二○○○年清盤的前上市公司雅佳控股，去年獲上訴庭裁定上訴得直，毋須向泰銀行Thanakharn
Kasikorn Thai Chamkat （Mahachon）（下簡稱銀行）償還1,342萬多美元貸款外，亦可追回銀行出售押股的2,254萬美元收益。銀行不服判決，昨在終審法院提出上訴；雅佳亦不滿法庭判定款項過低，堅持數額超過5,000萬美元，一併提出上訴案件源於九八年十二月四日，雅佳前主席丁謂替雅佳與銀行訂立一份價值3,000萬美元的貸款協議，雅佳並以日本上市的Akai Electric Co. Ltd. 5,050萬股股份作抵押；不過，雅佳借款的目的其實是要解除另一公司紐約勝家拖欠銀行的債務，因為當時紐約勝家的抵押品價值大跌。
雅佳堅持，丁謂的行為違反對雅佳的授信責任，聲稱獲授權簽訂案中借款及押股協議的雅佳行政委員會記錄是偽造文件。上訴庭亦認為雅佳「孭起」紐約勝家的債務，根本不符合雅佳本身利益。
雅佳：判定款項過低
銀行昨反駁指，雅佳佔有紐約勝家大量權益，涉案時雅佳持有紐約勝家高達7,500萬美元可換股票據，紐約勝家亦拖欠雅佳數千萬美元，一旦紐約勝家有麻煩，雅佳亦受影響。銀行又指，證據顯示，丁謂全權管理雅佳及紐約勝家的財政事宜，所以涉案時丁謂有權向銀行表示他獲得授權。
另一方面，雅佳亦不滿法庭判定的款項過低，堅持數額超過5,000萬美元（約3.9億港元），因此提出上訴。
上訴人：Thanakharn Kasikorn Thai Chamkat （Mahachon）又稱Kasikornbank Public Co. Ltd.
答辯人：雅佳控股（清盤中）
案件編號：FACV16/2009
The
Court of Final Appeal clarified the law on when a party can rely on the
apparent authority of another party’s agent in a recently decided case Akai
Holdings Ltd (In Liquidation) v Thanakharn Kasikorn Thai Chamkat, FACV No. 16
of 2009.
Introduction
On 4
December 1998, Mr. James Ting (“Mr. Ting”), the former chairman and chief
executive officer of Akai Holdings Limited (“Akai”), purportedly acting on
behalf of Akai, executed a number of documents giving rise to obligations on
the part of Akai in favour of Thanakharn Kasikorn Thai Chamkat (the “Bank”). In
December 1998, Mr. Ting, purportedly acting for Akai, borrowed US$30 million
from Thanakharn Kasikorn Thai Chamkat (the “Bank”), authorized it being used to
pay off the liability to the Bank of The Singer Company NV (“Singer NV”), a
related company. Akai lodged certificates in respect of the 56 million shares
(“Pledged Shares”) in a subsidiary of Akai, Akai Electric Co. Ltd. (“Akai
Electric”) worth approximately US$50 million at that time, purporting to give
security to the Bank. This transaction was referred to as the “Switch
Transaction”, as it transferred the liability for a substantial debt to the
Bank from Singer NV to Akai. Akai failed to repay the Loan to the Bank, and the
Bank sold the Pledged Shares and applied the proceeds in full to discharge the
debt owed by Akai to the Bank.
Subsequently,
Akai was being wound up in Hong Kong and Bermuda. The liquidators of Akai
brought proceedings against the Bank to recover from the Bank the proceeds of the
sale of the Pledged Shares, or, alternatively, the price of the Pledged Shares
at the time they were received by the Bank. The liquidators contended that the
Bank realized, must have realized, or ought to have realized, that Mr. Ting had
no power to commit Akai to the Switch Transaction, and that the Bank was
accordingly liable to pay compensation to Akai.
Stone J
dismissed the claim in the Court of First Instance, but the Court of Appeal
overturned his decision, and awarded Akai compensation in the sum of some US$22
million plus interest. The Bank appealed to the Court of Final Appeal,
contending that Stone J’s order should be restored. Akai cross-appealed to
the Court of Final Appeal, contending that it was entitled to substantially
more compensation than that awarded by the Court of Appeal based on knowing
receipt.
The
Issues
There
were two issues on the appeal to the Court of Final Appeal:-
(a) whether Mr. Ting had the
apparent authority to commit Akai to the Switch Transaction; and
(b) if he did not, in light of
Akai’s alternative claim based on knowing receipt, whether the compensation
payable to Akai was limited to the common law measure of damages.
Apparent
Authority
Three
key issues were addressed in determining whether Mr. Ting had the apparent
authority to enter into the Switch Transaction on behalf of Akai. First, the
state of mind that was required to establish the Bank had “justifiably relied”
on Mr. Ting’s authority. Secondly, the extent which third party could rely on
the unauthorized statement made by an alleged apparent agent to bind the
principal. Finally, as a matter of evidence, Bank was required to establish Mr.
Ting had apparent authority to commit Akai to the Switch Transaction.
(1) State of mind required
The
Court held that the test should be one of “irrationality” instead of
“unreasonableness”. The Court said that, in a commercial context, absent of
dishonesty or irrationality, a person should be entitled to rely on what he is
told. The Court concluded it was open to the Bank to rely on Mr. Ting’s
apparent authority unless the Bank’s belief in that connection was dishonest or
irrational. The Court observed that irrationality included turning a blind eye
and being reckless. Whether an agent could clothe himself with apparent
authority
On this
issue, the Court said it was very unlikely that a third party could establish
apparent authority on the part of an alleged agent by relying on the agent’s
own unauthorized statement to clothe the agent with authority. It was very hard
indeed to conceive of any circumstances in which an alleged agent, who does not
have actual or apparent authority to bind the principal, can nevertheless
acquire apparent authority to do so, simply by representing to the third aprty
that he has such authority.
(3) The evidence
On evidence,
the Court considered that there were various features of the Switch Transaction
which rendered it difficult for the Bank to contend that, merely because Mr.
Ting was the chairman and chief executive officer of Akai, he was held out as
having authority to commit Akai to the Switch Transaction. The features
included:-
(a) the obvious conflict of interest
of Mr. Ting to represent both Akai and Singer NV, as Mr. Ting was also the
chairman and a director of Singer NV;
(b) the only person present at the
Executive Board of the Bank who gave evidence said that he was unaware of any
benefit to Akai from the Switch Transaction;
(c) comparing to a previous
transaction which a full and detailed board resolution of Akai was signed by
all the directors, it was odd that no such board resolution of Akai was
prepared for the Switch Transaction.
The
Court identified certain unusual features of the Minutes of an Executive
Committee meeting of Akai of 4December 1998 (“the ExCo minutes”) signed by Mr.
Ting with a Mr. Ko as witness which the Bank received on the same date as part
of the documentation for the Switch Transaction, which included the following:-
(a) the minutes were not, and did
not purport to be minutes of a meeting of Akai’s board of directors as one
would expect in a “normal” transaction;
(b) the minutes were only signed by
Mr. Ting, but not other members of the board of Akai; the interests of Mr. Ting
and another director of Akai in the Switch Transaction were not disclosed;
(d) the nature or purpose of the
Switch Transaction, which was to cause Akai to assume Singer NV’s liability to
the Bank, was not described; and
(e) no benefit to Akai was
identified from the Switch Transaction, etc.
However,
these features were either not noted or ignored by the Bank. The Bank did not
check the ExCo minutes against the bye-laws of Akai, which was the Bank’s
normal practice. The Court also noted that such checking should also have been
the practice of a reasonable bank. Moreover, the Bank did not obtain any legal
advice from a lawyer qualified to assess whether the minutes were proper
evidence of Mr. Ting’s authority. While the Court noted that the minutes
purported to authorize Mr. Ting to agree to the loan facility and to pledge the
shares of Akai Electric as security, the true nature of the Switch Transaction
was not mentioned. The minutes made no reference to the actual use of the loan
facility, which was to pay off the liability of Singer NV to the Bank. In light
of the remarkable features of the Switch Transaction and the ExCo minutes, the
Court decided that the Bank was irrational in its belief that Mr. Ting had
authority to commit Akai to the Switch Transaction. As a result, the Bank had
to pay substantial compensation to the liquidators of Akai.
FACV No.
16 of 2009
IN THE
COURT OF FINAL APPEAL OF THE
HONG
KONG SPECIAL ADMINISTRATIVE REGION
FINAL
APPEAL NO. 16 OF 2009 (CIVIL)
(ON
APPEAL FROM CACV NO. 177 OF 2008)
_____________________
Between
:
THANAKHARN
KASIKORN THAI CHAMKAT (MAHACHON) (ALSO KNOWN AS KASIKORNBANK PUBLIC COMPANY
LIMITED) Appellant
and
AKAI
HOLDINGS LIMITED (IN LIQUIDATION) Respondent
_____________________
FACV No.
