The relevant parts of clause 3 of the deed read:

"Notwithstanding anything to the contrary, it is hereby expressly agreed and declared that the obligations of Trident to make payment to Axona in accordance with the terms of this Deed are expressly subject and without prejudice to any rights which Trident may have whether by way of set off or otherwise (which are not admitted by Axona) to the intent that in the event of such set off or other right being effective against Axona, the amount payable by Trident hereunder shall be reduced by the amount in respect of which such right has been exercised. For the avoidance of doubt, any monies received by Axona from Trident or pursuant to the security for such payment provided by or on behalf of Trident shall be paid to the credit of a separate deposit account maintained in the joint names of Axona and Trident pending final determination of any set off or other rights of Trident in connection therewith. Provided that, unless before 3rd November 1983 or such other date as agreed to in writing by Trident and Axona, the rights of Trident shall have been finally determined or Trident shall have commenced against and served on Axona proceedings to determine such rights and such proceedings shall not have been abandoned or otherwise concluded, Trident shall be deemed to have abandoned all such rights and shall not be entitled thereafter to make any claim on Axona in respect thereof. "

It is not suggested that any other date was agreed between the parties in writing or at all.

8. Particularly in a case where the funds of the general body of creditors are involved and all necessary materials are presently available it is appropriate for the court to determine critical points of construction which arise on such an application as this. Since section 186 of the Ordinance, calculated to further the aim of equality of distribution in a winding up, states that no "action or proceeding shall be - commenced against the company except by leave of the Court " it is difficult to accept the submission that an application for such leave can itself be an "action or proceeding. " Further, the parties to the deed of 10th May 1984, Axona having been put into liquidation over two months earlier, must, despite the terms of Trident's solicitors' letter of 1st November 1983, be assumed to be aware of the provisions of that section. The deed itself provides that Trident shall be deemed to have abandoned such rights which it may have by way of set off or otherwise against Axona unless, before 3rd November 1983, they "shall have commenced against and served on Axona proceedings to determine such rights - and such proceedings shall not have been abandoned or otherwise concluded -" which, in the context, requires the same construction to be put upon the word "proceedings" and is not to be equated, for example, with the commencement of an arbitration under the Hague Rules as in Nea Agrex S.A. v. Baltic Shipping Co.Ltd.⁽⁴⁾. The construction contended for by Trident suggests an unlikely intention that the proceedings should be "finally determined" and "concluded" in the event of the application for leave being refused by a court of final appeal.

9. We are, therefore, unable to find that by the issue and service of the summons on 2nd November 1983 Trident complied with the requirements of the proviso. Whether the submission of a proof would have constituted compliance we are not called upon to determine.

10. This conclusion on a point of construction effectively determines the outcome of the appeal in which a number of other interesting, though in the event academic, submissions have been made. An application to bring an action which is bound to fail must be refused. By the same token any proof submitted in the liquidation would fall to be rejected. No amendment of the summons avails Trident and had it done so leave would have been refused by analogy with well-known principles relating to amendments designed to defeat established defences based on limitation.

11. An order granting Trident leave "to proceed by way of submission of proof of debt in the liquidation of the respondent company" could be construed by the liquidators as something more than a declaration of the entitlement of a party who claims to be a creditor and should be deleted. Definite provision should have been made for the costs of the application. A liberty to apply was unnecessary. The order on the section 186 application will accordingly be: "The application is dismissed."  Formally the appeal is dismissed and the cross-appeal allowed.

(1)    [1980] 1 W.L.R. 1589

(2)    [1984] 1 W.L.R. 14

(3)    1866 WN 154

(4)    [1974] 1 Q.B. 933