PETROLIAM NASTIONAL BERHAD BBMB FINANCE (HONG KONG) LTD AND ANOTHER v. CARRIAN INVESTMENTS LIMITED

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J U D G M E N T

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1. I have before me two summonses under Section 186 of the Companies Ordinance in two liquidations that have been heard together. Section 186 reads:-

"186. 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."

2. The summonses have been issued on behalf of BBMB Finance (Hong Kong) Limited (BBMB) for leave to institute third party proceedings against Carrian Holdings Limited (CHL) and Carrian Investments Limited (CIL) which companies were the subject of winding-up orders made on the 7th November 1987 in High Court Action No. A4064 of 1987, the action having been instituted against BBMB by China Underwriters Life and General Insurance Company Limited (CUL) which is itself in liquidation. Mr Barlow, counsel for CHL, has opposed the application whilst Mr Bunting, counsel for CIL has adopted a neutral stance.

3. The facts relating to the action have been conveniently summarised in an affidavit of Mrs Rundle-Smith, the solicitor for BBMB made on the 23rd May 1989 which I adopt with some adaptations from the relevant paragraphs which I set out as follows :-

4. Plaintiff's Claim

"4. (i) Prior to June 1981 the majority shareholder of CUL was Ayala International Holdings Company Limited ("Ayala") which held 93.65% of CUL's issued share capital.

(ii) On 26th June 1981 the Carrian Group through Metin Investments Limited ("Metin"), being one of its subsidiaries, purchased from Ayala 50% of its shareholdings in CUL and Bentley Ho became a director of CUL to represent the interests of the Carrian Group.

5. On 7th December 1981, CIL confirmed that it would purchase the balance of Ayala's shareholding in CUL for HK$230,420,300.

6. Ibrahim Jafaar ("Jaafar"), the then General Manager of BBMB, had been approached by George Tan seeking a loan of HK$238 million for CHL and George Tan, to the knowledge of Bentley Ho, expressly told Jaafar that :-

(i) The loan was required to finance the takeover of CUL by the Carrian Group.

(ii) CUL's investment funds which George Tan said would be placed with BBMB could be used as security for a loan to CHL.

7. (i) On 19th December 1981, BBMB sent a cheque post dated to 22nd December 1981 for HK$230,420,300 to CHL representing the full amount of the loan to CHL.

(ii) On 24th December 1981, CHL paid HK$230,420,300 to BBMB, via CIL, in respect of CIL's purchase of Ayala's remaining shareholding.

(iii) On 24 December 1981, CUL deposited HK$230 million with BBMB for a period of 6 months.

(iv) On 24th June 1982, CUL's deposit with BBMB matured and interest of Hk$16,055,890.41 became due from BBMB to CUL but was wrongfully witheld by BBMB who also, without CUL's authority, refixed the former's deposit for a further 4 days.

(v) On 28th June 1982, CUL's deposit with BBMB matured and interest of HK$327,671.23 became due from BBMB to CUL but was wrongfully witheld by BBMB who also, without the former's authority, placed the deposit on call.

(vi) In either September or December 1982, BBMB wrongfully appropriated CUL's deposit by using it to discharge the loan that it had made to CHL.

8. As a result of the foregoing CUL says that BBMB is liable to it because:-

(i) CUL's own money, namely HK$20 million, was in fact used for the purchase of its own shares and there was therefore a breach or Section 48 of the Companies Ordinance to which BBMB was a party.

(ii) That in so far as BBMB treated CUL's deposit as security for its loan to CHL, then the same was not authorised and BBMB was therefore a constructive trustee for the full amount of the deposit for and on behalf of CUL.

(iii) That BBMB owed CUL a duty of care in both contract and in tort and it is liable in damages as it failed to exercise reasonable skill and care, which had it in fact exercised, would have caused BBMB to realise that the pledging of CUL's deposit as security for the loan to CHL could not have been for the benefit of CUL."

5. Leave to institute third party proceedings and to issue third party notices against George Tan and Bentley Ho was granted last November.

6. BBMB's case against CHL and CIL is as follows :-

"10. (i) It is accepted that BBMB took both a deposit from CUL and made a loan to CHL and treated the former as security for the latter.