9 of 2010
IN THE
COURT OF FINAL APPEAL OF THE
HONG
KONG SPECIAL ADMINISTRATIVE REGION
FINAL
APPEAL NO. 9 OF 2010 (CIVIL)
(ON
APPEAL FROM CACV NO. 177 OF 2008)
_____________________
Between
:
AKAI
HOLDINGS LIMITED (IN LIQUIDATION) Appellant
and
THANAKHARN
KASIKORN THAI CHAMKAT (MAHACHON) (ALSO KNOWN AS
KASIKORNBANK
PUBLIC COMPANY LIMITED) Respondent
_____________________
Court : Chief Justice Ma, Mr Justice Bokhary PJ,
Mr
Justice Chan PJ, Mr Justice Ribeiro PJ and
Lord
Neuberger of Abbotsbury NPJ
Dates of
Hearing :
Date of
Judgment : 11 – 15 October 2010
8
November 2010
_____________________
J U D G
M E N T
_____________________
Chief
Justice Ma :
1. I agree with the judgment of Lord Neuberger
of Abbotsbury NPJ.
Mr
Justice Bokhary PJ :
2. I agree with the judgment of Lord Neuberger
of Abbotsbury NPJ.
Mr
Justice Chan PJ :
3. I agree with the judgment of Lord Neuberger
of Abbotsbury NPJ.
Mr
Justice Ribeiro PJ :
4. I agree with the judgment of Lord Neuberger
of Abbotsbury NPJ.
Lord
Neuberger of Abbotsbury NPJ :
Introduction
5. On 4 December 1998, Mr James Ting (“Mr
Ting”), the Chief Executive Officer of a company then called Semi-Tech Global
Company Limited, and subsequently renamed Akai Holdings Limited (and to which I
shall refer as “Akai”), purportedly acting on behalf of Akai, executed a number
of documents giving rise to obligations on the part of Akai in favour of Thai
Farmers Bank (“the Bank”). On 7 December
1998, in accordance with the documents executed three days earlier, Mr Ting,
again purportedly acting for Akai, borrowed US$30m from the Bank, authorised it
being used to pay off the liability to the Bank of The Singer Company NV
(“Singer NV”), and lodged certificates in respect of the 56m shares (“the
pledged shares”) in a subsidiary of Akai called Akai Electric Co. Ltd (“Akai
Electric”) with the Bank, as security for the loan.
6. This transaction was referred to in argument
as “the Switch Transaction”, an expression which I will adopt. The effect of the transaction was to create a
liability on Akai to repay the Bank within a year the sum of US$30m plus
interest, which had previously been the liability of Singer NV and to give the
Bank security in the form of 56m shares owned by Akai in Akai Electric.
7. A few months thereafter, pursuant to a
request from Akai, made on the ground that the market value of the pledged
shares had increased, the Bank released some 5.5m of the shares (“the 5.5m shares”),
retaining the balance of the pledged shares (“the Shares”). Akai failed to repay the loan when it fell
due, and, a short time thereafter, Akai went into liquidation. Thereafter, the Bank sold the Shares for some
US$20m, retained that sum to pay off part of the loan, and proved in Akai’s
liquidation for the balance.
8. At the end of 2004, the liquidators of Akai
brought the present proceedings against the Bank, essentially based on the
proposition that the Bank realised, must have realised, or ought to have
realised, that Mr Ting had no power to commit Akai to the Switch Transaction,
and that the Bank was accordingly liable to pay compensation to Akai. Stone J dismissed the claim, but the Court of
Appeal overturned his decision, and awarded Akai compensation in the sum of
some $22m plus interest. The Bank now
appeals, contending that Stone J’s order dismissing Akai’s claim should be
restored; Akai cross-appeals contending that it is entitled to substantially
more compensation than that awarded by the Court of Appeal.
9. The issues on this appeal, pared to the bone,
are two-fold:
(a) Did Mr Ting have apparent authority to
commit Akai to the Switch Transaction?
(b) If he did not, then, in the light of Akai’s
alternative claim based on knowing receipt, is the compensation payable to Akai
limited to the common law measure of damages?
10. The Bank contends that the answer to both
questions is in the affirmative. On the
first question, the Bank has realistically abandoned its contention,
unsuccessfully maintained below, that Mr Ting had actual authority to enter
into the Switch Transaction: hence the issue in this court is limited to
apparent authority. On the second
question, it is agreed that, in common law, the measure of damages would be
based on the value of the Shares at the date they were sold by the Bank, but
Akai contends that it has a claim against the Bank for knowing receipt of the
pledged shares, which entitles it to claim equitable compensation, which would
result in a substantially higher sum.
11. I turn first to set out the undisputed facts
in a little more detail, and will then deal with the two questions identified
above, and a small point on interest.
The
facts giving rise to this claim
The
companies involved in this case
12. During late 1997, many countries in
South-East Asia were adversely affected by the so-called Asian Financial
Crisis. As the third largest financial
institution in Thailand, the Bank was hit by what Stone J referred to as
“severe liquidity problems” owing to the Crisis and consequent substantial
non-performing loans. The Bank’s entire
profit for the year ended 31 December 1997 was only US$17 million, and, in
order to survive, it undertook a share issue of US$857 million during April and
May of 1998.
13. One of the Bank’s many non-performing loans
had been made to Singer NV, with whom the Bank had often had dealings through
Mr Ting. Although it subsequently
transpired that he had been dishonest, as at 1998 Mr Ting was a much respected,
and apparently very successful, businessman, with substantial interests in, de
facto control over, and effective management of, a number of what were then at
least substantial companies.
14. One of those companies was Akai, at that time
a public company incorporated in Bermuda and carrying on business from Hong
Kong. Akai owned just over 70% of the
shares in Akai Electric, a Japanese company, which was Akai’s main operating
subsidiary. Mr Ting was its executive
chairman and chief executive officer.
Its shares were listed on the main board of the Hong Kong Stock
Exchange, with the majority of the issued shares being held by members of the
public, while 43% were owned by Semi-Tech Corporation (“STC Canada”).
15. STC Canada was a company listed on the
Toronto Stock Exchange, and owned as to 45% by Mr Ting and 55% by the public;
Mr Ting was its chairman, president and chief executive officer. He owned a very substantial stake in STC Canada,
as did (albeit to a lesser extent) his former University teacher, Dr Holmes,
who was also a director of STC Canada and of Akai. Unlike Mr Ting, Dr Holmes gave evidence at
the trial.
16. STC Canada owned 50% of the shares in Singer
NV, a company incorporated in the Netherlands Antilles and listed on the New
York Stock Exchange. The remaining 50%
of Singer NV shares were held by members of the public. Mr Ting was also the chairman and a director
of Singer NV.
17. Singer NV indirectly owned 48% of Singer
Thailand Public Company Limited (“Singer Thailand”), a company listed on the
Stock Exchange of Thailand. The Bank
owned 8.5% of Singer Thailand’s issued shares, and the Bank’s chairman, Mr
Banyong Lamsam was on the board of Singer Thailand (as its chairman), together
with Mr Ting.
The
background to the Switch Transaction
18. Since about 1992, Singer NV had enjoyed a
revolving credit facility (“the Singer Facility”), with a limit of US$30
million, from the Bank. The Singer
Facility was secured by a pledge of 6 million shares in Singer Thailand owned
by Singer NV.
19. By the second half of 1997, the value of
shares in Singer Thailand had dropped very substantially, and, as a result, the
security provided by Singer NV was no longer anywhere near sufficient to meet
the collateral requirements of its facility.
On 24 November 1997 Singer NV repaid the Singer Facility in full.
Notwithstanding the deficient security, it was allowed to redraw the full US$30
million on 5 January 1998. Stone J held that
this was clearly a “mistake” and an embarrassing “error of judgment” on the
part of employees of the Bank.
20. In April 1998, having realised its mistake in
permitting the re-drawing of the Singer Facility, the Bank initiated
discussions to prompt proposals from Singer NV to address the problem of its
severely defective security. The Singer
Facility was rolled over for a further six months on 2 April 1998, pending the
outcome of those discussions.
21. During the course of those discussions, one
possibility which was mooted was that the loan to Singer NV be redeemed by
Akai, an arrangement which would be facilitated by the money for this being
provided by the Bank in the form of a loan to Akai. In the context of this possibility, Akai’s
memorandum and articles of association (or bye-laws) were provided to the Bank
on 25 May 1998.
22. The discussions eventually resulted in the
Bank preparing an internal credit application dated 19 August 1998 in the name
of Singer NV (“the Singer Credit Application”).
This application included a proposal for a change of borrower from Singer
NV to Akai, with Akai providing fresh security, which would fully cover the
advance, in the form of Akai Electric shares.
The Singer Credit Application was prepared by the Bank’s account officer
responsible for the Singer Facility, Ms Tattaya Wattanakul (“Ms Wattanakul”),
and approved by her supervisor, Mrs Jutathip Tasma.
23. After stating that Singer NV needed to renew
the US$30m loan facility for three years, the Singer Credit Application
continued:
“[The Singer Thailand] shares …
cover only 4.2% of the outstanding. To comply with terms and conditions of the
[loan facility] and to reduce the Bank’s risk, we proposed 2 alternatives to
[Singer NV] … :
- 1st alternative, the Company shall renew
the [US$30 million credit facility] … for another 3 years by pledging of the
remaining [Singer Thailand] shares … to cover the loan from 4.2% to 9.07%.
- 2nd alternative, … changing of the
borrower from [Singer NV] to [Akai] and changing of collateral from … [Singer
Thailand] shares to … [Akai Electric shares] to reduce the Bank’s risk. … The
2nd alternative would be beneficial to the Bank namely (1) collateral would
cover the credit at 100% (2) [Akai’s] sales volume has increased every year and
sustained profit. The Company has stable
financial condition … (3) [Akai Electric] has good operating result ...
