AKAI HOLDINGS LTD (IN LIQUIDATION) v. THANAKHARN KASIKORN THAI CHAMKAT (MAHACHON)

HCCL 59/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 59 OF 2004

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

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

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

INDEX TO JUDGMENT

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

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

J U D G M E N T

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

This action

1.    This is the judgment in the trial of an action commenced on 3 December 2004 by the plaintiff, which throughout I shall refer to simply as ‘Akai’, against the defendant herein, known as Thai Farmers Bank, henceforth referred to as ‘TFB’ or ‘the Bank’.

2.    At all material times Akai was a public company, incorporated in Bermuda, the shares of which were listed on the main board of the Hong Kong Stock Exchange; formerly it was known as ‘Semi-Tech Global Company Limited’.

3. Akai is now in liquidation, having been ordered to be wound up in Hong Kong on 23 August 2000, and in Bermuda on 29 September 2000.

4. The defendant bank, TFB, is a public company incorporated in Thailand, which carries on the business of banking in Thailand, Hong Kong, and until 2000, in London.

5. The fundamental factual issue underpinning this litigation concerns a transaction which took place in early December 1998 wherein Akai agreed with TFB to be substituted, as borrower of US$30 million, in place of a Netherlands Antilles company listed on the New York Stock Exchange, The Singer Company NV – henceforth referred to as ‘Singer’ – a company which then was in financial difficulty.

6. Under the 3 year revolving credit facility which Singer hitherto had enjoyed with TFB, Singer had provided security for its loan in the form of 6 million shares in Singer Thailand Public Company Limited – henceforth referred to as ‘Singer Thailand’ – which company indirectly was owned as to 48% by Singer; by October 1998 the value of such security had so declined in value that it covered only 4.2% of Singer’s outstanding debt to TFB.

7. At all times material to this dispute, the Executive Chairman and Chief Executive Officer of Akai was a gentleman called Mr James Ting.

8. On 4 December 1998, Mr Ting, purportedly acting on behalf of Akai, executed a Loan Agreement in favour of TFB whereby it was agreed that the existing credit facility granted by TFB in favour of Singer – hereinafter ‘the Singer Credit Facility’ – would be repaid to TFB by means of the grant by TFB of a loan facility of US$30 million to Akai – ‘the Akai Credit Facility’ – whereupon Akai immediately would use the entirety of this facility to repay in full the Singer Credit Facility.

9. As security for this new Akai Credit Facility, now directly substituted for the Singer Credit facility, the security originally enjoyed by TFB, namely the 6 million shares in Singer Thailand, was replaced by a pledge by Akai of 56 million shares of Akai Electric Company Limited, a Japanese publicly listed company – ‘Akai Electric’ – by way of a Share Pledge Agreement, which at that time more than covered the face amount of the new loan by TFB to Akai.

10. On 6 December 1999 Akai defaulted upon the Akai Credit Facility.  TFB thereafter formally declared an Event of Default on 23 December 1999, and in April and May 2000 TFB exercised its rights under the Share Pledge Agreement and realized the then remaining security of 50.5 million shares in Akai Electric, applying the proceeds of US$20,504,295.38 in partial repayment of the amount then outstanding under the Akai Credit Facility.

11. After completion of this exercise, a balance of US$13,243,618.38 was left outstanding and due and owing to TFB, in respect of which sum TFB sought to prove in the Akai liquidation.

12. By Notice of Adjudication of Proof of Debt dated 16 August 2002, the Hong Kong liquidators notified TFB that its claim against Akai had been adjudicated to be US$13, 243, 618.38 in the Hong Kong liquidation of Akai, and by Notice of Adjudication of Proof of Debt dated 16 August 2002, the Bermudian liquidators of Akai notified TFB that its claim against Akai in the Bermudian liquidation had been adjudicated to be US$13, 402, 457.15. 

13. The fundamental issue in this trial is the validity of, and thus the entitlement of TFB to rely upon and to enforce the Loan Agreement and Share Pledge Agreement made between itself and Akai.

14. Akai maintains that in the circumstances TFB is unable to stand upon its alleged rights and to uphold the validity of this transaction, and thus to retain the benefit of the sale of the Akai Electric shares and to prove for the balance due in the Akai liquidation.

15. Accordingly, the relief sought by the liquidators of Akai in this action includes a declaration that TFB held the 50.5 million shares in Akai Electric as a constructive trustee for Akai, and a declaration that the Loan Agreement and the Share Pledge Agreement entered into by Akai with TFB were void, and that TFB now is liable to account to Akai for all benefits and profits received by the bank pursuant to these agreements.

16. Additionally, Akai seeks equitable compensation/restitution on the basis of breach of trust and/or damages for the loss of use of money and assets.

17. Akai further says that in the event that this court upholds its claim herein, the Liquidators of Akai will apply to the High Court of Hong Kong in order formally to expunge the proof of debt lodged by TFB (and adjudicated upon in its favour) in the liquidation of Akai.

18. For its part TFB strongly resists this action.

19. It asserts the intrinsic validity of that which it maintains was a routine ‘arms length’ transaction with Akai in terms of the grant of the Akai Credit Facility, it maintains its entitlement to the monies received consequent upon the sale of the Akai Electric shares it held as security, and denies that Akai is entitled to the payment of any sum in whatever form such be claimed.

20. TFB accordingly asks that this action be dismissed, and formally counterclaims for a declaration as to the validity of the Loan Agreement and the Share Pledge Agreement entered into with Akai, that Akai was indebted to TFB for the sum of US$13, 243,618.38 as of October 2000, and that TFB is entitled to a distribution in the liquidation of Akai according to the existing Notices of Adjudication.

21. The foregoing represents no more than a thumbnail sketch of this litigation which, notwithstanding the relative simplicity of the underlying factual matrix – and, it must be said, few directly relevant documents – contains within it legal issues of varying complexity.

22. Before canvassing such matters, however, it may be useful to provide additional information regarding to the factual background surrounding the provenance of the ‘Singer Credit Facility’, and its subsequent substitution by the ‘Akai Credit Facility’.

The background facts

23. There is little or no dispute between the parties as to the background to the dealings between TFB and Akai, and it is clear that historically, and prior to the matters the immediate subject of this litigation, that Mr Ting of the one part and TFB of the other had had extensive commercial contact.

24. The following description of the sequence of relevant events depict factual matters which essentially are common ground, being derived from available documents and/or from the testimony of witnesses called in this case.

25. For the avoidance of doubt, the factual matters hereinafter set out excite no controversy and may be treated as findings of fact which from the background to, and the basis of consideration of, the legal arguments between these parties arising from this matrix of facts.

(a)  Commercial relations with TFB: up to August 1998

26.   This relationship had its beginnings in September 1989, when TFB made a US$30 million revolving credit facility available to a Hong Kong company Semi-Tech (Global) Limited (then known as Semi-Tech Microelectronics (Far East) Limited), which at that time was a subsidiary of STC Canada. 

27. This loan agreement was executed by Mr James Ting, and 11.52 million shares in Singer Thailand were pledged to the bank as security.

28. This loan appears to have been repaid in September 1990, when TFB made another US$20 million revolving credit facility available to Semi-Tech Global Limited; once again the agreement was signed by Mr Ting, and in October 1991 the same number of shares in Singer Thailand were pledged to the bank as security for this loan, this agreement also being signed by Mr Ting and witnessed by Miss Clara Loh, a close colleague of Mr Ting.

29. In June 1991 there was a restructuring of businesses within the ‘STC Group’, Singer being established as a subsidiary of Semi-Tech Global to head the worldwide ‘Singer group’ of companies; at the same time Singer was listed on the New York Stock Exchange.

30. In late 1991 a request was made for a change of borrower under this latter facility, Semi-Tech Global requesting that Singer be substituted as borrower and take over liability for the US$20 million facility.

31. The bank’s credit application in this regard noted that the main management of both companies was Mr Ting himself, together with Miss Clara Loh, a fellow director, and this application was approved by TFB’s Credit Committee on 17 December 1991, the decision being communicated to Singer on 2 January 1992. 

32. Once again this agreement was signed by Mr Ting and witnessed by Miss Loh, and the same shares in Singer Thailand remained pledged as security for this loan facility, which provided that the obligation to repay the outstanding principal was to be evidenced by a promissory note dated to expire at the end of each interest period.

33. In March 1992 the TFB Credit Committee approved a request from Singer to reduce the number of Singer Thailand shares pledged as security to 6 million from the previous 11.52 million.

34. In June 1992 a reorganization of the Semi-Tech (Global) Group took place pursuant to a Scheme of Arrangement in which Akai, at that time called Semi-Tech (Global) Company Limited, became the parent company of Semi-Tech (Global) and of Singer.

35. On 3 June 1993 Akai announced that it had acquired 51% of GM Pfaff AG, then Europe’s largest manufacturer of sewing machines; as Akai already controlled Singer, a world leader in sewing machine technology, and a global retailer through an international distribution network of over 42,000 outlets, this announcement was seen as consolidating Akai’s position in the sewing machine business worldwide, a position subsequently buttressed by Akai’s announcement of the acquisition of an additional 21% in Pfaff.

36. In August 1993 Akai sold its shares in Singer to STC Canada, (then called International Semi-Tech Microelectronics Inc.), and thereafter STC Canada became the largest single shareholder in Akai and Singer, effectively controlling both companies.

(b) The Singer Credit Facility: January 1994 to July 1997

37.   In January 1994 TFB considered a request from Singer for a renewal of the Singer Credit Facility Agreement.

38. This request was approved, and on 18 January 1994 an Amendment Agreement was executed, once again signed by Mr Ting and witnessed by Miss Loh; in substance the facility was renewed for a further two years with interest at LIBOR + 2%.

39. In 1995, Singer requested TFB to renew the revolving credit facility of US$20 million for a further three years, and to increase the credit line by another US$10 million.

40. This request was approved by the Bank’s Executive Committee on 31 October 1995, and executed on 23 November 1995, when a Second Amendment Agreement was signed, once again by Mr Ting: thus, the maximum amount of this revolving facility was increased from US$20 to US$30 million, although at the same time it was stipulated that the facility would not be extended beyond 7 years from the first drawing, which meant that in practice that Singer was able to use this facility only until January 1999.

41. Between April 1996 and July 1996 three facility ‘roll over’ requests were received by the Bank on behalf of Singer – on two occasions these requests came direct from Akai’s offices – and on 22 October 1996, by fax from Akai’s offices, Mr Domine Ko, an Akai employee, wrote on behalf of Singer to inform TFB that Singer would repay the total principal of the outstanding loan, with accrued interest, on 28 October 1996, a repayment which apparently took place.

42. At this stage, therefore, Singer owed TFB no money. 

43. However, by a further drawdown notice dated 15 January 1997 once more sent from the offices of Akai, Singer gave notice to the Bank that it wished to make a drawing of US$30 million for a period of 3 months, and requested that this sum be remitted to Akai’s account in Hong Kong; this drawdown was confirmed by telex to Akai by the London Branch of TFB on 21 January 1997.

44. The interest period for this further loan was to expire on 23 April 1997, and on 22 April, Miss Loh on behalf of Singer requested a further ‘roll over’ of this loan for a period of 3 months, the interest period for which was to expire on 23 July 1997.

45. This ‘roll over’ was confirmed by the London branch of the Bank by telex to Akai, for the attention of Miss Loh and Mr Ting, on 22 April 1997.

 (c)  The Singer Credit Facility: July 1997 to April 1998

46.   On 16 July 1997, again by fax from Akai’s offices in Hong Kong, Miss Clara Loh on behalf of Singer requested a further ‘roll over’ for 3 months of the existing loan under the Singer Credit Facility, as amended, and agreed to remit the interest accrued for the immediately preceding period.

47. This request, which appears to have been granted, doubtless assumed more than usual significance for the Bank, by reason of the onset, in July 1997, of that which now has attracted the soubriquet of the ‘Asian Financial Crisis’, an event which, inter alia, wrought havoc with the value of the shares listed on the Thai Stock Exchange, including the shares of Singer Thailand, and also caused a huge and very rapid depreciation in the value of the Thai Baht, the exchange rate of which in a matter of weeks went from something around 25-26 Baht to the US$ to around 50 Baht to the US$, a depreciation of roughly 50%.

48. During the period of the Asian Financial Crisis TFB, like many Thai banks, encountered severe liquidity problems, arising in part from non performing loans – ‘NPL’s’ – and at some point in the second half of 1997 the senior management of the Bank had asked all its Account Officers to review the portfolios for which they had responsibility, and to assess whether and to what extent the Bank had exposure to unacceptable risk and to potential bad debts, and in particular to review the adequacy of the security (often comprising shares listed on the Thai Exchange) which the Bank then held as security.

49. It is worth emphasizing, however, that the Singer Credit Facility never at any stage fell into the ‘NPL’ category, in that the interest payments upon the outstanding principal always were met.

50. This may be one reason why a further request made on behalf of Singer, on 21 October 1997, by Miss Loh and Mr Ko writing on Akai notepaper, that the Singer facility be rolled over for an additional 6 months – a request which on the day following, 22 October 1997, was amended to one month – was accepted by the Bank, and confirmed by the London Branch on that day, the telex confirmation thereof, as now was the usual pattern, being sent to Akai for the attention of Mr Domine Ko.

51. At this stage, the value of the Singer Thailand shares, which TFB was holding as collateral for the Singer Credit Facility, substantially had slumped in value, and no longer sufficed to provide the necessary contractual collateral – which required that the outstanding loan amount was not to exceed 70% of the market value of the 6 million Singer Thailand shares then held by the Bank as security.

52. The outstanding loan to Singer, which in late October 1997 had been rolled over for one month, was due to expire on 24 November 1997.

53. At this point the TFB account officer in charge of the ‘Singer portfolio’ was Mr Pipit Aneaknithi, then a young man in his first bank job; he had become responsible for this account in September 1997.  ‘Mr Pipit’, as he was universally addressed throughout this trial, plays a part in this story as the first witness of fact who was called by the Bank to explain what had happened in terms of this Singer Credit Facility, and why. 

54. The outstanding loan to Singer, due to expire on 24 November 1997, actually was repaid in full, the London branch of the Bank receiving a repayment from Singer of the balance outstanding under the facility of US$30,184,166.67.

55. The point repeatedly has been made in this trial that, from the viewpoint of a Thai bank caught in the crossfire of the Asian Financial Crisis, such repayment represented an event of more than usual import. 

56. In the midst of a slew of ‘NPL’s’ within the Bank’s portfolios, and when, as we shall see, TFB itself was to require a large capital infusion in order to keep afloat, the restoration of this outstanding capital sum, with interest, must have been regarded as akin to ‘manna from heaven’; in this regard Mr Kosmin QC, appearing for the Akai liquidators in this case, rhetorically asked why, in the midst of the Asian financial maelstrom, should TFB, having been repaid in full by Singer, seriously have considered re-lending the entire sum when the value of the Singer Thailand shares held as collateral for such facility had diminished to but a fraction of their former value.

57. In the prevailing circumstances, and from a purely commercial viewpoint, this was a not unreasonable question to pose.  Because that which then happened was this.

58. In a drawdown notice in standard form required by the Singer Credit Facility, dated 30 December 1997 and signed by Mr James Ting, a request which was sent to the Bank by Mr Domine Ko from the fax facilities of Akai, Singer once more gave notice to TFB to draw down the full amount of US$30 million for a period of 3 months, and requested that this money be remitted to Akai’s bank account in Hong Kong.

59. This further drawdown was consented to by the Bank, and confirmed by telex to Akai, for the attention of Mr Ko, by the London branch of the Bank on 31 December 1997.

60. This telex confirmation made it clear that the interest period for the loan was from 5 January 1998 to 6 April 1998, and that for this 3 month period the interest rate was to be 7.75%.

61. The fresh drawdown by Singer internally was processed by Mr Pipit, the relevant account officer within TFB at that time, who said that he had not regarded this as a new loan because it was made upon the same terms as the original agreement made in 1992.

62. When pressed on this incident Mr Pipit said, and I accept, that he could not recall whether he then had checked the collateral value of the Singer Thailand shares under the Singer Credit Facility; he stated that at this time he had been extremely busy with a large number of ‘NPL’s’ within the Bank’s loan portfolio, and that primarily he had focused upon whether Singer appeared able to service the required interest payments, and that since he had been so satisfied he had processed this new drawdown in normal course. 

63. In this regard Mr Pipit had sought approval from his superiors, by internal memo dated 9 February 1998, to adjust the interest rate for the Singer loan from the existing LIBOR + 1.25% to LIBOR + 2.25% for the next interest period; he said that this interest differential was the result of the increase in the cost of US$ funds which had arisen due to the Asian Financial Crisis.

64. As to the stark diminution in value of the collateral in the form of the Singer Thailand shares, Mr Pipit thought (and I accept) that he first fully had realized the situation in around early April 1998 when he had received the 1997 Singer Auditors’ Report, which formed part of the Singer 1997 Annual Report, which was dated 31 March 1998.

The Singer Proposals: April 1998

65.   Once Mr Pipit had discovered that the outstanding loan amount to Singer far exceeded the figure represented by 70% of the 6 million Singer Thailand shares which TFB held as collateral for the Singer funds, he had asked Singer for proposals to address this problem.

66. In this regard he spoke to Miss Loh and Mr Domine Ko of Akai, and the result of these conversations were two proposals on behalf of Singer to address that which now was perceived within the Bank as a security problem:

first, a 3 year extension of the existing loan to Singer, accompanied by the pledge of an additional 6.96 million shares in Singer Thailand;

second, a restructuring of the Singer loan by a change of borrower, whereby the Bank would make a new loan to Akai which would immediately be on-lent to Singer, and thereafter immediately utilized by Singer to repay its loan to the Bank under the existing Singer Credit Facility.  Singer further proposed that this new loan would be secured by a pledge of shares in Akai Electric, the Japanese subsidiary of Akai, and thus that the existing pledge of shares in Singer Thailand would be released.

67. Whilst these discussions were ongoing, on 2 April 1998 Singer had requested a further roll over of the existing loan for an additional period of 6 months; this request was forwarded to the London Branch of the Bank, which agreed to this roll-over pro tem pending the result of the ongoing negotiations.

68. Following the proposals which had emanated from Singer, Mr Pipit had requested Singer to provide information about Akai and Akai Electric, and on 25 May 1998 he had received from Mr Domine Ko the information as requested, including a convertible bond prospectus of Akai Electric, share price details of Singer, and certain ‘corporate documents’ of Akai, to which aspect I refer later in this judgment.

69. Mr Pipit’s understanding of the general position at the time was that Akai and Singer were part of the same general ‘group’ of companies, which understanding was reflected in a ‘corporate chart’ showing STC Canada, Akai, Singer and Pfaff, which he drew up and had entitled ‘Shareholding Structure of the Group’.

70. This ‘corporate chart’ has been referred to extensively throughout this trial, and for immediate reference I now reproduce this in the form as drawn by Mr Pipit at that time:

71. At the same time Mr Pipit also had prepared for his file an information sheet about Akai, recording that Singer and Akai appeared to share the same executive management, including Mr James Ting and Miss Clara Loh; he had become aware of the sale of GM Pfaff AG from Akai to Singer on 31 December 1997, and he had understood that there were financial dealings between Akai and Singer.

72. Unfortunately from the viewpoint of internal consistency of thought and action within the Bank, Mr Pipit’s concern with the ‘Singer portfolio’ within TFB then came to an end; as a rising young man he now was required by the Bank to work on larger, and apparently more lucrative, power plant projects upon which TFB then was focusing its energies, and in the summer of 1998 he was required to hand over responsibility for the Singer Credit Facility to another junior account officer, Miss Tattaya Wattanakul, who was the second witness of fact called by the Bank in this trial.

73. In turn, Mr Pipit’s immediate supervisor, Mr Pakorn Partanapat himself handed over supervision of the Singer portfolio to Miss Wattanakul’s superior, Mrs Juthatip Tasma, who was the third factual witness called for TFB.

74. Mr Pipit briefed Miss Wattanakul and Mrs Tasma about the two alternatives proposed by Singer in terms of how to remedy the problem arising from this hugely diminished collateral, and Miss Wattanakul was instructed to analyze and to consider these proposals; in turn, she also was required to review the entire Singer file, which by then contained extensive commercial information on Singer and on Akai, and, of course, contained the ‘Shareholding Structure’ chart which had been compiled by Mr Pipit, from which Miss Wattanakul came to the understanding that Singer and Akai were part of the same ‘group’, and that there was a commercial connection between the two companies.

75. There then followed two applications made to the Credit Committee of TFB, without reference to which the events the subject of this case cannot properly be understood; of these two applications, the second, that of October 1998, is the more important, and provides the factual genesis of this case as now framed.

(e)  The August 1998 Credit Application

76.  Miss Wattanakul began compilation of this credit application on 19 August 1998; apparently it took her about one month to analyze and to review the information available to her.  In the event, the credit application, which contained Mr Pipit’s ‘Corporate Chart’, the information sheet on Akai as prepared by him, and the two alternatives as proposed by Singer, was signed off by Miss Wattanakul and Mrs Tasma on 22 September 1998, and was received by the Secretary of the TFB Credit Committee on the same day.

77. On 24 September 1998 the TFB Credit Committee held its meeting, which was attended by, inter alia, Mrs Tasma and Miss Wattanakul, together with Mr Siripongs Kalayanarooj, their superior, who also gave evidence in this case, (and who throughout has been referred to as ‘Mr Siripongs’).

78. At this meeting Mr Siripongs came up with a third alternative to the two alternative proposals which had emanated from Singer; this was that the amount of the existing loan to Singer should be reduced by a partial repayment down to the then value of the existing security over the Singer Thailand shares, and that Singer should provide further Singer Thailand shares as additional security, the reason apparently being to reduce the Bank’s US dollar exposure in light of the credit and liquidity strictures imposed by the Asian Financial Crisis.

79. At the end of this Credit Committee meeting of September 1998 no decision was reached upon any of the three alternative proposals as thus put forward, and Miss Wattanakul and Mrs Tasma were instructed to renegotiate with Singer.

80. Thereafter Miss Wattanakul spoke with Mr Domine Ko of Akai about the ‘third alternative’ as had been canvassed at the Credit Committee meeting, but was told that only the two alternatives as originally proposed by Singer remained on the table, since Singer now was experiencing significant cash-flow problems.

(f)  The October 1998 Credit Application

81.81.   The decision taken by TFB at this meeting provides a principal focus within this case.

82. Since Singer’s existing promissory note given under the existing Singer Credit Facility was due to expire on 6 October 1998, Miss Wattanakul sent a memo to her superior, Mr Siripongs, suggesting an extension of time for one month in order to permit Singer to repay its outstanding loan, but Mr Siripongs recommended that in the circumstances that this proposal be considered directly by the Executive Committee of the Bank.

83. Given that Singer had informed Mrs Tasma and Miss Wattanakul that it could perform one only of the two original alternatives it had put forward, these two officers decided that the second alternative was far preferable from the Bank’s viewpoint, and thus prepared a second credit application on 2 October 1998 upon that specific basis: namely, that the Bank would restructure the Singer loan by making a new loan to Akai, which immediately would be on-lent to Singer and thus would be used forthwith by Singer to repay its loan to the Bank under the existing Singer Credit Facility, with the existing collateral of Singer Thailand shares to be replaced by a pledge of the shares in Akai Electric, the Akai subsidiary which then was listed on the Tokyo Stock Exchange.

84. This second credit application of 2 October 1998, made in the name of ‘Semi-Tech (Global) Company Ltd’, the former name of Akai, was submitted not to the TFB Credit Committee but directly to the Executive Committee of TFB, having first been reviewed by two members of the Credit Committee, Mr Siripongs and Mr Nuchanart, because but a short time then remained before the loan under the existing Singer Credit Facility became due on 6 October 1998.

85. The credit as now proposed was for a short term revolving credit line of US$30 million (1,200 million Baht) in favour of Akai, which calculated at a closing market price of 98 yen per share in Akai Electric required the pledge by Akai of 58.17 million shares of Akai Electric (with a total value of 1,714.48 million Baht), in order to provide sufficient collateral to ensure that the amount of new loan would not exceed 70% of the market value of the share collateral; in other words, that the value of the collateral to be put up by Akai would be 143% of the loan amount, that is, US$42.8 million, with the number of shares in Akai Electric replicating the value of the collateral as hitherto required under the terms of the soon-to-be-replaced Singer Credit Facility.

86. The actual Credit Application of 2 October 1998, as submitted to senior management of the Bank, has been subjected to detailed attention during this trial; for present purposes, suffice to say that under Section 16 within this Application, which bears the heading ‘Opinions and Supporting Reasons’, the following narrative commentary appears, at paragraph 4:

“4.  This request is made in the past, The Singer Company N.V. was granted 3 years Short Term Revolving Line in the amount of USD30M by the Bank by pledging Singer Thailand PCL., shares held by the company in the number of 6M shares as collateral.  Due to the declining of the shares value, the collateral could cover only 4.2% of the outstanding debt.

To minimize the Bank’s risk, it is proposed to change the Borrower from the Singer Company N.V. to Semi-Tech (Global) Company Ltd, which is in the same group having stronger financial status, and change collateral from pledging Singer Thailand shares to pledging shares of Akai Electric Company Limited, which can fully cover the total credit line provided that the company shall apply the amount of money to repay the USD30M Short-Term Revolving line of The Singer Company N.V. and the interest rate would be adjusted from LIBOR + 2.25% to LIBOR + 4.5%.

Considering the operating result of Semi-Tech (Global) Company Limited, we can see that the company has continuous growth of sale volume every year and has sustained profit continuously.

The financial status is also stable with D/E ratio not exceeding 2 times.  Also, the value of Akai Electric Company Limited shares to be pledged with the Bank replacing Singer Thailand PCL, shares can cover 100% of the credit line.  As a result the proposal should be approved as per request.”

87. The names of Mr Nuchinart, Miss Wattanakul and Mrs Tasma, Corporate Client Relationship Officers, and Mr Siripongs Kalayanarooj, Corporate Client Relationship Administrator, appear at the foot of this formal Proposal to the Executive Committee.

88. In the event, the Executive Committee of the Bank, consisting of Mr Banyong Lamsam, Mr Chana Rungsaeng, Mr Banthoon Lamsam and Mr Kaorop Nuchanart, met on 6 October 1998.

89. Of these senior executives, only Mr Banthoon Lamsam has been called to give evidence in this case.

90. The Minutes of the Executive Committee of that date record that Semi-Tech (Global) Company Limited was Item 3.4 on the Agenda for that day.  The Executive Committee decided to accept the recommendation of its account officers and to approve the new facility to Akai so as to allow repayment of the existing loan under the Singer Credit Facility.  This Committee also approved the extension of the outstanding promissory note from Singer for another 30 days until 6 November 1998.

91. The Committee’s formal decision was recorded in the following narrative, which reads:

“Mrs Jutathip Tassama…[of] the Corporate Client Relationship Department, proposed that Semi-Tech (Global) Company Limited operated investment holding company having responsibilities to develop investment for its affiliates, where subsidiaries of its group manufactured and distributed electrical appliances.  In the past, The Singer Company N.V. had Short-Term Revolving Line in the amount of USD 30 millions with the Bank with Singer Thailand shares pledged as collateral.  Thereafter, the value of such collateral had significantly dropped and could cover only 4.2% of the credit line.  As a result, to reduce the Bank’s risk, a change of borrower from The Singer Company N.V. to Semi-Tech (Global) Company Limited, a company in the same group with more stable financial status had been wished, together with changing collateral from pledging Singer Thailand shares to pledging Akai Electric Company Limited shares, which could cover the entire credit line.  A condition of this borrowing was to repay the Short-Term Revolving Line in the amount of USD30 Millions of The Singer Company N.V., and adjusting the interest rate from LIBOR + 2.25% to LIBOR + 4.5%, thus proposing to the Meeting for consideration.  Since P/N in the amount of USD 30 Million of The Singer Company N.V. would expire on 6 October 1998, but it was in the process of changing borrower and collateral, Khun Siripong Kallayanaruj, Deputy Vice President, on 1 October 1998, approved extension of such P/N for another 30 days, which would be due on 6 November 1998, with the interest at LIBOR + 4.5%, details of which appeared in the documents circulated to all committees.  Therefore it was proposed to the Meeting for ratification.

The Meeting acknowledged and ratified the approval of extension of repayment of P/N in the amount of USD 30 Million for another 30 days, which would [be] due on 6 November 1998, with the interest at LIBOR + 4.5%, and approved the change of borrower from The Singer Company N.V. to Semi-Tech (Global) Company Limited, together with changing collateral from pledging Singer Thailand Shares to pledging Akai Electric Company Limited shares, with a condition to apply the money to repay the Short-Term Revolving Line in the amount of USD 30 Millions of The Singer Company N.V., and adjusting the interest rate from LIBOR + 2.25% to LIBOR + 4.5% as proposed.”

92. On 6 October 1998, Mr James Ting signed a promissory note on behalf of Singer promising to pay to the Bank US$30 million with interest on 6 November 1998.

 (g) Signing by Akai of the new Loan and Share Pledge agreements

93.   Prior to Akai formally being substituted as borrower, Singer had requested a further extension of time to repay the outstanding US$30 million due under its promissory note, and by resolution of the Bank Credit Committee dated 5 November 1998, such an extension was granted until 6 December 1998.

94. A yet further application for a further extension was made by Singer for another one month from 6 December 1998, which application was approved by the Credit Committee by resolution dated 3 December 1998; however this further extension application was withdrawn on 8 December 1998 because the new Loan Agreement and Share Pledge Agreement in fact already had been signed by Akai on 4 December 1998 – a highly significant date in the context of this case.

95. The new Loan Agreement had been drafted by the Bank’s legal department, whilst the Share Pledge Agreement relating to the shares in the Japanese publicly-listed Akai Electric was drafted by a Japanese law firm.

96. Miss Wattanakul was instructed by her superior to obtain evidence of the authority of the person who was to sign the agreements on behalf of Akai, and when, in early December 1998, Miss Wattanakul telephoned a Mr Pipat Bhadranavik at the Hong Kong branch of the Bank, and requested that he arrange for the signing of the documentation by Akai. 

97. She also liaised with Mr Domine Ko of Akai and requested a date and time for Akai to execute the Loan Agreement and the Share Pledge Agreement, in response to which Mr Ko told Miss Wattanakul that Mr Ting would be signing the agreements on behalf of Akai; in turn, Miss Wattanakul asked Mr Ko to provide evidence at the meeting confirming Mr Ting’s authority, and thereafter told Mr Bhadranavik in the Bank’s Hong Kong office that Mr Ting would be signing on behalf of Akai, and that evidence of his authority so to do should be obtained.

98. On 4 December 1998 Mr Bhadranavik attended at Akai’s office in Hong Kong and was met by Mr Ting, Ms Clara Loh and Mr Domine Ko of Akai.

99. Mr Bhadranavik was handed Minutes of an Executive Committee meeting of Akai of 4 December 1998 signed by Mr Ting as Chairman, which stated that he had authority to enter into the Loan Agreement and the Share Pledge Agreement on behalf of Akai.

100. This Minute of the Akai Executive Committee has achieved considerable profile in this case, not solely because of the resolution described therein to the effect that the Loan Agreement and the Share Pledge Agreement be accepted and approved, but because the list of attendees purportedly present recites, as directors, the name of Dr Frank Edward Holmes (by phone), in addition to the names of Mr James H. Ting, Ms Clara Loh and Mr Chuck Tam (by phone).

101. For present narrative purposes suffice it to say that Dr Holmes was one of the two witnesses of fact called on behalf of the plaintiff in this case, and that his evidence pointedly does not correspond with that which appears upon the face of this purported Executive Committee minute authorizing entry into this Akai Loan and Share Pledge transaction.

102. In the event, Mr Ting duly signed the Loan Agreement and the Share Pledge Agreement, and Mr Domine Ko also signed the Loan Agreement as a witness.

103. The Loan Agreement is expressed to be governed by Thai law, and the Share Pledge Agreement to be governed by Japanese law.

104. After the meeting on 4 December 1998 Mr Bhadranavik took the signed agreements, together with the Akai Executive Committee Minute back to his office, and informed his Branch superior, Mr Niasinn Lamsam, that the signing of the agreements had been completed, and that he had obtained the Akai Executive Committee Minute.

105. Mr Lamsam read the Minute, and then signed the Loan Agreement in the space reserved for a witness thereto.  Mr Lamsam then faxed these documents to Miss Wattanakul, and subsequently sent the originals to her by DHL.

