EDA HOLDINGS LTD (IN LIQUIDATION) AND OTHERS v. ETEK HOLDINGS LTD AND ANOTHER

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J U D G M E N T

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Kempster, J.A. :

1. This is the judgment of the Court.

2. By judgment, reserved after a 9-day trial and given on 15th December 1987, Liu J found, in default of notice of intention to defend, that Etek Holdings Ltd, the first defendants in the action, were trustees of the respective beneficial interests of the  plaintiffs, Eda Holdings Ltd (formerly Eda Realty Limited), Inland Realty Ltd and Ford Finance Limited, all in liquidation, in 10886885 shares of Eda Investment Limited (EIL) and that BBMB Finance (Hong Kong) Limited, formerly Bumiputra Malaysia Finance Limited, a deposit-taking company and the second defendants, had converted such shares and were liable to the plaintiffs in damages amounting in all to HK$28,632,425 together with interest as provided in the formal order of the court. Against that judgment the second defendants appeal contending, by Notice dated 18th January 1988, that the plaintiffs were party to subsequent misrepresentations upon which they had relied and, accordingly, were estopped retrospectively from suing for conversion. By Supplementary Notice they contend, in the alternative, that the quantum of damages and interest awarded should be reduced.

3. The judge's findings that the plaintiffs were the beneficial owners of the shares and related certificate, that the second defendants converted them and that by the time written loan and pledge agreements were concluded, being 26th November 1981, the certificate was no longer in the possession of the second defendants are accepted.

4. From about 15th May until 22nd September 1981 the certificate in question, No 364004, was lodged with EIL on behalf of the first defendants who thereby held it in trust for the plaintiffs. On the latter date, with the consent of the first defendants and by letter, EIL, who had earlier borrowed US$20m from the second defendants, delivered the certificate to them together with signed form of transfer by way of security for a further loan of US$20m which they anticipated. The second defendants converted the certificate and the holding  so evidenced by delivering it, mediately or immediately and contrary to their mandate as defined in the letter of 22nd September, to Carrian Holdings Ltd on 14th October following; ostensibly in consideration of a post-dated cheque for HK$90m which was never presented for payment.

5. Formal documentation of the arrangement finally concluded between EIL, the second defendants and a newly incorporated company called Silver Spoon Ltd was not completed until 26th November when an agreement and pledge, both back-dated to 10th September, were signed. Falsely, Silver Spoon Ltd was described as the beneficial owner of the certificate and shares with which the second defendants had parted but which, none the less, were expressed to be pledged as part security for a loan of US$40m inclusive of the US$20m already lent. The balance was advanced to EIL, by the second defendants during December 1981.

6. According to the second defendants, albeit they could not state by way of Further and Better Particulars of Amended Defence from whom they were received, 10m of the 10886885 shares evidenced by Certificate No 364004 had been replaced on 19th October, five days after the conversion, by five certificates each for 2m shares which were readily traceable as the plaintiffs' property. No specific appropriation is alleged, however. We do not consider that the existence of circumstances which might permit of a successful proprietary claim is tantamount to a replacement. The matter does not end there. On 19th October the second defendants acknowledged to EIL receipt of 13443000 of their shares which included the 10m in question. But, subject to an arithmetical error as to 1000 shares carried forward from notes written, after the date of the conversion, on certificate No 364004, the share transfer receipt dated 20th October, produced and explained in evidence, shows the quite different split of the shares which is summarised in a letter written by EIL's registrars on 1st February 1982. Further, there was no relevant appropriation and the second defendants sought the return of the 10886885 shares from Carrian Holdings Limited during the following December. Like the trial judge we are satisfied both that the 10m shares represented by five certificates each for 2m shares are not traceable to the converted shares and that the 13443000 shares acknowledged on 19th October formed part of the 27079000 "street name" or "various" shares also pledged on 26th November.

7. The converted shares together with accrued bonus shares were, it is common ground, replaced on 4th May 1982. Subject to the question of liability, which depends on estoppel, the quantum of damages awarded, which by way of mitigation allows for such replacement and an assumed appropriation, cannot be faulted.

