RE FULIHAM INVESTMENT LIMITED

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES (WINDING-UP)

No. CWU. 217 of 1985

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JUDGMENT

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1. On the 15th of July 1985 the petitioning creditor, Overseas Trust Bank, to whom I shall refer as the petitioner, presented a winding-up petition against Fuliham Investment Limited, to whom I shall refer as the Company.  This petition alleged that the Company was indebted to the petitioner in the sum of HK$10,213,782.34 and that it had failed to make payment thereof. Upon the presentation of the petition, the Registrar fixed the 23rd of September 1985 as the return date for the hearing of that petition. On the 16th of July, that is the day following the presentation of the petition, on the application of the petitioner, Mr. Justice Mantell after reading certain affidavits of Mr. John Russell Kelting made an order appointing the Official Receiver as Provisional Liquidator of the Company. Mr. Kelting appears to have sworn three affidavits in support of the application; however, in none of these affidavits, did he disclose that the petitioner was a secured creditor. Indeed the suggestion in the second affidavit seems to have been that there was a risk that if the Provisional Liquidator was not appointed the Company's assets might disappear and the petitioner might be left without being able to recover the amount owed. In fact, the debt was secured on 23,426,000 shares in a Company called Standard Lloyds Holding Limited. The petition was not in fact heard on the hearing date on the 23rd of September but visa adjourned en that date to the 21st of October. Mr. Wuang who appears for the Company, argues that there was a failure to disclose a material fact in the ex parte application to appoint a Provisional Liquidator, namely the fact that the debt was secured, and he submits because of this that the order should be set aside. He asked further that the Company be given to leave pledge its assets so that it can raise funds to pay its debt to the petitioner.

2. His application is opposed by Mr. Hunsworth for the petitioner and Mr. Hugo for the Official Receiver. Mr. Hunsworth has argued that there must be a material non-disclosure before the Court would move to set aside the order and that there was none in the present case. He has also argued that, in a case such as this, a distinction must be drawn between a fully secured debt and a secured debt.

3. His initial argument appeared to be that that the non-disclosure would only be a material one where there was a failure to reveal the existence of a fully secured debt. I can't agree. It seems to me clear that it would be material for the Court hearing the application to knew the extent to which any amount said to be owing secured. If it was not fully secured the Court should be told the extent to, which there was a shortfall.   However, that may be in the present case the petitioner does not appear to have had grounds for suggesting that he was not a fully secured creditor. Indeed there is clear evidence in the affidavits which suggests that the security amply covered the debt.

4. Mr. Hunsworth also argued that the non-disclosure rule should not apply where the application is one to appoint the Official Receiver as he stands in a special relationship to the Court. I am not persuaded that there is anything in this latter argument.

5. I turn again to the first argument. Halsbury Laws of England, 4th Edn. Vol. 37 when dealing with non-disclosure of a material circumstance at p. 247 para. 333 states :

"An ex parte of application whether made in Court or in Chambers must normally be supported by an affidavit clarifying the facts and matters relied on.  The affidavit should normally be made before that order or direction of the Court is sought. On any application made ex parte the utmost good faith must be observed and the applicant is under the duty to make a full and fair disclosure of all the relevant facts which he knows and whether supporting evidence contains material misstatement of fact or the applicant has failed to make sufficient or candid disclosure the ex parte order may be set aside on that very ground."

Non-disclosure was dealt with by the Courts of Hong Kong in Peter Cewald Scales and another v. William H.H. Wong and another. (1983) H.K.L.R. 110. In that report Mr. Justice Barker at page 115 said:

"Mr. Justice Power also held that nothing like deception was being practised on the Court. In Layard Brothers and Company v. The Midland Bank (1933) Appeal Cases 289 it was held that the Court may, in its discretion set aside an order made ex parte on an application supported by an affidavit which is in fact, though not intentionally misleading. I would apply the same principle to material non-disclosure. Even if it is accepted that the material non-disclosure as I hold there was, was not intentional or perpetrated with a view to deceive the Court, nevertheless there is a discretion to discharge the injunctions on the ground of non-disclosure and for my part I would exercise my discretion in favour of the defendants."

I am satisfied that, in the present case, there was a material non-disclosure. Indeed, if there had been disclosure of the facts as we now know them,  it seems to me that the judge might well have refused to make the order. In all of the circumstances, I am satisfied that I should set aside the order that was made.

6. I now turn to the second part of Mr. Wuang's application. He asked the Court to approve the proposed action of the Company to raise a loan to pay out the petitioner by giving a charge over its asset including the shares which form the security. I must ask myself whether anything has been put before me which would be good ground for refusing to let the Company do the very thing which the petitioner complains it has been failing to do that is to pay its debt. A suggestion was made that if the course of action proposed by the Company was followed, there was a possibility that the shares might be sold at an undervalue to the prejudice of some of the shareholders in the Company. No concrete has been placed before me to indicate any real possibility that this will occur and I am not prepared to find that there is, on the facts as I have them, any substance in this suggestion. There is nothing before me to indicate either that the duly appointed directors are doing anything, when making this proposal to the Court, other than arranging to pay a lawful debt or that there is a real possibility that such an arrangement will work to the prejudice of any shareholders in the Company. In such circumstances I am satisfied that I should accede to the application made by Mr. Wuang.