106. On the same day, 4 December 1998, Mr Ting signed a Drawing Notice, and by letter of that date on behalf of Semi-Tech (Global) Company Limited requested the London Branch of TFB to “disburse the proceeds of the Drawing to yourself for the repayment of the loan in the same amount due by The Singer Co. N.V. to yourself value 7 December 198 (sic)”.

107. In response, by a fax dated 4 December 1998, the London branch of the Bank informed Akai that the loan of US$30 million would be drawn down on 7 December 1998, and by a promissory note dated 7 December 1998, signed by Mr Ting on behalf of Akai, Akai promised to pay to the Bank on 7 January 1999 the sum of US$30 million plus interest.

 (h)  The Akai Electric collateral

108. Also on 4 December 1998, Akai delivered to the Bank in Hong Kong 56 million shares in Akai Electric to be held as security for the new loan.

109. Much has been said in this case about the oscillation in share values of Akai Electric; for example, when Miss Wattanakul was preparing her credit applications the shares were priced at 98 Yen per share, this price had diminished to 85 Yen on the date when the TFB Executive Committee approved the credit application on 6 October 1998, and when the Agreements with Akai actually were executed on 4 December 1998 the shares were trading at 120 Yen, so that the total value of the 56 million shares as were provided as collateral to the Bank in fact was US$56.3 million, which thus considerably exceeded the required minimum level of cover for the loan of US$42.8 million.

110. However, this situation did not last; by the end of December 1998 the share price had retreated to 96 Yen per share, which meant that by that time they were worth only US$44.24 million, which was just in excess of the minimum collateral as contractually required by TFB.

111. The Akai Electric share price remained low during January and February 1999, but rose in the second half of March 1999, peaking at 170 Yen on 6 April 1999.

112. This increase in share price resulted in Mrs Tasma and Miss Wattanakul of the Bank receiving a fax from Ms Clara Loh and Mr Domine Ko on behalf of Akai asking whether in the circumstances the Bank could release 25 million of the Akai Electric shares held by the Bank as security, on the basis that now the value of the collateral was over 220% of the loan, a request which was repeated a week later.

113. The two officers of the Bank, Mrs Tasma and Miss Wattanakul, did not approve the request because they considered that it was more appropriate to use an average share price which took account of the significant fluctuations in the share price over a period of time, and they were concerned that if the release were to be granted in the terms in which it was made, it would be difficult for the Bank to obtain additional security in the future if the value of the shares pledged once again significantly was to drop.

114. Nevertheless, in April 1999 Mrs Tasma and Miss Wattanakul proposed to the Credit Committee of the Bank that 5.5 million Akai Electric shares be released to Akai, a proposal which was rejected by the Credit Committee on 29 April 1999.

115. In June 1999 Akai renewed its request for the release of 5.5 million shares, and on this occasion the TFB Credit Committee approved the request because the share price then prevailing was higher than it had been in April 1999.

116. Accordingly, on 30 June 1999 some 5.5 million shares in Akai Electric were released by the Bank, leaving a remaining total of 50.5 million Akai Electric shares continuing to be held by TFB as collateral for the Akai loan.

 (i)   Extension of the Akai loan to December 1999

117. Upon its original terms, the Akai loan was due to be repaid on 7 January 1999, Mr Ting having signed a promissory note dated 7 December 1998 to this effect.

118. However, this did not occur.  On 7 July 1999 Mr Ting signed a further promissory note on behalf of Akai, promising to pay the Bank US$30 million plus interest on 6 December 1999.

119. This coincided with a further re-organization within TFB, wherein Mrs Tasma and Miss Wattanakul ceased to be responsible for customers within the electrical appliance industry – and hence the ‘Akai account’.  Henceforth Mr Pipit Aneaknithi, who had left the Singer portfolio in the summer of 1998, now resumed responsibility for that which, in the interim, had become the ‘Akai portfolio’ with the Bank.

120. In September 1999 Ms Loh and Mr Ko of Akai requested the Bank to release a further 10 million shares in Akai Electric, and this request resulted in Mr Pipit discussing this matter with them on the telephone, and further resulted in his preparation for the Bank Credit Committee a credit application proposing two alternatives: either an early repayment of US$4 million by Akai for the release of 7 million shares in Akai Electric, or an early repayment of US$6 million by Akai in return for the release of 10 million shares.

121. On 16 September 1999 the Credit Committee approved early repayment in terms of either of the two alternatives, and on 21 September 1999 the Executive Committee of the Bank approved the Credit Committee’s decision.

122. In fact, Akai did not make any such early repayment consequent upon such approval from the Bank Credit Committee; in this regard no explanation was forthcoming to Mr Pipit from Mr Domine Ko of Akai.

(j)   Singer files for Chapter 11 Bankruptcy: September 1999

123. What had happened, however, was that on 30 September 1999 Mr Pipit had received a fax from Mr Ko of Akai informing him that in the United States Singer had filed for Chapter 11 Bankruptcy Proceedings on 13 September 1999.

124. In this context the announcement made by Singer stated that it had been sapped of cash by a global decline in the industrial sewing machine market, together with shrinking economies in Asia, Brazil and Europe, and the ill-timed purchase from Akai of Pfaff AG.

125. Since TFB already had entered into the Akai Credit Facility in direct substitution for the Singer Credit Facility, with the Akai Facility being used to repay the outstanding debt under the Singer Facility, the Bank did not file a Proof of Debt in the United States in the Singer insolvency; in the changed circumstances it had perceived no necessity to do so.

(k)  Akai’s Event of Default: December 1999

126. On 16 November 1999 the General Manager of the London Branch of TFB, Mr Pattanapong Tansomboon, sent a fax to Akai informing it that payment of the sum of US$31,298,906.25 would be due to be paid to the Bank by 7 December 1999.

127. On 29 November 1999 Mr Pipit received a fax from Mr Domine Ko requesting that the loan be extended by an additional 3 months, but on 30 November 1999 the Executive Committee of the Bank declined to grant any further extension, and the matter was referred to the Bank’s Board of Directors for consideration.

128. By a letter dated 30 November 1999, Akai formally was informed that the drawing period would end, and that the monies outstanding and owing by Akai to the Bank would become due and payable on 6 December 1999.

129. On 6 December 1999 Akai failed to pay the total amount owing to the Bank, and defaulted under the Loan Agreement.  At the same time, the price of the Akai Electric shares held by the Bank as collateral was declining, and it was considered that it would be in the interests of the Bank not only to declare an Event of Default in terms of the Akai Credit Facility, but also to commence a disposal of the Akai Electric shares as soon as possible.

130. On 21 December 1999 the Executive Committee of the Bank approved the request of Mr Pipit to declare an Event of Default by Akai, and proposed that this request be placed before the Board of Directors.  Accordingly, at a meeting of the TFB Board of Directors on 23 December 1999 the Board resolved to declare an Event of Default against Akai.

(l)   The Winding-Up of Akai: August 2000

131. On 13 January 2000 a winding-up petition was presented to the Hong Kong Companies Court in respect of Akai by 3 creditors: Emirates International, Bank of Scotland and Den Danske Bank.

132. These petitions were opposed, and Akai made a presentation to its creditors with a view to avoiding liquidation.

133. However, on 23 August 2000 Akai was ordered to be wound up in Hong Kong, and on 29 September 2000 Akai also was ordered to be wound up in Bermuda.

(m) Sale of the Akai Electric Shares: May 2000

134. The TFB holding, as collateral, of shares in Akai Electric, which company was listed on the Tokyo Exchange, meant that the Bank needed to obtain advice in relation to such sale, which process apparently took some 4 months.

135. In April and May 2000, TFB enforced its security over the shares it held by way of pledge in Akai Electric, the proceeds of this sale amounting to US$20,504,295.38, which were applied by the Bank in partial discharge of the then outstanding debt due by Akai to the Bank.

136. Notwithstanding such share disposition, however, there was a shortfall in monies due and owing from Akai in the sum of US$13.243 million.

(n)  Bank Lodges its Proof of Debt: October 2000

137. On 23 October 2000 the Bank lodged its Proof of Debt for the balance of the Akai loan in the liquidations both in Hong Kong and in Bermuda.

138. The Proof of Debt listed, and was accompanied by, copies of relevant documents, which included a copy of the Disbursement Notice issued by Akai to the Bank on 4 December 1998 which requested that the proceeds of the drawdown of the Akai loan be retained by the Bank “for the repayment of the loan in the same amount due by The Singer Co N.V. to yourself value 7 December 19[9]8.”

(o) Admission of Bank’s Proof of Debt: August 2002

139.On 28 August 2002 Mr Damien Hodgkinson and Mr Joseph Fan of Nelson Wheeler Corporate Advisory Services Limited were appointed Joint and Several Agents to act on behalf of the Bermudian Provisional Liquidator in relation to matters outside Bermuda, and on 1 September 2002, together with Mr Christiansen, they were appointed as the Provisional Liquidators in Bermuda.

140. On 24 May 2001 Mr Hodgkinson and Mr Fan eventually were appointed as Liquidators of Akai in Hong Kong, and in a press release of 24 May 2001 Mr Hodgkinson of RSM Nelson Wheeler was quoted as saying that he “was waiting to speak to Mr Ting about the period leading up to the Group’s collapse, and the whereabouts of several hundred million dollars in assets diverted from the Group prior to its liquidation.”

141. The TFB Proof of Debt remained outstanding until 2002, when the Liquidators of Akai proceeded formally to adjudicate this in connection with a proposed Scheme of Arrangement for Akai in Hong Kong.

142. Although the Hong Kong liquidators apparently specifically investigated the enforcement of the loan by the Bank and the realization of the Akai Electric shares, they appear not to have investigated the circumstances surrounding the original grant of the Akai Credit Facility prior to the notification to TFB that its Proof of Debt had been accepted.

143. By a formal Notice of Adjudication of Proof of Debt dated 16 August 2002, the Hong Kong Liquidators of Akai notified the Bank that its unsecured claim against Akai had been admitted in the sum of US$13,243,618.38 (or HK$103,283,006.66) in the Hong Kong liquidation of Akai.

144. It is this formal Adjudication which the Liquidators will seek formally to expunge if and in so far as this action against the Bank succeeds.

(p) Assistance of TFB to CCB and Liquidators: 2003 and 2004

145. In May 2003, the Bank was asked to assist the Hong Kong Commercial Crime Bureau with an investigation into the Akai loan the subject of these proceedings, and the Bank so complied in the period from May to November 2003.

146. In June 2004, the Akai Liquidators requested assistance from the Bank in relation to their general inquiries into the affairs of Akai, and in the period from July to December 2004 the Bank gave voluntary documentary assistance to the Liquidators.

147. Mr Cosimo Borelli, who replaced Mr Fan as Liquidator of Akai on 31 May 2005, and who gave evidence on behalf of the plaintiff in this case, made it clear in his testimony that he made no criticism of the Bank or its officers regarding the Bank’s assistance and cooperation in the production of documents in 2004.

(q) Liquidator’s Commencement of Proceedings: December 2004

148. The writ in these proceedings was issued by the Liquidators against TFB on 3 December 2004.

149. Clearly this was a protective writ, since it was issued but one day prior to the expiry of the 6 year period after Mr Ting had executed the Akai Loan and Share Pledge Agreements with the Bank on 4 December 1998.

150. The Points of Claim were issued and served on 19 May 2005, were amended on 8 January 2008, and were re-amended, pursuant to application made during this trial, on 21 February 2008.

151. Amended Points of Defence and Counterclaim were filed and served on 4 December 2007, and Amended Points of Reply and Defence to Counterclaim on 20 December 2007.  Re-Amended Points of Defence and Counterclaim, in response to the plaintiff’s amendments as made during this trial, were dated and served on 8 March 2008, prior to the conclusion of the hearing.

Viva voce evidence of fact

152. During the course of the foregoing summary of the extended factual background to this case, reference has been made (in each instance in italicized bold) to the names of the witnesses who were called into the witness box by the parties to give factual evidence.

153. To sum up the position, however: for the plaintiff but two witnesses were called to give viva voce evidence: the lead liquidator, Mr Cosimo Borelli, and Dr Frank Edward Holmes, formerly a director of Akai and colleague of Mr Ting, who gave evidence at the beginning of the case over two sessions by video link from Toronto, Canada; for the purpose of taking his evidence this court adjourned proceedings to the Technology Court.

154. For the defendant, TFB, a total of 8 witnesses were called: in order of appearance these were Mr Pipit Aneaknithi, Miss Tattaya Wattanakul, Mrs Jutathip Tasma, Mr Siripongs Kalayanarooj, Mr Banthoon Lamsam, Mr Pipat Bhadranavik, Mr Niasinn Lamsam, and Mr Pakorn Partanapat.

155. The lengthy description of events in terms of what happened, and when, renders unnecessary much further detail as to the evidence of these witnesses, whose place in, and participation in the sequence of events already has been outlined, and with regard to which there is little or no dispute.

156. Moreover, this is not a case the resolution of which is dependent upon specific findings of fact; indeed, there is remarkably little between the parties in terms of the objective facts, albeit there exists a yawning chasm in terms of the legal conclusions properly to be derived therefrom.

157. In my view, therefore, it is necessary to make selective observations only as to such oral evidence of fact as was chosen by the parties to be placed before this court.  I take the defendant’s witnesses first.

(i)   The Bank’s witnesses

158. So far as TFB’s witnesses are concerned, two matters require emphasis at the outset:

first, that there is little to be critical of in terms of the general veracity of these witnesses, whose factual evidence I accept, subject to specific matters to which hereafter I specifically refer; and second, that for the purpose of resolving this case, the 8 witnesses called by the Bank effectively fall into two distinct groups: Mr Banthoon Lamsam (and perhaps, also, Mr Siripongs) on the one hand, and the remaining witnesses on the other.

159. In so saying, I do not wish to strike a pejorative note.  The fact remains, however, that the evidence of all save for Mr Lamsam and Mr Siripongs amounted to little more than provision of the historical account of the manner in which the Akai Loan and Pledge Agreements had been substituted for the like Singer facilities hitherto existing with TFB. 

160. At bottom, Mr Pipit, Miss Wattanakul and Mrs Tasma were at the times the subject of the present inquiry no more than relatively junior (or very junior) staff members of the Bank, administrative officers who doubtless diligently attempted to carry out the tasks assigned to them by senior management, but who appeared to possess no executive discretion whatever; in short, their task was to process data, but not to make significant decisions, which at all times remained within the purview of the Credit Committee of the Bank and of the Executive Committee and/or the full Board of Directors. 

161. As such, therefore, I accept their respective historical accounts of that which they did, or did not do, in terms of their general oversight of, and attention to, the Singer, and subsequently the Akai portfolios.  True it is that on a number of occasions their memories, and recollection of certain specific events understandably would fail, given the lapse of time between this trial and the events in question, but in no instance did I perceive any attempt on the part of these three witnesses to dissemble or to tell other than the truth in terms of their recollection of that which factually had occurred.

162. The fact, as Mr Kosmin QC was keen to point out, that this situation did not become obvious until the advent of cross-examination, given that the witness statements of this group of witnesses purported to convey a different impression of their relative import within the internal administrative scheme of things within TFB, is nothing to the immediate point, although this, said Mr Kosmin, added fuel to his broader criticism of the tactical manner in which the defendant had approached this case, wherein, as was continually suggested, relevant senior executives of TFB obviously had been kept out of the ‘firing line’.

163. Be that as it may.  The point I wish presently to convey is that I found nothing of concern in the accounts given by these three Bank employees, namely, Mr Pipit, Miss Wattanakul, and Mrs Tasma, and I accept the evidence which they gave.  I also agree with the remark of Mr Kosmin QC that, in substance, the evidence of these witnesses is “largely inconsequential” to the outcome of these proceedings.

164. A like conclusion attaches to the fundamentally peripheral evidence of Mr Pipat Bhadranavik, who did attend at the Akai offices to witness the execution by Mr Ting of the Akai Loan Agreement and the Pledge Agreement of the Akai Electric shares, and of Mr Niasinn Lamsam, who did not – although, somewhat embarrassingly, originally Mr Niasinn Lamsam had maintained in an initial witness statement filed for use in this trial that he had so attended this meeting.

165. To Mr Lamsam’s belated credit this original deceit, and deceit I regret that it was, was mitigated by a subsequent corrective witness statement, to the truth of which he deposed in the witness box, to the effect that he had been too busy to attend the signing of these documents, and that the appending of his signature, qua ‘witness’ to the signature of Mr Ting, who formally had executed these documents on behalf of Akai at the Akai offices in Hong Kong, subsequently had taken place in his Hong Kong branch office of the Bank.

166. Whilst this minor side-issue was regrettable and personally embarrassing to Mr Lamsam, a descendant of the founder of TFB, and also to his junior colleague, Mr Bhadranavik, who had permitted himself to go along with this silly deception, and whom also had had to file a like corrective witness statement, the fact is that this untruth was corrected, and that the truth of the situation ultimately was conveyed by both to the court. 

167. Nor is there any issue but that Mr Ting did in fact execute the relevant documents on behalf of Akai, and thus this matter need be taken no further.  For the avoidance of doubt, this unfortunate peccadillo has had no effect upon the decision of the court in this case.

168. Accordingly, I accept the evidence, ultimately as given on oath, as to that which occurred in terms of the execution by Mr Ting of the Akai Loan and Pledge Agreements.

169. Of the other ‘minor’ witnesses called by the defendant the only remaining member of this group is Mr Pakorn Partanapat, who was called at the very end of the trial, and without any witness statement having been prepared for him.

170. In this regard, Mr Snowden QC, leading for TFB, informed the court that the defendant had been receiving written requests from the plaintiff during the trial that more senior executives from TFB should be called, and that in the event it had proved possible to ‘divert’ Mr Pakorn to Hong Kong, who then was en route to a conference of senior bankers in London.

171. I do not wish to sound disrespectful – indeed the court was obliged to Mr Pakorn for accommodating this sudden change in his travel plans – but the short point, which quickly became apparent when he went into the witness box, is that Mr Pakorn, by now a senior banker and clearly an honest man, obviously had little or no memory whatever of the events the subject of this case; in the circumstances it is difficult to avoid the conclusion that his attendance bore all mark of a belated ‘cosmetic’ appearance in face of allegations on the part of the plaintiff during the course of this trial that senior Bank officials were not being called.  In the event, Mr Pakorn was unable to assist the court in any material way in terms of the issues the subject of this case, and I need make no further reference to his evidence.

172. I turn now to the other two witnesses called by the defendant, Mr Banthoon Lamsam and Mr Siripongs.

173. At the time of the matters the subject of this case, Mr Siripongs was Mrs Tasma’s senior officer to whom she reported: as I understood it, the administrative ‘chain’ comprised Mr Pipit/Miss Wattanakul, who in turn reported to Mrs Tasma, who in turn was overseen by Mr Siripongs.

174. Mr Siripongs clearly is an educated and sophisticated man.  He holds an LLB from the Thammasat University in Thailand, an LLM and an MBA from New York University, specializing in corporate law.

175. In 1998 he was a First Senior Vice President of TFB, with responsibility for supervising the Manufacturing and Service Industry Credit Department.  In this role, he was responsible for the supervision of the account managers, including at that time Mr Pakorn Partanapat and Mrs Juthatip Tasma; in turn he reported to Mr Kaorop Nuchunart.

176. He was questioned by Mr Kosmin as to central tenets of corporate law and banking practice, and accepted, as was to be expected by a man of his education, the accuracy of such fundamental principles as were put to him.

177. However, within the context of the present case his main evidential value, if I may express it thus, was that he provided the only direct evidence of the Credit Committee meeting held on 24 September 1998 (vide paragraph 77, above).

178. Mr Kosmin invited the court not to accept the evidence of Mr Siripongs that at that time he was unaware of the drawdown of US$30 million on the Singer Credit Facility in January 1998.  He also invited the court to disbelieve the evidence of Mr Siripongs to the effect that the so-called ‘third alternative’ (vide paragraph 77, above) was proposed simply by reason of a concern on the part of the Credit Committee about the availability at that time of US dollar funds to TFB, since any increase in TFB’s cost of funds was to be passed on to the customer in any event; indeed Akai had agreed to pay the increased rate demanded by TFB, and TFB did advance US dollars to Akai some two weeks later.

179. As to these submissions, I too arched an eyebrow at the contention by Mr Siripongs that at that time he was unaware of the drawdown of the US$30 million by Singer in January 1998; in light of the patent lack of authority of the junior account officers within the bank, this strikes me as unlikely, and I regret that I do not accept this specific aspect of Mr Siripong’s evidence.

180. However, I did not disbelieve him as to his purported rationale for the ‘third alternative’.  In my view the availability of US dollar funding may well have exercised the Credit Committee’s mind, and the furthest that I would go in this context is to say that I remain unsure that in this aspect of his evidence Mr Siripongs was minded to volunteer that which he perceived may have been any other factors influencing the Credit Committee’s views at that time, and in particular at that stage in not accepting either of the two alternatives as had been placed before them.

181. I had some sympathy with the position in which Mr Siripongs found himself in this case.  A career ‘TFB man’, he was required by the Bank to front up to give evidence when plainly he was very aware of the issues at stake in this litigation, and being both highly intelligent and well-qualified, in my view in certain places his testimony fairly could be classified as ‘guarded’. 

182. In this context Mr Kosmin has submitted that his evidence was “evasive and incomplete”, but in my view that is to pitch the case too high.  I do not think that Mr Siripongs was untruthful per se – he struck me as essentially decent and honourable, and as a company man obviously perceived his role to do his best where possible not to venture any evidence as he considered might be construed as damaging to his employer’s case in this litigation, although I stress that in coming to this conclusion I do not think that he resorted to any actual lies.

183. Moreover, I take the view that the existence and rationale of the so-called ‘third alternative’ – which never was acted on anyway, given the very apparent Singer cashflow problem, and the refusal of Mr Ting/Mr Ko of Akai even to countenance this as a possibility – is in substance not much more than a straw in the evidential wind, notwithstanding the importance now forensically ascribed to it by the plaintiff, and in my view does not betoken any sinister ulterior rationale on the part of the Credit Committee.

184. In fact, notwithstanding being hard pressed on the reason for the ‘third alternative’ to the two proposals advanced by Singer for the consideration of the Credit Committee, Mr Siripongs made it clear in re-examination, which I am minded to accept, that the plain fact was that he found it difficult to recall with any degree of accuracy the particular concerns which had been raised in, or which had exercised the minds of, the Credit Committee during its meeting on 24 September 1998.

185. Perhaps of more relevance to the present dispute is the frank acceptance by Mr Siripongs that the Bank permitting the January 1998 drawdown of US$30 million by Singer clearly had been a “mistake”, and that this had been a decision probably made by Mr Pipit, perhaps in conjunction with Mr Pakorn, and that as head of that department he, Mr Siripongs, ultimately must be taken to have been responsible for this drawdown; he agreed that those under him had taken their eye off this particular ball, and that he was personally embarrassed by this “error of judgment”.  In this I do not consider that he was being other than frank.

186. I consider that on the probabilities the reality was that Mr Siripongs must have been aware of the drastic decline in the Singer share collateral under the Singer Credit Facility before he had received the Singer Credit Application on 22 September 1998, and I also accept his evidence that on that date he did know, as he put it, that there was “some serious problem” with the Singer Credit facility, and indeed he accepted under cross-examination that the so-called ‘first alternative’, which had been proposed by Singer to the Credit Committee, clearly was “hopeless” from TFB’s point of view.

187. In cross-examination he also expressly accepted that the change of borrower from Singer to Akai was a “major shift” for the Bank to have made, and he further agreed that at the time he had given no consideration to whether Akai had received any benefit from the transaction, saying that he had treated Akai and Singer as forming part of the same “group” of companies, and that so far as he was concerned any issue concerning the binding nature of the new transaction with Akai was a matter to be dealt with by the Bank’s legal department after the initial commercial decision to proceed with the transaction had been made; he further agreed that the motive for the transaction which became reality, with Akai being substituted for Singer as the borrower, was to minimize the risks to TFB of Singer ultimately being unable to pay its debt to the Bank.

188. I accept this element of his evidence, as I also accept Mr Siripong’s statement that in fact he was “delighted” at the outcome that TFB ultimately achieved.

189. Although Mr Siripongs initial characterization of this Akai/Singer substitution as a “normal” transaction did not ring completely true – perhaps he had persuaded himself that this was the case, although I suspect that this was a post-facto rationalization put forward well-knowing that the Bank was under attack and that the purpose of this litigation was, in effect, to render unenforceable what had occurred – nevertheless I do not find accept Mr Kosmin’s characterization of this witness as deliberately seeking to obscure the truth from the court.

190. As I have observed, I consider that Mr Siripongs was cautiously doing his best according to his lights, but at no stage did I take the view that his evidence descended into dishonesty. 

191. To the contrary.  I consider that in so far as he clearly was not keen to embrace the various inferences/glosses put to him by Mr Kosmin in relation to the TFB transaction which were favourable to the plaintiff and antipathetic to TFB, that Mr Siripongs indeed may have responded with a degree of circumspection, but that when his evidence is looked at in the round I do not find his testimony to have been untruthful or deliberately misleading.

192. In the event, however, Mr Siripongs, although more senior than his junior subordinates who earlier had been called, was not a crucial witness for the Bank in this case.

193. Undoubtedly the principal and most important witness to be called on behalf of TFB was Mr Banthoon Lamsam, who has been employed by the Bank since 1979.  He was appointed President and a Director of TFB in January 1992, and appointed Chief Executive Officer in 2004.

194. Within the context of the Bank, Mr Banthoon Lamsam has some pedigree.  TFB (which initially was known as ‘Kasikorn Bank’) had been controlled by the Lamsam family from the outset, when it was founded in 1945.  Chote Lamsam, Banthoon’s grandfather, was the first Chairman of TFB, and his father, Bancha Lamsam, was President from the mid-1960’s until 1976, when he became Chairman, a position he held until his death in 1992.

195. From 1976 until 1992 Mr Banyong Lamsam, Bancha’s brother, was President of TFB, and upon his brother’s passing, Banyong became Chairman of TFB, a post he continues to hold.  The absence of Banthoon’s uncle, Mr Banyong Lamsam, from this trial has occasioned critical comment from the plaintiff.

196. Although his father and grandfather themselves were highly educated, I suspect that it is Mr Banthoon Lamsam’s generation which was first immersed within the realm of an Ivy League education; his C/V boasts a degree in Chemical Engineering from Princeton, and an MBA from Harvard Business School, followed by a 2 year term with the Thai Defence Ministry’s directorate of joint intelligence, prior to joining the Bank and beginning his climb up the corporate ladder.

197. Mr Banthoon Lamsam struck me the very model of a sophisticated, aggressive and highly competent modern banker, with both domestic and international expertise and reputation.

198. In this context the court was referred to an article dated August 2005 in the journal “Institutional Investor” which is descriptive of the domestic origins of the Bank, and focuses upon Banthoon Lamsam’s successful attempts to revamp and to modernize its culture and banking practices: “Bangkok-based analysts generally give Banthoon high marks for revamping Kasikorn.     Every facet of the Bank’s operations, from risk management to information technology to human resources, has been thoroughly modernized…”

199. More relevantly, an account appears therein – the substance of which was confirmed in evidence before this court – of the ultimately successful (and practically unilateral) effort by Banthoon Lamsam, as the CEO of TFB, to enlist the aid of foreign financial institutions in April/May 1998 and to recapitalize the Bank, via a US$857 million private equity issue, and thereby to save TFB from failing in the midst of the Asian Financial Crisis – and this at a time when depositors had begun a run upon Thai finance companies and banks after the Baht crisis had begun to ‘bite’ in the summer of 1997, and when family-held Thai banks were being rendered insolvent and were being nationalized by the Thai Government.

200. Within the context of this dispute the primary relevance of Mr Banthoon Lamsam’s evidence lies in his being present at the crucial Executive Board meeting of 6 October 1998, not least because, as Mr Kosmin consistently has pointed out, TFB has chosen not to call any of the other members of that Board, namely Banyong Lamsam, Kaorop Nuchanart or Chana Rungsang.

201. In this regard Mr Banthoon Lamsam professed not to have discussed anything relevant to this case with any of his fellow Executive Board members, and clearly he sought to convey the impression that this deal with Akai, and its substitution for the existing Singer indebtedness, was not considered to be anything out of the ordinary, a stance scathingly attacked by Mr Kosmin as representing “a deliberate effort by Banthoon Lamsam not to acquaint himself fully with the facts of the case, as no doubt Banyong Lamsam could have informed Banthoon Lamsam about discussions with Mr Ting, and Kaorop Nuchanart could have informed [him] about events at the Credit Committee meeting of 24 September, which Banthoon Lamsam apparently did not attend”.

202. I do not consider that this stringent criticism represents the true position.  It may well have been the case that relatively little was said about the Akai transaction at the time of the Executive Committee meeting of 6 October 1998, in all probability, I suspect, because the issue already had been discussed/canvassed (and perhaps effectively decided, at least in principle) between Banyong Lamsam and Mr Ting when they each had attended at a meeting of the Board of Singer Thailand, of which both Mr Banyong Lamsam and Mr Ting were directors; thus, when the matter came before the Executive Board the probability is that matter simply went through, absent extensive discussion, in the face of the detailed position papers as had been placed before the Board by the TFB administrative officers. 

203. Accordingly, when looked at from this perspective it remains perfectly possible that relatively little was said about the Akai transaction.  However, I am of the view that Banthoon Lamsam would have known, at least in broad terms, about what had transpired in this regard, and I do not accept that his sole knowledge of the situation had been derived from the papers available to him when the Executive Board met on 6 October 1998.

204. As earlier indicated, the probability in the circumstances – and I so find – is that the issue of this transaction already had been the subject of discussion between Banyong Lamsam and Mr Ting, with the intention of Akai taking over the Singer facility.  I say this in light of the way that business inevitably is done in Asia, and given the further undisputed evidence in this case as to Mr Ting’s dominance and forceful character; it is common ground that Mr Ting never condescended to discuss business with other than the person at the top of each commercial organization with which he dealt.  I further take the view, which was reinforced as the evidence in this case emerged, that Mr Ting very obviously considered his business empire to be his own personal ‘fiefdom’, with his conduct of business untrammelled by ‘mere’ technical obstacles such as, for example, the necessity of obtaining agreement from a properly-constituted Board Meeting of Akai.

205. The manner in which Mr Ting did business is not mere speculation.  The dominant (and domineering) way in which he ran Akai can be gleaned from the available papers, and also is confirmed in the evidence of Dr Frank Holmes, to which I shortly allude. 

206. In this connection the court has had its attention drawn to an article in “Asian Business” dated March 1996, entitled ‘Pulling the pieces together’, which is an interview, which strikes me as a cut above the standard encomium often encountered within the commercial media, entitled “CEO James Ting plans to integrate disparate group’, wherein Mr Ting is described as “more than just a corporate raider with a knack for reviving ailing companies. His grand plan is to create a tightly focused, vertically integrated consumer products company that will have the global reach to survive into the next century”, the article describing Singer Sewing Machine Corp as the “jewel in the collection”, and relating Ting’s view that the companies Semi-Tech (as Akai then was known) has acquired because Ting perceived “potential synergies in their various operations”.

207. Thus, to revert once more to the evidence of Mr Banthoon Lamsam – whom I accept never has met or spoken with Mr Ting, nor indeed with Miss Clara Loh – I am not inclined to disbelieve him when he stated that at this Executive Board meeting that this matter was not discussed in any detail.

208. Where, however, I did not accept Mr Banthoon Lamsam’s testimony is in his subsequent statement, in cross-examination, that at no time had he discussed or mentioned this Akai transaction with his uncle, Banyong Lamsam, even at the stage when this whole subject was thrust into high profile with the institution of this litigation. 

209. I do not believe this, and I fear that in this regard Mr Lamsam gave in to the temptation to be economical with the verité; as Mr Kosmin remarked, in the circumstances this assertion was so counter-intuitive that it induced a degree of mental recoil.

210. Mr Kosmin suggested that Mr Banthoon Lamsam’s disinclination to allow of any form of discussion between himself and Banyong Lamsam, either as to the events of the Credit Committee meeting of 24 September, or the Executive Board meeting of 6 October, or as to the advent of this litigation, was consistent with “a guilty mind” on his part, and represented highly unsatisfactory evidence.