For the
above 2 alternatives, we have negotiated with the Company and are of the view
that the interest rate should be adjusted from LIBOR + 2.25% to LIBOR + 4.50%.”
24. The Singer Credit Application attached a
detailed corporate structure chart for Akai, STC Canada and Singer NV, which is
a useful aide-memoire (although it refers to Akai Electric as “Akai
Electronic”):
25. On 24 September 1998, the Singer Credit
Application was considered by the Bank’s Credit Committee. Of those attending the Credit Committee
meeting of 24 September 1998, only Mr Siripongs Kalayanarooj (“Mr Siripongs”)
gave evidence. He could not think of
another example of a transaction similar to the Switch Transaction during his
thirty years in banking.
26. The Credit Committee did not accept either of
the two options proposed in the application, but instead put forward an
alternative proposal, which involved a reduction in the Singer Facility and
pledge of additional Singer Thailand shares as security. This proposal was rejected by Singer NV,
which was experiencing significant cash-flow problems and was not in a position
to repay the US$30 million.
27. By this stage, as Mr Siripongs explained, the
Bank was faced with the choice of continuing to lend to Singer NV, an
under-collateralised borrower that would inevitably default in a short time, or
proceeding with the Switch Transaction.
He also said that, in the event of default by Singer NV under the Singer
Facility, which was inevitable without the Switch Transaction, the Bank would
have to report such default to the Bank of Thailand and Bank of England, which
at the time “would have caused problems for [the Bank]”.
28. On 2 October 1998, the Bank prepared a second
internal credit application, in the name of Akai instead of Singer NV (“the
Akai Credit Application”), which was submitted directly to the Bank’s Executive
Board. The Board’s members were the
Bank’s chairman, Mr Banyong Lamsam, its chief executive officer, Mr Banthoon
Lamsam, and two of its senior executives.
Of these four people, only Mr Banthoon Lamsam gave evidence.
29. The Akai Credit Application recommended, and
sought approval for, the Switch Transaction.
It proposed a short term credit line of US$30 million in favour of Akai
secured by the pledge by Akai of Akai Electric Shares, to the value of 143% of
the loan. The Akai Credit Application
attached the same corporate chart as was attached to the Singer Credit
Application, and it stated:
“4. [Singer NV] was granted 3
years Short Term Revolving Line in the amount of USD30M by the Bank by pledging
[Singer Thailand], shares … as collateral. Due to the declining of the shares
value, the collateral value 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 NV] to [Akai], which is in the same group having stronger financial
status, and change collateral from … Singer Thailand shares to … shares of
[Akai Electric], which can fully cover the total credit line provided that
[Akai] shall apply the amount of money to repay the [Singer Facility] … and the
interest rate would be adjusted from LIBOR + 2.25% to LIBOR + 4.5%.
[T]he
operating result of [Akai show] … that the company has continuous growth of
sale volume every year and has sustained profit continuously.
The financial status is also
stable… Also, the value of [Akai
Electric] shares to be pledged with the Bank replacing [Singer Thailand],
shares can cover 100% of the credit line.
As a result, the proposal should be approved as per request.”
The Akai
Credit Application also stated that Akai was listed on the Stock Exchange of
Hong Kong.
30. On 6 October 1998, the Switch Transaction, as
commended in the Akai Credit Application was considered and approved by the
Bank’s Executive Board. The formal
record of the meeting largely reflects the wording of the Akai Credit
Application. The justification for the
Switch Transaction, as recorded in the minutes of the meeting, was “to reduce
the Bank’s risk” by effecting a change of borrower from Singer NV to Akai “a
company in the same group with more stable financial status … together with
changing collateral … to [Akai Electric] shares, which could cover the entire
credit line”.
31. Mr Banthoon Lamsam, who had never previously
dealt with Mr Ting, asserted in cross-examination that his sole knowledge of
the Switch Transaction had been derived from the Akai Credit Application. Stone J rejected that evidence. He found that the Switch Transaction had
already been discussed between Mr Banyong Lamsam and Mr Ting, with a view to
Akai taking over the Singer Facility and that it would “beggar belief” if Mr
Banthoon Lamsam had not discussed the Switch Transaction with Mr Banyong
Lamsam, who was his uncle.
The
Switch Transaction
32. Following approval of the Switch Transaction,
in early December 1998 Ms Wattanakul was, according to the Judge, “instructed
by her superior to obtain evidence of the authority of the person who was to
sign the agreements on behalf of Akai”.
She liaised with Mr Domine Ko (“Mr Ko”) of Akai to fix a time for Akai
to execute the Loan Agreement and Share Pledge Agreement. Mr Ko told Ms Wattanakul that Mr Ting would
be signing on behalf of Akai, and she asked him to provide evidence at the
meeting confirming Mr Ting’s authority.
As the signing was to take place in Hong Kong, Ms Wattanakul told Mr
Bhadranavik of the Bank’s Hong Kong office that evidence of the authority of
the person signing the documentation on behalf of Akai should be provided.
33. On 4 December 1998, Mr Bhadranavik attended
Akai’s office in Hong Kong to collect the documentation for the Switch
Transaction, and was met by Mr Ting, Ms Clara Loh and Mr Ko of Akai. Mr Bhadranavik was handed the following
documents:
(a) “Minutes of an Executive Committee”
meeting of Akai of 4 December 1998 (“the ExCo minutes”), signed by Mr Ting,
with Mr Ko as witness;
(b) The Loan Agreement under which Akai agreed
to repay the Bank US$30 million within
12 months of drawdown, signed by Mr Ting;
(c) A Drawing Notice, whereby Akai applied to
draw down the whole of the US$30m immediately, signed by Mr Ting;
(d) A payment direction, which requested the
London Branch of the Bank to “disburse the [US$30m] to yourself for the
repayment of the loan in the same amount due by [Singer NV] to yourself …”,
signed by Mr Ting;
(e) A Share Pledge Agreement recording the
terms of the pledge of 56 million Akai Electric shares as security for the Loan
Agreement, signed by Mr Ting; and
(f) The share certificates, for the pledged
56 million shares in Akai Electric, worth at that time US$56.3 million, to be
held as security for the loan.
34. Mr Bhadranavik took these documents back to
his office, and informed his Branch supervisor, Mr Niasinn Lamsam, that the
signing of the agreements had been completed and that he had obtained the ExCo
minutes. Mr Niasinn Lamsam read the minutes and signed the Loan Agreement as a
witness (even though he had not been present at the meeting). The documents were then sent to Ms Wattanakul
in Thailand. The loan was thereafter
formally drawn down on 7 December 1998, and the pledged shares were lodged with
the Bank on the same date. 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.
35. It is appropriate to set out the ExCo minutes
in full:
“SEMI-TECH (GLOBAL) COMPANY
LIMITED
Minutes
of a Meeting of the Executive Committee of the Company held at 3001 Two
Exchange Square, 8 Connaught Place, Hong Kong on 4 December 1998
Present: Mr. James H. Ting
Ms.
Clara Loh
Dr.
Frank Edward Holmes (by phone)
Mr.
Chuck Tam (by phone)
1. CHAIRMAN
Mr.
James H. Ting was elected as Chairman of the Meeting.
2. QUORUM
The
Chairman declared that a quorum of the Meeting was present and that the Meeting
was duly constituted.
3. US$30,000,000 LOAN AGREEMENT BETWEEN THE
THAI FARMERS BANK PUBLIC COMPANY LIMITED, LONDON BRANCH (THE “BANK”) AND THE
COMPANY
There
was tabled at the Meeting a draft Loan Agreement (‘the Loan Agreement’) to be
entered between the Bank and the Company in relation to the granting of a loan
facility of US$30,000,000 (the ‘Loan’) by the Bank to the Company. It was noted that it is one of the terms of
the Loan Agreement that the Company shall pledge 56,000,000 shares of Akai
Electric Co., Ltd, a subsidiary of the Company, to the Bank pursuant to a draft
Share Pledge Agreement (the ‘Pledge’), as tabled, to be entered between the
Bank and the company.
It was
resolved that the Loan Agreement and the Pledge (the ‘Agreement’) be accepted
and approved and that any one of the Directors be authorised to approve any
changes made to the Agreements prior to their execution and to execute, under
hand or seal, and deliver the Agreement, and any other documents which may, from
time to time, necessary for the Loan on behalf of the Company.
It was
also resolved that the Loan be operated as follows:
Mr James
H Ting signing singly
Ms Clara
Loh ) two
out of
any
three
signing
jointly
Dr Frank
Edward Holmes )
Mr Chuck
Tam )
4. TERMINATION
There
being no other business, the Chairman declared the Meeting terminated.
[Signature
of Mr Ting]
Chairman
of the Meeting”
36. In fact, as the Judge found, the ExCo minutes
was a false document, which had been dishonestly prepared by Mr Ting, or at
least on his instructions. No meeting of
Akai’s Executive Committee was held on that day.
Events
subsequent to the Switch Transaction
37. A few months later, Akai asked the Bank to
release a number of the pledged shares, as the market value of Akai Electric
had increased significantly. The Bank
initially refused, but it then released 5.5m of the pledged shares to Akai,
leaving the Bank holding certificates for 50.5m Akai Electric shares, “the
Shares”.
