BANK OF CREDIT AND COMMERCE INTERNATIONAL (OVERSEAS) LTD. (IN LIQUIDATION) v. BANK OF CREDIT AND COMMERCE INTERNATIONAL (OVERSEAS) LTD. - MACAU BRANCH (IN LIQUIDATION)

IN THE COURT OF APPEAL

1996, No. 233
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an appeal from an order of Sears J. dated 30 October 1996 and made at the conclusion of the trial of the action then before him. The effect of the judge's order was to determine a dispute as to the proper destination of substantial funds paid into court, three years earlier, to await the outcome of the action. The parties to the dispute were, in substance, the liquidators of Bank of Credit and Commerce International (Overseas) Ltd, a company incorporated in the Cayman Islands ("the Cayman liquidators") and the liquidator of that bank's "branch" in Macau ("the Macau liquidator"). The judge decided the case in favour of the Cayman liquidators. He therefore ordered the funds in court to be paid out to them. The Macau liquidator now appeals; but he does not ask the court to make an order for payment out in his favour. Rather, he asks for a new trial, on the ground that the dispute fell to be decided according to Macanese law and that the judge had refused (as the Macau liquidator contends, wrongly) to receive any evidence of Macanese law. This court, then, must now decide whether to affirm the judge's order (as the Cayman liquidators invite us to do) or to order a new trial (as the Macau liquidator now invites us to do).

The facts

2. The material facts are as follows.

3. The Bank of Credit and Commerce International (Overseas) Ltd ("the bank") proposed to open a "branch" in Macau, and in 1982 sought permission from the Governor of Macau to do so, undertaking to abide by all pertinent local laws if permission were granted. In 1983, the bank received permission to open the "branch". Among the pertinent local laws was a Decree No. 35/82/M of 3 August 1982. This provided (among other things) as follows :

"Article 6

(Applicable Law and Requirements)

Credit institutions shall be obliged to comply with requirements, which may vary according to their nature, relating to capital and reserve funds, categories of business, application of funds and guarantees, administration, management and accountancy and shall be governed by the provisions of this law, any applicable regulations made under it and any relevant instruments of authorisation.

Article 112

(Board of Management)

The management of banks to which this section applies shall be entrusted to a board with full and unlimited powers to deal with and resolve all matters concerning the carrying on of their respective business.

Article 113

(Liability)

Assets applied by banks having their head office overseas shall only be used to meet obligations incurred abroad when all obligations contracted in the Territory have been met.

Article 114

(Enforcement of Foreign Judgments)

A foreign judgment ordering the bankruptcy or liquidation of a bank having its head office overseas shall only be enforced in Macau after consideration by the Portuguese courts and after all obligations contracted in the Territory have been met."

4. In 1991, those responsible for the management of the "branch" placed substantial funds on time deposit with the Bank of New York in Hong Kong. There were three deposits. Two were denominated in United States dollars; one was denominated in Hong Kong dollars. It was a term of each such deposit (1) that it would be repayable only in Hong Kong; (2) that it would be repayable only in the currency in which it was denominated; and (3) that the contract of the deposit would be governed by and subject to the laws of Hong Kong.

5. On 14 January 1992, the Grand Court of the Cayman Islands made an order for the compulsory winding-up of the bank.

6. On 6 April 1992, the Governor of Macau issued an Executive Order No. 82/92/M whereby he decreed the liquidation out of court of the Macau "branch" of the bank.

7. On 29 January 1993, the Macau liquidator wrote to the Bank of New York claiming to be entitled to the repayment of the deposits.

8. On 16 April 1993, the Cayman liquidators wrote to the Bank of New York claiming to be entitled to the repayment of the deposits.

9. The Bank of New York, on the instructions of the Macau liquidator, rolled over the deposits but, since the battle-lines were now drawn between the Cayman liquidators and the Macau liquidator, decided (quite rightly) to sit on the money until ordered to do otherwise by a court of competent jurisdiction.