211. I agree that this indeed is unsatisfactory, and that Mr Lamsam may well have been seeking to create an appearance of distance between himself and events the subject of this case – he clearly is an highly intelligent man who well knew and appreciated the issues at stake in this case, and in company with Mr Siripongs he certainly was not prepared to accept adverse interpretations of the known facts as were put to him by Mr Kosmin – but it does not follow that I am persuaded that at the material time this necessarily must have amounted to evidence of a ‘guilty mind’, or as evidence of a ‘deliberately blind eye’, as Mr Kosmin now would have it; nor do I consider that in maintaining this position at this trial that Mr Banthoon Lamsam was doing any more than wrongfully and misguidedly adopting a tactical forensic position.

212. The fact remains that under cross-examination Mr Banthoon Lamsam did not seek to shrink from the proposition that the change in borrower from Singer to Akai was “important” and represented “a major shift in the structure of the relationship” with the Bank, and he further ultimately accepted that the words ‘routine’ and ‘unremarkable’ did not adequately describe, and do justice to, the nature of the transaction as was achieved by TFB in 1998 by reason of the substitution of the obligation of Akai for the hitherto outstanding Singer debt.

213. Equally, and significantly from the viewpoint of the legal arguments which were to come, Mr Banthoon Lamsam did not try to tell the court other than the obvious truth as to the prime motivation of the Bank in accepting the Akai substitution, and the accompanying provision of substitute security: he made no bones whatever about the fact that this was done precisely with the aim of improving TFB’s position, that it provided “a better structure” for the Bank, and that besides TFB being placed in a superior financial position, the Akai Electric shares also were going to represent far better security than the Singer Thailand shares which originally had underpinned the Singer Credit Facility: as Mr Lamsam put it, “this has to be a better arrangement for the bank, because we were considering the bank’s business”, and he firmly disputed that it was any part of the Bank’s function to inquire whether the proposal as had been put forward was or was not to the commercial benefit of Akai: “I don’t think that was our duty”.

214. Given his position as an experienced and highly intelligent international banker, Mr Lamsam naturally did not cavil at the normal principles of corporate governance and prudent banking practice as were put to him in cross-examination by Mr Kosmin, in particular as to the obligation of directors to act in the interests of their company, and unsurprisingly he agreed with and understood the concept of conflict of interest and the role of independent directors in dealing with any matter wherein other directors possessed such conflicts.

215. Mr Lamsam also accepted that a bank entering into a large transaction would expect to be given authorization in due form from the customer, that a prudent bank generally would obtain legal advice when dealing with a foreign corporate customer to ensure that the customer was bound by the loan and any security provided, and that the statements of banking principle and practice appearing in the Bank’s March 1998 Bond Offering prospectus adequately reflected the policies and procedures as should have characterized TFB’s operations at that time.

216. Nor did Mr Lamsam dispute that at the time material to this case that he knew that TFB was a creditor of Singer Thailand, and, as was then not uncommon in the relationship between Thai bank and Thai debtor, that TFB held a shareholding in that company of 8.5% of its issued shares – which explained the presence of Banyong Lamsam on the Board of Singer Thailand together with Mr Ting – but he emphasized that personally he never had had any dealings with Singer, Singer Thailand or Semi-Tech Corporation Limited of Canada, nor with Akai Holdings Ltd, nor with Mr Ting nor any other director or representative of Akai.

217. At the end of the day I accept the greater part of Mr Banthoon Lamsam’s evidence, save that, as earlier indicated, that I do not believe his complete disavowal of any background knowledge of the Akai transaction; the overwhelming probability in the circumstances of this case is that this must have been the subject of at least some discussion between himself and Banyong Lamsam, to whom Mr Ting clearly had had direct access, and, as I have earlier alluded, it would beggar belief if in the circumstances then prevailing that this Akai transaction had not been discussed at an earlier stage between Mr Ting and Mr Banyong Lamsam.

218. However, this finding is not dispositive of this case.  I consider this aspect later in this judgment; for present purposes suffice it to say that in my view it does not follow that the Akai Loan and Share Pledge Agreements represented a “cosy arrangement”, as Mr Kosmin was wont to characterize it, thus which served to these vitiate Agreements.

 (ii)  The plaintiff’s witnesses

219. This element of the case is susceptible to shorter treatment, given that the plaintiff liquidator called but two witnesses only.

220. The first and most significant was Dr Frank Edward Holmes, who gave evidence from Toronto by video-link in two separate sessions during that which to him must have seemed an unreasonably late hour; the two separate sessions were required in order that Dr Holmes, and those assisting him, did not have to labour until well into the middle of the Canadian night.

221. Dr Holmes evidence covered a relatively wide ambit, in which he recounted the history of his involvement with STC Canada, the conduct of Akai’s affairs at board level and – most importantly from the viewpoint of the issues arising in this case – the assertion that in 1998 Akai did not have an ‘Executive Committee’, that to his knowledge the board minutes of Akai from 1994, 1995 and 1996 purporting to establish an Executive Committee were false, that he had not attended and nor had there been an Executive Committee meeting on 4 December 1998 (which, it will be recalled, was the date of the Minutes of the Executive Committee of Akai, signed by Mr Ting, which stated that he had authority to enter into the Akai Loan and Share Pledge transaction on behalf of Akai, and which had been produced to Mr Bhadranavik/Mr Niasinn Lamsam of TFB’s Hong Kong branch), that to the best of his recollection he never had attended any meetings of an Executive Committee of Akai, that he had no knowledge of the substitution of Akai for Singer in terms of the Akai Credit Agreement and Pledge Agreement, and that his sole knowledge of TFB was simply as a lender to Singer Thailand.

222. In evaluating the evidence of Dr Holmes I bear in mind the existence of liquidator’s assurance to him, as contained in a written Agreement which was produced specifically at this court’s request, that he would not be sued by them if he assisted them in his evidence, together with the fact that video-link technology was used solely by reason of Dr Holmes’ refusal to leave Canada and to come to Hong Kong lest personally he be placed at risk in some manner, either civil or criminal, arising from the demise of Akai and the undoubted stripping of millions of dollars of Akai assets by Mr Ting and his associates.

223. Nevertheless, upon the plaintiff’s pre-trial application this court had acceded to the use of this method of taking evidence, which has been judicially accepted said to be a “readily acceptable alternative”: see Polanski v. Conde Nast Publications Ltd [2005] 1 WLR 637, per Lord Nicholls.

224. Whilst the impression garnered from video-link is not as useful to a tribunal as seeing the witness in the flesh, I would observe that the sound and visual quality of the ‘feed’ was very acceptable, and in the circumstances the court had a reasonable opportunity to assess Dr Holmes’ demeanour.

225. Originally an engineer by profession, he struck me as a low-key and down to earth character who perhaps was not the most verbally accomplished; he was not at ease with questions of a conceptual nature, frequently asking for questions to be repeated, and, if I may say so without wishing to cause offence, on occasion appeared a trifle slow in grasping the import of that which he was being asked – whether this forensically was ‘kicking for touch’ in order to accord him more time to think was unclear, although I am inclined to think not.

226. When confronted with purely factual matters, however, he seemed far more at ease, and certainly when one of the few key documents in this case, namely the Minutes of a Meeting of the Executive Committee of Akai dated 4 December 1998, which purported to approve the Akai Loan Agreement with TFB and the collateral pledge of Akai Electric shares, and wherein his telephonic attendance is indicated, his evidence was unequivocal that he had not attended this meeting by phone or at all: “I’m positively denying it”.

227. When informed by Mr Kosmin that, in terms of the records which now had been located by the liquidator, he is recorded as having attended some 169 Executive Committee meetings of Akai in the period between 1994 and 1999, his incredulous reaction sounded a genuine note: “I’m just amazed at that number.  It’s just unbelievable.”…. “Just not possible”.

228. Dr Holmes also appeared genuinely at a loss when confronted with one Executive Committee Minute dated 8 August 1996 which had appeared exclusively to be signed by him as Chairman; if true, of course, this ran directly counter to his primary thesis that as far as he was concerned Akai never had had an ‘Executive Committee’.

229. This was a Minute purporting to deal with a relatively minor matter relating to a Power of Attorney in connection with the company being represented in Sweden by lawyers relating to ‘the partial acquisition of Nokia Corporation or its subsidiary’; as to this Minute Dr Holmes was able to proffer no explanation, save that this was not something that he would knowingly have signed and that he had “absolutely nothing to do with the Nokia transaction, knew nothing about it.  Chuck Tam was in charge of it…”; earlier on the same subject, Dr Holmes had responded thus:

“Yes, I have seen this minute.  It’s dealing with a matter I had no authority over.  The minutes themselves are very strange.  My signature is a very good signature and appears to be mine.  However, it looks very good for my signature.  My signature normally isn’t that smooth.  I do not recall ever seeing this or ever dealing with any matter relating to Nokia.  I had no responsibility or no information on that matter at all.  If it is my signature, these were signed without my knowledge of what the matter was about…I knew nothing about that acquisition and had nothing to do with it in any way, shape or form.  I certainly never discussed it with any – meeting with anybody….I can’t tell for sure whether it’s forged or whether somebody gave me something to sign and misrepresented what it was…I signed very many documents…if someone I trusted had given me this document and said my signature was needed…I probably would have signed it without looking closely at it…Originally when I saw this document, I thought my signature looked too good, but I don’t know…I have tried blowing it up to look at it, to try to see if I could detect.  If it was a forgery, it was done very good.  I mean, it does look like my signature.  I obviously do suffer a little bit from arthritis, so my signature tends to be not too good in terms of forming loops and things like that.  This is very good, so that’s what first led me to question whether it was my signature.  But I haven’t been able to see anything that I can say definitely or with any degree of confidence that it’s a forgery…”

Court:  Does it come down to this, therefore.  Either (a) it is a forgery, you say, or (b) it is a document you signed inadvertently without realizing what it was?

A:  That’s correct, your Lordship.”

230. Dr Holmes also was extensively cross-examined by Mr Snowden QC as to a number of documents which appeared to be Akai Directors’ Resolutions relating to matters which he is recorded as approving by signing his name. 

231. A prime example of one such document was a Resolution concerning the disposal of an interest in Sansui Electric Co. Ltd by the Company to Akai Electric Company Ltd wherein, inter alia, it was “Resolved that the disposal be approved and that the Executive Committee of the Company be authorized to do all acts and things which are deemed necessary to implement the Disposal”, to which Dr Holmes had appeared to have appended his signature; in fact, he specifically accepted that this particular signature was “more typical of my signature”, and although he did not recall the transaction at issue, he had no reason to believe that the date was wrong.

232. In the context of the disputed existence of an Executive Committee within Akai, this prompted the following exchange between Dr Holmes and Mr Snowden in cross-examination:

“Q.   Again, you’re signing a document, aren’t you, in 1997, resolving that the executive committee of the company be authorized to do everything necessary to dispose of the interest in Sansui.  Again, you knew there was an executive committee of the company in operation in 1997, didn’t you?

A. I didn’t really read this resolution in any great detail. This resolution was prepared by a lawyer and circulated to all the directors and I signed as an inside director.

Q. Again, it’s a one page document.  It’s not a long or difficult document.  Are you saying you just didn’t notice that?

A. It’s just a clause authorizing somebody to execute documents to carry out the intent of the resolution.

Q. Yes, but the ‘somebody’ is the executive committee of the company, isn’t it?

A. Yes, whatever that is, yes.

Q. Well, you knew perfectly well who that was at that time, didn’t you?

A. No, I didn’t.

Q. Can I suggest to you that you did.  The executive committee of the company comprises the four individuals what we have seen on a number of these minutes, that’s yourself, Mr Tam, Ms Loh and Mr Ting; do you agree with me?

A. No.

Q. You didn’t go back to Ms Loh and say to her, as you say you had earlier in the 1990’s, “Look, there’s no such thing as an executive committee of the company.  What are you talking about?  It has to be set up properly.  I’m not going to sign these minutes unless you do things properly and put an executive committee into operation.”  You did none of that.

A. No.  But this isn’t setting up an executive committee that has total power of the board to do whatever it wants.

Q. No.

A. This is simply giving them the right to execute documents in relation to the transaction that the resolution is approved.

Q. Quite so, Dr Holmes.  It’s just simply giving them and you didn’t need to ask who “them” was, because you knew perfectly well who was on it, didn’t you?

A. No, I just didn’t look at the execution clauses.  He was executing documents and it was not really important to me.

Court:  Can I zero in on the point here?  Is it the case – and I want you to think very carefully about this – that every time you have signed a document, I don’t know how many times it is, which relates to the operation of an executive committee of which you were said to be a member, your case is you must simply have signed the document without looking at it?

A. In the case of resolutions, I normally would sign without really looking carefully at them, because the resolutions were prepared by lawyers and dealt with matters that already had been discussed.  In the case of minutes, like board minutes appointing an executive committee, I had already basically complained to Clara Loh and Mr Ting about minutes of that form and so if I had seen minutes of that form again, it automatically would have triggered me to complain again about them.  You know this particular minute, I just didn’t read it that closely.  If I had seen “executive committee” and it had triggered in my mind, I would have said something.  It’s just I didn’t read these resolutions that carefully.

Q. Let’s look at some more…”

233. The issue of Dr Holmes’ knowledge, or otherwise, of the existence of an Executive Committee within Akai is a matter which has stimulated a degree of reflection, not least because this is a nettle which must be grasped by this tribunal of fact.

234. Upon this aspect of his evidence, and notwithstanding his protestations to the contrary, I have concluded that at the material time Dr Holmes must have been, and indeed was, aware of the existence of a body known as an ‘Executive Committee’ within Akai, and that on relatively infrequent occasions he actually may have participated within its operation.  Even taking into account the probability that a significant number of these Executive Committee ‘minutes’ may have come into existence purely at the instigation of and for the convenience of Mr James Ting (and also, perhaps, of Ms Clara Loh), and that in many instances Dr Holmes may have been totally unaware that his name was being taken in vain when, incorrectly, he had been listed as having been present at meetings of this Executive Committee, in light of the profusion of cross-referential mention of this Committee within the available documentation I find it difficult to accept that the very existence of this Committee is something which had passed Dr Holmes by, and that its existence and operation had not imposed itself upon his consciousness.  

235. It follows that I cannot, and do not accept Dr Holmes’ view that he was unaware that an Executive Committee of Akai was in existence in the 1990’s, and that he did not believe that it was.  If his view were to be correct, all 186 minutes of the Executive Committee (as have now been discovered and collected by the Akai liquidators) must be false, and Dr Holmes’ signature appearing on the Minute of August 8 1996 must have been forged; in addition, it should be noted that Dr Holmes also had signed four written resolutions of the Board of Akai (on 25 November 1997, 11 January 1999, 22 January 1999 and 30 March 1999) which had authorised the Executive Committee to act on its behalf, and I regret that I do not believe his evidence that he had not bothered to read these resolutions carefully before signing them (nor, for that matter, did he suggest that these written resolutions themselves were false).

236. Accordingly, whilst Dr Holmes may have been personally unhappy at the existence of a ‘Executive Committee’ of this nature within Akai, not least since it appeared frequently to act in practical substitution for the main Board of that company, the overwhelming probability, and I so find, is that at the least Dr Holmes had knowledge of its existence and operation.

237. Accordingly, I hold that his purported recollection is in error and that I disbelieve his alleged ignorance of this matter, although I accept that he was unaware of the number of times that he is recorded, on the face of the available documents, as having participated in Executive Committee activities; in this connection I do not think that his reaction to the numbers of Executive Committee meetings he is said to have attended was other than genuine.

238. In specifically finding, as I now do, that Dr Holmes in fact knew of the existence within Akai of an Executive Committee, and that such an Executive Committee did function (or purport to function) within Akai, there is no requirement to sound to a motive in Dr Holmes’ denial of such knowledge; it may be that his evidence owed much to his ongoing desire to distance himself from events at Akai during the relevant period, but at bottom this is nothing to the immediate point, and in any event this case represents such a morass of tangled facts that the truth is unlikely ever to be known, since there obviously is no prospect of ever getting Mr Ting, or, for that matter, Ms Clara Loh and Mr Domine Ko (a witness whom, I note, originally it had been anticipated was to be called by the plaintiff) to tell the story of events leading to the theft of Akai’s assets, and of that company’s ultimate demise.

239. Declining to accept Dr Holmes assertion as to this ignorance of the existence of such Executive Committee within Akai does not mean, however, that there were not certain parts of his evidence that I did not accept.  To the contrary.

240. I accept, notwithstanding his formal title, that in fact Dr Holmes had little or no actual executive role in Akai, that he rarely was present in Hong Kong for Akai business, and that one of his principal functions (perhaps his main function) was to act as a representative of STC Canada on Akai’s board, with particular reference to assisting Akai in terms of such US securities matters as would occur from time to time.

241. I also specifically accept his emphatic denial that he had been telephonically present at the highly significant Executive Committee Meeting of 4 December 1998, which had approved entry into the Akai Loan Agreement and Share Pledge Agreement with TFB.

242. I further accept as true Dr Holmes’ view and characterization of the character of Mr Ting, and in particular the manner in which Mr Ting conducted business within Akai and the Akai ‘group’. 

243. Dr Holmes gave the impression, which I am disposed to believe, that he was one of the few people within Akai who apparently felt able to ‘stand up to’ Mr Ting; it appears that disagreement with Mr Ting in fact had led to Dr Holmes’ resignation as a director of Akai.

244. The following extract from his evidence, once more from the cross-examination of Mr Snowden, serves to make this point:

Q.   When you go back to your witness statement, your witness statement says that you were not informed at any time after those meetings that we looked at right at the start of this piece, that an executive committee of the board of Akai had been established.  Those documents we have just been looking at give you the clearest notice that all the other directors of the company understood there to be an executive committee of the company in existence at that time, don’t they?

A.    All I can say is it’s buried in a very common clause in all resolutions of who has power to execute and, you know, I missed it.  I mean, I’m sorry, but I did not read this as carefully to catch that and, you know, it takes a lot of courage to stand up to Mr Ting and complain when there’s something that I think is wrong and I would not roll over later and play dead when I made a scene already.  If I had been aware that there was an executive committee and these minutes, if I had noticed that somehow there was reference to an executive committee having special powers, I would have definitely said something.  I clearly didn’t.

Court:  Dr Holmes, let me interrupt.  Is the truth of the matter – think very carefully please – that having made a scene already, as you put it, you didn’t want to make another scene, so you let it slip through, although you well knew what these documents contained?

A.   No, I’m afraid some of the other people, you know, you mentioned Chuck Tam just a while ago.  Some of the other people would have caved in to Mr Ting, but I’m afraid I wasn’t that way and, you know, ultimately I did resign from the Akai board because of a disagreement with Mr Ting where I just refused to do what he asked me to do and so I would never – you know, having made a scene, it does take a lot to stand up to Mr Ting and I would never go back and allow him to do something that I thought was wrong.

Court:  Why does it take a lot to stand up to Mr Ting?  Why does it take a lot of courage to stand up to Mr Ting?  Is it simply a personality thing or can you explain to me why this man was so dominant?

A:    Mr Ting is a very strong person, very strong willed.  He’s an excellent negotiator.  He has excellent person skills and he does yell and scream.  He has yelled and screamed at me, as I think he has most people that worked for him.  I have known Mr Ting a long time and, you know, we do get along a lot of times, but we have had our disagreements and sometimes he’ll listen to me, sometimes he won’t.  But he does literally yell and scream at you and berate you and so forth, but I’m not the type of person to just stand and take that.  Pushed enough, I will yell back at him and I have.  Not many of the others, I’m afraid, in Akai would have done that….”

245. I further believe that Dr Holmes was telling the truth when he said that personally he was not aware of the Singer Credit Facility nor of the transfer of that facility to Akai, and that he had known of TFB only in its capacity as lender to Singer Thailand.

246. His evidence, which in this regard once more I accept, was that he believed that any facility of such magnitude “would have been negotiated and agreed with Mr Ting”, and further that Mr Ting had had a relationship with the Chairman of TFB, and would have negotiated directly with that Chairman any facility of the magnitude of the Singer Credit Facility; in this connection the following exchange took place during his cross-examination:

“Q.  You told us a little earlier that with facilities that weren’t very large generally in relation to Akai, it would be Ms Loh that might deal with such matters.  Is it possible that she could have been involved in the negotiations with TFB?  Is that possible?

A.    I believe I said it it involved a senior person, a senior bank official, Mr Ting would be involved.  Singer Thailand was probably the most important operation to Singer.  It generated by far most of its profit in this timeframe.  So Mr Ting knew the chairman of the Thai Farmers Bank, had been introduced to him, and that was what what I would consider a very senior relationship…”

247. This aspect of the evidence of Dr Holmes possessed a distinct ring of truth, and I find that it accorded with reality, and that on the probabilities Mr Ting did in fact deal with the Chairman of TFB, Banyong Lamsam, in terms of the Singer Credit Facility, and of the arrangement to transfer that facility to Akai.

248. The only other witness of fact called on behalf of the plaintiff in this case was the liquidator, Mr Cosimo Borelli, whose general credit was not challenged by Mr Snowden QC in cross-examination.

249. Mr Borelli’s evidence comprised two witness statements, the first dated 7 September 2007 relating to the admission of TFB’s Proof of Debt, and the second dated 17 January 2008 (upon which he was not cross-examined) relating to the efforts which had been made to locate Ms Clara Loh, formerly one of the ‘inside’ directors of Akai; as had been the case with Mr Ting, Ms Loh had been a director of Singer, Singer Thailand and Akai throughout the period relevant to this case, and had been shown as being present in the Executive Committee minute of 4 December 1998.

250. Mr Borelli stated that when he had been brought into the Akai liquidation it had been in “dire straits”, and that there were some very “serious fights” going on with Mr Ting and Grande Holdings which had had to be conducted with very limited resources.

251. His unchallenged evidence was that his work in relation to the winding up of Akai had led him to conclude that Akai had no remaining businesses, staff or premises, that the books and records of Akai which the liquidators had been able to locate obviously were insufficient for an operation of the size and complexity of the Akai group at the times relevant to this litigation, and that most of the key directors and executives of Akai, including Mr Ting, had left Hong Kong or resided overseas or were uncooperative.

252. As to the admission of the Proof of Debt of TFB, Mr Borelli said that on 24 October 2000 the liquidators of Akai had received a Proof of Debt on behalf of TFB in the Bermuda liquidation of Akai, and supporting documents, as well as a copy of the Proof of Debt filed by TFB with the Official Receiver in respect of the Hong Kong liquidation.

253. Thereafter, on 15 August 2002, following receipt of further information from TFB on 8 August 2002, Mr Borelli had recommended that the TFB Proofs of Debt be admitted.

254. Mr Borelli’s evidence as to his reasons for admitting the Proofs of Debt was that at the time of his adjudication, he was aware that the Akai Credit Facility was supported by a pledge of Akai Electric shares owned by Akai Holdings, and that the loan monies were used to repay Singer’s debt to TFB, and that this exercise had involved no physical movement of funds – in accordance with Akai’s instructions, in its books TFB simply had credited the sum loaned to Akai in order, at a stroke of the pen, to extinguish the prior Singer indebtedness. 

255. Whilst Mr Borelli said that he had “considered this fact potentially worthy of further investigation”, in itself this did not lead him to consider that there was any basis for him not to admit the Proofs.  He did accept, however, that with the benefit of hindsight he did not do as thorough a review of the documents accompanying the TFB Proof of Debt as he probably should have done, and he gave the following cross-examination responses:

“Mr Snowden, with the benefit of hindsight, I was obviously very quick to accept that proof of debt, but at the time I had a very keen focus on getting the scheme done, and with the benefit of hindsight I shouldn’t have admitted it…”

and later, when taxed about the absence of further investigation on his part:

“I think a fairer way of putting that, Mr Snowden, is I didn’t appreciate the significance or the magnitude of what was before me, and on that basis I recommended to Mr Hill that the proof of debt be accepted and he acted on my recommendation…”

and in reply to a further question from the court:

Court: …You’ve said on several occasions that you were hasty in admitting the proof, you think now.  You’ve used on three or four occasions the phrase ‘with the benefit of hindsight’.  That’s the message you are trying to communicate to the court, is it?

A:   Yes, looking at the suite of documents in their entirety now, I’m – “embarrassed” is a word that comes to mind….

I think if I was in investigation mode in 2002…I might actually have got there a little quicker, but unfortunately I wasn’t…”

and, finally, in re-examination on this issue:

“There were obviously things that either warranted investigation or people wanted investigated, the creditors, in particular.  We had no resources, we had very, very few books and records.  We just weren’t in a position to investigate, so from September 2001 until 30 December 2002, or maybe a few days after that, my entire focus, my only focus was on that scheme of arrangement…”

256. Mr Borelli’s evidence was that between June and September 2004 the Liquidators had made various requests of TFB to provide them with information in relation to the Akai Credit Facility, and that he was eventually provided with the credit applications relating to his facility on 20 September 2004.  He said that upon reviewing the Akai Credit application it was apparent to him that the “substantial purpose” of the Akai Credit Facility had been to advance the interests of TFB and Singer to the detriment of Akai, and accordingly that he had formed the view that further investigations were necessary relating to the propriety and validity of TFB’s claims against Akai; in fact, he said, it was precisely the appearance of the Akai Credit applications that was the “alarm bell” or the “wake up” call for him; he continued:

“It had a very stark assessment of why the bank had entered into this transaction, and I think it actually used the words ‘for its benefit’, and the fact that it was replacing a risk asset, if you like, or an asset of little value with something of substantially more value.  That rang an alarm bell.  So we looked at it – I in particular looked at it a little closer, did some homework on the entities involved, and the next alarm bell, if you like, for me was that both Singer Thailand and Thai Farmers Bank had the Lamsam family as both directors and shareholders, and at that point I thought I needed to look at this a little closer, and that’s what led to inquiries….Can I just clarify this.  The original inquiries of TFB which led to this were not a TFB focus.  We had gone out to 60 or 70 banks to try and – Akai had no books or records.  One of the things that come to mind is that over the years Akai would have provided its bankers with financial statements, assessments of assets and liabilities, and were trying to recover those – not just from TFB but from all its bankers.  That’s how we ended up going down that road…”

257. In addition, Mr Borelli made the point that a further matter which had raised concerns about the Akai Credit Facility was the belated appearance of the Minute of the Akai Executive Committee of 4 December 1998 which also had “triggered his mind and raised concerns”; this was a Minute for which he had looked “high and low” until he had been able to get hold of it from TFB itself.

258. I accept Mr Borelli’s evidence, in particular his account of the trials and tribulations he had encountered within the conduct of the Akai liquidation, and its chaotic aftermath.

259. In my view there are no significant credibility issues in regard to his evidence, although I believe that his “concerns” began to be crystallised only when he had had the advantage of leading counsel’s advice and insight; the questions which thus arise revolve around the legal effect of that which occurred, in particular of his formal adjudication of the TFB Proof of Debt, and the legal effect of such notification of this adjudication upon TFB.  This, however, is one of the legal issues raised in this case with which I subsequently must deal.

Expert evidence

260. Before considering those issues, however, reference should be made to the reception by the court of expert evidence as to maters of Thai law, since it will be recalled that the Akai Loan Agreement was subject to a Thai choice of law clause.

261. For the defendant, the expert called was Mr Mr Chaipat Kamchadduskorn, and for the plaintiff, Mr Kowit Somwaiya.  I refer briefly to the evidence of these gentlemen later in this judgment.

The issues for decision

262. There is substantial agreement on both sides of the fence as to the issues raised in this litigation, notwithstanding the gulf between the parties as to the appropriate answers thereto – and, indeed, as to the effect of such answers upon the correct disposition of this case.

263. As a convenient ‘route map’ to the ensuing part of this judgment, I summarise below the principal issues into which this case breaks down, and upon which the court has been addressed in final submission:

I.   Did Mr James Ting act in breach of fiduciary duty to Akai?

II.  Did Mr James Ting have authority to act as he did?

III. Can TFB be held liable under the principles of ‘knowing receipt’ and/or restitution?

IV. Can TFB be held liable under the principles of ‘knowing assistance’/‘wilful blindness’?

V.  TFB’s defences: Election/Affirmation and/or Change of Position

VI. Remedies and Quantum

Issue II, and to a lesser extent issues III and IV, are infused with a conflicts point as to choice of law, namely whether these questions are to be decided in accordance with Hong Kong law or Thai law.

I.   Breach of Fiduciary Duty

264. This is a ‘watershed point’ in this case.  If the Court is not satisfied that Mr Ting was in breach of his fiduciary duty, no case remains extant against the Bank.

265. This is because, absent any breach of fiduciary duty by Mr Ting, he must be taken to have had actual implied authority to execute the Loan and Share Pledge Agreements on behalf of Akai; and since ‘knowing receipt’ (or ‘knowing assistance’) are secondary liabilities, in turn any such conclusion must depend upon a pre-existing finding of breach of fiduciary duty.

266. In this regard, Mr Snowden SC, for TFB, is in the uninviting position of having, in effect, to make out a case fundamentally supportive of the conduct of Mr Ting, notwithstanding the prevailing (and highly adverse) view as to Mr Ting’s corporate exploits as has emerged (and continues to emerge) from the various pieces of litigation arising consequent upon the liquidation of Akai. 

267. Mr Snowden suggests that this is not the first occasion in which the Commercial Court has had to deal with this Akai liquidation, and he urged this court to consider the evidence in this case absent any view which may have been formed in these other cases; thus, he says, the court must give itself that which is analogous to a Lucas direction in criminal law, and warn itself that instance(s) of dishonesty/sharp practice as is/are established in one case does not inevitably lead to a like conclusion in another.

268. I bear this admonition in mind when considering the evidence before me, and the inferences to be drawn therefrom, although in principle I see no reason to lean over backwards to give Mr Ting the benefit of the doubt, not least since this territory’s highest court, whilst unanimously upholding Mr Ting’s appeal and in refusing to order a retrial upon two counts of false accounting upon which Mr Ting originally had been convicted, nevertheless saw fit to observe (at paragraph 52 in the speech of Lord Woolf NPJ) that it was important to bear in mind that “the appellant … has … properly been found by a jury to have acted with dishonesty, notwithstanding that his convictions have been set aside …” : see Ting James Henry v. HKSAR [2007] 5 HKC 182, at 199.

269. In terms of the issue of breach of fiduciary duty, Mr Snowden submitted that it is trite law that there is no such breach if the director honestly believed that he was acting in the best interests of the company, and that it does not matter if to the Court that belief appears unreasonable, or that, as matters turn out, the decision is seen to be a bad one because it causes injury to the company: see, for example, Extrasure Travel Insurances Ltd & anr v. Scattergood & anr [2003] 1 BCLC 598, at 619b-c.

270. Nor, he submitted, should the Court seek to impose its own commercial judgment in place of the judgment of the director, even where there has been no actual consideration given to the separate interests of the company; the test, he said, is whether an intelligent and honest man in the position of the director reasonably could have believed that the transaction was for the benefit of the company: see Charterbridge Corporation Ltd v. Lloyds Bank Ltd & anr [1970] Ch 62, at 74B-F, per Pennycuick J:

“…in case I am wrong on my view of the law, I must proceed to express a conclusion upon the contention that in creating the guarantee and legal charge, the directors were not acting with a view to the benefit of Castleford.  That is a question of fact, and the burden of proof lies on the plaintiff company.  As I have already found, the directors of Castleford looked to the benefit of the group as a whole and did not give separate consideration to the benefit of Castleford.  Mr Goulding contended that in the absence of separate consideration, they must, ipso facto, be treated as not having acted with a view to the benefit of Castleford.  That is, I think, an unduly stringent test and would lead to really absurd results…Mr Bagnall for the bank contended that it is sufficient that the directors of Castleford looked to the benefit of the group as a whole.  Equally I reject that contention.  Each company in the group is a separate legal entity and the directors of a particular company are not entitled to sacrifice the interest of that company.  This becomes apparent when one considers the case where the particular company has separate creditors.  The proper test, I think, in the absence of actual separate consideration, must be whether an intelligent and honest man in the position of a director of the company concerned, could, in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the company…” (emphasis added)

271. In this connection, Mr Kosmin QC, whilst acknowledging general acceptance of the ‘Charterbridge test’, suggested that in terms of this decision this court is not bound, and that it was open to consider the alternative approach such as was adumbrated by Clarke and Cripps JJA in Equiticorp Finance Ltd (in liquidation) v. Bank of New Zealand (1993) 32 NSWLR 50, at 148G-E, wherein their Lordships said:

“Nonetheless we have reservations about this means of resolving those difficulties. A preferable view may be that where the directors have failed to consider the interests of the relevant company they should be found to have committed a breach of duty.  If, however, the transaction was, objectively viewed, in the interests of the company, then no consequences would flow from that breach.  Such an inquiry would not require the court to consider how the hypothetical honest and intelligent director would have acted.  On the contrary, it would accept the finding of breach of duty flows from the failure to consider the interests of the company and would then direct attention at the consequences of the breach.  However, the approach adopted by the parties in this case both before Giles J and this court requires that the Charterbridge test be applied and absolves the court from further considering this tantalizing question.”   [emphasis added]

272. In terms of applicable principle Mr Kosmin also stressed that the duty thus imposed upon the director is to have regard to the separate interests of the company of which he is director, particularly when that company forms part of what may loosely be described as a ‘group’, in this context citing two further Australian cases; see Maronis Holdings Ltd v. Nippon Credit Australia Pty Ltd (2001) 38 ACSR 404, and Northside Developments Proprietary Limited v. Registar-General (1989-1990) 169 CLR.