38. In September 1999, Singer NV filed for
bankruptcy protection in the USA under Chapter 11. On 6 December 1999, Akai failed to pay
US$31,298,906, which had become owing to the Bank under the Loan Agreement. On that date, the Shares were worth
US$32,904,372. An event of default was
declared by the Bank on 23 December 1999.
However, it was not until April and May 2000 that the Bank enforced its
security over the Shares, by selling them in the market. In so doing the Bank realised proceeds of
US$20,504,295, which was applied in full to discharge partially Akai’s then
outstanding debt, and the Bank proved in the winding-up of Akai for the
shortfall of over US$13m. Meanwhile,
Akai was being wound up in Hong Kong and Bermuda.
39. On 16 August 2002, Akai’s Hong Kong
Liquidators notified the Bank that its claim against Akai had been adjudicated
to be some US$13m in the Hong Kong liquidation of Akai. On the same day, the Bermudian Liquidators of
Akai notified the Bank that its claim against Akai in the Bermudian liquidation
had also been adjudicated to be some US$13m.
40. These proceedings were issued on 3 December
2004. The trial was held before Stone J
over 20 sitting days between 12 February and 18 March 2008, and he gave
judgment in favour of the Bank on 26 May 2008.
Akai’s appeal was heard from 8 to 12 June 2009 and the Court of Appeal’s
unanimous judgment in favour of Akai was delivered on 10 August 2009, and
judgment was entered for Akai in the sum of US$22,451,332 plus compound
interest at 1% over LIBOR (from time to time prevailing) from 6 December 1999,
with quarterly rests.
Did Mr
Ting have authority to bind Akai to the Switch Transaction?
41. The first of the two main questions to be
considered is whether Mr Ting had authority to commit Akai to the Switch
Transaction in December 1998. If he did,
then the transaction is and was binding on Akai, and, subject to Akai’s claim
in knowing receipt (which, for reasons which will be explained below, I
consider stands or falls with the authority issue), Stone J would have been
right in dismissing Akai’s claim. If, on
the other hand, Mr Ting did not have such authority, then Akai was never
committed to the Switch Transaction, indeed the whole transaction was void, the
Bank never had any rights over the Shares, and it must therefore pay damages,
as the Court of Appeal held.
Introductory
42. The law relating to apparent authority has
been considered in a number of cases, not all of which are easy to reconcile in
every respect. There are three issues of
principle between the parties, and a number of other disputes as to the
consequence of the application of the principles to the facts of the present
case.
43. In an often cited passage in Freeman &
Lockyer v. Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 506, Diplock
LJ identified four conditions which have to be satisfied before a third party,
whom he described as a “contractor”, can enforce a contract against a company
entered into by a purported agent with no actual authority. Those conditions are:
“(1) that a representation that
the agent had authority to enter on behalf of the company into a contract of
the kind sought to be enforced was made to the contractor;
(2) that
such representation was made by a person or persons who had ‘actual’ authority
to manage the business of the company either generally or in respect of those
matters to which the contract relates;
(3) that
he (the contractor) was induced by such representation to enter into the
contract, that is, that he in fact relied upon it; and
(4) that
under its memorandum or articles of association the company was not deprived of
the capacity either to enter into a contract of the kind sought to be enforced
or to delegate authority to enter into a contract of that kind to the agent.”
44. As Diplock LJ explained at [1964] 2 QB 480,
503, apparent authority:
“… is a legal relationship between
the principal and the contractor created by a representation, made by the
principal to the contractor, intended to be and in fact acted upon by the
contractor, that the agent has authority to enter on behalf of the principal
into a contract of a kind within the scope of the ‘apparent’ authority, so as
to render the principal liable [thereunder].”
45. In a decision of the Supreme Court of Western
Australia Court of Appeal, Auxil Pty Ltd and Anor v. Terranova & Ors (2009)
260 ALR 164, para.176, Newnes JA said this about representations capable of
creating an apparent authority:
“ A representation creating an
apparent authority of an agent may be made in a number of ways but the most
common form of representation by a principal is by conduct, that is, by
permitting the agent to act in the management or conduct of the principal’s
business. By permitting the agent to act in the management or conduct of the
business, the principal thereby represents to anyone dealing with the agent
that he or she has authority to do those acts on behalf of the company which an
agent authorised to do acts of the kind which he or she is in fact permitted to
do normally does in the ordinary course of such business.”
This
passage reflects what was said by Diplock LJ in Freeman & Lockyer [1964] 2
QB 480, 503 and 505.
46. In this case, the Bank’s argument in a
nutshell is (a) that, by holding him out as its executive chairman and chief
executive officer, Akai clothed Mr Ting with apparent authority to commit it to
the Switch Transaction, and (b) that, when the Bank entered into the
transaction, it justifiably relied on his authority to enter into the
transaction on Akai’s behalf. Stone J
accepted both those propositions, but they were both rejected by the Court of
Appeal. In this court, Akai challenges
both of those propositions.
47. Probably the main point of principle which
divides the parties centres on what state of mind is required in order to
establish that the Bank “justifiably relied” on Mr Ting’s authority. Another issue of principle is the extent, if
any, to which a third party who claims to have dealt with an alleged apparent
agent can rely on unauthorised statements made by the agent as to his authority
to justify the contention that he had authority to commit the principal. The third issue of principle concerns the
evidence required from the Bank to show that it relied on the apparent
authority of Mr Ting.
48. I propose to consider those three issues of
principle first, and will then turn to the question of how they are to be
applied in the present case. In that
latter connection, I will first consider whether the Bank can justifiably have
believed that Mr Ting had authority to commit Akai to the Switch Transaction,
irrespective of the ExCo minutes, and I will then turn to the effect of those
minutes.
The
state of mind of the person alleging apparent authority
49. For the Bank, Mr Jonathan Sumption QC (“Mr
Sumption”) (who appeared with Mr Eugene Fung) contended that, unless the Bank
had actual knowledge of Mr Ting’s lack of authority or its belief that Mr Ting
had authority was dishonest or irrational, then the Bank’s state of mind will
suffice for the purpose of establishing apparent authority. Mr Sumption also accepted that, if the Bank
was reckless in its belief, or if it was guilty of turning a blind eye, that
would not do either, on the basis that recklessness and blind-eye ignorance
amount to irrationality or dishonesty in this context. Mr Leslie Kosmin QC (“Mr Kosmin”) (who
appeared for Akai with Ms Linda Chan) argued that this set too low a standard
on the Bank as a third party seeking to establish apparent authority, and that
apparent authority could not be relied on if the Bank had failed to make the
inquiries that a reasonable person would have made in the circumstances to
verify the authority of Mr Ting.
50. I have some doubts as to the extent to which
there would, in practice, be much difference in outcome between the application
of the rival tests. The distinction
between Mr Sumption’s “irrationality” and Mr Kosmin’s “unreasonableness” may
puzzle anyone who has recourse to the dictionary, although I would accept that
the former word tends to carry more pejorative overtones, and therefore would
set a higher hurdle for a party in the position of Akai in the present
case. Similarly, the distinction between
turning a blind eye and being put on enquiry seems fairly slender, but I accept
that the former involves a more subjective exercise than the latter, although
irrationality ultimately involves an objective assessment.
51. Approaching the issue by reference to both
practicality and principle, I would prefer the Bank’s submission. In terms of practicality, at least when it
comes to normal commercial transactions, the application of the concept of
constructive notice, which is what Akai’s approach effectively involves, has
been deprecated (see for instance per Scrutton LJ in Greer v. Downs Supply
Company [1927] 2 KB 28, 36). And one can
understand why.
52. In a commercial context, absent dishonesty or
irrationality, a person should be entitled to rely on what he is told: this may
occasionally produce harsh results, but it enables people engaged in business
to know where they stand. As to
principle, apparent authority is essentially a species of estoppel by
representation (see per Diplock LJ in Freeman & Lockyer [1964] 2 QB 480,
503, cited above, and per Brennan J in the High Court of Australia in Northside
Developments Pty Ltd v. Registrar-General (1989-1990) 170 CLR 146, 173-4). In the field of misrepresentation, it is
clear that “it is no defence to an action for rescission that the representee
might have discovered its falsity by the exercise of reasonable care” – per
Chitty on Contracts (30th edition) para.6-039 and the cases cited in footnote
190. Even more in point, there is this
passage in Halsbury’s Laws (4th edition reissue) Vol 16(2), para.1072, dealing
with estoppel by representation:
“If … [the party contending that
he relied on the representation] really has relied upon its truth, it is no
answer to say that, if he had thought about it, he must have known that it was
untrue; the representation itself was what put him off his guard. If the
representation is clear and unequivocal … he is under no obligation to make
investigation or inquiry to ascertain whether it is true.”
53. That proposition is supported (albeit in
slightly different commercial contexts) by a number of judicial dicta of high
authority, including from Lord Halsbury LC and Lord Herschell in Bloomenthal v.
Ford [1897] AC 156, 161-2 and 166-7 respectively, and Lord Blackburn in Jones
v. Gordon (1876-7) 2 App Cas 616, 628-9.