10. On 22 July 1993, the bank, by the Cayman liquidators, instituted proceedings in Hong Kong against the Bank of New York, claiming repayment of the deposits. The Bank of New York, accepting that the Hong Kong court was a court of competent jurisdiction, interpleaded.

11. On 26 August 1993, the master, by consent, ordered that "Bank of Credit and Commerce International (Overseas) Ltd, Macau Branch (in liquidation)" be substituted for the Bank of New York as the defendant in the bank's proceedings. The Bank of New York was ordered to pay into court the funds then representing the deposits, the funds to remain in court until the conclusion of the action or until further order. The order included directions for the future conduct of the action as reconstituted.

12. On 1 September 1993, the Bank of New York duly paid into court the sums representing the deposits; 5,427,619.53 United States dollars and 4,261,267.98 Hong Kong dollars.

The judgment of Sears J.

13. The action came on for trial before Sears J. on 30 October 1996. In a commendably brief and robust judgment, the judge, having refused (on the ground that it was irrelevant) to hear evidence of Macanese law, held that the deposits had been made on behalf of the bank; that the Macau "branch" never had any legal right to the money; and that the right to have the money repaid on the maturing of the deposits was the right of the bank. He therefore made the order to which I have already referred.

The issues

14. It is not altogether easy to identify the issues which, on the facts I have related, fall to be resolved in these proceedings. I would suggest there are two; (1) Are these proceedings properly constituted? (2) Has the Macau liquidator a claim to the funds in court taking priority over the claim of the Cayman liquidators?

Issue (1)

Are these proceedings properly constituted?

15. The problem in this connection is, that whatever the position may be in other jurisdictions, in Hong Kong only a legal person can sue or be sued in our courts. This is why, for example, an unincorporated association cannot sue or be sued as such; an action intended to be an action by or against an unincorporated association must be brought by or against the trustees (or if there are none, the officers) of the unincorporated association. Here, the proceedings as presently constituted are proceedings against the Macau "branch" of the bank. But is the Macau "branch" of the bank a legal person? I am of the opinion that it is not; and indeed I do not understand it to be contended otherwise by Mr. Warren Chan, Q.C. who has appeared before us to resist the bank's claim. What Mr. Chan says is that the Macau "branch" of the bank is, at any rate for some purposes, a separate economic entity. I would accept this. The management of the Macau "branch" was entrusted by the bank to persons who were given (to use a familiar phrase) a high degree of autonomy. I would accept, too, that the Macau "branch" of the bank can sue and be sued in Macau as if it were a separate legal entity; that, as I understand the bank to accept, appears to be the effect of Article 7 of the Macau Code of Civil Procedure. But, in my judgment, none of this is enough to justify us treating the Macau "branch" of the bank as a separate legal entity capable of suing and being sued in the courts of Hong Kong. In truth, a "branch" of a bank is nothing more nor less than a local arm of the bank, a part of the bank's business, or undertaking. The word is not a term of art, at any rate, not for legal purposes. Any company (not only a bank) may choose to carry on its undertaking in a number of different places, at home and abroad. It may choose to do so by the medium of wholly (or partly) owned subsidiary companies. These would, of course, be separate legal entities from the parent company. But, equally, such a company may choose to do so by establishing "branches" to carry on its business in different places, or to carry on different parts of its business either in the same place or in different places. Such "branches" are merely emanations of the company which establishes them; and this will be so however high the degree of autonomy with which the management of the "branch" is entrusted by the company and no matter how the accounts of the "branch" are maintained. So, as it seems to me, any action brought by or against such a company in relation to the activities of a "branch" of that company must be proceedings brought by or against the company itself. But since, obviously, a company cannot sue itself, it follows inexorably that the "branch" cannot find itself on the opposite side of the record in legal proceedings in Hong Kong from the company of which it is a "branch".