273. In Maronis, op cit., the transaction in issue had involved mortgaging the plaintiff, Maronis Holdings’, principal asset to Nippon Credit, the defendant, in order to secure a loan of A$15 million to a third party company, Girvan Australia, which controlled 74% of the shares in Maronis, the balance of 26% being publicly held. 

274. In this case, Bryson J, sitting in the Equity Division of the Supreme Court of New South Wales, held that the directors of Maronis had acted in breach of their duty to act in the interests of the company.

275. In evaluating the case before him the learned judge applied the test in Equitcorp Finance, op cit, and not that in Charterbridge, op cit., (which he distinguished); as to the ‘group issue’ he held (at holding vi) that whilst Girvan Australia was economically interested in Maronis and Girvan NZ, the fact that they were all in the same ‘group’ did not dispense with the need to consider the interests of the particular company which had entered into the transaction, and that although Girvan Australia and Maronis were members of the same group, they had no identity of economic interest, that there was a real possibility that Girvan Australia would be unable to discharge the Nippon Credit loan when it fell due, and that no reasonable person in the position of a director of Maronis would have committed A$15 million upon an unsecured basis without any kind of protection.  He further found (at holding vii) that to put the affairs of Maronis wholly in the hands of Girvan Australia was entirely to disregard their separate corporate personalities and the separate ownership interests represented by the minority shareholding in Maronis, and that it was “wrong and unreasonable” to adopt a point of view in which the two companies’ interests were equated, since plainly they were different at the time, and there was an obvious prospect that further differences might arise through changes in ownership and in different commercial outcomes for the different companies.

276. Northside Developments, op cit., is a decision of the High Court of Australia on appeal from the Supreme Court of New South Wales, and in the circumstances of the present case is a decision relevant to several issues raised in this case.

277. The facts of Northside are in relatively narrow compass.  Northside Developments was the registered proprietor of a parcel of land, and on 24 December 1979 an instrument purporting to be a mortgage of that land was executed under Northside’s common seal in favour of Barclays Credit Corporation Holdings Pty Ltd in order to secure a loan of approximately A$1.4 million made to companies owned and controlled by one Robert Sturgess, who was a director of Northside.  The common seal had been affixed by Sturgess who attested the affixing, and the document also bore the signature of his son, Gerard, who had purported to sign as company secretary.  Article 56 of Northside’s articles of association was not complied with in relation to the execution of the document, in as much as the directors had not by resolution at a meeting authorized the affixing of the seal to the mortgage, and Gerard Sturgess was not in fact company secretary.  Northside had no interest in the companies to which the loan was made.  The mortgage was registered on 20 May 1980, and following default, Barclays sold the land and the purchaser became registered as proprietor. 

278. Northside sued the Registrar-General in the Supreme Court of New South Wales for damages under section 127 of the Real Property Act of 1900 of New South Wales for compensation for loss of its estate in the land on the ground that it did not execute the mortgage.  At first instance Young J awarded damages, and the Court of Appeal of NSW (Kirby P., Samuels and McHugh JJA) allowed an appeal by the Registrar-General. 

279. By special leave, Northside appealed to the High Court, which allowed Northside’s appeal, and reversed the decision of the NSW Court of Appeal. 

280. Three of the Justices of Appeal (Mason CJ, Dawson and Toohey JJ) primarily founded their decision on the fact that the mortgage was given to secure an advance to a third party without any indication that the mortgage or advance was for the purpose of the company’s business; in the context of whether, in the circumstances, Barclays had been ‘put on inquiry’, Dawson J observed, at 205-206:

“…in my view such was the case.  The very nature of a transaction may put even an outsider dealing with a company upon inquiry as to the authority of persons purporting to act for it: Rolled Steel Ltd v British Steel Corporation [1986] Ch 246, at 284-285.  Here the monies involved were substantial and were lent by Barclays for purposes which had no apparent connexion with any business carried on by Northside Developments Pty Ltd.  Nor did the loan appear to serve any interests which Northside Developments Pty Ltd might have.  Any relation between Northside Developments Pty Ltd and the companies to which the loan was made did not go beyond the fact that the companies shared the same registered office as Northside Developments Pty Ltd and also had as officers Robert Sturgess and Gerard Sturgess.  But this did not provide any explanation for the transaction.  Indeed, the latter circumstance rather suggested that the two Sturgesses may have stood to gain in some way from the transaction.  The plain fact of the matter was that Barclays took a mortgage over the land of Northside Developments Pty Ltd as security for the indebtedness of companies with which the Sturgesses, father and son, were connected and with which Northside Developments Pty Ltd was not relevantly connected.  It was the case of a director attempting to have a company apply its property for the benefit of other companies in which he had an interest: cf. E.B.M. Co Ltd v Dominion Bank [1937] 3 All ER 555, at 569.  In my view, these circumstances were sufficient to put Barclays upon inquiry to ascertain whether the seal of Northside Developments Pty Ltd was properly affixed to the mortgage.  There was no evidence that Barclays made any inquiry and the circumstance is that no reliance could be placed upon the rule in Royal British Bank v Turquand, even if it were otherwise applicable…”

281. As to the necessity to serve the interests of the company of which the director is an officer, Mr Snowden QC does not, I imagine, cavil at the analysis within the foregoing authorities; he does, however, register a caveat, which is that a director of a company can take into account other interests, and only commits a breach of duty if he permits such other interests to predominate and to outweigh the interests of his company. 

282. In this connection he cited the observations of Jacobs J in Re Broadcasting Station 2GB Pty Ltd [1964-65] NSWR 1648.  This was an oppression of minorities case, wherein a petition was filed under section 186 of the Companies Act 1961 by a director and shareholder against the company itself and four recently appointed directors of that company, together with another company, John Fairfax & Sons Ltd, whose nominee directors had been put in place.  In the event the petition was dismissed, and in the course of his judgment Jacobs J observed (at 1663):

“…I am satisfied that these additional directors were, to all intents and purposes, the nominees of the Fairfax companies who would be likely to act and would be expected by the Fairfax interests to act in accordance with the latter’s wishes.  At this point I feel that a crucial stage in the analysis is reached.  I is my  view that conduct of the kind which I have related is not reprehensible unless it can also be inferred that the directors, so nominated, would so act even if they were of the view that their acts were not in the best interests of the company.  This is not a conclusion which can lightly be reached and I see no evidence in the case upon which I can reach that conclusion…I see no evidence of a lack in them [the newly appointed directors] of a bona fide belief that the interests of the Fairfax company were identical with the interests of the company as a whole.  I realize that, upon this approach, I deny any right in the company as a whole to have each director approach each company problem with a completely open mind, but I think to require this of each director of a company is to ignore the realities of company organization.  Also, such a requirement would, in effect, make the position of a nominee or representative director an impossibility…”

283. This approach also appears to have been taken in a recent English case, Hawkes v. Cuddy & ors [2007] EWHC 1789, judgment dated 23 July 2007 of Judge Havelock-Allan QC sitting in the Chancery Division, who was dealing with applications brought in proceedings concerning Neath Rugby Ltd begun by petition under section 459 of the Companies Act 1985. 

284. In determining a claim for summary judgment in respect of part of the relief claimed in the petition, the judge in Hawkes v. Cuddy was required to consider the duty of an appointed director; after citing, inter alia, Re Broadcasting Station 2GB Ltd, op cit., and Canwest Global (1997) 24 ACSR 405, and Re News Corporation Ltd (1987) 70 ALR 419 on the position of nominee or representative directors, he observed (at para 27):

“The answer, in my judgment, is that the appointee’s primary loyalty is to the company of which he is a director.  He is obliged to act in the best interests of that company.  He is quite entitled to have regard to the interests or requirements of his appointor to the extent those interests or requirements are not incompatible with his duty to act in the best interests of the company….”

285. From these decisions Mr Snowden extracts the principle that a director who does take the interests of an appointor, or a related company into account, will not commit a breach of duty unless it can be inferred that he would have acted as he did even if he had taken the view that such acts would not be in the best interests of the company of which he was director.

286. Against this backdrop, Mr Snowden says that Akai (which must bear the burden of proof in this regard) clearly had failed to establish that by making the Loan Agreement and the Share Pledge Agreement with TFB on behalf of Akai that Mr Ting was in breach of fiduciary duty to Akai.

287. This submission contained several strands, first and foremost among which is that whilst Akai and Singer were separate legal entities, it was clear that their commercial interests were “intimately connected”, and thus it followed that the directors of Akai properly could take into account the interests of Singer when deciding on, and in executing, the Akai Loan and Share Pledge Agreements. 

288. It was evident, said Mr Snowden, that by 1998 there were substantial commercial and structural connections between Akai and Singer, STC Canada had a controlling interest in both, and their subsidiaries and associated companies were operated “as an integrated commercial group under common executive management”.

289. Thus, Mr Snowden maintained, a failure of Singer could well have been “disastrous” for Akai, and there was every reason why Mr Ting and his fellow directors could have thought it in the best interests of Akai to assist Singer by interposing Akai in place of Singer as borrower from the Bank.

290. He accepted that whilst Akai and Singer shared a common largest single shareholder – STC Canada – nevertheless in the strict sense of the term Akai was not a subsidiary as was Singer, but by the same token, he said, it was obvious that STC Canada was a controlling shareholder of both companies.

291. Similarly, submitted Mr Snowden, Akai and Singer shared a Chairman in common, namely Mr Ting himself, who was also the Chief Executive Officer of Akai and who was assisted in relation to financial matters by Ms Clara Loh, herself a director of Akai, and a person who continued to represent Singer in its dealings with the Bank throughout 1998; in fact, Dr Holmes, a joint founder of STC Canada, also was a director of all three companies.

292. Moreover, said Mr Snowden, it was evident that after the corporate reorganization in 1993, the intention was that STC Canada, Akai and Singer should be operated and managed as an “integrated global group” – vide the Asian Business article (see paragraph 206 above) wherein Mr Ting is reported as planning to integrate the ‘group’ companies, and to exploit their mutual ‘commercial synergies’; in fact in his evidence Dr Holmes had confirmed the broad accuracy of this article, and also had confirmed that the STC business plan was to exploit the synergies between Singer and Akai, and in particular his “understanding” that in 1998 Akai had regarded Singer as an important company because of Singer’s distribution network – which at this stage was important not least because Akai owned about 70% of Akai Electric Japan, then a household name in electronic goods. 

293. This broad state of affairs, observed Mr Snowden, had been reflected in the 1998 Annual Report of STC Canada, which had stated:

“The Semi-Tech Group of Companies is positioned through its ownership of The Singer Company and Semi-Tech Global [Akai] to serve the growing world demand for consumer products. Singer’s sewing machine production facilities are exceptionally well located to supply sewing machines and other non-sewing machines durables primarily to developing and emerging economies.  Global’s two-tier product strategy is focused on supplying basic electronics for the developing areas, while its R&D successes have generated technology-focused electronic products to serve the home entertainment needs of more developed regions.”

294. Mr Snowden also reminded the court that Akai’s use of Singer’s existing distribution network had been emphasized within the Akai Electric prospectus for an issue of convertible bonds in July 1997, whilst one of the most significant transactions into which Akai had entered during the relevant period was the sale of Pfaff to Singer at the end of 1997 for a price of US$157.5 million (a transaction referred to in the 1998 audited accounts of Singer, Akai and STC Canada), of which sum US$75 million was satisfied by the issue by Singer to Akai of Singer convertible preferred loan stock, which had left Akai as a substantial unsecured creditor of Singer.

295. He submitted that this large holding of convertible preferred loan stock had been accepted by Dr Holmes as having been a valuable asset of Akai, and apart from the preferred rights to dividends at 7.5% per annum, and the preferred status that Akai thus had in any liquidation of Singer, the stock was convertible into common shares in Singer at the average market price prevailing during the 30 trading days immediately preceding the conversion date, so that as the market price of Singer common shares fell, Akai would be entitled to a greater proportion of equity in Singer – which during that period was estimated by Dr Holmes as approximately a 20% equity stake should Akai in fact have exercised its right to convert during 1998 and 1999.

296. Thus it was undoubtedly the case, argued Mr Snowden, that the financial inter-connection between Akai and STC Canada and Singer was not illusory, and that on any view there were substantial inter-company debts: for example, as at 31 January 1998 Akai owed a significant inter-company debt to STC Canada or its affiliates (which would have included Singer), and that, according to Akai audited accounts, as at 31 January 1999 Singer had owed Akai a net inter-company debt of about US$41.1 million.

297. Whilst Mr Snowden acknowledged that in his evidence Dr Holmes had not agreed with this latter figure – he had thought that at that time Akai had owed Singer money – nevertheless Dr Holmes had accepted, at an operational level, that Singer’s cash was controlled by Mr Ting from Akai’s offices in Hong Kong: “yes…the cash was controlled there”. 

298. Dr Holmes also had accepted in his evidence that while Singer had sufficient cash-flow to meet its daily business expenses in 1998, it clearly then was under financial pressure; he also agreed that if Singer had gone into bankruptcy in 1998, this would have been disastrous for STC Canada, since it would have triggered a default under Discount Notes issued by STC Canada (and secured on STC’s shareholding in Singer) in order to finance its 1993 acquisition of Singer from Akai.

299. Mr Snowden argued that there was no evidence to substantiate that the pleaded assertion on behalf of Akai that Mr Ting failed to consider “Akai’s present or future ability to repay the principal and/or interest on monies advanced by [TFB] pursuant to the Akai Credit Facility”; to the contrary, he pointed out that in light of the fact that Mr Ting had signed a promissory note dated 7 December 1998 which expressly stated that Akai would promise to pay to the Bank on 7 January 1999 US$30 million with interest made it “very likely” that Mr Ting did in fact consider Akai’s ability to repay.

300. Moreover, he said, the fact was that, whilst Singer clearly had had a financially poor time in 1997, the message from Mr Ting in his STC Annual Report he signed as Chairman in August 1998 had been distinctly upbeat. 

301. In that document Mr Ting had related Singer’s difficulties, which had commenced with Thailand’s decision to float the Baht, which in turn had triggered a meltdown in South East Asian currencies, and had thrown the region “into financial chaos”, but coincident with the purchase by Singer of Pfaff at the end of 1997, an acquisition which had provided “the base for a major restructuring program”, and with the appointment, effective January 1998, of Mr Stephen Goodman as President and CEO of Singer, Mr Ting had expressed the belief “that Singer will return to profitability in calendar 1998 and that the restructuring program will yield the anticipated long-term benefits” – a viewpoint which was confirmed as accurate by Mr Holmes under cross-examination.

302. Nor, said Mr Snowden, should the Akai assertion be accepted that Mr Ting “was in a position of conflict between his duties and interests as a director of Singer and his duties as a director of Akai” and thus had “subordinated the interests of Akai to those of Singer to the detriment of Akai.”

303. Mr Snowden submitted that Mr Ting was not in any unlawful position of conflicting duty and interest by reason of being a director both of Akai and of Singer, a situation which was both known and permitted by both companies.  He argued that a state of affairs which both companies – both principals – had consciously allowed to continue was not per se wrongful, citing in support of this contention Kelly v. Cooper [1993] AC 205, a case before the Privy Council on appeal from the Bermudian Court of Appeal, which involved the issue of the conflict of interest of estate agents who, despite an inherent conflict between putative purchasers, nevertheless were free to act for competing principals, and wherein the Board had held that the scope of the fiduciary duties owed by the defendant agents to the plaintiff was to be defined by the contract of agency – in this context citing with approval the judgment of Mason J (as he then was) in the High Court of Australia in Hospital Products Ltd v. United States Surgical Corporation (1984) 156 C.L.R. 41, wherein his Lordship observed (at 97):

“That contractual and fiduciary relationships may co-exist between the same parties has never been doubted.  Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship.  In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties.  The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them.  The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.”  

304. In essence, Mr Snowden’s argument was that since Mr Ting lawfully held both positions qua director of Akai and of Singer, those positions ‘moulded’ the duties he owes to those companies, as had been recognized by the judgment of Millett LJ (as he then was) in Bristol & West Building Society v. Mothew [1998] Ch 1, wherein his Lordship summarized the duties of such a fiduciary who acts for two principals, and who said (op cit., at 19):

“That [the ability to act lawfully for both principals], of course, is not the end of the matter.  Even if a fiduciary is properly acting for two principals with potentially conflicting interests he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other: see Finn [Fiduciary Obligations], p.48.  I shall call this “the duty of good faith”.  But it goes further than this.  He must not allow the performance of his obligations to one principal to be influenced by his relationship with the other.  He must serve each as faithfully and loyally as if he were his only principal.

Conduct which is in breach of this duty need not be dishonest but it must be intentional.  An unconscious omission which happens to benefit one principal at the expense of the other does not constitute a breach of fiduciary duty, though it may constitute a breach of the duty of skill and care.  This is because the principal which is in play is that the fiduciary must not be inhibited by the existence of his other employment from serving the interests of his principal as faithfully and effectively as if he were the only employer.  I shall call this the “no inhibition” principle.  Unless the fiduciary is inhibited or believes (whether rightly or wrongly) that his is inhibited in the performance of his duties to one principal by reason of his employment by the other his failure to act is not attributable to the double employment.

Finally, the fiduciary must take care not to find himself in a position where there is an actual conflict of duty so that he cannot fulfil his obligations to one principal without failing in his obligations to the other: see Moody v Cox and Hatt [1917] 2 Ch. 71; Commonwealth Bank of Australia v Smith (1991) 102 A.L.R. 453. If he does, he may have no alternative but to cease to act for at least one and preferably both.  The fact that he cannot fulfil his obligations to one principal without being in breach of his obligations to the other will not absolve him from liability.  I shall call this the “actual conflict rule”…”

305. In summary, therefore, Mr Snowden’s twin theses in support of his assertion that there had been no breach of fiduciary duty on the part of Mr Ting amounted to the following propositions :

first, that there were substantial financial and commercial connections between Singer and Akai in light of which an intelligent and honest man in the position of Mr Ting reasonably would have believed that Akai’s best interests were best served by supporting Singer in the manner which transpired, via substitution of the Singer debt to TFB with that of Akai; and

second, there was no actual conflict between Mr Ting’s duties to Akai and his duties to Singer, given that as director of Singer he would not want Singer to go into default, and that as director of Akai he would wish to keep Singer alive, and that on the evidence it is “impossible to conclude” that Mr Ting consciously had favoured the interests of Singer over the interests of Akai.

306. For his part Mr Kosmin issued a strong and forthright rebuttal of the idea that Mr Ting had not been acting in breach of fiduciary duty in substituting Akai’s responsibility for the Singer debt to TFB.  He made it clear that in the particular circumstances he regarded this contention as risible.

307. His case was that there could be no doubt on the undisputed facts and on the available evidence but that Mr Ting had acted both dishonestly and in breach of fiduciary duty in the manner in which he had procured entry by Akai into the Akai Credit Facility with TFB.

308. Mr Kosmin also made it clear that for the purposes of this case Akai did not need to prove actual dishonesty on the part of Mr Ting, and that a finding that Mr Ting had acted in breach of fiduciary duty to Akai would suffice for the plaintiff’s purposes – an approach which I accept for the purpose of this judgment.

309. In his analysis of this aspect of the case Mr Kosmin relied on five fundamental principles which, he said, served as a benchmarks with which to test the validity of Mr Ting’s conduct in this case; in summary, these principles were:

(i)    the director’s duty to act in terms of the constitution of the company;

(ii)  the director’s duty to act only in the interests of the company concerned;

(iii)    the duty of a director to avoid a conflict of interest and duty;

(iv)    the duty of a director to act as trustee of a company’s assets; and

(v)  the duty of a director to act fairly as between shareholders.

310. The duty to act in accordance with the company’s constitution is not, I should have thought, contentious – see, for example, the commentary in Ford’s Principles of Corporations Law, 12^th ed. (2005), at para 8.160 – nor for that matter is the correlative principle that there is a duty upon a director to follow the procedures in the company’s constitution, as is the necessity to make disclosure of the purpose of the application of corporate property: see in this connection the observations of Arden LJ in Clark v. Cutland [2003] 2 BCLC 393, at para 21:

“It is the duty of directors to follow the appropriate procedures in the company’s constitution as much as it is their duty to apply corporate property only for proper purpose.  Failure to obtain appropriate approval and insufficient disclosure is a serious matter.  Disclosure plays an important role in company law and the quality of disclosure is important.  Disclosure is required for many purposes and it performs at least two valuable functions.  It ensures that information is passed from the directors to the shareholders or from one director to another.  It also acts as a deterrent against self-dealing.  As Brandeis J (a justice of the United States Supreme Court) said extra-judicially, ‘sunlight can be the best of disinfectants’.  Meaningless disclosure does not perform these functions and inadequate disclosure is often little better than no disclosure at all.”

311. It is also clear that the powers exercisable under the company’s constitution, namely the Memorandum of Association and Bye-Laws, are fiduciary powers, which must be exercised for the benefit of the company concerned.

312. In terms of the Mr Kosmin’s second primary proposition, the director’s duty to act in the interests of the company concerned, earlier in this judgment specific reference has been made to the leading cases in this area – see Charterbridge v. Lloyds Bank, Maronis Holdings v. Nippon Credit, Northside Developments v. Registrar General, op cit. 

313. In addition, within the context of the suggestion that the ‘group’ concept in some way dilutes this fundamental principle, Mr Kosmin referred to the case of Walker v. Wimborne (1976) 137 CLR 1 in the High Court of Australia, a case wherein the directors of a company, which was one of several companies with common directors administered as a group, had authorized the making by the company of a series of payments, the company then going into liquidation, and the payments thereafter being challenged by the liquidator as having been made in breach of duty or breach of trust within section 367B of the New South Wales Companies Act 1961; in his judgment, which varied the decision of the NSW Supreme Court, Mason J (as he then was) observed (at 6-7):

“To speak of companies as being members of a group is something of a misnomer which may well have led his Honour into error.  The word ‘group’ is generally applied to a number of companies which are associated by common or interlocking shareholdings, allied to unified control or capacity to control.  In such a case the payment of money by company A to company B to enable company B to carry on its business may have derivative benefits for company A as shareholder in company B if that company is enabled to trade profitably or realize its assets to advantage.  Even so the transaction is one which must be viewed from the standpoint of company A and judged according to the criterion of the interests of that company…

Indeed the emphasis given by the primary judge to the circumstance that the group derived a benefit from the transaction tended to obscure the fundamental principles that each of the companies was a separate and independent legal entity, and that it was the duty of the directors of Asiatic to consult its interests and its interests alone in deciding whether payments should be made to other companies.  In this respect it should be emphasized that the directors of a company in discharging their duty to the company must take account of the interests of its shareholders and its creditors.  Any failure by the directors to take into account the interests of creditors will have adverse effects for the company as well as for them.  The creditor of a company, whether it be a member of a “group” of companies in the accepted sense of that term or not, must look to that company for payment.  His interests may be prejudiced by the movement of funds between companies in the event that the companies become insolvent…”

314. The duty to ensure avoidance of conflict of interest and duty on the part of the director is once again not a principle which I apprehend is in dispute.  What remains interesting, however, is the degree to which a director (and shareholder) of two companies must balance those interests – a matter upon which this judgment already has touched – and which also was considered in the High Court of Australia in R v. Byrnes and Hopwood (1995) 183 CLR 501, a criminal appeal from the Supreme Court of South Australia, wherein contrary to the South Australian Companies Code, the judge had found each director to have breached a fiduciary duty to the company and to have behaved improperly, even though each director had believed that it would be in the company’s interests to enter into the transactions in question.  The Court of Criminal Appeal set aside the convictions, which were restored by the High Court, in the course of which a majority of the court (Brennan, Deane, Toohey and Gaudron JJ) said (at 516-517):

“Each of Byrnes and Hopwood was in a position of conflicting fiduciary duties: they were directors of both Magnacrete and Jeffcott.  The interests of those companies did not necessarily coincide.  They devised the Vicksburg joint venture and they executed the relevant instruments in order to commit the resources of Magnacrete for the benefit of Jeffcott.  Whatever authority Byrnes and Hopwood might otherwise have to execute instruments under seal so as to bind Magnacrete, it was not an authority to be exercised for the moving purpose of benefiting Jeffcott.  A company is entitled to the unbiased and independent judgment of each of its directors.  A director of a company who is also a director of another company may owe conflicting fiduciary duties.  Being a fiduciary, the director of the first company must not exercise his or her powers for the benefit or gain of the second company without clearly disclosing the second company’s interests to the first company and obtaining the first company’s consent.  Nor, of course, can the director exercise those powers for the director’s own benefit or gain without clearly disclosing his or her interest and obtaining the company’s consent.  A fiduciary must not exercise an authority or power for the personal benefit or gain of the fiduciary or a third party to whom a fiduciary duty is owed without the beneficiary’s consent.

However, the articles of a company may permit – they frequently do permit – a director who is interested in a proposed transaction to take the benefit of the transaction if he discloses his interest to the other members of the board and takes no part in the decision of the board on the transaction.  In such a case, the quorum of the board required to deal with the transaction will ordinarily be interpreted as excluding directors whose interests preclude them from voting.  If the director makes that disclosure and abstains from taking part in a decision to enter a transaction in which the director or third party in whom the director has an interest or to whom the director owes a fiduciary duty stands to gain an advantage or benefit but who does not make an adequate disclosure of his interest acts improperly…” 

315. As to the duty of a director qua trustee of company assets, whilst directors are not trustees in the full sense of that term, they owe the same duties as trustees as regards assets of the company that are in their hands or under their control; the nature of these duties with regard to property in their hands was described as “identical” to that of trustees by Ungoed-Thomas J in Selangor United Rubber Estates Ltd v. Cradock (No. 3) [1968] 1 WLR 1555, at 1575A.

316. Nor, said Mr Kosmin, is it open to a director to subordinate the interests of one shareholder, or group of shareholders, to the interests of another shareholder, and thus the duty to act fairly between different shareholders simply is an aspect of the director’s fiduciary duty to act in the best interests of the company concerned.  In this connection, as Mr Kosmin pointed out, there are numerous authorities to the effect that the existence of a common shareholder provides no justification to disregard the interests of other independent shareholders: see Walker v. Wimborne, op cit; Linter Group Ltd v. Goldberg & ors (1992) 7 ACSR 580, at 620, per Southwell J; Quintex Australia Finance Ltd v. Schroders Australia Ltd (1990) 3 ACSR 267, at 269, per Rogers CJ; Re BSB Holdings Ltd [1996] 1 BCLC 155, at 156, 246, per Arden J.

317. When viewed against this backdrop, submitted Mr Kosmin, Mr Ting clearly could be seen to have infringed each of these principles, even though he could be held to have acted in breach of fiduciary duty if it be established that he had acted in breach of any one of these primary directorial duties.

318. Mr Ting had acted in breach of Akai’s constitution, concluded Mr Kosmin, because in causing Akai to enter into the Akai Credit Facility, he had acted in “flagrant breach” of the Bye-Laws in that he had failed to bring the Akai Credit Facility to the Board of Akai for consideration and approval.

319. In light of his position as significant shareholder of STC Canada (45%), with STC Canada owning 43% of the issued share capital of Akai and 50% of Singer NV, and as Chairman and CEO of STC Canada, Chairman and CEO of Akai, Chairman and CEO of Singer NV until December 1997, and as a director of Singer Thailand, Mr Ting also had been in a position of “hopeless conflict of interest and duties” between Singer NV (including its parent, STC Canada and its associated company, Singer Thailand) and Akai, in that he was required to disclose his interest in the Akai Credit Facility to the Board, and expressly was prohibited from participating in, considering or approving the transaction on behalf of Akai, and in so doing he had acted in “blatant breach” of Bye-Laws 103 and 104, as well as his fiduciary duty to avoid conflicts of interest and duties.

320. Nor, submitted Mr Kosmin, was there any evidence that in causing Akai to enter into the Akai Credit Facility that Mr Ting even had considered Akai’s interests, let alone any commercial benefit that Akai might glean from the transaction: the Akai Credit Facility with TFB was entered into when, as Mr Ting clearly well knew, it was neither in the ordinary course of Akai’s business to assume the liability of an unrelated company such as Singer NV, nor to charge its assets in support of such a liability, and this at a time when he must have known that at the time Singer NV was in dire financial straits and would not be able to pay the US$30 million debt assumed by Akai under the Loan Agreement – in fact, Singer NV’s 1998 Annual Report had indicated that for the year ended 3 January 1998 the Singer NV group had incurred a net loss of US$238.3 million) – as also was the case with Singer Thailand, which in the year ended 30 June 1998 had incurred a net loss of Baht 246.2 million, and whose share price had dropped like a stone from US$3.64 on 2 July 1997 to US$0.91 on 4 December 1998.

321. In short, submitted Mr Kosmin, the various matters relied upon by TFB “did not come close” to providing justification or proper explanation for the transaction, and accordingly he maintained that the court should have no hesitation in concluding, upon the available information, that Mr Ting undoubtedly had acted in breach of his fiduciary duties to Akai.

Decision upon breach of fiduciary duty

322. The competing arguments upon this issue have been set out in some detail because, as earlier indicated, this is a primary issue which, were it to be decided in favour of the defendant, TFB, effectively would conclude this case in the defendant’s favour.

323. Nor, if I may say so, have I found the matter as straightforward and compelling as the advocates on each side have made it sound in their respective submissions.

324. At the end of the day, however, ultimately I have been driven to the conclusion, and so find, that in entering into the Akai Loan and Share Pledge Agreements in substitution for the then existing TFB/Singer arrangement, that Mr Ting must be taken to have acted, and did so act, in breach of his fiduciary duty to Akai.

325. In arriving at this view, and in evaluating the conduct of Mr Ting in terms of his alleged breach of fiduciary duty, I have preferred and adopted the approach espoused in Equiticorp Finance Ltd (in liquidation), op cit. (paragraph 269), that is, the simpler and more straightforward ‘consequences of breach’ approach.

326. Whilst I appreciate that the so-called ‘Charterbridege approach’, as adumbrated by Pennycuick J in Charterbridge Corp Ltd v. Lloyd’s Bank, op cit. (at paragraph 268), is regarded as the accepted wisdom in this area, I am not bound by this decision, and with due respect, I decline to follow it.

327. As I understand Charterbridge, Pennycuick J was faced with a situation in which the directors of a group of companies had entered into a transaction without considering the separate interests of each company in the group – in this instance, this was a ‘group’ in the formal and accepted sense as is defined in company law – and he rejected the contention that the directors ipso facto must be in breach of their fiduciary duties to the individual companies, instead proposing in an obiter dictum that in the absence of any such separate consideration, the correct test must be whether an intelligent and honest man in the position of the director of the company concerned could, in the circumstances, reasonably have believed that the transactions were for the benefit of the company.

328. By contrast, the position in the present case is very different.  This court has not heard from Mr Ting, nor do I consider that his conduct in the circumstances of this case is to be considered as presumptively honest; in this regard, therefore, Mr Snowden’s arguments can only amount to speculative rationalization by a skilled advocate with the advantage of the 20/20 hindsight which historical review permits.

329. On the facts of this case it is unarguable but that at face value Mr Ting’s actions in placing upon Akai the considerable debt burden of Singer, and in further encumbering the Akai Electric shares as collateral, can only be reflective of a failure to consider the interests of Akai qua Akai, and thus prima facie to amount to a breach of fiduciary duty – with the subsequent stark, and very obvious, ‘consequences of the breach’ in terms of the ultimate failure of that company.