At the end of that last-cited passage, Lord Blackburn provided a
characteristically clear explanation of what constitutes blind eye knowledge,
or turning a blind eye when he said this:
“[I]f the facts and circumstances
are such that the [judge comes] to the conclusion that he was not honestly
blundering and careless, but that he must have had a suspicion that there was
something wrong, and that he refrained from asking questions, not because he
was an honest blunderer or a stupid man, but because he thought in his own
secret mind – I suspect there is something wrong, and if I ask questions and
make farther inquiry, it will no longer be my suspecting it, but my knowing it,
and then I shall not be able to recover – I think that is dishonesty.”
54. In the context of an agency case, where the
issue was whether the defendants should have appreciated that the party with
whom they had contracted was an agent for the plaintiff, rather than a
principal, Lord Edmund Davies (sitting in the English Court of Appeal with
Viscount Dilhorne and Lord Scarman) in By Appointment (Sales) Ltd v. Harrods
Ltd (1 December 1977, Transcript 465/1977) said at the end of his judgment that
“there was possibly constructive notice but not actual notice, and actual
notice is required”.
55. Millett J took the clear view that
constructive notice did not involve “the proper approach” in a normal
commercial case, on the basis that “[u]nless and until they are alerted to the
possibility of wrongdoing, [account officers] proceed, and are entitled to
proceed, on the assumption that they are dealing with honest men”. He continued by saying that they were
entitled to do so until “the facts … [make] it imperative for [them] to seek an
explanation, because in the absence of an explanation it was obvious that the
transaction was probably improper” – Macmillan Inc v. Bishopsgate Investment
Trust plc [1995] 1 WLR 978, 1014G-H.
56. It is true that there are judicial dicta
which appear at first sight to provide some support for Akai’s case on this
issue, but, on closer analysis, I do not consider that they are in point.
57. Two of the three judgments in the English
Court of Appeal decision of AL Underwood Ltd v. Bank of Liverpool and Martins
[1924] 1 KB 775 contain reference to “negligence” and being put on inquiry -
see at [1924] 1 KB 775, 785 and 788-9 (per Bankes LJ) and 793 (per Scrutton
LJ). However, that was because the
defendant had to rebut an allegation of negligence in order to rely on s.82 of
the Bills of Exchange Act 1882. It is fair
to say that Atkin LJ’s judgment contains a sentence which, read on its own supports
Akai’s argument (see at [1924] 1 KB 775, 797-8), but, if considered in the
context of s.82 of the 1882 Act, I do not think it can fairly be regarded as a
general statement of the law of apparent authority.
58. Another English Court of Appeal decision
relied on by Akai is Houghton and Co. v. Nothard, Lowe and Wills Ltd [1927] 1
KB 246. There is no doubt but that, in
that case, the test propounded by the Court was that proposed by Mr Kosmin. However, it was a case involving the
so-called indoor management rule (also known as the rule in Turquand’s case –
see Royal British Bank v. Turquand 6 E & B 327), decided at a time when a
person dealing with a company was deemed to know of the terms of its memorandum
and articles of association which is, of course, no longer the law in Hong
Kong, or indeed, England. A passage at
[1927] 1 KB 246, 267, in the judgment of Sargant LJ indicates an acceptance of
a difference between the indoor management rule and apparent authority.
59. That difference was, in my opinion, well
explained by Dawson J in Northside Developments (1990) 170 CLR 146, 198 in a
passage which neatly distinguishes between the rule and apparent (or, as he
called it, ostensible) authority:
“The correct view is that the
indoor management rule cannot be used to create authority where none otherwise
exists; it merely entitles an outsider, in the absence of anything putting him
upon inquiry, to presume regularity in the internal affairs of a company when
confronted by a person apparently acting with the authority of the company. The
existence of an article under which authority might be conferred, if it is
known to the outsider, is a circumstance to be taken into account in
determining whether that person is being held out as possessing that authority.
… In other words, the indoor management rule only has scope for operation if it
can be established independently that the person purporting to represent the
company had actual or ostensible authority to enter into the transaction. The
rule is thus dependent upon the operation of normal agency principles; it
operates only where on ordinary principles the person purporting to act on
behalf of the company is acting within the scope of his actual or ostensible
authority.”
It is
also worth referring to what Brennan J (as he then was) said in this connection
at (1990) 170 CLR 146, 177-9.
60. Other cases relied on by the Bank, which
similarly concerned the indoor management rule, included Morris v. Kanssen
[1946] AC 459, 475, and Rolled Steel Ltd v. British Steel Corporation [1986] Ch
246, 295 and 304 (per Slade LJ and Browne-Wilkinson LJ respectively). It is fair to say that some of the
observations in Rolled Steel [1986] Ch 246, especially at [1986] Ch 246, 296,
proposition (6), can be read as supporting Akai’s case. However, it seems to me that the precise
nature of the state of mind or knowledge of the person alleging apparent
authority was not in issue in that case, and, with all respect to Slade LJ, the
cases he had cited did not support the proposition, if it was intended to refer
to constructive notice and to apply to apparent authority generally.
61. Whether or not the indoor management rule is
part of the law of agency or companies is a category issue which is of no
consequence at least for present purposes.
The essential point, to my mind, is that it was developed for good
practical reasons to mitigate the harsh consequences of the principle (now
thankfully historic) that a person dealing with a company was deemed to know
the contents of its memorandum and articles.
It is therefore unsurprising that the courts developed the principle
that one could only rely on the rule if one took reasonable steps to ascertain
the relevant facts. There is no obvious
reason why the same principle should apply to cases of apparent authority.
62. I conclude that it is open to the Bank to
rely on Mr Ting’s apparent authority (if he had such authority) unless the
Bank’s belief in that connection was dishonest or irrational (which includes
turning a blind eye and being reckless).
Can an
agent clothe himself with apparent authority?
63. A point which was hotly debated was whether a
third party, seeking to establish that an alleged agent had apparent authority,
can rely on what the apparent agent represented (without the sanction of the
principal) about his authority, so as to clothe him with the authority which he
would not otherwise have. The point
arose out of Mr Sumption’s contention that the argument that Mr Ting had apparent
authority to commit Akai to the Switch Transaction was reinforced by the ExCo
minutes, which of course had been prepared, signed and handed over by Mr Ting
himself. As I am of the view (for
reasons explained below) that, properly analysed, those minutes actually harm,
rather than assist, the Bank’s case on apparent authority, the point is
academic in this case, but, as it has been fully argued, I shall deal with it.
64. At any rate at first sight, it would appear
to require exceptional facts before such an argument could have any chance of
success. After all, apparent authority
is based on a representation (normally implied) as between the alleged
principal and the third party as to the authority of the alleged agent, and if
the third party could rely on some statement by the alleged agent, made without
the authority of the principal, it would seem precious close to pulling up
oneself by one’s own bootstraps.
65. Support for the notion that an agent who has
no apparent authority cannot clothe himself with such authority by his own unauthorised
words may be found in Freeman & Lockyer [1964] 2 Q.B. 480, 504, where
Diplock LJ summarised the position as follows:
“ The second characteristic of a
corporation, namely, that unlike a natural person it can only make a
representation through an agent, has the consequence that in order to create an
estoppel between the corporation and the contractor, the representation as to
the authority of the agent which creates his ‘apparent’ authority must be made
by some person or persons who have ‘actual’ authority from the corporation to
make the representation.”
66. By reference to individuals in the present
case, Mr Sumption rhetorically asked why, if Mr Ting could have given apparent
authority to Miss Loh to sign on behalf of Akai, should he not be able to give
himself apparent authority to sign?
Attractive though that argument seems at first sight, it seems to me, on
analysis, to take matters little further.
If Mr Ting had purported to give Miss Loh authority, the question would
still arise as to whether he had Akai’s authority to give her authority to bind
Akai. So, by the same token, if he
purports to clothe himself with authority, the question would still arise as to
whether he had authority to authorise himself to bind Akai, which is, at least
normally, the same as asking whether he has apparent authority to bind Akai.
67. We have been referred to three English cases
on this topic. The first is Armagas Ltd
v. Mundogas SA (“The Ocean Frost”) [1986] AC 717, in the Court of Appeal and
House of Lords. The second and third are
decisions of the Court of Appeal, Soplex Wholesale Supplies Ltd v. Egyptian
International Foreign Trade Co. (“The Raffaella”) [1985] 2 Lloyd’s Rep 36
(decided after the Court of Appeal’s decision, but before that of the House of
Lords, in Armagas [1986] AC 717) and First Energy (UK) Ltd v. Hungarian International
Bank Ltd [1993] 2 Lloyd’s Rep 194.
68. The effect of those decisions appears to be
that, at least in the Courts of England and Wales, it is very unlikely that a
third party could establish apparent authority on the part of an alleged agent by
relying on the agent’s own unauthorised statement to clothe the agent with
authority. The judgment of Goff LJ and
the speech of Lord Keith of Kinkel in Armagas [1986] AC 717, 730H-732F and
777C-778D indicate great scepticism as to the notion that an agent could clothe
himself with authority in this way.