16. For these reasons, I am of the opinion that these proceedings are not, at present, properly constituted. But the point, in the end, is more one of form than of substance. The Macau "branch" is now in liquidation. The liquidator is one Antonio Correia. The reality of the situation is that the Macau liquidator represents the creditors of the bank entitled under Macanese law to prove in the Macanese liquidation. It is, of course, on their behalf that the Macanese liquidator has asserted his claim to the funds in dispute. I am of the opinion that, in these circumstances, the right course for this court to take would be to order the substitution of the Macau liquidator (i.e., Antonio Correia) as the named defendant in these proceedings in place of "Bank of Credit and Commerce International (Overseas) Ltd - Macau Branch (in liquidation)", he being sued as representing those creditors. When that is done, the record will show a legal person, Antonio Correia, on the opposite side of the record from the bank; and that would, as it seems to me, get over the procedural difficulty caused by the manner in which the proceedings are presently constituted, and leave the door open for a proper consideration of the next, substantive, issue.

Issue (2)

Has the Macau liquidator a claim to the funds in court taking priority over the claim of the Cayman liquidators?

17. The Macau liquidator claims to have a prior claim to the funds in court because although the deposits were made in the name of the bank, they were made by those responsible for the management of the Macau "branch" out of assets held by the "branch"; and that therefore the deposits should be treated as "assets" which, in accordance with the undertakings given by the bank to the Governor of Macau, cannot (by virtue of Article 113 of the Decree to which I have referred) be made available to the bank until all obligations contracted by the bank in Macau have been met.

18. In my opinion, while these reasons would be entirely applicable to any deposits made in the name of the bank in Macau, they are not applicable to deposits made in the name of the bank outside Macau. Once such deposits, repayable in Hong Kong and subject to Hong Kong law, were made, the chose in action representing those deposits (the lex situs of which was of course Hong Kong) ceased to be an asset available to or, to put it in another way, within the grasp of the Macau liquidator. The Macau liquidator is, no doubt, entitled and indeed bound to get in all assets in Macau which he can get his hands on so as to apply them for the benefit of the creditors on whose behalf he was appointed. And he is, no doubt, entitled, if he thinks he can get away with it, to attempt to get in assets which are not in Macau but situate elsewhere. Since the lex situs of the chose in action with which this case is concerned is plainly Hong Kong, and not Macau, I am quite satisfied that these assets do not fall to be treated by this court as assets situate in Macau for the purposes of the Macanese liquidation of the bank. The boot might, of course, have been on the other foot, as Mr. John Griffiths, C.M.G., Q.C., for the bank, accepted. If, for example, some "branch" of the bank outside Macau had deposited funds in Macau to be dealt with according to Macanese law, the Macanese liquidator would have been entitled to claim those funds, although placed in Macau by that overseas "branch" of the bank.

19. I have considered whether there would be any injustice done to the Macanese creditors by a finding that the Cayman liquidators now have a prior claim to the funds in court over that of the Macau liquidator. I do not think there would. As Mr. Griffiths told us, the Macanese creditors are entitled to prove in the Cayman liquidation, and indeed they have been invited to do so and some of them have done so. On the other hand, no claim has been asserted by the Cayman liquidators for the benefit of the general body of the creditors in the principal liquidation, in respect of funds the lex situs of which is Macau (quite rightly, since those funds must, under Macanese law, be applied first to satisfy the bank's obligations to the Macanese creditors). All this seems to me to be perfectly fair. So I would decide this issue in favour of the Cayman liquidators.

The result

20. Once the relevant issues are identified and resolved in the way I have described, it becomes obvious that we must affirm the order of the judge. There is no point in ordering a new trial; for it is the law of Hong Kong, and not Macanese law, which governs the proper destination of the funds in dispute, the lex situs of which is, and always has been, Hong Kong, ever since the original deposits were made here.

Conclusion

21. For these reasons, as I have indicated, I would dismiss this appeal, and, subject to the provisions of Order 42 rule 5B(6), award the plaintiff its costs here and below.

Ching, J.A. :

22. I agree.

Litton, V.-P.:

23. I also agree. The appeal is dismissed with costs here and below, as proposed in the judgment of Godfrey, J.A.