330. However, if I be wrong in purporting to apply the ‘Equiticorp test’ – which, as earlier noted (at paragraph 274) also was applied, in lieu of Charterbridge, in the Supreme Court of New South Wales in Maronis, op cit. – and if and in so far as the so-called ‘Charterbridge test’ of the intelligent and honest director reasonably believing that the action taken was for the benefit of the company is held to represent the relevant benchmark, I do not read Charterbridge as inviting or mandating the application of such objective test absent any indication of that which the director in question, in this instance Mr Ting, had been intending.

331. To put the proposition another way, I do not consider that the criterion of the ‘honest and reasonable director’ properly can be applied within an evidential vacuum in order to rationalize or to justify what in fact may have been done for reasons totally other than the interests of Akai.  Nor, as I have indicated, am I disposed in the circumstances to assume the honesty of Mr Ting in taking the course which he did; the overwhelming probability, I should have thought, is to the contrary.

332. In my view, therefore, speculative inference of what could have been in Mr Ting’s mind – and it must not be forgotten that this is a man whose part in the ultimate asset-stripping of Akai achieved breathtaking proportions – does not suffice to discharge the evidential burden which is on the defendant as a result of the undisputed actions of Mr Ting which, when taken at face value, raise a strong prima facie case of breach of fiduciary duty.

333. The ineluctable fact is that by causing Akai to enter into the Akai Credit Facility, and accompanying Share Pledge, with TFB, Mr Ting caused to be imposed upon Akai a substantial liability which it had no obligation whatever to assume and, co-terminous with such assumption of primary liability to TFB, simultaneously caused to be surrendered control over a highly valuable asset of Akai in the form of the pledge of its shares in Akai Electric, its Japanese subsidiary.

334. Plainly this was to the financial detriment of Akai; this can permit of no contrary argument.  Moreover, as Mr Kosmin pointed out, the Akai Credit Facility was entered into against a background wherein, as Mr Ting well knew, it was not in the ordinary course of business for Akai to assume the liability of another company, Singer, which, whilst not unrelated in terms of the common shareholding of STC Canada (which held 50% of Singer and 43% of Akai), nevertheless remained a third party company in which Akai had no equity interest; nor was it in the ordinary cause of Akai’s business to charge its assets in support of such liability, which act had the effect of imposing an immediate encumbrance upon Akai as opposed, for example, to the more usual commercial approach of a guarantee of Singer’s indebtedness, which would have constituted a contingent secondary liability only.

335. In so doing, no account apparently was taken by Mr Ting of the remaining 57% of the shareholders of Akai – who appear never to have been consulted nor apprised of this course of action – nor for that matter was the Stock Exchange of Hong Kong, upon whose Main Board Akai then was listed, so much as informed of this development; had it been so informed, at the very least a public announcement would have been required.

336. In terms of the main plank of the TFB argument to the effect that “the business, finances and affairs” of Akai and Singer NV were “intimately connected” – in particular the existence of the same major shareholder, STC Canada, the sharing of senior management, including Mr Ting, Ms Loh and Mr Tam, the ‘substantial investment’ Akai had in Singer throughout 1998 in the holding of US$75 million of convertible unsecured stock in Singer as part of the price of the sale of Pfaff to Singer at the end of 1997, and the use of the same office facilities, and employees, in Hong Kong for the business of Akai and Singer – Mr Kosmin made several points which in my view are well-founded: first, that there was no evidence (as opposed to mere speculative inference) that at the time the Akai Credit Facility was entered into that Mr Ting had given any consideration to the so-called ‘business and financial connections’ between Akai and Singer; second, that even if these had been matters which had been considered, Mr Ting’s action in causing entry into the Akai Credit Facility was made in patent breach of Akai’s Bye-Laws as well as his fundamental fiduciary duty to avoid a conflict of interest; and third, that in any event the matters now relied upon as post-facto rationalisation by TFB did not on any view amount to justification for the assumption, for no consideration, of a primary obligation under the Akai Credit Facility, which carried with it an immediate indebtedness in the sum of US$30 million, plus ongoing interest – and this at time when the cost of US dollar funding had risen significantly in the forex markets.

337. In my view it was wrong for there to have been an equation (if, indeed, this is what transpired) between the interests of Akai on the one hand and those of Singer on the other merely by reason of the existence of a shareholder in common, and in coming to this conclusion I accept and apply the observations of Bryson J in Maronis Holdings v. Nippon Credit, op cit.

338. I also accept and apply the observations of Dawson J in Northside Developments v. Registrar-General, op cit., to the effect that the mere fact that there is common management, a shared office and common shareholders is/are not relevant connections in considering whether the transaction was made for the purposes, and in the interests of, the company concerned. 

339. I further bear in mind the submission by Mr Kosmin that the US$75 million convertible preference stock issued by Singer in favour of Akai (in part payment, it will be recalled, for the Pfaff purchase), unless converted into shares in Singer (which never happened), represented an unsecured debt owed and payable by Singer to Akai, and thus to suggest that objectively it was in the interests of Akai to take up another debt of US$30 million from Singer is and was “absurd”, nor indeed was there any evidence of how the US$30 million was to be repaid by Singer to Akai.

340. In contrast to the relatively ‘informal’ entry by Akai into the Akai Credit Facility, Mr Kosmin sought to compare, within the context of the ‘Pfaff transaction’, the elaborate steps then taken by the Board of Akai to ensure that because of the apparent conflict resulting from the fact that Singer was an affiliate of STC Canada, which itself was a substantial shareholder of Akai, that none of the ‘interested’ directors who were on the boards of both companies participated in that decision; in particular, noted Mr Kosmin, Mr Ting had not participated by reason of his position as Chairman of STC Canada and Singer, and because of his substantial equity interest in STC Canada (and thus, indirectly, of Singer), and that instead Akai had established an independent Board committee to take financial advice from an independent financial adviser, together with the fact that the Hong Kong Stock Exchange had required that the matter be decided by the shareholders of Akai.  Whilst obviously not directly in issue, this submission is not unpersuasive.

341. Nor is there any evidence supporting Mr Snowden’s argument that that which clearly was happening in this instance was to give Singer, as he put it, a “breathing space”; in this regard Mr Ting’s true motivation, however it may now be rationalized, now will never be known.

342. At the end of the day, therefore, when viewed in hard commercial terms, and in particular from the viewpoint of the creditors and minority shareholders in Akai – who presumably knew nothing of what was going on in terms of the immediate encumbrance of Akai with the Singer debt to TFB – it is difficult to avoid the conclusion that this was a transaction adopted by Mr Ting and his acolytes within Akai in blatant disregard of the interests of Akai and its creditors and/or shareholders.  Viewed thus, the observations of Mason J (as he then was) in his evaluation of the case before him in Walker v. Wimborne, op cit., at 7, appear more than usually apposite:

“The transaction offered no prospect of advantage to Asiatic, it exposed Asiatic to the probable consequence of substantial loss, and thereby seriously prejudiced the unsecured creditors of Asiatic.  It was more than an improvident transaction reflecting an error of judgment; it was undertaken in accordance with a policy adopted by its directors in total disregard of the interests of the company and of its creditors…”

343. It follows, therefore, from the conclusion of this court that Mr Ting was in breach of his fiduciary duties to Akai in causing that company to enter into the Akai Credit Facility, that the door thereby is opened for consideration of the various other matters prayed in aid by the plaintiff in support of its claim against TFB.

II.  Authority to act

344. In my view, this element represents the most significant aspect in a case containing a number of potentially applicable legal arguments.  In fact, I can be more precise: it is the issue of apparent or ostensible authority – linked with the correlative issue of whether TFB had been ‘put on inquiry’ as to the nature of this transaction – which in my judgment forms the key to unlocking this dispute.

345. It is Akai’s case that the Loan Agreement and the Share Pledge Agreement were invalid, and thus not binding because:

i.    They were entered into by Mr Ting in breach of fiduciary duty and, as such, could not have been executed by Mr Ting with actual authority from Akai;

ii.   Mr Ting in fact had no authority to act as he did, whether such authority be classified as express or usual/implied or apparent/ostensible authority; and

iii.  TFB had been ‘put on inquiry’ that Mr Ting might not have had authority, of any type, to cause Akai to enter into such Agreements as were in fact made with the Bank, and TFB in fact had made no such inquiry as to any such authority.

346. To the contrary, it is TFB’s case that:

i.    Mr Ting had express actual authority, implied or usual authority, or apparent authority to enter into the Loan Agreement and the Share Pledge Agreement on behalf of Akai;

ii.   That these transactions between TFB and Akai in terms of the Loan Agreement and the Share Pledge Agreement were “ordinary and arms-length commercial transactions”, and that TFB was not ‘put on inquiry’ as to these transactions;

iii.  That the Agreements as executed by Mr Ting thus were valid and binding upon TFB and Akai.

Express actual authority

347. As a matter of principle, actual authority exists where the company has given consent to the director or officer concerned to act on its behalf.  Authority can be conferred expressly, such as when directors sign a board resolution to that effect, or it can be implied, such as where appointment to office within the company, for example, Managing Director, impliedly authorizes the person so appointed to do all things falling within the usual scope of the office: see the well-known observations of Lord Denning MR in Hely-Hutchinson v. Brayhead [1968] 1 QB 549, at 583.

348. It is also established law that the grant of actual authority is impliedly subject to a condition that it is to be exercised honestly and on behalf of the principal: see Lightman J in Hopkins v. TL Dallas Group Ltd [2005] 1 BCLC 543, at paragraph 88:

“The grant of actual authority to an agent will not normally include authority to act for the agent’s benefit rather than of his principal and therefore, without agreement, the scope of actual authority will not include this.  The grant of actual authority should be implied as being subject to a condition that it is to be exercised honestly and on behalf of the principal: Lysaght Bros & Co v Falk (1905) 2 CLR 421.  It follows that, if an act is carried out by an agent which is not in the interests of the principal, for example signing onerous unconditional undertakings, then the act will not be within the scope of the express or implied grant of actual authority.  As a result there cannot be actual authority”.

In similar vein, in Wrexham Association Football Club (in administration) v. Crucialmove Ltd [2006] EWCA Civ 237, Judge Norris QC stated:

“A board of directors simply does not have power to effect transactions which are not for the benefit of the company.  That is not because of some restriction in the constitution, but is part of the ordinary law of agency.”

349. In this case the Bank relies upon the Minutes of the Executive Committee of Akai produced to it on 4 December 1998 as clear evidence of the express actual authority of Mr Ting to enter into the Loan Agreement and the Share Pledge Agreement; equally, it is said that in this circumstance Mr Ting, as Executive Chairman and Chief Executive Officer of Akai, also must be regarded as having implied actual authority to sign those Agreements on behalf of Akai.

Decision on actual authority

350. In his closing submission Mr Snowden specifically accepted that if the court were to be satisfied that in so acting Mr Ting had been in breach of his fiduciary duty to Akai the position would be different, and that his submissions upon actual authority were made on the premise that there would be no such finding.

351. Accordingly, given that the court now has concluded that Mr Ting indeed was acting in breach of his fiduciary duty, such finding necessarily is determinative of this facet of the ‘authority debate’, and thus I find that in entering these Agreements with TFB that Mr Ting neither had express actual authority nor implied actual authority.

352. Since this is conclusive of this point, strictly I do not need to go further and to express a view as to the legitimacy or otherwise of the Executive Committee Minute of 4 December 1998, which, as the foregoing historical summary has related, was given to Mr Bhadranavik of TFB’s Hong Kong branch when he attended at Akai’s Hong Kong office on that date, this Minute ultimately being transmitted (by fax and thereafter by courier) by Mr Niasinn Lamsam to the Head Office of TFB in Bangkok, for the attention of Miss Wattanakul.

353. Nevertheless, if and in so far as it be relevant, I entertain very substantial doubt about whether this Executive Committee Minute of 4 December 1998 is reflective of any Executive Meeting actually having been held in order to authorize Mr Ting to enter into these Agreements with the Bank.

354. Whilst I now have accepted, contrary to the evidence of Dr Holmes, that there was an Executive Committee in existence within Akai, nevertheless I did accept as true Dr Holmes’ vehement denial of any telephone attendance on his part at this alleged meeting on 4 December 1998.

355. Thus, taken together with the fact that the alleged presence at this meeting of Mr Chuck Tam also is indicated on the face of the Minute to have been ‘by telephone’, the overwhelming probability in the circumstances – and I now so find – was that Mr Ting, the dominant force within Akai who apparently trucked no dissent, simply had this Minute made up, no doubt with the co-operation of his close associate and co-director within Akai, Ms Clara Loh, in order to suit the immediate purpose at hand, which was to comply with TFB’s request for some form of ‘evidence’ as to his authority to sign the Loan Agreement and the Share Pledge Agreement on behalf of Akai.

356. In this regard I bear in mind that there is no evidence of any such meeting having been formally convened, nor of any notice of the meeting allegedly so held on 4 December 1998 having been given to directors, and had it been necessary so to find I should have been driven to the conclusion that these ‘Minutes’ were false and of no effect.

357. As I have indicated, however, any such conclusion as to the validity of the Minute as reflecting an authorized meeting of the Akai Executive Committee is little to the point in light of my view as to breach of fiduciary duty on the part of Mr Ting.

358. Nor, in the circumstances, is there any necessity to examine within this context the contention of Mr Kosmin that the Bank had actual knowledge of Akai’s Bye-Laws and of the regulations contained therein, although, in so far as such might become relevant were I to be wrong in my conclusion as to Mr Ting’s breach of fiduciary duty owed to Akai, I would have found as a matter of fact that TFB, in the person of Mr Pipit, had received a copy of Akai’s Memorandum of Association and Bye-Laws on or about 25 May 1998, as evidenced by a fax from Mr Ko of Akai to Mr Pipit of that date – albeit I very much doubt, from the manner in which these witnesses presented in the witness box, and bearing in mind their obviously very heavy workload at a particularly difficult time for TFB and for the financial markets in Asia, that either of Mr Pipit, Ms Wattanakul, or Mrs Tasma had read or studied these documents, which contained within them the requirement for Akai Board approval for any loan.

359. It follows from the foregoing, therefore, that the case as now put up by TFB on the basis of express actual or implied actual authority is rejected.

Apparent Authority

360. Apparent or ostensible authority is the authority of an agent as perceived by third parties.  As Lightman J expressed the position in Hopkins v. TL Dallas Group, op cit., at para 92:

“Ostensible (or apparent) authority looks at the relationship between the third party and the principal and can lead to an outcome where a company is bound even though it has not actually authorized the agent.”

361. The editors of Bowstead & Reynolds on Agency (18^th ed, 2006) state, at Article 72, para 8-013:

“Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority”

whilst the American Third Restatement expresses the position thus:

“…where the third party reasonably believes that the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations…”

362. Such ‘representation’ or ‘manifestation’ can be of a general nature, and, as Mr Snowden emphasized, can arise only from the principal putting the agent in a specific position which carries with it the usual authority to enter into the transaction of the type in question.  In this context, the locus classicus in the English common law as to such representation is contained in the speech of Lord Diplock in the leading decision in Freeman & Lockyer v. Buckhurst Park Properties (Mangal) [1964] 2 QB 480, at 505:

“The commonest form of representation by a principal creating an ‘apparent’ authority of an agent is by conduct, namely, by permitting the agent to act in the management or conduct of the principal’s business.  Thus, if in the case of a company the board of directors who have ‘actual’ authority under the memorandum and articles of association to manage the company’s business permit the agent to act in the management or conduct of the company’s business, they thereby represent to all persons dealing with such agent that he has authority to enter on behalf of the corporation into contracts of a kind which an agent authorized to do acts of the kind which he is in fact permitted to do usually enters into in the ordinary course of such business.  The making of such representation is itself an act of management of the company’s business.  Prima facie it falls within the ‘actual’ authority of the board of directors, and unless the memorandum or articles of the company either make such a contract ultra vires the company or prohibit the delegation of such authority to the agent, the company is estopped from denying to anyone who has entered into a contract with the agent in reliance upon such ‘apparent’ authority that the agent had authority to contract on behalf of the company.”

363. Under the apparent authority doctrine, the third party must deal with the apparent agent “on the faith of the representation”.  In certain instances, the ‘holding out’ in question may be specific, but it may also be general: in this context the editors of Bowstead & Reynolds, op cit., state, at paragraph 8-026:

“…it is clear, however, that in many cases a third party can simply rely on the agent’s having the authority usual to a person in his position (usual authority) unless that third party knew that the agent had no such authority.  It is not therefore necessary, though it is sufficient, that the representation be to a specific person…”

364. It also is not necessary to show a specific act of reliance upon the representation, and will be sufficient if the third party simply enters into the contract: see the judgment of Diplock LJ (as he then was) in Freeman & Lockyear, op cit., at 503:

“The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract.  It is irrelevant whether the agent had actual authority to enter into the contract…”

365. Within the ‘apparent authority’ concept, it is clear that knowledge of the third party is of crucial import; so, for example, a third party cannot claim to have relied upon the apparent authority of an agent if he knew that the agent had no actual authority: see, for example, Criterion Properties plc v. Stratford UK Properties LLC [2004] 1 WLR 1846, at 1856, wherein Lord Scott stated:

“…If a person dealing with an agent knows that the agent does not have actual authority to conclude the contract or transaction in question, the person cannot rely on apparent authority.  Apparent authority can only be relied on by someone who does not know that the agent has no actual authority.  And if a person dealing with an agent knows or has reason to believe that the contract or transaction is contrary to the commercial interests of the agent’s principal, it is likely to be very difficult for the person to assert with any credibility that he believed the agent did have actual authority.  Lack of such a belief would be fatal to a claim that the agent had apparent authority.”

366. In the course of his submission upon the issue of apparent authority, Mr Snowden was at pains to emphasise that it is ‘knowledge’ of such lack of authority that is required, and not mere ‘notice’, be it constructive, presumed or imputed, which may said to be divined from the circumstances.  He suggested, in my view correctly, that ‘notice’ is a purely equitable concept, relevant only to equitable doctrines – for example, when considering the doctrine of bona fide purchaser for value of a legal estate, whereby a person might be deemed to know of property interests which would have come to his actual knowledge if inquiries and inspections had been made as ought reasonably to have been made: see Re Montagu’s Settlement [1987] 1 Ch 264 at 277, per Megarry V-C – whereas actual knowledge is a tool of the common law, just as agency and formation of contracts are matters of common law.

367. There was, Mr Snowden submitted, ample authority for this classification: see, for example, Lord Keith in Armagas v. Mundogas [1986] 1 AC 717, at 777, wherein his Lordship observed that:

“Ostensible general authority can, however, never arise where the contractor knows that the agent’s authority is limited so as to exclude entering into transactions of the type in question, and so cannot have relied on any contrary representation of the principal…”

whilst he made the further point that although in Criterion Properties op cit., Lord Scott had referred to a third party “having reason to believe that the contract or transaction is contrary to the commercial interests of the agent’s principal”, this clearly was said not to support any objective test of being placed ‘on notice’ or ‘on inquiry’, but simply to emphasise a credibility issue about the third party’s belief that the agent was acting within the scope of his actual authority, and that this was not a question of whether the third party had undertaken routine inquiries that might have been made by another person in his position.

368. I am inclined to accept this approach.  In a commercial case such as the present I venture to agree with the view expressed by Peter Gibson J in Baden Delvaux v. Societe Generale [1983] BCLC 325, at 415, that the court “should not be astute to impute knowledge where no actual knowledge exists”, and in my view it would be inapposite if in a purely commercial context there was room for the doctrine of constructive notice in the usual ‘conveyancing sense’, wherein appropriate procedural machinery has been established for inquiry and investigation.  As one commentator put it – see Harpum, ‘The Stranger as a Constructive Trustee’, (1986) 102 LQR 114, at 125:

“The doctrine of notice … reflects but is not the cause of the high standard of enquiry reflected of purchasers [of interests in land].  It follows from this, that in dealing with other types of property, these special rules as to land have no application …”

369. Accordingly, notwithstanding eminent opinion to the contrary – see the observation of Sir Peter Millett, quoted infra, at paragraph 391 — it seems to me, with respect, that to employ the doctrine of constructive notice in a commercial situation such as that now under consideration is both intrinsically unhelpful and commercially unrealistic, and may well serve to stimulate an wholly artificial conclusion unmerited on the facts.

370. There is some support for this view in Australian jurisprudence: see, for example, the judgment of the High Court of Australia in Lysaght Bros and Co Ltd v. Falk (1905) 2 CLR 421, at 431-432, wherein Griffith CJ said:

“…If the agent has acted in his own interest, he does not bind his employer.  But there is an exception to this rule in the case of a person dealing bona fide with the agent without knowledge of the limitation of his authority.  That is based on the principle of estoppel; but there can be no estoppel if the person dealing with the agent knows the actual facts, and knows that the agent is acting in his own interests and not in the interests of his employer…

…But…the underlying proposition…is this: that the other person must be dealing in good faith with the agent.  If the person with whom the agent is dealing has a knowledge of the circumstances which show that the agent is acting in his own interest, and not in the interest of his principal, he cannot allege that there was authority…”   

whilst this approach was approved by the Federal Court of Australia almost 90 years later in Re Combulk Pty Limited v. TNT Management Pty Ltd (1993) 113 ALR 214, wherein the Court (Neaves, Beaumont and Burchett JJ) said:

“It is well established that it is not within the scope of an agent’s authority to bind his or her principals by a contract which, although made ostensibly on their behalf, is, to the knowledge of the other party, really made for his or her own benefit, even though the contract is of a kind which he or she had general authority to make; and that, therefore, when an agent purports to make such a contract, and the party with whom he is dealing is aware of the circumstances, the principal is not bound (see Lysaght Bros. and Co Ltd v Falk…”

371. Accordingly I agree with and accept Mr Snowden’s thesis that in evaluating the evidence, the fundamental difference between knowledge and notice is that after scrutiny of the primary facts the court may decide that a defendant has actual knowledge, after making such inferences as it is legitimate to draw from such primary facts, and that what may, or may not be regarded as ‘common practice’ is relevant only in so far as it casts credibility upon the evidence or the particular witness; whereas the doctrine of notice looks first to established practice, to see what should have been done, and then treats a defendant as if he had known what he would have discovered if he had made the relevant investigation/inquiry.

372. If this approach be correct, therefore, the present question for this court must be to determine whether, as a matter of fact, the third party in question – in this instance, TFB – knew or suspected the lack of authority of Mr Ting to enter into the Akai Loan Agreement and Share Pledge Agreement such that the Bank cannot be said to have relied upon the appearance of authority on the part of Mr Ting, and not whether the Bank made, or did not make, what may be regarded as such ‘normal’ inquiries as would have been made by the hypothetical reasonable bank, nor whether it failed to appreciate matters which may have become apparent to the hypothetical onlooker who was conducting a forensic post-facto examination of the relevant documents.

373. Two further matters require to be borne in mind at the outset of such evaluation: first, that the burden of proof in terms of reliance upon apparent authority must lie upon he who asserts, in this instance TFB; and second, and perhaps more significant in the present context, that the facts surrounding Mr Ting’s apparent authority – in particular in the context of whether this was a ‘suspicious’ transaction which should have stimulated appropriate inquiry – must be viewed from the perspective of the facts as they appeared to the Bank at the relevant time, and not as they now appear (or now as they are said to appear) to the liquidators of Akai at the trial of this action.

374. In terms of apparent authority, the stance adopted by the plaintiff liquidators is that TFB’s case is “unsustainable”, and that none of the witnesses who have given evidence on behalf of TFB have suggested that they considered Mr Ting’s position in Akai as sufficient to authorize him to enter into the Loan Agreement and the Share Pledge Agreement.

375. Mr Kosmin submitted, with some force, that any such suggestion is contradicted on the facts when considering the undisputed conduct of the Bank at the material time, in that the Bank specifically requested and obtained the ‘Minutes of the Executive Committee’ of Akai as ‘evidence’ of Mr Ting’s authority, and that this fact alone suffices to give the lie to any assertion as to Mr Ting’s apparent authority to act as he did, and to execute the Agreements on behalf of Akai.

376. Mr Kosmin further argued that having obtained, but failed to check, the ‘Minutes’ of the Executive Committee, and having failed to make all necessary inquiries, accordingly “it is only fair that TFB should bear the consequence of its own default.”  This is particularly so, he says, when TFB’s evidence makes it clear that no attempt was made to pass the so-called ‘Minutes’ of the Executive Committee to its legal department to consider their validity/sufficiency in the circumstances, and that this failure was contrary to TFB’s normal practice prior to release of any funds, and fell short of the conduct expected of an honest and prudent banker in dealing with a transaction of this magnitude: this was, he said, “a glaring omission amounting to a reckless approach to the transaction.”

377. The necessity for the Bank to make due inquiry about this transaction, Mr Kosmin maintained, was emphasized by the fact that in itself the Akai Credit Facility was of a “highly questionable nature”, given that the sum of US$30 million constituted almost twice the net profits made by TFB in the year ended 31 December 1997, and that on any basis this was a complex transaction involving a foreign loan with multi-jurisdictional elements: the loan was booked in TFB’s London office, the new borrower, Akai, was a company incorporated in Bermuda and listed in Hong Kong, the substituted borrower, Singer, was incorporated in the Netherlands Antilles and listed in New York, and the new security provided by the new borrower, Akai, for the loan was in the form of shares in Akai Electric, a company listed on the Tokyo Stock Exchange.

378. Mr Kosmin argued that when this was taken together with the fact that Akai had no interest, whether in equity or otherwise, in Singer or in Singer Thailand, and that on its face the loan provided no benefit to Akai and clearly was financially detrimental – and equally clearly was beneficial to Singer and to Singer Thailand, and also to TFB, as lender to, and shareholder within, Singer Thailand – this could hardly be categorized as a normal ‘arms-length’ transaction, particularly when the ‘new borrower’, Akai, and the ‘old borrower’, Singer, had a common Chairman in Mr Ting, and that the majority of the shareholders (57%) in this new borrower were unrelated to STC Canada, Singer or Mr Ting.

379. Against this background, said Mr Kosmin, it must have been all the more important for TFB to be seen to make “proper inquiry” as to its validity, yet no questions apparently were asked as to Mr Ting’s authority, and as to whether the Board of Akai had considered the transaction and had approved it as being in the best interests of Akai, and thus TFB should be debarred from reliance upon the prima facie presumption that the Loan Agreement and the Share Pledge Agreement were properly or regularly entered into by Mr Ting on behalf of Akai – in other words, that there was no question in these circumstances of TFB satisfying the requirement of a “person dealing in good faith with the company”, and thus successfully invoking the Turquand rule, Mr Kosmin in this instance citing the judgment of Slade LJ in Rolled Steel Products (Holdings) Ltd v. British Steel Corporation [1986] Ch 246, at 284C-D, 295G-296A.

380. What should have happened, said Mr Kosmin, was that TFB should have obtained a proper resolution of the Akai Board, the contents of which complied with the Akai Bye-Laws, and thereafter to have had the content of such resolution checked by its legal advisers; to the contrary, however, TFB did not take steps to obtain a proper Board Resolution, did not read the Bye-Laws in its possession, and apparently took no legal advice.  Moreover, he said, the Minutes of the Executive Committee of 4 December 1998 made it clear on their face that this was not a meeting of the Akai Board of Directors, there was no indication of the status, authority and constitution of this Executive Committee, it recorded the approval of the Agreements by Mr Ting and by Dr Holmes – both of whom, as TFB knew, were in a position of conflict between their duties to Akai and their duties to Singer – and further raised the legitimate concern that there had been no consideration of these Agreements by independent directors or shareholders of Akai, and had failed formally to record that the Loan Agreement and the Share Pledge Agreement were considered to be in the best interests of Akai, or otherwise to be for its benefit.

381. Thus, Mr Kosmin submitted, the court ought to be satisfied that had proper inquiry been made by TFB, the true position, namely that Mr Ting had had no authority to enter into the Agreements on behalf of Akai, would have been revealed, and that since the Loan and Share Pledge Agreements were not authorized by Akai, they must be considered as invalid, and of no effect.

382. For his part, Mr Snowden firmly disagreed with the plaintiff’s sweeping characterization of the position.

383. His stance was that even were it to be found (as it now has) that Mr Ting had breached his fiduciary duty to Akai, in principle this did not prevent Akai being bound by reason of Mr Ting’s apparent authority to do as he did: see, for example, Hopkins v TL Dallas Group [2005] 1 BCLC 543, wherein Lightman J stated, at 573d-f:

“In the case of Macmillan Inc v Bishopsgate Investment Trust plc(No 3) [1995] 1 WLR 978, Millett J (as he then was) stated that ‘English law …recognizes the distinction between want of authority and abuse of authority’ (at 984).  He then went on to approve the statement that ‘an act of an agent within the scope of his actual authority does not cease to bind his principal merely because the agent was acting fraudulently and in furtherance of his own interests.’  Bowstead suggests that this statement of law should be limited to apparent authority, ie that acting fraudulently or in furtherance of own interests will by its very nature nullify actual authority, but not apparent authority.  I respectfully agree…”

384. The essence of Mr Snowden’s case in this regard is that Mr Ting still had the apparent authority to bind Akai by reason of the usual authority attaching to the position which he held, namely that of Executive Chairman and Chief Executive Officer, and that such usual authority was confirmed by the fact that Akai invariably had permitted Mr Ting to enter into all manner of financing agreements on its behalf.

385. As such, therefore, Mr Ting’s apparent authority sufficed to bind Akai, said Mr Snowden.  The Bank did not know that Mr Ting was breaching his duties to Akai, and did not perceive anything abnormal or suspicious about the transaction so as to suggest that this was the case.  Nor was the fact that TFB did not seek a formal legal opinion from a foreign lawyer as to Mr Ting’s authority to execute the Agreements of any immediate consequence, since such omission did not prevent the Bank from relying upon Mr Ting’s apparent authority, and there was nothing within the Executive Committee Minute of 4 December 1998 which the Bank received which had operated so as to excite the Bank’s suspicion.

386. Mr Snowden emphasized that there was no routine requirement upon TFB to investigate the commercial justification for the transaction from the viewpoint of Akai, and that in this regard Mr Banthoon Lamsam’s evidence had been that, considerations of risk profile apart, it was not regarded as part of the Bank’s duties to investigate nor to concern itself with the commercial benefit of proposed transaction from the point of view of the potential borrower, and that whilst in his evidence Mr Lamsam had accepted that a bank normally may take legal advice before making a loan to a new foreign customer, the Bank had not done so in this instance precisely because it had been dealing commercially with Mr Ting for such a lengthy period of time.

387. As to the necessity to make inquiry of the other contracting party consequential upon suspicion as to the presence or absence of authority, Mr Snowden emphasised that the cases make it clear that “the starting point is a presumption of trust and not distrust”, and that, even in a case such as Barclays Bank plc v. Quincecare Ltd [1992] 4 All ER 363, which had concerned an existing banker/customer relationship which imposed upon a bank the duty to take reasonable care not to execute a payment without authority, Steyn J nevertheless had observed, at 377:

“Everything will no doubt depend on the particular facts of each case.  Factors such as the standing of the corporate customer, the bank’s knowledge of the signatory, the amount involved, the need for a prompt transfer, the presence of unusual features, and the scope and means for making reasonable inquiries may be relevant.  But there is one particular factor which will often be decisive.  That is the consideration that in the absence of telling indications to the contrary, a banker will usually approach a suggestion that a director of a corporate customer is trying to defraud the company with an initial reaction of instinctive disbelief.  In Sanders Bros v Maclean & Co (1883) 11 QBD 327, at 343, Bowen LJ observed:

‘But the practice of merchants, it is never superfluous to remark, is not based on the supposition of possible frauds.  The object of mercantile usages is to prevent the risk of insolvency, not of fraud; and any one who attempts to follow and understand the law merchant will soon find himself lost if he begins by assuming that merchants conduct their business on the basis of attempting to insure themselves against fraudulent dealing.  The contrary is the case.  Credit, not distrust is the basis of commercial dealings; mercantile genius consists principally in knowing whom to trust and with whom to deal and commercial intercourse is no more based on the supposition of fraud than it is on the supposition of forgery’.

That was, of course, a very different case, and the relationship between merchants is very different from the relationship between a banker and a customer.  But, it is right to say that trust, not distrust, is also the basis of a bank’s dealings with its customers.  And full weight must be given to this consideration before one is entitled, in a given case, to conclude that the banker had reasonable grounds for thinking that the order was part of a fraudulent scheme to defraud the company.”