Having said at [1986] AC 717, 777D that there might be “very rare and
unusual” circumstances in which this might happen, Lord Keith continued at
779D-G:
“Robert Goff L.J. said of the
trial judge’s view in this case, ante, pp. 730H-731C:
‘the effect of the judge’s
conclusion was that, although [the alleged agent] did not have ostensible
authority to enter into the contract, he did have ostensible authority to tell
[the third party] that he had obtained actual authority to do so. This is, on
its face, a most surprising conclusion. It results in an extraordinary
distinction between (1) a case where an agent, having no ostensible authority
to enter into the relevant contract, wrongly asserts that he is invested with
actual authority to do so, in which event the principal is not bound; and (2) a
case where an agent, having no ostensible authority, wrongly asserts after
negotiations that he has gone back to his principal and obtained actual
authority, in which event the principal is bound. As a matter of common sense,
this is most unlikely to be the law.’
I
respectfully agree. It must be a most
unusual and peculiar case where an agent who is known to have no general
authority to enter into transactions of a certain type can by reason of
circumstances created by the principal reasonably be believed to have specific
authority to enter into a particular transaction of that type.”
69. The facts of Soplex Wholesale [1985] 2
Lloyd’s Rep 36 and First Energy [1993] 2 Lloyd’s Rep 194 were both rather
unusual. In the former case, the
observations of Browne-Wilkinson LJ on the topic at [1985] 2 Lloyd’s Rep 36, 43
were plainly obiter, and not supported in the other two judgments (in
particular, Kerr LJ seems to have taken a different view – see at [1985] 2
Lloyd’s Rep 36, 46-7). In any event, the
agent’s representation in that case was that one signature would suffice in the
London market – not a simple statement that the alleged agent was authorised,
more of a simple statement of alleged fact.
In First Energy [1993] 2 Lloyd’s Rep 194, the communication was that the
principal had agreed, not that the alleged agent had authority to agree on the
principal’s behalf.
70. It seems to me that the reasoning in the
judgments of Steyn and Nourse LJJ in First Energy [1993] 2 Lloyd’s Rep 194
illustrate how the law in this field struggles to reconcile principle and
predictability with commercial reality and fairness, and this difficulty
underlines the inadvisability of seeking to lay down any rigid principles in
this area, especially as the point does not arise in this case. In my view, the law is as stated by Lord
Keith in the passages I have quoted from his speech in Armagas [1986] AC 717,
but it is right to add that I find it very hard indeed to conceive of any
circumstances in which an alleged agent, who does not have actual or apparent
authority to bind the principal, can nevertheless acquire apparent authority to
do so, simply by representing to the third party that he has such authority.
71. It is worth adding that, as was explained in
the two cases just referred to, before any representation by the agent could be
relied on to assist the contention that he had apparent authority, the court
would have to be satisfied that the principal had given the alleged agent
apparent authority to make the representation in question. Furthermore, any such representation would
have to be “clear and unequivocal”, as in any case of estoppel by representation
(unlike, arguably, proprietary estoppel – see per Lord Walker of Gestingthorpe
in Thorner v. Major [2009] 1 WLR 776, paras 54-56), and what is clear and
unequivocal must be judged by reference to the practical realities of the
particular case (as I suggested in Thorner [2009] 1 WLR 776, paras 84-86). Otherwise, apparent authority could not be
established on the back of the statement as a matter of principle.
Evidence
of reliance
72. Given that apparent authority is a species of
estoppel by representation, it follows that, as Diplock LJ said in his third
proposition in Freeman & Lockyer [1964] 2 QB 480, 506, the third party must
establish that it relied on the apparent authority of the alleged agent before
it can succeed in establishing its case.
The issue which divides the parties is the quality of the evidence which
the third party has to lead to establish reliance. Inevitably, that is a fact-sensitive issue,
but I detected a suggestion in Akai’s case that it is positively necessary for
a third party to establish that he positively relied on the apparent authority
in every case.
73. In Nationwide Building Society v. Lewis
[1998] Ch 482, a case concerning the alleged holding out of a person as a
partner in a firm, Peter Gibson LJ said at 491:
“It does not seem to me to be
impractical or unjust for the law to require a person claiming an estoppel to
have to prove in a partnership context what he would have to prove in other
contexts. Given that reliance is a necessary requirement, it is not obvious
that there should be a presumption in favour of the person who claims reliance
and is in a better position to know whether he did rely on the holding-out and
who should thereby be able to prove it. … Of course, there may be circumstances
from which it would be appropriate for the court to infer that there was
reliance on a holding-out. As is stated in Spencer Bower and Turner on Estoppel
by Representation, 3rd ed. (1977) pp. 114 – 115:
‘Though on questions of fact the
onus will be upon the representee, it may happen that the probability of inducement
from a given set of facts is so great, or in other words the materiality is so
plain and palpable, as to justify a finding of the inducement itself merely
from the circumstantial context … but it must be remembered that the inference
so made is one of fact and not of law.’”
74. While there is nothing with which I would
fundamentally disagree in those observations, I consider that their thrust
could risk placing too high a hurdle for third parties seeking to establish a
claim in apparent authority. In Silver
v. Ocean Steamship Co. Ltd [1930] 1 KB 416, it was held that the taking up of a
bill of lading was sufficient evidence of reliance on it to raise an
estoppel. The point was dealt with very
shortly in the judgments of Scrutton, Greer and Slesser LJJ at [1930] 1 KB 416,
428, 434, and 441 effectively on the basis that it was obvious. Thus, Slesser LJ said that “[t]he appellant
took the bill and may be assumed to have relied upon it to his detriment in the
absence of any evidence to the contrary”.
75. In my view, once a third party has
established that the alleged agent had apparent authority, i.e. that the
principal held out the alleged agent as having authority to bind the principal,
and that the third party has entered into a contract with the alleged agent on
behalf of the principal, then, in the absence of any evidence or indication to
the contrary, it would be an unusual case where reliance was not presumed.
Did Mr
Ting have apparent authority (disregarding the ExCo minutes)?
76. Having resolved the issues of principle
between the parties, I now turn to consider whether in this case, the Bank has
established that Mr Ting had apparent authority to commit Akai to the Switch
Transaction. In considering that issue,
it is important to bear in mind that the primary fact-finder in this case is
Stone J, who had the advantage of seeing live witnesses, although a number of
the centrally important figures (notably Mr Ting and Mr Banyong Lamsam) were
either unable or unwilling to give evidence, a feature from which he seems to
have drawn no adverse inferences.
77. As I have explained, it is no longer
contended by the Bank that Mr Ting had actual authority to commit Akai to the
Switch Transaction: the Bank relies solely on the contention that he had
apparent authority. However, it is
important to emphasise that the effect of the Bank’s concession that Mr Ting
had no actual authority is that, when purporting to commit Akai to the Switch
Transaction, he was acting outside the scope of what he was actually authorised
to do. That concession, which was
plainly rightly made, must carry with it the implication that Mr Ting was
acting dishonestly, especially in the light of the forged ExCo minutes. The Court of Appeal plainly concluded that Mr
Ting acted dishonestly in connection with the transaction, and Stone J appears
to have thought so too, albeit that he expressed himself rather elliptically:
at para.331 of his judgment, having said that he was not “disposed to assume
the honesty of Mr Ting”, he added “the overwhelming probability, I should have
thought, is to the contrary”.
78. As already indicated, I propose to consider
the issue in two stages, first ignoring the ExCo minutes, and then considering
its effect. I appreciate that this may seem
a slightly surprising approach, but I believe that it is helpful in the light
of the unusual facts of this case.
79. Absent the ExCo minutes, the only basis upon
which Mr Sumption put his case that Akai represented that Mr Ting had authority
to commit it to the Switch Transaction was that he was authorised by Akai to
manage its affairs, by virtue of being its executive chairman and chief
executive officer.
80. As far as I can see, that was indeed the only
basis upon which the Bank could put its case.
It is clear that, by December 1998, the Bank had had dealings with Mr
Ting, and with some companies in which he had a substantial interest and which
he managed (most obviously, Singer NV), for many years, and that at least one
senior member of the Bank, Mr Banyong Lamsam, the chairman, must have had a
fairly close relationship with Mr Ting.
However, it also apparent that there had been no history of any dealings
whatever between the Bank and Akai until the Switch Transaction.
81. It is clear that, as executive chairman and
chief executive officer of Akai, Mr Ting would have had a large measure of
apparent authority - indeed, no doubt he would have had a large measure of
actual authority. That authority would,
no doubt, extend to entering into many types of contract, including, I would
have thought, contracts which might involve Akai incurring a US$30m
liability. However, the question which
has to be faced is whether the nature and circumstances of the Switch Transaction
were so peculiar as to preclude the Bank contending that his apparent authority
extended as far as committing Akai to it.
82. In that connection, in support of his
contention that the Switch Transaction was so extraordinary as to take outside
the ambit of Mr Ting’s apparent authority, Mr Kosmin essentially relied on the
fact that the transaction was not merely very unusual in nature and very
substantial in the sum involved, but, above all, that it was, quite plainly,
for the benefit of Singer NV and the Bank, but not in any way for the benefit
of the party allegedly represented by Mr Ting, Akai.
83. The effect of the Switch Transaction was, at
least on the face of it, as follows.
Akai took on a liability to the Bank for US$30m, which it had to repay
with interest in a year’s time, which liability was secured by the pledging of
a large proportion of the shares in Akai’s chief operating subsidiary. In return, Akai got nothing: the US$30m was
immediately used to pay off the liabilities of another company, Singer NV,
which (whether directly or indirectly) neither owned nor was owned by Akai,
albeit that they shared the same parent: the two companies were neither
subsidiaries nor affiliates. The
transaction was of obvious and very substantial benefit to Singer NV (even on
the assumption that Akai became subrogated to Singer NV’s liability to the
Bank). It was also of obvious and very
substantial benefit to the Bank: for no cost to itself, it gained an apparently
financially strong borrower and excellent security in place of a weak borrower,
already in default, with security of almost negligible value.