(ii) BBMB was fully entitled to take the deposit and treat it as security for the loan to CHL as this was done pursuant to specific instructions given by George Tan who was Chairman of the Carrian Group and who held himself out as having full power and authority to act for and on behalf of CUL. Further, the discussions in relation to the taking of the deposit and the fact that it was to stand as security for the loan to CHL took place in the presence of Bentley Ho, who was, in fact, a director of CUL and who at no time, asserted that George Tan did not have power to act for and on behalf of CUL.

11.     In relation to the offsetting of the interest due to CUL against the interest due to BBMB from CHL on 24th June 1982 and 28th June 1982, CUL can have no claim as this was expressly authorised by George Tan as a de-facto director of BBMB.

12.     CUL's deposit with BBMB was fully repaid on or about 8th December 1982 by BBMB's cheque number 018424 in the sum of HK$238,144,520.55 made payable to CUL and handed to Bentley Ho which cheque was endorsed by Bentley Ho in his capacity as a director of CUL to be to the benefit of CHL.

13.     BBMB was fully entitled to accept and act on Bentley Ho's endorsement of the cheque as Bentley Ho was a director of CUL and had full apparent authority to make the endorsement and act for and on behalf of CUL.

14.     In so far as CUL's monies might, in fact, have been used to enable CUL's own shares to be purchased, BBMB was unaware of the same and cannot be liable for a breach of Section 48 of the Companies Ordinance without the requisite knowledge,"

7. The only response to the evidence of Mrs Rundle-Smith is an affidavit of Mr Stevenson, one of the joint liquidators of CHL who, whilst conceding that the legal issues involved in the action are very complex, seeks to oppose the making of an order on the grounds that the costs in the action might be as high as $2,500,000 and that to be involved in the proceedings will be inconvenient. The matter of inconvenience is wholly irrelevant so the issue is restricted to the high cost of litigation as compared with the less expensive proceedings in the liquidations. In fact, a draft proof of debt has already been lodged by BBMB in the CHL liquidation.

8. It is agreed that the appropriate test to be adopted by the Court in exercising its discretion whether or not to grant leave is to decide what is right and fair in the circumstances see In re Aro Company Limited [1980]1 Ch. 196.

9. Although Mr Barlow submitted that the liquidators of CHL are not in a position to present any evidence upon the factual matters involved, he went on to say that the main questions of fact are not, in any event, in dispute. He said that the liability of CHL is entirely dependent upon the knowledge of George Tan and Bentley Ho and whether that knowledge can be imputed to the company. This, he said, was a matter of law that can be properly determined in the liquidation where the cost will be less expensive than in the action. Mr Bunting did not agree with Mr Barlow's submission that the only issue was that of knowlege by George Tan and Bentley Ho while the liquidators of CIL may have evidence to put forward.

10. The action brought by the liquidators of CUL is a heavy piece of litigation involving a claim for over $230,000,000 which, I am told, with interest now exceeds $450,000,000. It is conceded by the liquidators of CHL as I have said that there are complex matters of law and from my perusal of the pleadings, I am satisfied that the factual issues are not simple. If I accede to Mr Barlow's submission by refusing to make the order sought, there could be a duplication of proceedings which may result in inconsistent findings for neither CHL nor CIL would be bound by the result of the action. The costs of the action will admittedly, in all likelihood, be much higher than by proceeding in the liquidations, but I see no reason as was suggested by Mr Bleach, counsel for BBMB, why the liquidators for CHL cannot adopt a passive role and agree to be bound by the result of the action particularly as they do not intend to adduce any evidence. As it is the duty of a liquidator to act fairly in the interests of all the creditors and not to take sides, the very substantial sum for costs referred to by Mr Stevensan could be avoided.

11. In my Judgment, it would be inappropriate for the issues to be determined in the liquidations having regard to the complex points of law and facts involved and the weight of the litigation. These issues can be more conveniently tried in the High Court action. This course will also avoid a multiplicity of proceedings and inconsistent findings.

12. For these reasons, I am quite satisfied in the exercise of my discretion that the applications should be granted upon undertakings that any judgment obtained against either company should not be enforced without the leave of the court. The issue of costs will be adjourned generally with liberty to restore.