388. In like vein, in Macmillan Inc v. Bishopsgate Trust (No 3) [1995] 1 WLR 978, Millett J (as he then was) was dealing with the question of whether three banks who had received shares by way of security could resist the proprietary claims of the plaintiff, the true beneficial owner of the shares in question.  The defence of the banks was that they were bona fide purchasers for value of the legal title without notice of the fact that these shares actually belonged to the plaintiff, but had been pledged as security for the debts of other companies in the Maxwell group in breach of duty by the plaintiff’s then Chief Executive, Mr Robert Maxwell.

389. Millett J held that this was a question of priorities which turned upon the issue of whether the banks had notice under New York law of the prior equitable interest of the plaintiff company when they had acquired legal title to the shares.  New York law differed from English law in that it did not include notions of constructive notice, and on the facts Millett J found that none of the banks knew or suspected that the shares in question belonged to the plaintiff, and that the thought never had crossed anyone’s mind.  Hence, the result of the case was that the banks took the shares free of the plaintiff’s claims; however, in case the matter went further, Millett J also held that the banks did not have constructive notice of the plaintiff’s interest in the shares because none of them had reason to know or cause to suspect that the plaintiff was the true owner – in which regard the learned judge observed, at 1014G-1015D:

“Worse still, Macmillan attempted to establish constructive notice on the part of each of the defendants by a meticulous and detailed examination of every document, letter, record, or minute to see whether it threw any light on the true ownership of the Berlitz shares which a careful reader – with instant recall of the whole of the contents of his files – ought to have detected.  This is not the proper approach.  Account officers are not detectives.  Unless and until they are alerted to the possibility of wrongdoing, they proceed, and are entitled to proceed, on the assumption that they are dealing with honest men.  In order to establish constructive notice it is necessary to prove that the facts known to the defendant made it imperative for him to seek an explanation, because in the absence of an explanation, it was obvious that the transaction was improper…”

390. That bank officers are not to be regarded as detectives, and are not required to carry out a meticulous and detailed examination of every document in their possession in order to ascertain the propriety of any particular transaction also was touched upon by Millett LJ, on this occasion writing extrajudicially in an article entitled ‘Equity – The Road Ahead’, (1995) 9 Trust Law International 35, at 40, wherein he observed:

“…If, however, the equitable doctrine [of constructive notice] is to be imported into commercial transactions, as I believe it must, then we must have regard to the warnings of judges like Bowen LJ in Sanders v Maclean (1883) 11 QBD 343, 377 and Steyn J in Barclays Bank v Quincecare Ltd [1992] 4 All ER 363, 377 that the basis of commercial dealings is trust, not distrust.  Bankers and traders are not detectives.  Unless and until they are alerted to the possibility of wrongdoing, they proceed and are entitled to proceed on the assumption that they are dealing with honest men.  They are not put on inquiry unless they are made aware of facts that make it obvious that the transaction may well be improper, and make it imperative to seek an explanation before proceeding further.  The honest but incompetent accessory who does not in fact recognize the obvious cannot be made liable; he is not implicated in the wrongdoing.  But equity has never allowed such a person to set up his own title in order to defeat the beneficial owner…” 

391. Accordingly, the bar for being placed ‘on inquiry’ clearly is placed at a high level, and, as Sir Peter Millett has pointed out, the facts of each case must make it “obvious” that the transaction is probably dubious, and hence that it is “imperative” to seek an explanation prior to proceeding.  Whether this benchmark is met, of course, is peculiarly fact-sensitive and, as will shortly be seen, I have taken the view that the necessity for TFB to have sought explanation or to have made inquiry from Akai regarding Mr Ting’s entry, on behalf of that company, into the Akai Loan and Share Pledge Agreements, in fact was not ‘triggered’ in the particular circumstances of this case.

Decision on apparent authority

392. I have reflected at some length on this issue, given that which I perceive to be its central importance to the resolution of this case.  Nor can I say that I have found this to be an easy task.

393. I remind myself that in order to take a balanced view of the issue of the apparent authority (or otherwise) of Mr Ting, the facts in this case necessarily must be viewed through the prism of the facts as they were known to TFB as at 4 December 1998, the date of the transaction now sought to be impugned, and thus care must be taken not to infuse those facts with the persuasive, and at times ingenious and creative post-facto arguments as now propounded by the plaintiff’s leading counsel whose aim is to upset, in favour of the general body of Akai creditors, the Akai Loan Agreement and the Akai Share Pledge Agreement which, at the time of the issuance of the proceedings herein, had been in place for fully 6 years less one day – hence the protective writ issued in these proceedings on 3 December 2004.  

394. It is also instructive to bear in mind – and I do not think that this is merely a forensic point, vigorously though Mr Snowden banged this particular drum – that the perceived merit of Akai’s present claim appears not always to have been so keenly appreciated. 

395. That there was nothing intrinsically suspicious about this Loan Transaction between the Bank and Akai in December 1998 was the view taken by the liquidators when admitting the Bank’s Proof of Debt in 2002, and whilst much is made of the fact that at that stage the Liquidators did not have access to all the internal documents of the Bank, nonetheless it was well appreciated throughout that Singer neither was a parent nor a subsidiary of Akai; moreover, the liquidators were looking at this transaction at a time when they well knew of Mr Ting’s financial defalcations, and thus in general were cognisant of Mr Ting’s dishonest activities within Akai. 

396. Thus, if the liquidators, who had statutory duties to investigate claims before admitting them to proof, had failed, as they apparently did – and indeed as Mr Borelli now accepted – to appreciate that this transaction “obviously” was to the detriment of Akai, it is not easy to see how it now is convincingly to be maintained that the Bank ought to have reached the like conclusion in conducting its normal commercial activities as long ago as December 1998.

397. A correlative, and not entirely separate consideration, is that, “obvious” as the case now is portrayed with the benefit of hindsight and forceful technical analysis undertaken by eminent leading counsel, the fact remains that it has taken wide-ranging amendments to the original pleading – the final version of which, the Re-Amended Points of Claim, being finalized only during this trial – before the case against the Bank, as finally pursued, saw the light of day.  In this regard Mr Snowden has complained, not without cause, of the precise nature of the plaintiff’s case against him “mutating” and constituting a “moving target”, a further factor which seems to me to be grist to the argument that in December 1998 there was nothing so obviously bad about this transaction as ought to have provoked detailed investigation/inquiry on the part of the Bank.

398. True it is, as Mr Kosmin pointed out, that the Bank in fact did make a formal request for some evidence of Mr Ting’s authority to enter into the Loan and Share Pledge Agreements, but I decline to accept the conclusion that in itself this request suffices to remove or to destroy the argument of TFB based upon the apparent authority of Mr Ting. 

399. Mr Kosmin pressed this point, but in my view such conclusion does not necessarily arise.  If anything I should have thought that the nature of the brief (and much criticised) Executive Committee Minute as was produced on 4 December 1998 – and as was faxed to TFB by Mr Niasinn of the Bank’s Hong Kong branch – serves to inform the apparent authority argument, and buttresses the contention that to all intents and purposes the Bank regarded this Minute as an entirely natural development within the overall scheme of things as then perceived by TFB, and reflected the position wherein Mr Ting was, and indeed throughout had been recognized by the Bank as, the dominant and wholly authoritative force within and behind the operation of Akai.

400. It should not be overlooked, as the history of the Singer Credit Facility serves to illustrate, that TFB had been dealing with Akai and Mr Ting, wearing one or other of his various commercial hats, for a number of years, and was well used to the omnipotent manner in which he operated in the conduct of all his business affairs, including the operation of Akai.

401. For my part, therefore, notwithstanding the multiplicity of criticism engendered by skilled hindsight analysis, I am unable to discern anything of substance occurring at the time which should have placed the Bank ‘on inquiry’, far less is there any evidence of actual knowledge on the part of the Bank either as to any breach of fiduciary duty on the part of Mr Ting, or in terms of any want of authority on his part to do as he did, and to execute the Akai Loan and Share Pledge Agreements on 4 December 1998.

402. Mr Snowden has made the subsidiary point, which I also accept, that when it is necessary to identify the knowledge that the Bank had, it is only the knowledge of a person who is the directing mind and will of the Bank that can be treated as ‘the Bank’s knowledge’, and that the authorities are clear that one cannot add together the knowledge of innocent minds in order to create some notional ‘super-mind’ of the company, which then is deemed to be dishonest or ‘on inquiry’ for the purpose of agency, or ‘unconscionable’ for the purpose of establishing ‘knowing receipt’.

403. This point was addressed by Besanko J in the Supreme Court of South Australia in K & S Corp Ltd v. Sportingbet Australia (2003) 86 SASR 312, at 339:

“The knowledge may be aggregated if the person who knows one piece of information is under a duty to ascertain the other piece of information known by another officer of the company…

To aggregate the information in this case would be to extend the principle significantly.  It is not a step which I think I should take.  I do not think that I should find that something is known to a company when part of the information is not known to anyone forming part of the directing mind and will of the company and is known only to an agent who was under no duty to communicate the information to those persons forming part of the directing mind and will.  One might criticize the company for not having a proper system in place, but that is a different issue from knowledge…”

404. It was therefore wholly incorrect and inappropriate, said Mr Snowden, for Akai now to point to the wide variety of matters as listed in paragraph 56A of the Re-Amended Points of Claim, some of which related to entirely different periods of time, and some of which allegedly were known by different people within the Bank, and thus blithely now to claim that such points can be relied upon indiscriminately and “individually or cumulatively” in order to prove actual knowledge on the part of TFB.

405. It also was well established, Mr Snowden observed, that in usual course a Managing Director has wider powers than an ordinary director, and I accept the further submission that, as a general proposition, the courts are less ready to find that a third party has been put on inquiry if the third party is dealing with a managing director: see, for example, Bank of New Zealand v. Fiberi Pty Ltd (1994) 12 ACLC 48, a case in which the New South Wales Court of Appeal was seized with proceedings brought by the Bank of New Zealand to recover possession of land held under a mortgage which had been entered into with the Bank by one of the directors of Fiberi, Mr Doyle, absent the knowledge and consent of the other director, and equal owner of the company, Ms Arnhold.  At first instance Allen J held that the Bank’s action failed, holding, inter alia, that the Bank had been put on inquiry by the particular circumstances of the case so that it could not rely on the statutory assumptions of authority within the relevant section of the NSW Companies Code.  On appeal the Court of Appeal agreed on the facts, holding inter alia that no effort was made by the bank to determine if Mr Doyle held a position such as Managing Director which may have allowed him more power to bind Fiberi.

406. In delivering the judgment of the Court, Kirby P observed, op cit., at 56:

“Asking whether a person is put upon inquiry in relation to a company’s internal management necessarily involves a scrutiny of that person’s connection or relationship with the company.  It is therefore helpful to examine the nature of the connection or relationship in order to determine how far the person is affected by any ‘warning signs’…

and earlier, op cit., at 55:

“…in Northside [Northside Developments Pty Ltd v Registrar General & ors (1990) 8 ACLC 611] the person purporting to deal as the company (Mr Robert Sturgess) was the managing director of that company.  While Article 38 of the Articles of Association of Fiberi provide for the appointment of a managing director, there is nothing to show that Mr Bruce Doyle held that position.  A managing director can sometimes exercise much wider lawful powers than an ordinary director.  Although dealings with a person in either position might put another upon inquiry, the need for an inquiry would be reached more readily in circumstances where one is dealing with a director and not a managing director.  In that sense the facts of this case are stronger than were those of Northside…”

407. In the present case, of course, Mr Ting was Chairman of the Board and Chief Executive Officer of Akai, and, as the evidence of all the Bank witnesses indicated, universally was understood by officers of the Bank at all levels to be “the boss” who was running Akai.

408. A good deal also has been said in this case about the ‘knowledge’ of TFB in that it had in its possession in the form of Akai ‘corporate documents’ which had been sent to Mr Pipit by Mr Domine Ko of Akai on 25 May 1998.  I have earlier found that on the probabilities these documents contained a copy of Akai’s Bye-Laws, and thus it is said that consideration by the Bank of these Bye-Laws should and would have raised material concerns when the Bank was presented with the purported Executive Committee Minute of 4 December 1998.

409. As earlier observed, I doubt very much whether either of Mr Pipit, Ms Wattanakul and Mrs Tasma ever studied these Bye-Laws – in fact the only person, on the evidence, who was in position to have seen both the Bye-Laws and the Executive Committee Minute of 4 December 1998 was Ms Wattanakul, and at that stage there was no reason for her to bring them to the attention of her senior officers within the Bank – but in the event that is nothing to the immediate point, because the overwhelming probability, and I so find, is that these Bye-Laws were not seen by any of the ‘directing minds’ of the Bank. 

410. Even had this been the case – and plainly on the probabilities it was not – a review of Bye-Law 121 would have informed the Bank that a subsidiary body such as the Executive Committee would only have had authority delegated to it by the full Board of Directors of Akai, and in the circumstances there would have been no reason for the ‘directing minds’ of TFB to have concluded that no such delegation in fact had taken place; to the contrary, as earlier observed, a third party in the position of the Bank was not obliged to conduct its business on the basis of distrust, and to assume, without more, that the Executive Board had not been delegated the authority so to act by Akai’s main Board.

411. In this connection several additional points are made by Mr Snowden, in my view fairly, which serve to emphasise the methods of technical hindsight now so persuasively prayed in aid by the plaintiff:

first, the “forensic dissection” conducted by the plaintiff of the Executive Committee Minute of 4 December 1998 as to the deficiencies supposedly apparent on the face of this Minute – see here paragraph 56A.12 of the Re-Amended Points of Claim – appear nowhere in the earlier pleaded versions of the plaintiff’s case, and appeared for the first time only in Akai’s Opening Statement, so that it is difficult to appreciate why the Bank, acting in a purely commercial capacity within an avowedly commercial transaction, now should be affixed with knowledge (or allegedly notice) of any supposed deficiency, when the lawyers pleading the case have developed what in substance is but an ‘eleventh hour’ argument;

second, that the alleged conflict of duty and interest on the part of Mr Ting – who was said to have been ‘interested’ in the transaction due to his various roles in the STC group – in itself does not mean that the Bank should have been suspicious that he was acting improperly by reason of any supposed ‘conflict’, nor that Mr Ting consciously had favoured the interests of Singer over Akai, not least because the Bank was well aware of the commercial interrelationship between Akai and Singer;

third, that the absence of any ‘formulaic’ recitation on the face of the Executive Committee Minute in terms of the fact that the transaction was in Akai’s interests in itself could not be said to attract suspicion – in fact, in light of that which the Bank officers knew at the time about the Singer/Akai connection, neither could it be said that the absence of any such declaration would have created suspicion;

fourth, that whilst the Minute did not contain any indication that it had been approved by independent directors of Akai, there is no indication as to why the Bank would have known that the transaction required approval by independent directors and/or shareholders, since it could not sensibly be alleged that the Bank’s officers were privy to the detailed requirements of the Hong Kong Listing Rules as they concerned ‘related party’ transactions; and

fifth, that being the sole signatory to the Minute did not reflect that Mr Ting was acting in breach of authority, given that minutes of such meetings usually are signed by the Chairman alone, especially if the signatory is the CEO who is recognised to be running the company.

412. It follows, therefore, that I do not accept that the matters variously canvassed by Mr Kosmin as serving to place TFB ‘on inquiry’ – namely, the repayment and drawdown of the Singer facility in 1997/98, the knowledge of the Bank of the deteriorating financial position of Singer and Singer Thailand, the ‘unusual features’ of the transaction, the position of Mr Ting in relation to STC Canada, Akai and Singer, and the terms of Akai Bye-Laws and the Executive Committee Minute of 4 December 1998 – in the circumstances necessarily should have served, or did so serve, to stimulate suspicion on the part of the Bank, whether taken individually or cumulatively, either as to the propriety of the Agreements made with the Bank, or as to the authority of Mr Ting so to act.

413. In my judgment this was a hard-nosed commercial transaction on the part of TFB, albeit one that took place between Bank and borrower at the time of, and in the somewhat fevered and financially fetid atmosphere of the ‘Asian financial crisis’.  It may even have been a transaction regarded by some within the Bank, to use an expression much favoured by Mr Kosmin throughout this case, as “a small miracle”, in the sense that a potentially problematic debtor (Singer) was being directly and immediately replaced, together with appropriate security, by a company which appeared to rest on a sounder financial footing, but I do not regard this as the “cosy” or illegitimate arrangement which the plaintiff now seeks to portray; to the contrary, the Bank clearly went out of its way to obtain its commercial pound of flesh with the substantial increase in the applicable interest rate to LIBOR + 4.5%.

414. I further reject the supposition, which has infused the plaintiff’s argument throughout this case, to the effect that at all times the defendant Bank well knew that a ‘fast one’ was being perpetrated by Mr Ting by means of the substitution of Akai for Singer, via entry into the Akai Loan and Share Pledge Agreements, but nevertheless, in the dire surrounding circumstances of the financial crisis then engulfing the Thai banks, that TFB had decided, in effect, to ‘grab the money and run’, and to worry about any adverse consequences if and when they transpired.

415. True it is that I have taken the view (and have so found) that this transaction between TFB and Akai must have been canvassed or discussed, at the least in principle, between Mr Ting of Akai and Mr Banyong Lamsam, Chairman of TFB, but, as earlier observed, this fact is not necessarily destructive of the Bank’s resistance to the plaintiff’s claim, nor does it mean that the arrangement as was entered into between the Bank and Akai necessarily merited the ‘soft loan’ epithet which Mr Kosmin so skilfully deployed during cross-examination and submission.

416. I repeat that in so far as the Bank was concerned this was an admittedly advantageous commercial transaction which attracted high rates of interest, but in my judgment, and absent any knowledge of Mr Ting’s lack of authority (which I have found the Bank did not possess), TFB was perfectly entitled to look after its own commercial interests, and to assume that Akai/Mr Ting were looking after theirs’.

417. I accept, and so find, that in this case there was neither dishonesty nor disingenuousness on the part of the Bank, that the sole and honest intention of the Bank was to restructure an existing commercial position, well-knowing, as was the case, that Akai and Singer were commercially and structurally related entities: both Akai and Singer were members of the STC group, and operated, or sought to operate, as an integrated commercial enterprise taking advantage of the mutual ‘synergies’ which each brought to the activities of the group.

418. It is a matter of public record that Akai and its subsidiary, Akai Electric, had relied upon Singer’s distribution network, and TFB also knew that Akai had a major financial investment in Singer by reason of the holding of convertible preferred loan stock, whilst again it was aware that the two companies were controlled by the same major shareholder, STC Canada, and shared a Chairman and executive management in the person of Mr Ting.  In fact, the greater proportion of this information was present and included within the two internal credit application forms and the documents attached thereto, including Mr Pipit’s ‘corporate structure’ chart, and thus this cannot be represented as a repayment of the existing Singer facility by an unknown and entirely unrelated third party company; had this been the case I accept that this no doubt would have raised concern within TFB.

419. A feature of the plaintiff’s case which has achieved some profile, both within the evidence and (at least at the outset) in argument, is that, in effect, TFB should have recognized that on its face this transaction clearly was to Akai’s commercial ‘detriment’ and thus that its actions should have been scrutinized by the Bank qua ‘corporate protector’ of Akai, notwithstanding that Akai was a listed Hong Kong company headed by (at that time) a very well-known and respected Hong Kong businessman.

420. I am unable to agree with any proposition which places any such burden upon any bank in the position of TFB in this case.  In my view, the only relevance of the fact of this transaction being to the commercial detriment of Akai, in the sense that Akai immediately assumed the obligation to pay the sum advanced, is that in certain circumstances – for example, if Akai had been an entirely unrelated third party company to Singer – this may have stimulated inquiry as to the authority of the person within the unrelated entity which was seeking to undertake the transaction, or perhaps would have raised concerns with the Bank as to the risk profile of the new borrower under any such new loan arrangement.

421. The attitude of the courts to any suggestion that a lender should be so concerned (and thus, presumably, should make its own determination as to whether the anticipated loan was, or was not, in the new borrower’s financial interests), succinctly is summarized in the judgment of Bryson J in Maronis Holdings v. Nippon Credit, op cit., at 28:

“The facts…do not demonstrate either bad faith on the part of Nippon Credit, or breach of fiduciary duty on the part of its directors.  They are acts in the conduct of Nippon Credit’s business in its own interests.  It was Nippon Credit’s business to lend money, and to earn interest by doing so, and to attend to the risks of doing so.  It was not Nippon Credit’s business to look after Maronis’ interests; that was the business of Maronis and its directors.  There is in my opinion nothing to prompt further inquiry, or to form any basis for constructive notice of wrongdoing, about a financier’s declining a loan unsecured, but deciding to make a loan when the intending borrower brings forward security from a business associate, not an individual suffering from some social or intellectual disadvantage, but a commercial organization operating as a subsidiary of a company listed on the Stock Exchange.  People dealing honestly with such organizations can take exercises of their powers at face value.  Dealing with an uncomprehending child is different…”

422. I respectfully agree with, and adopt this view.

423. It follows from the foregoing that upon the all-important issue of actual knowledge on the part of TFB as to Mr Ting’s lack of authority, upon which issue the plaintiff bears the burden, I have concluded that this burden has not been discharged.

424. Whilst as to the consequentially crucial issue of apparent authority, which necessarily involves the issue of ‘absence of inquiry’ and upon which TFB bears the evidential burden, I have concluded, and so hold, that this burden has been discharged, and that in entering into the Akai Loan and Share Pledge Agreements on 4 December 1998 that TFB was entitled to rely upon the apparent authority of Mr Ting, whose course of conduct throughout his dealings with TFB, culminating in Akai’s entry into these Agreements, unequivocally had represented his ability and authority to bind Akai.

425. It is tolerably clear, to borrow a phrase employed by Millett J (as he then was) in Macmillan Inc v. Bishopsgate Trust (No 3) – cited herein at paragraphs 389-390 above – that “the thought never had crossed anyone’s mind” at TFB that Mr Ting in fact had possessed no authority so to bind Akai, and in the prevailing circumstances, as revealed on the evidence before the court, the Bank had no actual knowledge which aroused its suspicions, and thus would have obliged the Bank to make inquiry as to the existence of Mr Ting’s authority to act as he did on 4 December 1998.

426. This finding, however, does not finally decide this case in light of the conflict of law issue as raised by TFB, which is whether the issue of actual/apparent authority (and, were it to be necessary, the further issues of ‘knowing receipt’ and ‘knowing assistance’) is/are to be governed by the application of Hong Kong law or of Thai law.

The ‘choice of law’ question

427. I can deal with this element of the case relatively briefly, in light of the conclusions I have reached as to the application of actual and apparent authority under Hong Kong law, and as to the honesty of TFB in its dealings with Akai.

428. On behalf of TFB, Mr Snowden contended that Thai law and banking practice are relevant to two issues: first, as to the apparent authority of Mr Ting in relation to entry by the Bank into the Akai Loan and Share Pledge Agreement; and second, as to any issues as to the honesty of the Bank, or the state of knowledge other than actual knowledge on the part of the Bank.

429. In support of his contention that Thai law (the law governing the Loan Agreement) is the applicable law on the question of Mr Ting’s apparent authority, the Bank relies upon Rule 228 of Dicey, Morris and Collins: The Conflict of Laws (14^th ed., 2006) which provides that “the rights and liabilities of the principal as regards third parties are, in general, governed by the law applicable to the contract concluded between the agent and the third party.”

430. Accordingly Mr Snowden submitted that the relevant principle of Thai law should be applicable in determining whether a third party with no actual knowledge of a breach of duty by an agent can hold the principal to the contract.

431. He also said that logically the approach canvassed in Dicey also would mean that Japanese law (as the specified law governing the Share Pledge Agreement) was applicable to the validity of the Share Pledge Agreement, but that, absent expert evidence on Japanese law, Hong Kong law should be applied to this issue.

432. For his part, Mr Kosmin suggests, to the contrary, that this case is “one of those instances” wherein the general principle evinced in Dicey, Rule 228, should not be applicable, and that Akai does not accept that Thai law applies in the present circumstances.

433. His position is that if it were the case that the sole determinative of the law to apply in considering whether a company director has actual or apparent authority to enter into a transaction is the law of the putative contract, then in the present circumstances this would give rise to the extraordinary situation whereby issues of Mr Ting’s authority would, in effect, be governed by three different legal systems: the law of Bermuda as regards his actual authority, the law of Japan as regards his apparent/ostensible authority to enter into the Share Pledge Agreement, and the law of Thailand as regards any question of his apparent/ostensible authority to enter into the Loan Agreement, and that such a result would be “patently absurd”, and, as he put it, “a more pragmatic and workable outcome is required.”

434. Mr Kosmin submitted that there is support for the view that it is the country where the agent is acting that is relevant, and, further, that the solution in the present case was to ascertain the law with the ‘most substantial connection’ to the actions of these parties, citing in this regard the observations of Roch LJ in Presentactiones Musicales S.A. v. Secunda [1994] 2 WLR 660, a case in which an English firm of solicitors, Goodman Derrick, mistakenly supposing that they had the authority of their clients, a Panamanian company, had issued a writ naming their client as plaintiff claiming relief against the defendants for alleged breaches of an agency agreement and infringements of copyright dating back to 1981.

435. The issue before the court in that case was the defendant’s application for a strike out/stay, it having been discovered that the plaintiff had been dissolved and liquidators appointed under Panamanian law in June 1987, albeit the liquidators in 1988 had purported to ratify the act of the English solicitors as their own.  Upon the trial of a preliminary issue, the question was whether, in a situation wherein the English action had been commenced in the name of the Panamanian plaintiff without its authority within the post-liquidation three year period as prescribed by Panamanian law, the liquidators could ratify after the expiry of this three year period.  The trial judge had decided in the affirmative, and the appeal therefrom was dismissed, Roch LJ stating, at 671:

“Mr Nugee on behalf of Goodman Derrick submitted that in general, the question whether a person who purports to act an officer of a foreign corporation is authorized to do so must be determined by the law of the place of incorporation; the whole notion of ratification is that when it takes place it is the equivalent of an express prior authority.  Both those statements are correct, with this qualification that although ratification when it takes place is the equivalent of an express prior authority that does not mean that for the purposes of the conflict of laws it is the same thing as express prior authority.  Once it is shown by the law of Panama that neither Mr Van Walsum nor Goodman Derrick were authorized to act, the consequences of that lack of authority are matters for the law of the place where the unauthorized act was performed.  Thus, despite the clear and vigorous submissions of Mr Nugee, I conclude that the issue of ratification is governed by English law…”

and earlier, op cit., at 670:

“What has to be considered, in my view, is first the effect of the contract apparently entered into between the plaintiff company and Goodman Derrick and of the act of Goodman Derrick in issuing proceedings against the defendants.  The law which should apply to that contract and to that act, in my opinion, is the law which has the closest connection with that contract and with that act, namely English law…”

436. It is noteworthy that Roch LJ considered the relevant Rule in Dicey & Morris, (then the 12^th ed. 1993) which was in like terms to that appearing in the current edition, and which stated that “third parties must be able to assume, at least where the agent has no actual authority from the principal, that the agents’ authority covers everything which would be covered by the authority of an agent appointed under the law applicable to the contract made between the agent and the third party”, but that on his analysis of the facts before him he held that Goodman Derrick, the English solicitors, had been retained, on behalf of a Panamanian company, to perform legal services in England and thus Roch LJ considered that “the validating of the act of commencing proceedings by those who clearly [had] authority under Panamanian law to do so on behalf of the plaintiffs must be a matter for English law.”

437. In my view there is a strong argument, which I accept, in favour of Mr Kosmin’s submission that in this case Hong Kong law has the ‘most substantial’ connection to the Akai Loan Agreement, in particular in relation to the authority and conduct of Mr Ting, because Mr Ting was acting (or purporting to act) at all times as a director of a listed Hong Kong company, his entry into the Loan Agreement was made in Hong Kong, his breach of fiduciary duty occurred in Hong Kong, TFB itself then was carrying on business under a restricted banking licence in Hong Kong, the loss was suffered by Akai in Hong Kong in incurring the liability to repay TFB, and the shares of Akai Electric as were received by TFB were delivered in Hong Kong.

438. If this analysis is correct, as I believe it to be, upon the issue of apparent authority (and indeed that of ‘knowing receipt’), this court thus does not have to concern itself with matters of Thai law, upon which some time was spent during this trial in receiving expert evidence on Thai law and banking practice from two Thai lawyers, Mr Chaipat Kamchadduskorn, for the defendant, TFB, and Mr Kowit Somwaiya, for Akai.

439. As to their evidence, I accept that both learned gentleman did their best to assist the court, and although in light of my findings I do not consider it necessary to go into any detail upon their interesting dissertations, if I be wrong in the view that in this case the court does not have to concern itself with Thai law within the context of apparent authority and ‘knowing receipt’, I should indicate that it is my firm view that I would have preferred the opinions expressed by the plaintiff’s expert, Mr Kowit Somwaiya, who demonstrated considerably the greater relevant experience, and who opined with authority upon the various issues he was asked to consider, and upon which he was critically examined by leading counsel.

440. Accordingly, if I had had to decide this case on the basis of Thai law as the applicable law – which in my view I do not – I should have proceeded upon the basis of the evidence of Mr Kowit Somwaiya, the expert witness for the plaintiff, and not on the views expressed by Mr Chaipat Kamchadduskorn, who despite a charming and helpful demeanour, had not had any prior experience of being an expert witness, and had the tendency to generalize from the singularity of his personal experience – Mr Kosmin aptly characterized the position when he described Mr Chaipat as “materially overreaching” in his report in relation to matters of Thai banking practice – and whom in my judgment failed to demonstrate the general knowledge, objectivity and overall banking acumen present in the evidence and approach of his expert counterpart. 

441. However, whilst I indicate that I should have preferred the views of Mr Somwaiya, I do not consider, at bottom, that application of Thai law would make, or would have made, any difference in terms of the analysis of and conclusions upon the issues in this case – which issues, as I have indicated, have been decided solely upon the application of Hong Kong law.

Disposition

442. The foregoing decision in terms of the apparent authority of Mr Ting, and reliance thereon by the Bank is, therefore, effectively dispositive of this case in favour of the defendant, TFB.

443. Whilst I have no doubt but that the Bank put its own interests first in terms of its transaction with Akai, in blunt terms this is what commercial entities accountable to shareholders have to do.  Equally I have no doubt (and specifically so find) that the Bank dealt honestly with Mr Ting, whom in the circumstances it reasonably believed was entitled to represent Akai, and thus to enter into the Akai Loan and Share Pledge Agreements.

444. In my judgment this was a purely commercial transaction which, although obviously enuring to the benefit of TFB, was entered into by the Bank in good faith, and that TFB was entitled then to take the view (as I hold that in fact it did) that Mr Ting was an honest businessman whom it had no reason to suppose was acting suspiciously or with a lack of authority or with any lack of bona fides or in breach of fiduciary duty.

445. With great forensic skill, the plaintiff’s leading counsel has subjected substantially undisputed historical events to detailed ex post facto dissection, and from these circumstances appealingly has woven a skein of suspicion and doubt in seeking to undermine that which at the time clearly was regarded by TFB as an advantageous commercial transaction, but which in my judgment nevertheless was, and remains, a bona fide commercial transaction untainted by wrongdoing on the part of the Bank.  The fact that, as I have said, this arrangement in all probability was canvassed/discussed between Mr Ting and Banyong Lamsam prior to being formally considered in detail by the Bank’s Credit Committee and its Executive Board, in my judgment does not serve to alter its intrinsic validity.

446. I reject unequivocally the notion that in any sense the Bank was, or should have acted as, Akai’s ‘commercial guardian’, the interest rate as charged, at 4.5% above prevailing LIBOR (from the previous LIBOR + 2.25%), providing ample support for the proposition that in extending this credit facility to Akai that the Bank was acting in straightforward commercial mode.

447. At the end of the day, therefore, notwithstanding Mr Kosmin’s most persuasive submissions, in my judgment the plaintiff in this case has failed to discharge the legal burden which it bears in order successfully to vitiate the transactions entered into by the Akai with TFB.

448. It follows from this, therefore, that the Bank was, and is, entitled to hold Akai to the Agreements it entered into with the Bank on 4 December 1998, and thus that the Bank is entitled, in good conscience, to retain the proceeds of the sale of the shares in Akai Electric, which it had retained as security for the Akai loan, and thereafter to prove in the Akai Liquidation for its post share-sale financial shortfall.