84. This in turn gives rise to a number of other
points of concern. Although the largest
shareholder in both Akai and Singer NV was STC Canada, the majority of the
shareholders in Akai (and, if it is relevant, which I doubt, half of the
shareholders in Singer NV) were members of the public, who had no apparent
interest in using a substantial amount of Akai’s money to prop up the ailing
Singer NV. That is not only significant
in itself, but (as was stated in the Akai Credit Application) Akai was listed
on the Hong Kong Stock Exchange, and its Rules required the Switch Transaction
to be disclosed to the Stock Exchange authorities, as it was an arrangement
between connected persons, and the Stock Exchange would probably have required
shareholder approval, as well as main Board approval, so far as Akai was
concerned.
85. In addition, the very person who was
purporting to represent Akai, Mr Ting, was in an obvious position of conflict,
given his very substantial interest in STC Canada and his management
responsibilities for both Singer NV and Akai.
To appreciate this conflict did not require any nuanced understanding of
Akai’s bye-laws or of company law – Mr Ting’s conflict must have been obvious
to any banker reviewing the Akai Credit Application. But, over and above this, arts 103 and 104 of
Akai’s bye-laws, which the Bank had obtained in connection with the
transaction, made it clear that he should not have been involved with the
decision to enter into the Switch Transaction, owing to his conflicted
position.
86. All these facts were well known to the Bank
as was clear from the evidence, and indeed as is clear from the contents of the
Singer and Akai Credit Applications. It
does not appear that the Bank at any time asked for, or was given, any
commercial justification for Akai entering into the Switch Transaction. The two Credit Applications (in particular
the Akai Credit Application) made much of the benefit to the Bank, but nothing
was said about Akai’s reasons for entering into the transaction. Because neither Mr Banyong Lamsam (who
produced a medical certificate to explain his absence) nor Mr Ting (whose
absence is unsurprising) gave evidence, and because Mr Banthoon Lamsam gave
unreliable evidence about it (and even if accurate, his evidence would have
been second-hand), one simply does not know what passed between the two most
senior representatives of the principal participants at their meeting before
the crucial Bank executive committee meeting which approved the Switch
Transaction.
87. It appears to me that the various features of
the Switch Transaction that I have described, especially when taken together,
render it, at least in the absence of significant factors pointing the other
way, very difficult for the Bank to contend that, merely because he was the
executive chairman and chief executive officer of Akai, Mr Ting was, without
more, held out as having authority to commit Akai to the transaction. As Brennan J said in Northside Developments
(1990) 1 CLR 146, 183, “the execution of guarantees and supporting securities
for another’s liabilities, not being for the purposes of a company’s business
nor otherwise for its benefit, is not ordinarily within the authority of the
officers or agents of a company” (and see to similar effect, the observations
of Mason CJ at (1990) 1 CLR 146, 160-1).
In such a case, one must scrutinise with particular care any allegation
of apparent authority.
88. All the more so, where, as here, the transaction
is one from which the third party seeking to assert the apparent agency
benefits very substantially. Indeed, in
that sort of case, the court’s state of mind may almost verge on the sceptical. As Lord Cairns LC said in Gray v. Johnston
(1868) LR 3 HL 1, 11 “if it be shewn that any personal benefit to the bankers
themselves is designed or stipulated for, that circumstance, above all others,
will most readily establish the fact that the bankers are in privity with the
breach of trust which is about to be committed.”.
89. When one examines the Bank’s conduct against
the standards which, on the basis of the evidence (which included testimony as
to the Bank’s own practice and that of Thai banks generally) and commercial
common sense, one would have expected, its case on apparent authority gets
worse. So far as standards are
concerned, the only witness to whose evidence I need to refer is Mr Banthoon
Lamsam, the sole person present at the Executive Board meeting to give
evidence, and who was described by Stone J as “an experienced and highly
intelligent international banker”.
90. Mr Banthoon Lamsam’s evidence displayed
extensive knowledge of proper practices of corporate governance and banking
practice. His evidence was that:
o The “normal course” in the case of “a large
transaction” would be for the Bank to obtain a Board resolution from the
corporate borrower authorising the arrangement, and this was “standard
practice” for a Thai bank, and the resolution normally would state that the
arrangement was in the best interests of the company; and
o When dealing with a new foreign borrower, the
Bank would normally obtain legal advice from a lawyer qualified in the
borrower’s country of incorporation, to ensure that the borrower was bound by
the arrangement.
91. Mr Banthoon Lamsam accepted that the Switch
Transaction was “important” and a “major shift in the structure of the
relationship”, and that the descriptions “routine” and “unremarkable”,
contained in his witness statement to describe the transaction, were not appropriate. He accepted that Mr Banyong Lamsam (as
chairman and a director of the Bank and of Singer Thailand) and Mr Ting (as
chief executive and a director of both Akai and Singer NV) were each in
positions of conflict in respect of the transaction. He also knew that Akai was quoted on the Hong
Kong Stock Exchange and that over half of its shares were in the hands of the
public. He was unaware of any benefit to
Akai from the Switch Transaction, but appreciated the benefit to the Bank; he
said that the only information which the Executive Board had was in the Akai
Credit Application.
92. Mr Banthoon Lamsam’s evidence was to the
effect that none of this was his concern, and he was not required to pay any
regard to Akai’s interests. In a sense,
of course, that is true. However, given
that the Bank’s normal practice was to obtain a Board Resolution, and to get
appropriate legal advice, it appears to me to have been quite extraordinary for
the Bank to have proceeded with the Switch Transaction, with all its remarkable
and questionable features, simply on the basis of Mr Ting’s say-so. All the more so given that there was plenty
of time, nearly two months, to do this between the Executive Board’s approval
of the Akai Credit Application and the completion of the transaction.
93. There is some support for the notion that a
formal resolution by the board of directors is appropriate for a large
transaction, and that such a resolution should fully describe the transaction,
state that it is in the interests of the company, and record any conflicts of
interests. That evidence is in the form
of a full and detailed board resolution of Akai in December 1997 relating to
the so-called “Pfaff transaction”, involving the sale of just over 80% of the
shares in GM Pfaff AG by Akai to Singer NV.
The nature of the transaction, its benefit for Akai, the conflicted
position of Mr Ting and Dr Holmes, and the need to comply with the regulatory
requirements in the light of the existence of public shareholders are all
recorded in the board resolution approving the transaction, signed by all the
directors. This was not a document seen
by the Bank (as far as one can tell), but its existence and terms rather
underline the oddity of the absence any such document in relation to the Switch
Transaction, which cried out for justification.
94. Subject to any good reason to the contrary,
for the reasons I have attempted to give, I would accordingly conclude that:
(a) Despite his wide powers of management, Mr
Ting did not have apparent authority to commit Akai to the Switch Transaction,
in the sense that he was not clothed with the authority to commit Akai to the
transaction; and
(b) Even if he had otherwise been clothed with
such authority, the Bank was simply irrational in its belief that it relied on
that authority.
95. I am aware that there is a significant degree
of overlap between these two preliminary conclusions, but they do involve
separate questions, namely (a) whether Mr Ting was held out as having authority
at all, and, if he was, (b) whether the Bank could rely on such holding
out. I am also aware that in holding
(b), I would be making a serious finding against the Bank. However, subject again to any arguments to
the contrary, the facts speak for themselves.
Furthermore, it is worth remembering that the Executive Board’s approval
of the Switch Transaction was at a time when the Bank appears to have been in
dire financial straits, and the enormous attraction of the transaction to the
Bank (the loan represented nearly twice its annual profits for the previous
year) could easily have caused a normally responsible banker to depart from his
or her normally rational approach.
96. Although there may well have been evidence on
which a judge could have concluded that the Bank had turned a blind eye to the
question of whether Mr Ting had authority to commit Akai to the Switch
Transaction, Stone J expressly rejected such a contention, and the Court of
Appeal upheld on him on that point. In
those circumstances, I accept Mr Sumption’s submission that this Court should
not revisit that conclusion. First,
there are concurrent findings in the lower courts; secondly, it is a very
strong thing for an appeal court to reverse a first instance rejection of an
allegation of dishonesty (which is what blind eye ignorance probably involves –
see per Lord Blackburn in Jones (1876-7) 2 App Cas 616, 629, cited above). These reasons, even taken together, do not
constitute an absolute bar to reconsidering the issue, but in this case I am
satisfied that such reconsideration would be inappropriate.
97. As I have emphasised, the views I have
expressed in para.95 above are provisional, albeit that they coincide with the
views of the Court of Appeal. Before
adopting them, it is necessary to consider the factors relied on by Mr Sumption
on behalf of the Bank. They are really
two-fold. First, he said that a
reasonable banker could have concluded that the Switch Transaction was in the
interest of Akai, or at least that the directors of Akai, and in particular Mr
Ting, could have taken that view.
Secondly, he relied on the fact, which is very telling, at least in
principle, that Stone J had concluded that Mr Ting had apparent authority,
which was properly relied on by the Bank.