8. The argument on estoppel is presented in two ways. The first is that by arming them with the share certificate and the signed transfer, not being negotiable instruments, the plaintiffs, who were neither trustee nor nominee companies, enabled the first defendants and EIL to go into the market and borrow money on the hasis of false representations as to the beneficial ownership of the shares expressed to be pledged by way of security. Damage to an innocent party having resulted the plaintiffs, it is submitted, cannot he heard as against such party, which had acted in reliance on the false representation by making further advances, to claim beneficial ownership. Fuller v Glyn Mills⁽¹⁾. If this be correct, the submission continues, the plaintiffs did not have a right to immediate possession and to sue in trover on 1st July 1985, when the writ was issued, albeit they had enjoyed such a right at the time of the conversion when no estoppel is alleged to have arisen.

In Perry Herrick v Attwood⁽2) at p 37 Lord Cranworth LC considered:-

Neither fraud nor gross negligence has been alleged here. The submission also runs counter to principles expressed in Edmondson v Nuttall⁽³⁾. In any event an estoppel arises only in relation to the time when, and not before, and the circumstances in which a representation is made. To quote from the speech of Lord Birkenhead LC in Maclaine v Gatty⁽⁴⁾ at p 386 :

Thus, the loan having, been repaid the plaintiffs, if guilty of fraud or gross negligence, would have been estopped from claiming as against the second defendants that the share certificate should be returned to them rather than to Silver Spoon Limited.

9. The second way the argument on estoppel is presented is that, by reason of the common or substantially common directorship of the plaintiffs, the first defendants, Silver Spoon Limited and EIL, the knowledge and intent-of a director acting for any one of these companies, in particular for Silver Spoon Limited and EIL, is to be imputed to the rest and that, therefore, all were implicated in and estopped by the false representations made on 26th November 1981 as to the beneficial ownership of the shares. This very general proposition runs counter to well established principles. Notice to a director of company A received as the director of company B is not notice to company A: Re Marseilles Extension Railway Company⁽⁵⁾. Nor is notice of a matter which he is not bound to disclose. In Re Hampshire Land Co⁽6). To quote from the judgment of Mellish LJ at n 168 of the earlier case :

"... I cannot think that, because he was a common director to the two companies we are on that account to say that the one company has necessarily notice of everything that is within the knowledge of the common director and which knowledge he has acquired as director of the other company".

Referring, to that earlier case Vaughan Williams J stated in the latter, at p 748 :

"... the knowledge which has been acquired by the officer of one company will not be imputed to the other company unless the common officer had some duty imposed upon him to communicate that knowledge to the other company and had some duty imposed on him by the company which is alleged to he affected by the notice to receive the notice".

None of these conditions, was shown to be met in the instant case and Mr Ching, for the, appellants, therefore submitted that there is a duty on a director of company A to impart to company B, of which he is also a director, information which he would have imparted had he not forgotten it. It is not clear what information "he would have imparted had he not forgotten it" and the proposition is not supported by authority. In our opinion neither form of estoppel could have arisen as a matter of law.

10. Be our opinion on the law right or wrong neither form of estoppel contended for could have arisen on the facts of this case. Far from being bona fide pledgees the second defendants were well aware on 26th November that certificate No 364004 was no longer available by way of security. By then it was so much scrap paper; the holding it had evidenced having been transferred to Hong Kong and Shanghai Banking Corporation (Nominees) Ltd and fresh certificates issued as shown on the share transfer receipt dated 20th October already referred to. Into the bargain there was no, and hardly could have been, evidence that the second defendants had relied upon a representation they knew related to a non-existent holding. There is no appeal against the judge's finding in this regard.

11. In conclusion we acknowledge the considerable and rare advantage afforded to Liu J and to us by the provision of a privately commissioned transcript of the evidence and speeches given and made at trial.

12. The appeal is dismissed.

(1) [1914] 2 KB 168

(2) [1857] 2 De G & J 21

(3) [1864] 17 CB(NS) 280

(4) [1921] 1 AC 376

(5) [1871] 7 Ch App 161

(6) [1896] 2 Ch 743