449. In light of these findings, there strictly is no necessity to go further to consider the other legal arguments which have been precipitated by this case, but in the event that this court is held to have been wrong in the view that it has taken, I proceed now (albeit perhaps more briefly) to express my conclusions upon these other outstanding matters upon the hypothetical basis that such matters remain of relevance.

III. Knowing Receipt/Restitution

450. This head of liability would arise only if – contrary to my earlier finding – TFB cannot hold Akai to the Loan and Share Pledge Agreements by virtue of Mr Ting’s actual or apparent authority: see the analysis of Lord Nicholls in Criterion Properties v. Stratford UK Properties, op cit., at 1848:

“…If a company (A) enters into an agreement with B under which B acquires benefits from A, A’s ability to recover those benefits from B depends essentially on whether the agreement is binding on A.  If the directors of A were acting for an improper purpose when they entered into the agreement, A’s ability to have the agreement set aside depends upon the application of familiar principles of agency and company law.  If, applying these principles, the agreement is found to be valid and is therefore not set aside, questions of ‘knowing receipt’ by B do not arise.  So far as B is concerned there can be no question of A’s assets having been misapplied.  B acquired the assets from A, the legal and beneficial owner of the assets, under a valid agreement made between him and A.  If, however, the agreement is set aside, B will be accountable for any benefits he may have received from A under the agreement.  A will have a proprietary claim, if B still has the assets.  Additionally, and irrespective of whether B still has the assets in question, A will have a personal claim against B for unjust enrichment, subject always to a defence of change of position.  B’s personal accountability will not be dependent upon proof of fault or ‘unconscionable’ conduct on his part.  B’s accountability, in this regard, will be ‘strict’…”

451. On the pleadings Akai alleges that the Loan Agreement and the Share Pledge Agreement were invalid and of no effect, alternatively that TFB knew or suspected that Mr Ting was acting in breach of his fiduciary duties in causing Akai to enter into these transactions.

452. In turn, this leads Akai to claim either that TFB is liable to make restitution to Akai of the property that it received pursuant to the Loan Agreement and Share Pledge Agreement – in this regard utilizing the ‘strict accountability’ approach adumbrated by Lord Nicholls in Criterion Properties, op cit.; or, in the alternative, that TFB knew or at the least suspected that Mr Ting was acting in breach of his fiduciary duties in causing Akai to enter into the Akai credit facility, and that if TFB thus is found to have known or to have been ‘put on inquiry’ in terms of entry into the Akai facility, which on its face appeared to provide no benefit to Akai, it must thereby be ‘unconscionable’ for TFB to be permitted to retain the benefit of the property that it received pursuant to the Akai Loan and Share Pledge Agreements.

453. TFB’s pleaded response to the ‘knowing receipt’ claim is that Akai took the US$30 million pursuant to a valid and binding contractual obligation enshrined within the Akai Loan Agreement, that the Bank received the 56 million (later consensually reduced to 50.5 million) shares in Akai Electric pursuant to a valid and binding Share Pledge Agreement, that the proceeds of sale of the Akai Electric shares were received pursuant to the exercise of the power of sale under that which it believed was a valid and binding Share Pledge Agreement, that it did not have sufficient knowledge to render it liable as a constructive trustee, and that Akai had, and has, no basis to avoid the Loan and Share Pledge Agreements, and, finally, and in any event, that TFB can rely upon the defence of ‘change of position’.

454. The fundamental elements of a claim in ‘knowing receipt’ were stated by Hoffmann LJ (as he then was) in El Ajou v. Dollar Land Holdings plc [1994] 2 All ER 685, at 700:

“For this purpose the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly, knowledge on the part of the defendant that the assets received are traceable to a breach of fiduciary duty…”

455. More recently, the basis of personal liability for ‘knowing receipt’ authoritatively was restated by the English Court of Appeal in BCCI v. Akindele [2001] Ch 437, a case which has been followed in this jurisdiction: see, for example, High Fashion Garments Co Ltd v. Ng Siu Tong et al (No 2) [2005] 4 HKC 8, at para 22 (per Lam J); and Peconic Industrial Development Ltd v. Chio Ho Cheung (unrep.) HCA 16255 of 1999, judgment dated 1 June 2006, at para 240 (per A Cheung J).

456. As stated in Akindele, op cit. – which by general consensus has clarified the modern basis of liability for ‘knowing receipt’ – the personal liability to account is distinct from any proprietary claim in equity (which is available only for so long as assets applied in breach of fiduciary duty can be identified as the property of the plaintiff or their traceable proceeds), and that to found a cause of action in ‘knowing receipt’ property not only must be applied in breach of fiduciary duty and be received by the defendant, but the personal liability to account therefor does not arise unless and until the recipient’s retention of the property can be characterised as ‘unconscionable’.

457. In Akindele, Nourse LJ reformulated the issue of ‘knowledge’ as to the source of the assets in terms of test of the ‘unconscionability’ of continued retention, when he said, op cit., at 455, that “all that is necessary is that the recipient’s state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt”.

458. It also seems clear, and I accept, that neither ‘constructive knowledge’ nor ‘constructive notice’ suffice to found a liability in ‘knowing receipt’: see, for example, Eagle Trust plc v. SBC Securities Ltd [1993] 1 WLR 484, at 504D (per Vinelott J) and Cowan de Groot Properties Ltd v. Eagle Star plc [1992] 4 All ER 700, at 760a-c (per Knox J).

459. Subsequently, following the decision in Akindele, in Papamichael v. National Westminster Bank [2003] 1 Lloyd’s Rep 341, His Honour Judge Chambers QC (sitting as a judge of the QBD) observed, at paras 246-247:

“The recipient’s state of knowledge (in a case of knowing receipt)”must be such as to make it unconscionable for him to retain the benefit of the receipt” (BCCI (Overseas) Ltd v Akindele [2001] Ch 448 at 455).  It is unconscionable for him to retain the benefit of the receipt where he has actual knowledge of the circumstances which make the payment a misapplication (Criterion Properties plc v Stratford Properties plc & ors [2002] EWHC 496 (Ch), Hart J at [38]).  This would appear to be an indication of what is meant by knowledge in the judgment of Hoffmann LJ in El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685, at 700…

Despite the elegant generalization of the grounds for relief set out in Akindele, the application of the precept to the facts of that case seems to leave little room for manoeuvre.  The case makes it clear that dishonesty is not necessary for a finding of knowing receipt.  It also makes it pretty clear that the type of knowledge which is required is actual rather than constructive knowledge.  Such a requirement does away with the suggestion of a balance having to be struck between the relative urgency of the transaction and the degree of notice required: if you know, you know.” (emphasis added)

460. In light of these authorities, with which I respectfully agree, I accept the proposition that unconscionability is a function of actual knowledge, and not of constructive knowledge.  I also accept the proposition, at least within a commercial transaction, that a person who receives property consequent upon a breach of trust or breach of fiduciary duty cannot be said to be ‘unconscionable’ merely if in so doing he is careless or if he fails to make inquiry.

461. Mr Snowden’s rationale for this latter proposition is that there a good reasons why, as a matter of policy, the courts have set the threshold for liability for ‘knowing receipt’ at the level of ‘unconscionability’ as a function of actual knowledge, rather than as a result of mere ‘notice’ or ‘failure to inquire’.  He argues that when property has changed hands, as must be the position in an instance of alleged ‘unconscionable retention’, the apparent security afforded to any commercial entity by the receipt of such property would be undermined should a mere ‘failure to inquire’ within the ambit of a normal commercial transaction be regarded as a matter which potentially was able to vitiate that transaction.

462. By this I take him to mean – and I agree – that the sanctity of the contractual bargain in the market place should not be undermined save in the egregious circumstances which arise from the actual knowledge of the recipient of the property that such receipt has enured in breach of trust and/or fiduciary duty on the part of the counterparty to the transaction in question.

463. If this rationale be correct, as in my view it is, it follows that any approach which moots ‘strict liability’ or ‘restitutionary liability regardless of fault’ on the part of any such recipient is not an approach which, with respect, I would have adopted had it been necessary to have decided this case on the basis of ‘knowing receipt’.

464. In this context, the court’s attention has been drawn the fact that the observation as to strict liability by Lord Nicholls in Criterion Properties, op cit., echoes an earlier published stance by his Lordship in a volume of essays entitled ‘Restitution Past, Present and Future’: Essays in Honour of Gareth Jones (Hart Publishing – Oxford 1998); in his own contribution, ‘Knowing Receipt: The Need for a New Landmark’ (at page 231) Lord Nicholls argues strongly that “the restitutionary approach has been widely hailed as showing the way forward for recipient liability” and that (op cit., at 238-239):

“…in this respect equity should now follow the law. Restitutionary liability, applicable regardless of fault but subject to a defence of change of position, would be a better-tailored response to the underlying mischief of misapplied property than personal liability which is exclusively fault-based.  Personal liability would flow from having received the property of another, from having been unjustly enriched at the expense of another.  It would be triggered by the mere fact of receipt, thus recognizing the endurance of property rights. But fairness would be ensured by the need to identify a gain, and by making a change of position available as a defence in suitable cases when, for instance, the recipient had changed his position in reliance on the receipt…” 

and further (at 244):

“If recipient liability is to have a firmer basis for the future, the attempt to formulate one single principle of personal liability should be abandoned.  Instead, personal liability should be based on the combination of two separate principles of liability.  First, recipient liability should cover all third party recipients.  This would be a principle of strict liability in that it would apply to every recipient with an impeachable title irrespective of fault, but it would be restitutionary in nature.  It would be confined to restoring an unjust gain.  Change of position would be available as a defence accordingly.  Secondly, dishonest recipients should be personally liable to make good losses as well as accounting for all benefits…”

465. This ‘strict liability’ approach to recipient liability as adumbrated by Lord Nicholls has been but recently pleaded (Mr Snowden suggests “opportunistically”) in the plaintiff’s Re-Amended Points of Claim, and has been adopted in the final submissions of Mr Kosmin, who contends that if this ‘pure’ restitutionary approach is correct, and that if the court finds that Akai is not bound by the Loan and Share Pledge Agreements, TFB thus strictly is required to make restitution, subject only to a defence of ‘change of position in good faith’.

466. However, notwithstanding the undoubted eminence of Lord Nicholls, and indeed the internal coherence of the logic underpinning the concept of ‘strict liability’ for recipient liability, the courts noticeably have been reluctant to embrace this reasoning, and in this area therefore to abandon the traditional concept of ‘unconscionability’.  Thus, in Akindele, op cit., at 455G-456F, Nourse LJ referred to the observations of Lord Nicholls, and said:

“While in general it may be possible to sympathise with a tendency to subsume a further part of our law of restitution under the principles of unjust enrichment, I beg leave to doubt whether strict liability coupled with a change of position defence would be preferable to fault-based liability in many commercial transactions, for example where, as here, the receipt is of a company’s funds which have been misapplied by its directors.  Without having heard argument, it is unwise to be dogmatic, but in such a case it would appear to be commercially unworkable and contrary to the spirit of the rule in Royal British Bank v Turquand (1856) 6 E&B 327 that, simply on proof of an internal misapplication of the company’s funds, the burden should shift to the recipient to defend the receipt either by a change of position or perhaps in some other way.  Moreover, if the circumstances of the receipt are such as to make it unconscionable for the recipient to retain the benefit of it, there is an obvious difficulty in saying that it is equitable for a change of position to afford him a defence…”

467. Similarly the High Court of Australia emphatically has rejected the ‘pure/strict restitutionary’ thesis: see, for example, the unanimous decision in Farah Construction Pty Ltd v. Say-Dee Pty Ltd [2007] HCA 22, wherein that court (Gleeson CJ, Gummow, Callinan, Heydon, Crennon JJ) considered obiter (at paragraphs 148-155) the view of the Court of Appeal from whose decision this appeal lay and which had adopted this line of reasoning on the basis of Lord Nicholls’ article, observing that “there were several matters of principle pointing against the course taken by the Court of Appeal”; in fact, in what can only be described as a trenchant rebuttal, the High Court proceeded to list six such matters of principle against the adoption of such an approach, and unreservedly rejected the concept of founding strict recipient liability upon the premise of ‘unjust enrichment’.

468. For my part, had it been necessary to decide this case on the basis of ‘knowing receipt’ – which, as I have made clear, it is not – I would have rejected Mr Kosmin’s invitation to adopt the so-called ‘strict liability’ approach, and instead would have founded the analysis upon the accepted view that recipient liability must be based upon actual knowledge on the part of the defendant that the assets he received were traceable to a breach of fiduciary duty.

469. Thus, given that I have found, as a fact, that the defendant, TFB, did not have actual knowledge of Mr Ting’s breach of fiduciary duty and/or lack of authority to enter into the Akai Loan and Share Pledge Agreements, it follows that if and in so far as the species of recipient liability now categorized as ‘knowing receipt’ were to be held to be relevant to the decision in this case, any such liability could only be based upon a determination that the finding of this court as to the absence of actual knowledge on the part of the defendant was in error.

IV. Knowing/dishonest assistance

470. It is fair to say that the case mounted by the plaintiff against the defendant in terms of ‘knowing assistance’ has undergone something of a ‘sea change’ in the course of this case.

471. In the course of his final address Mr Snowden pointed out that until Akai’s pleaded re-amendments, on 21 February 2008 upon the eighth day of the trial, that Akai’s case in dishonest assistance against the Bank had been that the Bank knew or must be taken to have known that Mr Ting was dishonest and in breach of his fiduciary duties to Akai, and that such knowledge was through Mr Banthoon Lamsam, Mrs Tasma, Miss Wattanakul and the three other members of the Executive Committee of the Bank.  In fact, Mr Snowden noted (in paragraph 163 of the plaintiff’s written opening), that Akai had alleged that by reason of the unusual features of the facility, and the fact that the transaction had provided no commercial benefit to Akai, that the Bank had participated in the transaction knowing that it had involved a misapplication of Akai’s assets, or was at the least aware of such facts such that in so acting it was dishonest.

472. However, during Mr Kosmin’s opening submission, in response to a question from the court, leading counsel had accepted that the highest that legitimately he could put the case against TFB in terms of ‘knowing assistance’ was in terms of ‘wilful blindness’: “I accept that. I just don’t have anything else. But, as I say, it’s a question of not asking questions that should have been asked…”

473. Thereafter, on the sixth day of the trial (19 February 2008) when Akai first had sought leave to re-amend in terms of the draft then produced, the case that the Bank actually knew that Mr Ting was dishonest and/or in breach of trust and/or in breach of fiduciary duty was deleted (at para 57 of the Re-Amended Points of Claim), and a case of ‘wilful blindness’ was articulated for the first time, the individuals within the Bank alleged to have so acted being named as Mr Banthoon Lamsam, Mrs Tasma and Miss Wattanakul.

474. However, this case against Miss Wattanakul was abandoned at the end of Miss Wattanakul’s cross-examination on the 12th day of the trial (27 February 2008), and similarly was so abandoned against Mrs Tasma at the end of her cross-examination on Day 14, thereby leaving only Mr Banthoon Lamsam within the ‘wilful blindness’ frame, albeit its scope then was extended to include the other members of the Bank’s Executive Committee at the time, comprising Mr Banyong Lamsam (Mr Ting’s co-director on the Board of Singer Thailand), Mr Chana Rungsaeng and Mr Kaorop Nuchanart.

475. With regard to these gentlemen, it now was said that they had ‘shut their eyes to the obvious’ first, by a failure to read or to have regard to documents or information, second, by deliberately choosing not to make enquiries that might lead to such knowledge, and/or third, by a deliberate failure to obtain legal advice in relation to whether Mr Ting had authority to bind Akai to entry into the Akai facility as had been granted by TFB.

476. Accordingly, had such been necessary in order to dispose of this case, it would have fallen to this court to examine the evidence in light of this significantly revamped claim.

477. As to the applicable legal principles under the head of ‘knowing assistance’, there is, I apprehend, no dispute between leading counsel.

478. First, and most important, it is now settled that carelessness or mere imprudence is insufficient to establish the vital ingredient of dishonesty, which is the fundamental plank within the concept of ‘knowing assistance’; in this connection dishonesty is to be equated with conscious impropriety, as Lord Nicholls expressed the position in his seminal speech in the case of Royal Brunei Airlines v. Tan [1995] 2 AC 378, at 389B-G:

“Dishonesty

…Whatever may be the position in some criminal or other contexts…in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances.  This is an objective standard.  At first sight this may seem surprising.  Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence.  Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated.  Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct.  Carelessness is not dishonesty.  Thus, for the most part dishonesty is to be equated with conscious impropriety.  However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances.  The standard of what constitutes honest conduct is not subjective.  Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual.  If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.

In most situations there is little difficulty in identifying how an honest person would behave.  Honest people do not intentionally deceive others to their detriment.  Honest people do not knowingly take others’ property.  Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries.  Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless…”

and thereafter, within the particular context of the taking of risk, Lord Nicholls continued, op cit., at 389-391:

“However,… the position is not always so straightforward.  This can best be illustrated by considering one particular area, the taking of risks.

Taking risks

All investment involves risk.  Imprudence is not dishonesty, although imprudence may be carried recklessly to lengths which call into question the honesty of the person making the decision.  This is especially so if the transaction serves another purpose in which that person has an interest of his own.

This type of risk is to be sharply distinguished from the case where a trustee, with or without the benefit of advice, is aware that a particular investment or application of trust property is outside his powers, but nevertheless he decides to proceed…

So far as the trustee himself is concerned the legal analysis is straightforward.  Honesty or lack of honesty is not the test for his liability.  He is obliged to comply with the terms of the trust.  His liability is strict.  The analysis of the position of the accessory…does not lead to a simple clear -cut answer in every case…What does honesty require him to do?

The only answer to these questions lies in keeping in mind that honesty is an objective standard.  The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances.  It is impossible to be more specific.  Knox J captured the flavour of this, in a case with a commercial setting, when he referred to a person who is ‘guilty of commercially unacceptable conduct in the particular context involved’: see Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 All ER 700, 761.  Acting in reckless disregard of others’ rights or possible rights can be a tell-tale sign of dishonesty.  An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and the seriousness of the adverse consequences to the beneficiaries.  The circumstances will dictate which one of more of the possible courses should be taken by an honest person…”

479. The objective standard for dishonesty referred to by Lord Nicholls in his speech in Royal Brunei v. Tan, op cit., has been endorsed in the speech of Lord Hoffmann in the Privy Council in Barlow Clowes International Ltd (in liquidation) v Eurotrust International Ltd [2006] 1 All ER 333, and most recently, in Abdou-Rahmah v. Abacha [2007] Bus LR 220, a case in knowing or dishonest assistance against a Nigerian bank alleged to be engaged in money-laundering, in which the English Court of Appeal (Lords Justices Pill, Rix and Arden) applied Barlow Clowes, and held that for the purpose of establishing dishonesty for knowing assistance, it was not necessary for the defendant to be aware that he had transgressed ordinary standards of honest behaviour.  In Hong Kong, also, the approach adumbrated by Lord Nicholls has been applied by the Commercial Court in UBS AG v. Stand Ford International Enterprises Ltd [2002] 3 HKC 621, and subsequently in Peconic Industrial Development Ltd v. Chio Ho Cheong, HCA 16255 of 1999, Judgment of A Cheung J dated 1 June 2006.

480. Second, the ‘wilful blindness’ element within the cause of action in ‘knowing assistance’ requires a suspicion that the relevant facts do exist, coupled with a deliberate decision to avoid confirming that they exist; moreover, this suspicion must be firmly grounded/targeted in terms of specific facts, and the deliberate decision not to inquire must be a decision to avoid confirmation of the facts in whose existence there is good reason to believe: see, for example, Manifest Shipping Co Ltd v. Uni-Polaris Insurance Co Ltd [2003] 1 AC 469, a shipping insurance case wherein insurers had failed to meet an assured’s claim for the loss of a vessel, and wherein the trial judge had found, inter alia, that owners had had ‘blind eye’ knowledge of the unseaworthiness of the vessel, and thus the judge had granted partial recovery only under the policy.  This decision was reversed on the facts by the English Court of Appeal, which allowed the assured to recover the full insured value of the vessel on the ground that although owners had been negligent, they clearly had not had ‘blind eye’ knowledge of unseaworthiness.

481. In dismissing the insurer’s appeal therefrom, the House of Lords (Lords Steyn, Hoffmann, Clyde, Hobhouse and Scott) held that an assured could not be said to be privy to the unseaworthiness of his vessel by virtue of ‘blind eye knowledge’ unless it was shown on the evidence (which in this case it did not) that he had had a suspicion or belief that the vessel was unseaworthy, and deliberately had refrained from making relevant inquiries, and that to establish privity it was necessary to show on a subjective basis that the reason why the assured had failed to make investigations was that he had not wanted to know the state of the vessel for certain, and further in this regard that negligence or gross negligence was insufficient.

482. In the course of his speech Lord Scott observed, op cit., at 517, paragraph 116:

“In summary, blind-eye knowledge requires, in my opinion, a suspicion that the relevant facts do exist and a deliberate decision to avoid confirming that they do exist.  But a warning should be sounded.  Suspicion is a word that can be used to describe a state-of-mind that may, at one extreme, be no more than a vague feeling of unease and, at the other extreme, reflect a firm belief in the existence of the relevant facts.  In my opinion, in order for there to be blind-eye knowledge, the suspicion must be firmly grounded and targeted on specific facts.  The deliberate decision must be a decision to avoid obtaining confirmation of facts in whose existence the individual has good reason to believe.  To allow blind-eye knowledge to be constituted by a decision not to enquire into an untargeted or speculative suspicion would be to allow negligence, albeit gross, to be the basis of a finding of privity.  That, in my opinion, is not warranted by section 39(5) [of the Marine Insurance Act, 1906] …” (emphasis added)

483. The like point was emphasized by Lord Millett in Twinsectra Ltd v. Yardley & ors [2002] AC 164, at 195:

“it is dishonest for a man deliberately to shut his eyes to facts which he would prefer not to know.  If he does so, he is taken to have actual knowledge of the facts to which he shut his eyes.  Such knowledge is described as ‘Nelsonian knowledge’, meaning knowledge which is attributed to a person as a consequence of his ‘wilful blindness’ or (as American lawyers describe it ‘contrived ignorance’.  But a person’s failure through negligence to make inquiry is insufficient to enable knowledge to be attributed to him…In his magisterial opinion in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, every word of which merits close attention, Lord Nicholls firmly rejected negligence as a sufficient condition of accessory liability.  The accessory must be guilty of intentional wrongdoing.  But Lord Nicholls did not, in express terms at least, substitute intentional wrongdoing as the condition of liability.  He substituted dishonesty.  Dishonesty, he said, was a necessary and sufficient ingredient of accessory liability. ‘Knowingly’ was better avoided as a defining ingredient of the principle…” 

and within the same context the court has been referred not only to Royal Brunei, op cit., per Lord Nicholls, at 389, as applied in Hong Kong in PBM (Hong Kong) Ltd v. Tang Kam Lun, HCA 12138 of 1997, judgment of Deputy Judge Lam (as he then was) dated 24 May 2002, upheld on appeal at CACV 274 of 2002; and further to Grupo Torras v. Al-Sabah [2001] Lloyd’s Rep PN 117, applied in Hong Kong in Bank of China v. Kwong Wa Po, HCA 5291 of 2001, judgment of Deputy Judge L Chan (as he then was) dated 13 June 2005.

484. Third, and last in terms of review of applicable principle, ‘dishonest assistance’ is not to be based upon facts which are as consistent with honesty as with dishonesty, so that the court must not infer a person’s dishonesty unless it is satisfied by cogent evidence that it is the only possible inference that can be drawn in the circumstances: see, for example, Three Rivers DC v. Bank of England (No 3) [2003] 2 AC 1, wherein Lord Millett, in emphasising the necessity to plead fraud or dishonesty with sufficient particularization, observed, at 291:

“…an allegation of fraud or dishonesty must be sufficiently particularized, and… particulars of facts which are consistent with honesty are not sufficient.  This is only partly a matter of pleading.  It is also a matter of substance.  As I have said, the defendant is entitled to know the case he has to meet.  But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference.  At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud.  It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded which are consistent with honesty.  There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved…”

485. Let me make it clear that had it been necessary to determine this case upon the issue of ‘dishonest assistance’, I should have had no hesitation whatever in rejecting such argument.  This is an element of Akai’s case which in my judgment simply does not get off the ground on the basis of the evidence now before this court.

486. To a degree, of course, the earlier observations in this judgment with regard to the issues of apparent authority and that of ‘knowing receipt’ tend to inform any conclusion upon this aspect of the case, and thus there is substantial risk of repetition.

487. Suffice it to say that in my view Mr Kosmin’s submission under the head of ‘dishonest assistance’ did not come close to satisfying the benchmark required by the leading authorities in order to establish ‘dishonest assistance’.

488. Mr Kosmin’s main focus clearly lay elsewhere, and in my view his submissions in this regard effectively were no more than a ‘re-hashing’ of those earlier prayed in aid under the plaintiff’s claim in ‘knowing receipt’ – that is, in terms of the TFB’s actual and constructive knowledge of Akai’s Bye-Laws, of TFB’s alleged knowledge of Mr Ting’s lack of authority to enter into the Akai Credit Facility, the fact of TFB allegedly being placed on inquiry as to the ‘questionable nature’ of the Akai Credit Facility, and of TFB similarly being put on inquiry as to Mr Ting’s lack of authority as at the date of completion.

489. I have earlier dealt with the ‘authority’ and ‘inquiry’ issues, whilst as to the evidence of Mr Banthoon Lamsam, also prayed in aid under this head, I do not consider, and I do not find, that he was a dishonest man, or that his evidence is in any way sufficient to get the plaintiff home under the rubric of ‘dishonest assistance’. 

490. True it is that the court disbelieved Mr Lamsam upon the specific issue of whether at any time he had discussed this case, and the Akai Credit Facility, with his uncle, Banyong Lamsam, but as earlier indicated, I have taken the view that this was no more than an wholly misplaced and ill-judged tactical denial; certainly there is no evidence whatsoever that Mr Banthoon Lamsam or the Bank had been acting dishonestly, in the sense required by the cause of action in ‘dishonest assistance’, in terms of TFB’s dealing with Akai and Mr Ting at the material time, and in accepting the substitution of Akai for Singer by means of the Akai Loan and Share Pledge Agreements.

491. I further reject unequivocally the contention that in entering into the Akai Facility that TFB “deliberately decided not to make any inquiries or ask any questions so as to avoid confirming the inevitable fact that the transaction was unauthorized and was made by Mr Ting in breach of trust and in breach of his fiduciary duties to Akai”, or that “TFB abstained in a calculated way from making such inquiries as an honest and reasonable banker, of the sophistication and experience of Banthoon Lamsam, would have made – his conduct was glaring”, which is Mr Kosmin’s forceful characterization of events within Akai’s closing submissions. 

492. The hard fact remains that the Bank was dealing with a long-standing customer whose imprimatur to act for Akai never was questioned and never was in reasonable question – hence the finding of this court upon the issue of apparent authority, and the view taken as to the absence of dishonesty on the part of the Bank in terms of absence of inquiry(ies).

493. In this regard I agree with, and accept, the submissions by Mr Snowden that the case on wilful blindness as now advanced against the Bank in terms of failure to read or to have regard to documents (eg the Akai Bye-Laws) is conceptually unsound, and is consistent only with an act of negligence, and thus is insufficient in itself to support a case of ‘wilful blindness’, and that in terms of the failure to make inquiries the history of dealings between the Bank, Akai and Singer gave no cause for concern as to the Akai Loan Agreement; whilst as to the accusation that at the relevant time the members of the Bank Executive Committee deliberately chose to forego making inquiries, or to obtain legal advice as to Mr Ting’s authority, there is no evidence whatever that this was the case.  Nor, in light of the lateness of the amendments as to ‘wilful blindness’, do I consider justified criticism of TFB’s failure to call other members of its Executive Committee in order to counter this particular allegation.

494. I repeat the observation that in my judgment this was a commercial transaction at wholly commercial rates of interest which, whilst obviously enuring to the benefit of the Bank, in itself cannot be classified as ‘dishonesty’ or ‘commercial sharp practice’, and I further repeat the view that the Bank is not in any sense to be regarded as Akai’s ‘commercial guardian/protector’ ever alert to safeguarding Akai’s commercial interests, and to placing such perceived interests ahead of its own.

495. It follows, therefore, that in my judgment the ‘dishonest assistance’ claim fails, or would have failed, in limine. 

V.  TFB’s Defences

496. These defences arise only if, contrary to its submissions, the Bank is held to be liable and to have unconscionably retained the benefits of the Akai Loan Agreement and the Share Pledge Agreement.

497. This has not been held to be the case, but if and in so far as this court is held to be wrong in its earlier conclusions as to liability, I proceed now briefly to consider the two defences as raised on the pleadings.

   (i)  Election

498. This defence featured more prominently in the Bank’s opening statement than within Mr Snowden’s final submission; whilst he did not abandon the point, it is probably fair to say that at the end of the day he did not press this issue either.

499. The case on election, at least as initially formally put, was that when the Bank’s Proof of Debt, as submitted within the Akai liquidation, was accepted by the liquidators, the liquidators were fully aware that the purpose of the Bank’s loan to Akai had been to repay Singer’s debt under the Singer Credit Facility, and that, even if (which is denied) the Akai Loan Agreement and the Share Pledge Agreement had been executed by Mr Ting without proper authority, when they had accepted the Bank’s Proof of Debt the liquidators had elected to treat these two Agreements as valid and binding.

500. In Motor Oil Hellas (Corinth) Refineries SA v. Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391, Lord Goff stated the applicable principle as to ‘election’ thus, at 399:

“In the context of a contract, the principle of election applies when a state of affairs comes into existence in which one party becomes entitled to exercise a right, and has to choose whether to exercise the right or not.  His election generally has to be an informed choice, made with knowledge of the facts giving rise to the right.  His election once made is final; it is not dependent upon reliance on it by the other party.”

501. The point also has to be made that the ‘wilful blindness’ situation – wherein a person entitled to rescind deliberately decides not to acquire knowledge of a matter which he believes it likely that he could confirm, and thus is treated as having had had knowledge of that matter – provides an exception to the rule as to ‘informed choice’ which underpins the ‘election’ concept: see O’Sullivan, Elliot & Zakrzewski, The Law of Rescission, (2008), paragraphs 23.1 – 23.33, hence the reliance by the defendant upon election solely within the context of any adverse finding in terms of ‘unconscionable conduct’ on the part of the Bank.

502. In his written closing submissions, Mr Snowden argues that “it is difficult to conceive of a more unequivocal election than the formal (quasi-judicial) process of adjudicating upon a Proof of Debt”, and on behalf of the Bank he did not accept that it was necessary for Mr Borelli, acting as Liquidator, to know of the contents of the 2 October 1998 Credit Application before it could be asserted that the liquidators had full knowledge of the relevant facts. 

503. Mr Snowden maintained that in August 2002 Mr Borelli well knew that the purpose of the Akai Loan was to repay the Singer Loan, and that by that stage he had detailed knowledge of the corporate affairs of Akai as a result of having been involved for the preceding two years in its liquidation.  Thus, he argued, Mr Borelli fairly could be said to have had all material facts before him, indeed the very facts upon which he now relied in order to allege that the Bank had been placed ‘on inquiry’ as to the authority and propriety of the conduct of Mr Ting; accordingly, the 2 October 1998 Credit Application – the Bank’s acceptance of which , it will be recalled, providing the genesis of this case – would have added nothing of substance to his relevant knowledge.

504. Mr Snowden further noted that in the event Mr Borelli had decided not to seek to acquire definite knowledge of the matter, and that in evidence Mr Borelli had said as follows:

“I was aware that the funds purportedly advanced to Akai by TFB pursuant to the Akai Credit Facility were used by Akai to repay a debt of Singer’s to TFB.  While I considered this fact potentially worthy of further investigation, it did not of itself lead me to consider that there was any basis for me not to recommend that TFB’s proof of debt be admitted.”

505. Mr Snowden emphasized that the issue of whether the Liquidator had made an election, and the issue of whether the Court in Hong Kong should move to expunge the Proof of Debt pursuant to Rule 96 of the Companies (Winding Up) Rules, were entirely different questions, and were dependent upon different considerations.  In the circumstances of this case, he said, the Bank’s submission was that in the circumstances Akai had elected to treat the Loan Agreement and the Share Pledge Agreement as valid, subsisting and binding.

506. As to the election issue, Mr Kosmin accepted that the appropriate starting point was the statement of principle by Lord Goff in The Kanchenjunga, op cit.

507. However, his main point of departure from the defendant’s approach on this issue was that the authorities made it clear that where the election in question is an affirmation of a contract, this requires not only knowledge of facts not disclosed, but also knowledge of the right to avoid the contract, in this regard citing the case of Peyman v. Lanjani [1985] Ch 457, per Stephenson LJ at 487.

508. Mr Kosmin pointed out that against the background of the decisions in The Kanchenjunga and Peyman, op cit., the modern law had been summarized by Mance J (as he then was) in Insurance Corporation of the Channel Islands v. Royal Insurance (UK) Ltd [1998] Lloyd’s Rep IR 151, at 161:

“In summary, the type of affirmation here in issue involves an informed choice (to treat the contract as continuing) made with the knowledge of the facts giving rise to the right to avoid it.   Provided that the party knows sufficient of the facts to know that he has that right, it is unnecessary that he should know all aspects or incidents of those facts.  Although this point was left open in The Kanchenjunga [1990] I Ll R 391, there is Court of Appeal authority in Peyman v Lanjani [1985] 1 Ch 457 that the party must generally know that he has that right.  The making of his choice must be communicated unequivocally to the other party before there can be a binding affirmation.”

509. Mr Kosmin submitted that the requirement that the party so electing should be fully informed places an obligation upon the party wishing to rely upon an election to make full and frank disclosure to the electing party if later it is to assert that a binding and irrevocable election has been made, and that plainly it is ‘unconscionable’ and ‘sharp practice’ to seek to rely upon an election when the other party has withheld relevant information from the putative elector.  It was also the position, he said, that absent knowledge of the right to rescind, conduct otherwise consistent with an election to continue with the contract will be relevant only to the extent that it may found an estoppel if the counterparty has relied on such conduct to its detriment.

510. Against this background of established principle, Mr Kosmin contended that it was clear from Mr Borelli’s evidence that when the TFB Proofs of Debt were admitted that Mr Borelli had not been aware of the full circumstances in which the Akai Credit Facility had been entered into, and that this information had not been provided to the Liquidators by TFB.  As Mr Borelli had stated in evidence, he said, an awareness of the matters in the 2 October 1998 Akai Credit Application at the time when the Proofs of Debt were adjudicated upon would not have resulted in a recommendation of the admission of those Proofs, and thus that this conduct on the part of Mr Borelli clearly did not fall within the rubric of “an unequivocal election or affirmation made in full knowledge.”

511. In short, Mr Kosmin submitted, it was clear from his evidence that at the time of the admission of the TFB Proof that Mr Borelli had not been in possession of all relevant facts, and that most certainly he had not been aware of the right to rescind the Akai Credit Facility.  Whilst Mr Borelli had acknowledged that he was aware that the funds advanced by TFB through the Akai Credit Facility were used to repay Singer’s debt to TFB, this did not constitute knowledge of all the facts relevant to found a claim against TFB; in particular, Mr Borelli had had no knowledge of whether Mr Ting’s conduct was a breach of his fiduciary duties, nor of the specific circumstances in which TFB had entered into the transaction.

512. Nor, said Mr Kosmin, at the time of the admission of the Proof of Debt, had the Bank disclosed to the Liquidators two key pieces of documentary evidence: first, the Executive Committee Minute of 4 December 1998, itself a “highly questionable document”, and second, the Akai and Singer Credit Applications.

513. Further, leading counsel contended, it was clear from Mr Borelli’s evidence that he had not understood that Akai had had the right to rescind the Loan and Share Pledge Agreements at the time of the admission of the Proof of Debt, and on the test adumbrated in Peyman, op cit., regardless of the state of his knowledge Mr Borelli could not be taken to have caused Akai to elect to treat the Loan Agreement and the Share Pledge Agreement as binding upon it. 

514. Neither could it be contended by the Bank that it had in any way relied upon the admission of the Proof to its detriment, so that no issue of estoppel could be said to arise as a result of Mr Borelli’s action in admitting the Proof of Debt.

515. I agree with and accept the contentions of Mr Kosmin in the context of the ‘election’ debate.

516. If and in so far as the case had remained ‘live’, and thus had depended upon an ‘election’ argument, I should not have found that in admitting the TFB Proof that the Liquidators had made an election to treat the Akai Credit Facility as binding, nor should I have found the existence of any estoppel binding upon the liquidators.

517. Accordingly, had it been necessary so to find, this defence would have failed.

   (ii)    Change of Position

518. I turn now to the second defence relied upon by TFB, that of ‘change of position’ in response to the Akai claim based upon ‘knowing receipt’, which cause of action generally is treated within the authorities essentially as a species of restitutionary claim: see, for example, the observations of Lord Millett in Twinsectra, op cit., at 194B, of Nourse LJ in Akindele, op cit., at 455, and of Clarke LJ (as he then was) in Niru Battery Manufacturing Co v. Milestone Trading Ltd [2004] QB 985, at 999.

519. The defence of ‘change of position’ was adumbrated by Lord Goff in Lipkin Gorman v. Karpnale Ltd [1991] 2 AC 548, at 580:

“At present I do not wish to state the principle any less broadly that this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or to make restitution in full.  I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things.”

520. It is also established that the change of position in question must be causally linked to the receipt: see Scottish Equitable plc v. Derby [2001] EWCA 369, [2001] 3 All ER 818, a case wherein the defendant assured had received a mistaken overpayment under a policy held with the plaintiff, and had used the overpayment (of some Sterling. 172,000) to reduce the mortgage on the matrimonial home, and wherein, upon the company having realized its mistake, it had initiated proceedings for restitution in respect of the overpayment.  The trial judge had found that the defence of ‘change of position’ applied only to a small sum of Sterling 9,600, and gave judgment to the defendant upon the remainder. 

521. In dismissing the defendant’s appeal, wherein he had contended that the judge had misapplied the principles relating to the defence of change of position, the English Court of Appeal (Simon Brown, Robert Walker and Keene LJJ) held that the defence of change of position required some causal link between the mistaken receipt of the overpayment and the defendant’s change of position, such that it was inequitable for the recipient to be required to make restitution.  In his judgment, op cit., at 827a-e, Robert Walker LJ stated:

“The judge noted the view, put forward by Andrew Burrows (The Law of Restitution (1993) pp 425-428) that there is a narrow and a wide version of the defence of change of position, and that the wide view is to be preferred.  The narrow view treats the defence as ‘the same as estoppel minus the representation’ (so that detrimental reliance is still a necessary ingredient).  The wide view looks to a change of position, causally linked to the mistaken receipt, which makes it inequitable for the recipient to be required to make restitution.  In many cases either test produces the same result, but the wide view extends protection to (for instance) an innocent recipient of a payment which is later stolen from him (see Goff and Jones p822, also favouring the wide view.

In this court [the plaintiff/respondent’s counsel] did not argue against the correctness of the wide view, provided that the need for a sufficient causal link is clearly recognized.  The fact that the recipient may have suffered some misfortune (such as a breakdown in his health, or the loss of his job) is not a defence unless the misfortune is causally linked (at least on a ‘but for’ test) with the mistaken receipt.  In my view Mr Moriarty [for Scottish Equitable] was right to make that concession.  Taking a wide view of the scope of the defence facilitates ‘a more generous approach…to the recognition of the right to restitution’ (Lord Goff in the Lipkin Gorman case…; and compare Lord Goff’s observations in Kleinwort Benson Ltd v Lincoln City Council [1998] 4 All ER 513, at 541, [1999] 2 AC 349 at 385)…”

522. A correlative principle is that whilst there must be a causal connection between the change of position and the receipt of the funds, the defence also can apply where the change of position precedes the receipt, in other words, anticipatory reliance.  Thus, in Dextra Bank and Trust Co. v. Bank of Jamaica [2002] 1 All ER (Comm.) 193, the Privy Council was dealing with a situation wherein the appellant, Dextra Bank, and the respondent, Bank of Jamaica, each had been deceived as to the intention of the other, with the result that Jamaican dollar sums paid by the Bank of Jamaica had been received by third parties, P and B, who themselves had been responsible for the deception.  Dextra Bank, as drawer of the initial US dollar cheque in favour of the Bank of Jamaica, began proceedings against Bank of Jamaica to recover the sum paid out on that cheque, a claim that failed at first instance and in the Court of Appeal of Jamaica.  Dextra Bank appealed to the Privy Council, arguing that the delivery of the cheque to the Bank of Jamaica was not made by it or under its authority as drawer within the meaning of the Jamaican equivalent of s 21(2)(a) of the UK Bills of Exchange Act 1882 because delivery had been made not by P, the authorized agent, but by B, who was not authorized so to do. 

523. In dismissing the appeal by Dextra Bank, in a joint speech Lords Bingham and Goff adverted to the defence of change of position in the context of what fundamentally was a restitutionary claim, and observed, op cit., at paragraph 38, page 204-205:

“…Here what is in issue is the justice or injustice of enforcing a restitutionary claim in respect of a benefit conferred.  In that context, it is difficult to see what relevant distinction can be drawn between (1) a case in which the defendant expends on some extraordinary expenditure all or part of a sum of money which he has received from the plaintiff, and (2) one in which the defendant incurs such expenditure in the expectation that he will receive the sum of money from the plaintiff, which he does in fact receive.  Since ex hypothesi the defendant will in fact have received the expected payment, there is no question of the defendant using the defence of change of position to enforce, directly or indirectly, a claim to that money.  It is surely no abuse of language to say, in the second case as in the first, that the defendant has incurred the expenditure in reliance on the plaintiff’s payment, or, as is sometimes said, on the faith of the payment.  It is true that, in the second case, the defendant relied on the payment being made to him in the future (as well as relying on such payment, when made, being a valid payment); but provided that his change of position was in good faith, it should provide, pro tanto at least, a good defence because it would be inequitable to require the defendant to make restitution, or to make restitution in full.  In particular it does not, in their Lordships’ opinion, assist to rationalize the defence of change of position as concerned to protect the security of receipts and then to derive from that rationalization a limitation on the defence.  The defence should be regarded as founded on a principle of justice designed to protect the defendant from a claim in restitution in respect of a benefit received by him in circumstances in which it would be inequitable to pursue that claim, or to pursue it in full.  In any event, since (as previously stated) the context of a restitutionary action requires that the expected payment has in any event been received by the defendant, giving effect to ‘anticipatory reliance’ in that context will indeed operate to protect the security of an actual receipt.”

524. Clearly, in considering the defence of change of position, each case must depend upon its own particular facts.  In the present case, the Bank contends that its position changed irreversibly when it lost the right to prove in the Singer Chapter 11 proceedings in the United States, and that this had occurred becauseat the relevant time the Bank had believed that the Loan and Share Agreement entered into with Akai were valid and binding.

525. In terms of the precise time sequence, the evidence is that on 30 September 1999 Mr Pipit Aneaknithi of the Bank had received a fax from Domine Ko of Akai informing the Bank that Singer already had filed for bankruptcy, and that, as the Bank already had entered into the Akai Credit Facility, which immediately had been utilised to repay the amount outstanding under the Singer Credit Facility, it had not taken the opportunity to file a Proof of Debt in the American Singer insolvency proceedings; in fact, upon this aspect Mr Aneaknithi’s evidence was not challenged.

526. Thus, Mr Snowden’s argument was that in reliance upon its expectation of receiving money under the Loan Agreement, money which it did receive in due course, the Bank had omitted to participate in Singer’s Chapter 11 proceedings in the United States, and thus, in accordance with the expressions of principle propounded by Lords Bingham and, Goff in Dextra Bank, op cit., this had amounted to a valid ‘change of position’ which now could be invoked on behalf of the Bank.

527. Mr Snowden accepted, as he must, that any change of position must be in good faith if it is to found a viable defence, so that, as Lord Goff stated in Lipkin Gorman, op cit., at 580C-D:

“It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer.”

528. Mr Snowden also fairly accepted that conduct such as “failure to act in a commercially acceptable way” or “sharp practice of a kind that falls short of dishonesty” would suffice to defeat a defence of change of position, but that “mere negligence” is not enough to destroy the defence: see Abou-Ramah v. Abacha, op cit., at para 42, page 231, per Rix LJ:

“…It was common ground both that mere negligence on the part of the bank would not be enough to destroy its defence and that dishonesty in the Twinsectra [2002] 2 AC 164 or Barlow Clowes [2006] 1 WLR 1476 sense was not required to defeat it.  There need only be something inequitable, something “capable of embracing a failure to act in a commercially acceptable way” or “sharp practice of a kind that falls short of outright dishonesty” apart from “dishonesty itself” – citing what Moore-Bick LJ said in Niru Battery Manufacturing Co v Milestone Trading Ltd {2002} 2 All ER (Comm) 705, para 135, approved in this court [2004] QB 985, para 164…”

529. Thus, Mr Snowden maintained that if, contrary to its submissions, the Bank was held to be liable in ‘knowing receipt’, and unconscionably to have retained the benefits of the Loan Agreement and the Share Pledge Agreement, nevertheless it should be able to rely upon the defence of change of position.  In this regard, the touchstone of his argument was that ‘unconscionability’ is “not necessarily”, and in the circumstances of this case, is “not so serious” as to amount to the type of bad faith which would operate so as to deprive the Bank of a defence of change of position.

530. On behalf of the plaintiff, Mr Kosmin takes issue with the submission that the Bank is entitled to rely upon the defence of ‘change of position’.

531. In this regard, the plaintiff’s argument is three-fold: first, that TFB did not change its position upon the basis of the assumption that the Loan Agreement and the Share Pledge Agreement were valid, subsisting and binding; second, that even if TFB did change its position, it did not do so in good faith or with clean hands, and that in the circumstances of the present case it would be inequitable or unconscionable to rely on the defence; and third, if in the event that TFB is entitled to rely on the defence, the amount that it would have received from the Singer Chapter 11 Bankruptcy Proceedings would have been no more than US$1, 068,057, and that such amount is the maximum sum deductible in calculating the quantum of the compensation now said to be payable to Akai in these proceedings.

532. In any evaluation of that which the court would have done in the context of this argument, had such been necessary, there is a certain artificiality by reason of the fact the defence of ‘change of position’ is girt about with the concept of ‘good faith’, and in the circumstances, any discussion of the applicability of this defence must be predicated upon the plaintiff having succeeded upon a cause of action which now has been rejected by this court as a basis for establishing liability.

533. However, on the basis that the only ground in this case upon which, in my view, the plaintiff possibly could have got home is that of ‘knowing receipt’ – although in the event it did not – I intend simply to indicate what would have been the decision of the court, in terms of this ‘change of position’ defence, had this been the situation.

534. Although Mr Snowden has argued that ‘unconscionability’ would be insufficient to deprive the Bank of this defence, I do not consider that I can agree with this proposition (or would have so agreed).

535. It strikes me that if the court had been minded to accede to the plaintiff’s case based upon ‘knowing receipt’, with all that this imports in terms of ‘unconscionability’, it remains difficult to accept that although the Bank prima facie may be regarded as liable on the basis of its actual knowledge of lack of authority and/or breach of fiduciary duty, nevertheless that it should be able to preclude restitution upon the ground of ‘change of position’.  To utilize language culled from Dextra Bank, op cit., it thus seems to me that it is difficult in principle to hold in such circumstances that the plaintiff’s restitutionary pursuit should be categorized as ‘inequitable’; indeed, it strikes me that the contrary should be the case.

536. Mr Kosmin also has pointed out that in Niru Battery Manufacturing Co., op cit., Clarke LJ (as he then was) expressed the test in terms which highlighted the inherent unlikelihood of a defence of change of position succeeding as a defence to a ‘knowing receipt’ claim; in that case, after reviewing the relevant authorities to-date Clarke LJ said, op cit, at paragraph 162, page 1003:

“I have reached the conclusion that the authorities support the proposition…that the essential question is whether on the facts of a particular case it would in all the circumstances be inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake of fact to deny restitution to the payer…”

and subsequently, in rejecting the submission of counsel that a payment away is made in good faith unless it is made dishonestly, the learned judge further observed, at paragraph 164:

“The question remains in what circumstances a bank will be held to have acted otherwise than in good faith.  The answer is of course that all depends on the circumstances so that it is not possible to lay down absolute principles…”

thereafter quoting with approval from the judgment of the trial judge (at [2002] 2 All ER (Comm) 705, at 741), who had opined:

“I do not think that it is desirable to attempt to define the limits of good faith; it is a broad concept, the definition of which, in so far as it is capable of definition at all, will have to be worked out through the cases.  In my view it is capable of embracing a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of dishonesty, as well as dishonesty itself…Greater difficulty may arise…in cases where the payee has grounds for believing that the payment may have been made by mistake, but cannot be sure.  In such cases good faith may well dictate that an inquiry be made of the payer.  The nature and extent of the inquiry called for will, of course, depend on the circumstances of the case, but I do not think that a person who has, or thinks he has, good reason to believe that the payment was made by mistake will often be found to have acted in good faith if he pays the money away without first making inquiries of the person from whom he received it…”

537. There is little to be gained from dwelling upon this aspect, which inevitably is fact-sensitive.

538. The short point is that if I had held well-founded Mr Kosmin’s submissions as to the necessity of the Bank making inquiries as to the authority of Mr Ting, and/or the necessity to investigate suspicions which it is asserted that the Bank possessed as to Mr Ting’s breach of fiduciary duty, then it seems equally clear that the defence of ‘change of position’ in those circumstances could not and would not have been held to apply.

539. Accordingly, if this had been the case, I should have rejected this defence on the part of the Bank, and should have concluded that in these circumstances that it would be inequitable to deny the plaintiff a remedy solely by reason of the Bank’s non-participation in proving in the Chapter 11 bankruptcy of Singer.

540. If this view be wrong, then in any event Mr Kosmin must be right in the sense that any defence of change of position could only succeed pro tanto in terms of the maximum sum which theoretically could have been obtained by TFB in the Singer bankruptcy, which is the figure – to which Mr Snowden raised no dispute – of US$1,068,057.

Conclusion on the TFB ‘defences’

541. In light of the foregoing, therefore, if and in so far as the plaintiff had established liability on the part of the Bank, in my judgment the twin defences – of ‘election’ and ‘change of position’ – as raised by TFB would have failed.

VI. Remedy and Quantum

542. In this context there once more remains a striking difference of view between the parties.

543. Mr Snowden maintains that if the Bank were to be found liable to Akai, then the quantum of liability for ‘knowing receipt’ depends upon when any such liability arises and, if the property received varies in value post-receipt, when that property should be valued, which either is the date of judgment or, if earlier realized, the date of any such earlier realization.

544. Accordingly, Mr Snowden says that if the Bank is liable at all for the unconscionable retention of Akai’s property – which in this instance is represented by the 50.5 million shares in Akai Electric ultimately retained by the Bank as collateral (56 million having initially been received, and 5.5 million thereof having been returned at Akai’s request), and subsequently as sold on the Tokyo Stock Exchange in order to defray the outstanding liability of Akai to TFB by reason of its default under the Akai Loan Agreement – then the quantum of the Bank’s liability should not exceed the monies actually received by the Bank upon its realization of these shares in Akai Electric, together with an award of simple interest thereon.

545. Thus, on this basis, contended Mr Snowden, the Bank’s liability should not exceed the sum of US$20,504,295.38, which it is undisputed that it had received in May 2000, plus simple interest on such sum – which, although he did not descend into detail, would on this thesis presumably be calculated upon the usual basis adopted in the Commercial Court, namely at 1 to 2% over US$ HIBOR from time to time prevailing over the period between the date of receipt of these sale proceeds and the date of judgment.

546. As such, therefore, not a difficult formula to apply, had such a calculation been relevant.

547. Mr Kosmin does not agree.

548. His approach is that if liability were to be established, in principle the alternative approaches are first, that TFB should make restitution to Akai, or that the Bank should account to Akai as constructive trustee – either on the basis that it would be ‘unconscionable’ for TFB to retain the benefit of the property that it knowingly received pursuant to the Akai Loan and Share Pledge Agreements, or on the basis that the Bank dishonestly assisted and facilitated in the breach of trust and breach of fiduciary duty on the part of Mr Ting.

549. In this event four alternative measures of the loss to Akai or the benefit to TFB are pleaded: these measures range from (i) the highest value of the 50.5 million Akai Electric shares as ultimately realized by TFB, calculated on the basis of the historically highest market price for such shares, which it is said would have yielded US$71,103,196.75; to (ii) the value of the 50.5 million shares as would have been received by TFB had these shares been sold at market price on 4 December 1998, that is, US$50,775,031.42; to (iii) the amount in fact received by TFB upon its realization of these shares, that is, US$20,504,295.38; and finally (iv) in terms of the full amount of the debt initially incurred by Akai to TFB in the sum of US$30 million.

550. It is also alleged that in each case TFB had received interest and fees from Akai totalling US$2.037 million over the life of the Akai Credit Facility, and this specific sum also is sought to be recovered.

551. In his written submissions Mr Kosmin extensively has reviewed the authorities dealing with the restitutionary basis of recovery, which essentially focuses upon the concept of ‘unjust enrichment’ – see Goff and Jones (2002, 6^th ed) at 1-017, wherein the learned authors opine that “a restitutionary claim is for the benefit, the enrichment, gained by the defendant at the plaintiff’s expense; it is not for loss suffered…” – and also the basis of recovery as founded upon equitable compensation, and he has pointed out that recent authority tends to suggest that, in substance, there is little conceptually to distinguish such ‘restitutionary’ and ‘compensatory’ remedies: see City Index Ltd v. Gawler [2007] EWCA Civ 1382, a case which dealt with the issues of whether liability for ‘knowing receipt’ fell within the scope of the Civil Liability (Contribution) Act 1978, and if so, whether there is a rule of law or practice that the knowing recipient should bear 100% of the loss.

552. In the course of her judgment in City Index Ltd Lady Justice Arden observed, op cit., at paragraph 62:

“The law about claims to recover money or other property transferred to a person who is not entitled to it is complex.  The claims which may be made in these circumstances include claims for unjust enrichment based on the wrongful conduct of the defendant (known as knowing receipt) and claims for unjust enrichment based on innocent receipt (often called claims for money had and received).  The ingredients of these two causes of action are different, and there are also confusing differences in the names given to the remedies available for them, if established.  Mummery LJ commented on the confusing terminology in this area with regret in the course of the hearing of this appeal…”

In the same case Carnwath LJ(with whom Arden and Mummery LJJ agreed) embarked upon a detailed survey of relevant authority, both academic and judicial;in particular reference was made to a passage in Goff and Jones, (5^th ed., 1998), at 396, written prior to Akindele, op cit., in which the learned authors suggested that “A claim for compensation cannot be said to be a claim to recover compensation within the meaning of section 1(1) [of the 1978 Act]”, as to which proposition Carnwath LJ observed:

“…As a general statement, this seems, with respect, to go too far, at least where the restitutionary claim is for no more than the amount of the loss suffered by the claimant.  There is no doubt that the language of ‘compensation’ can be, and is often, used to describe such claims.  As the Chancellor [Sir Andrew Morritt, at first instance] pointed out…it is not difficult (nor particularly helpful) to prepare rival lists of quotations (from statements of high authority) showing alternative uses of the terms “restitutionary” and “compensatory” in this context.   I have some sympathy with the observation of Brightman J (Bartlett v Barclays Trust Co (No 2) [1980] Ch 515, 545B) quoted by the Chancellor, that:

‘…the so-called restitution which the [trustee] must now make to the plaintiffs…is in reality compensation for loss suffered by the plaintiffs…not readily distinguishable from damages except with the aid of a powerful legal microscope.’”

553. Had it been necessary so to do in this case, I should have declined to become embroiled in issues of nomenclature, and equally I should have resisted the temptation to dwell upon or to have attempted to distinguish the remedies of ‘restitution’ and ‘equitable compensation’.  It seems to me, with respect, that the practical consideration for the Commercial Court is whether the defendant is to be held liable upon the basis of ‘knowing receipt’ – which is the sole basis of liability which in my view ever was ‘on the cards’ in this case, albeit this now has been rejected on the evidence – and thus I should have approached the issue of quantum solely upon this basis.

554. Within the quantum context, it also strikes me, with respect, that on the facts of this case there has been a lack of perspective and a tendency for conceptual argument to outrun basic commercial common sense.

555. The present case is no more and no less than a claim on behalf of the general body of creditors (which no doubt is funding this action as now taken by the Akai liquidator) against another specific Akai creditor, TFB, the bank with which Mr Ting did much business in the 1990’s.  It is said, in effect, that by reason of the Thai bank’s defalcations – which at its highest, it seems to me, only could have amounted to ‘knowing receipt’ – that TFB must be made to disgorge the funds by which is has been ‘unjustly enriched’ by reason of its dealing with Mr Ting and Akai.

556. Thus, had the cause of action in ‘knowing receipt’ been established (which it has not), so far as this court is concerned the only realistic quantum assessment sustainable on the basis of unjust enrichment would have been that TFB should surrender the monies which it actually received by reason of its sale of the 50.5 million Akai Electric shares which it had held as collateral against the default of Akai in repayment of the Akai Credit Facility.

557. Against this backdrop, I confess that I find it difficult to understand how it may be suggested that the sum now to be recouped from TFB – a creditor bank which itself remains some US$13.243 million in the red – should be calculated as at a purely notional date, namely the date upon which, with the wisdom of hindsight, these Akai Electric shares can be seen to have reached their highest offer price on the Tokyo Exchange, alternatively, whether such notional calculation should be based upon the market price of the shares as at 4 December 1998, the date of the now-celebrated Akai Executive Committee Minute.

558. Had this matter been ‘live’, therefore, and had liability been established against TFB, the quantum assessment of this court would have been on the basis that TFB was to repay to the plaintiff liquidator the sum actually accruing from the proceeds of the share sale of the Akai Electric shares, in terms of which it could be said to have been ‘unjustly enriched’ – it is undisputed that this amounted to US$20,504,295.38 – no more or no less.

559. It is not of pressing significance to the Commercial Court whether such repayment ought to be characterised as ‘restitutionary’ or ‘compensatory’, and, as indicated, I can discern no commercially sensible basis on which to have made any other order, had it been necessary to deal with this issue in order to dispose of this case.

Interest

560. Had there been an order for repayment to the plaintiff of this sum of US$20.5 odd million, this raises the question of interest, and in particular whether any such interest which would have been awarded on such sum should be calculated upon a simple or compound basis.

561. Mr Kosmin submitted that in the circumstances of this case the court should not hesitate to order compound interest at monthly rests “from the date of TFB’s wrongdoing”, which he placed at 4 December 1998, and in his written submission helpfully he has attached a summary of proposed interest calculations upon differing bases.

562. In this connection Mr Kosmin argued that Courts of Equity long have recognized the power to award compound interest in cases in which a defaulting fiduciary is called to account for money knowingly received, and wherein the court judges that the justice of the case requires the award of compound interest.

563. In particular he drew the attention of the court to the case of Westdeutsche Landesbank Girozentrale v. Islington Borough Council [1996] AD 669, wherein Lord Goff observed, at 692:

“From these cases it can be seen that compound interest may be awarded in cases where the defendant has wrongfully profited, or may be presumed to have so profited, from having the use of another person’s money. The power to award compound interest is therefore available to achieve justice in a limited area of what is now seen as the law of restitution, viz. where the defendant has acquired a benefit through his wrongful act (see Goof and Jones, Law of Restitution, 4^th ed., pp. 632 et seq.; Birks, Introduction to the Law of Restitution, pp. 313 et seq.; Burrows, Law of Restitution, pp. 403 et seq.)  The general question arises whether the jurisdiction must be kept constrained in this way, or whether it may be permitted to expand so that it can be exercised to ensure that full justice can be done elsewhere in that rubric of the law…”

and further to the observations in the recent case of Sempra Metals v. Inland Revenue Commissioners [2007] 3 WLR 354.

564. In Sempra, op cit., which was a tax appeal, the House of Lords held that the time had come to recognize that a court had jurisdiction to award compound interest where a claimant was seeking money paid under a mistake of fact, albeit differing views were expressed as to the type of jurisdiction being thus exercised; Lords Hope, Nicholls and Scott held that such an award could be made in the exercise of the court’s common law restitutionary jurisdiction, whilst Lords Walker and Mance held that this would be in the exercise of the court’s discretionary equitable jurisdiction. 

565. In particular, Lord Hope commented upon the fact that in that case the Revenue had been unjustly enriched because Sempra had paid the tax in question in the mistaken belief that it was obliged to do so, when in fact it had been levied prematurely, and thus “the Revenue must give back to Sempra the whole of the benefit of the enrichment which it obtained”, and he rejected the Revenue’s claim that although the money it received prematurely had a value, that the restitutionary award should attract simple interest; he said, op cit., at 367-368:

“I do not think that such an award would be consistent with principle.  Simple interest is an artificial construct which has no relation to the way money is obtained or measured or turned to account in the real world.  It is an imperfect way of measuring the time value of what was received prematurely.  Restitution requires that the entirety of the time value of the money that was paid prematurely be transferred back to Sempra by the Revenue…”

whilst Lord Nicholls, op cit., at 374, observed that:

“We live in a world where interest payments for the use of money are calculated on a compound basis.  Money is not available commercially on simple interest terms.  This is the daily experience of everyone, whether borrowing money on overdrafts or credit cards or mortgages or shopping around for the best rates when depositing savings with banks or building societies.  If the law is to achieve a fair and just outcome when assessing financial loss it must recognize and give effect to this reality…”

and Lord Nicholls further stated, op cit., at 386:

“In these unusual circumstances I consider it is open to your Lordship’s House on this appeal to re-examine the basic point of law conceded and not argued on the Westdeutsche appeal, namely, whether interest may be awarded by the courts in exercise of their common law jurisdiction to grant personal restitutionary relief.  Further I consider your Lordships should undertake this task…

If the House takes this opportunity I venture to repeat there can only be one answer on this important question of law.  Nobody has suggested a good reason why, in a case like the present, an award of compound interest should be denied to a claimant.  An award of compound interest is necessary to achieve full restitution and, hence, a just result.  I would hold that, in the exercise of its common law restitutionary jurisdiction, the court has power to make such an award.  I agree with the thrust of Mummery LJ’s observations on this point inNEC Semi-Conductors Ltd v Inland Revenue Commissioners [2006] STC 606, 642-643, paras 172-175.  To that extent I would depart from the decision in the Westdeutsche appeal…”

566. For his part Mr Snowden maintained the orthodox argument to the effect that, should liability be established, and should there be any need to assess quantum, that this court should confine itself to the view that simple interest would suffice, making reference in this instance to a recent unsuccessful argument he had mounted before Mr Justice Richard Field in the Commercial Court in London, wherein that distinguished judge had declined to grant his request that interest on that particular claim (of which Mr Snowden vouchsafed no detail) should be imposed upon a compound basis.

567. Once again, in the circumstances of this case there is no necessity to decide this point, and thus any observation made by this court upon these submissions must of necessity be obiter.

568. In my view, however, the logic of the case, as expressed in particular in Lord Nicholls’ speech in Sempra, op cit., is compelling as a matter of commercial reality, and that if and in so far as TFB had been held to be liable to the plaintiff liquidators in ‘knowing receipt’ – which, as I have held, demands evidence of actual knowledge as to Mr Ting’s breach of fiduciary duty and/or absence of authority – then it would have been appropriate to have made an award of compound interest, with quarterly rests, upon the sum of US$20,504,295.38 at the rate of 1% over US dollar LIBOR from time to time prevailing.

569. Accordingly, had such been necessary, I would thus have held.

Order

570. It follows from the foregoing judgment, therefore, that consequent upon the trial of this action, the Order of this court is as follows:

(i)  The plaintiff’s action be dismissed;

(iii) Upon the defendant’s counterclaim, that a declaration be, and hereby is granted that the Akai Loan and Share Pledge Agreements of 4 December 1998 are valid, subsisting and binding, and further that as at October 2000 Akai was indebted to TFB in the sum of US$13,243,618.38, and that TFB is entitled to a distribution within the liquidation of Akai according to the Notices of Adjudication as filed;

(iv)    There be an order nisi that the costs of the plaintiff’s action, and of the defendant’s counterclaim, be to the defendant, such costs to be taxed if not agreed, and that such order is to become absolute unless application be made so to vary within 42 days from the date hereof.

571. Absent consent, if and in so far as Counsel wish to be heard as to any variation upon the precise form of the Order, I will entertain any written submission which the parties desire to make.

Finally

572. I wish to indicate my appreciation for the very considerable assistance rendered to this court by both teams of counsel and their solicitors during the conduct of this interesting and less than straightforward case.