98. As to the first argument, Mr Sumption relied
on the contention that Akai had a strong commercial interest in the continuing
survival and success of Singer NV and indeed of what may be called the whole
STC group: he invoked the following points in that connection:
(a) The companies in which STC Canada had a
substantial interest were operated “very much as a commercial group”;
(b) Singer NV’s business operation represented
a very important distribution network for Akai’s products; and
(c) Akai had a substantial financial interest
in Singer NV’s survival, holding US$75m convertible loan stock, being a
guarantor of its subsidiary, Pfaff, to the tune of just under US$15m, and
because there was intra-group liability, which would have resulted in Akai
having to pay up a substantial sum if Singer NV became insolvent.
99. So far as the first instance judgment is
concerned, Stone J set out his conclusions on apparent authority in some detail
in paras 392-426 of his judgment. He
made the point that the liquidators had accepted the Bank’s proof of debt, and
warned himself against using hindsight.
He then said that he was “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” (para.401). He
went on in para.413 to describe the Switch Transaction as “a hard-nosed
commercial transaction”, even though it may “have been … regarded by some
within the Bank … as a ‘small miracle’”.
In para.417, he said that he found “neither dishonesty nor
disingenuousness on the part of the Bank”, and in the next paragraph, he made
the points that Akai “relied upon Singer[ NV]’s distribution network” and “had
a major financial investment in Singer[ NV]”.
100. These findings, from made by the trial judge,
who is the primary fact-finder and who heard relevant oral testimony, give one
considerable pause for thought, particularly when taken with Mr Sumption’s
identification of the factors supporting the view that Akai had an interest in
the survival of Singer NV. However, like
the Court of Appeal, I have come to the clear conclusion that the Judge’s
conclusion, carefully considered as it was, simply cannot stand.
101. The best starting point for the explanation
for this conclusion is to be found in paras 329-343 of Stone J’s judgment, when
he was dealing with the argument that Mr Ting had actual authority to commit
Akai to the Switch Transaction (which was then in issue, as it was in the Court
of Appeal). Having said in para.329 that
“it is unarguable but that at face value Mr Ting’s actions … can only be
reflective of a failure to consider the interests of Akai”, the Judge said at
para.334 that the Switch Transaction was “[p]lainly to the financial detriment
of Akai; this can permit of no contrary argument”. He then stated that “it was not in the
ordinary course of business for Akai to assume the liability of another
company”. In the same paragraph, he
emphasised the oddity of the Switch Transaction in the light of the fact that
Akai “had no equity interest” in Singer NV, and then remarked on the
unusualness of the Switch Transaction, contrasting it with “the more usual
commercial approach of a guarantee of Singer[ NV]’s indebtedness”.
102. In para.335, the Judge made the points that
“no account apparently was taken … of the remaining 57% of the shareholders of
Akai”, and that the Hong Kong Stock Exchange had not been informed, as it
should have been, of the transaction, and, had that been done, “at the very
least a public announcement would have been required”. Paragraph 336 contains a rejection of the
Bank’s reliance on the alleged financial and commercial interest which Akai had
in Singer NV’s survival. There was no
evidence that Mr Ting had considered these features when entering into the
Switch Transaction, and in any event “the matters now relied on as post-facto
rationalisation … did not on any view amount to justification for the
assumption, for no consideration, of [Akai’s obligations under the Switch
Transaction]”.
103. At para.339 of his judgment, the Judge
described it as “objectively … ‘absurd’” to suggest that “it was in the
interests of Akai to take up another debt of [$30m]” because of the debt
already owing from Singer NV to Akai. In
conclusion on the issue of actual authority, in para.342, the Judge concluded
that it was “difficult to avoid the conclusion that this was a transaction
adopted by Mr Ting … in blatant disregard for the interests of Akai”. Drawing on a judgment of Mason J in Walker v.
Wimborne (1975-6) 137 CLR 1, he described the Switch Transaction as “offering
no prospect of advantage” to Akai, “seriously prejudice[ing its] unsecured
creditors”, “more than improvident”, and “adopted … in total disregard of the
interests of the company and its creditors”.
104. It is not realistically possible to reconcile
the Judge’s analysis and assessment of the justifiability of the Switch
Transaction in paras 329-343 of his judgment with his analysis and assessment
in the subsequent paras 392-426. It is
not enough to say that the earlier passages were concerned with what Mr Ting
must have appreciated, whereas the latter passages were directed to the
perception of the Bank’s employees.
Reading the two passages together, such an explanation plainly will not
do, and closer analysis confirms that conclusion.
105. First, in the earlier passages, the Judge relied
on facts which were known to the Bank to justify his strongly expressed view
that the transaction was plainly not to Akai’s advantage, and then seems to
have ignored those facts in the later passages.
Examples include the public shareholding in Akai, the requirement of
Stock Exchange involvement, the very unusual nature of the transaction, and the
“objective … absurdity” of, in effect, pouring good money after bad. Secondly, if, as the Judge said, “at face value
Mr Ting’s actions” could “only be reflective of a failure to consider the
interests of Akai” and it was “difficult to avoid the conclusion that this was
a transaction adopted by Mr Ting … in blatant disregard for the interests of
Akai”, then it is hard to see why that should not have been appreciated by the
Bank, unless it was shutting its eyes to the point. Thirdly, if the transaction “was not in the
ordinary course of business for Akai”, that should, at the very least, give
rise to serious concerns about the conclusion that Mr Ting had apparent
authority to commit Akai to it.
Fourthly, if the Judge was right in rejecting so robustly what he called
“the post-facto rationalisation” of the transaction in relation to the actual
authority issue, it is hard to understand why he did not take the same line
when it came to the issue of apparent authority.
106. Over and above these points, when considering
the issue of apparent authority, I consider that there are a number of
questionable aspects in the Judge’s analysis.
He appears to have overlooked the fact that the Bank had never had
dealings with Akai before the Switch Transaction was proposed. Thus, in para.384, he said that Mr Ting’s
apparent authority to commit Akai to the Switch “was confirmed by the fact that
Akai invariably had permitted Mr Ting to enter into all manner of financing
agreements on its behalf”. Yet the Bank
had no knowledge or experience of this.
Anyway, this observation wholly overlooks the extraordinary nature of
the transaction.
107. The Judge also gave quite insufficient weight
in para.413 of his judgment to the effective windfall the Bank was enjoying as
a result of the Switch Transaction – see the remarks of Lord Cairns in Gray
(1868) LR 3 HL 1, 11, cited above. It
was also inappropriate to give weight to the Akai liquidators’ acceptance of
the Bank’s proof of debt: at the relevant time, they had limited resources,
considerable burdens, incomplete records and little assistance from Akai, they
had no evidence of Mr Ting’s misdeeds, and they did not have the Bank’s relevant
internal documents which formed an important part of Akai’s case.
108. Mr Sumption contended that the Bank was
entitled to rely on the more favourable findings in paras 392-426 of the
judgment, presumably because they related to the point at issue, namely
apparent authority. I do not agree. Where a Judge makes inconsistent findings, an
appellate court must either choose between the two findings on some principled
basis, or try and make its own findings, or, if neither of these alternatives
is possible, send the case back for further findings or a retrial. The Court of Appeal rightly did not send the
case back, but effectively concluded that the Judge’s reasoning and conclusion
in paras 392-426 could not stand. For
the reasons I have given, which are much the same as their reasons, I agree.
109. I have not so far dealt specifically with the
points made by Mr Sumption as to why the Bank could have believed that the
Switch Transaction was for the benefit of Akai.
The argument that the companies in which STC Canada had a substantial
interest were run as a single entity is scarcely helpful to the Bank: the whole
point of Akai’s case is that that patently should not have happened. In any event, it must be irrelevant to the
question of apparent authority, as the Bank had had no prior dealings with
Akai. The points based on Akai’s
financial interest in saving Singer NV carried no weight with the Judge when
considering actual authority: as I have mentioned, he clearly thought that this
involved saying that Akai was justified in pouring in good money after
bad.
110. As the Judge said, these points are in any
event speculative: there is no reason to think that they would have been
advanced by Mr Ting if he had been challenged about the transaction. He was not so challenged, because, as stated
above, the Bank was only concerned about its own position, and did not at any
stage consider the question of whether there could have been any commercial
benefit to Akai in entering to the Switch Transaction. In any event, these points do not begin to
meet many of the arguments which justify the conclusion that the Bank was
irrational in relying on Mr Ting’s alleged authority (e.g. the unusual and
large nature of the transaction, the 57% public shareholders, the Hong Kong
Stock Exchange factor, and Mr Ting’s patently conflicted position).
111. In these circumstances, subject to any point
which can be made by the Bank in relation to the ExCo minutes, to which I now
turn, I would reject the contention that it was open to the Bank to hold Akai
to the Switch Transaction on the ground that Mr Ting had apparent authority to
commit Akai to it.
The
effect of the ExCo minutes
112. Both Akai and the Bank contended that their
respective cases on apparent authority was reinforced by the production of the
ExCo minutes at the meeting on the 4 December 1998, when almost all the
documents relating to the Switch Transaction were signed and handed over to the
Bank’s representatives by Mr Ting.
113. The Judge effectively decided that the
minutes were of little, if any, relevance to the question of apparent
authority, because they were merely required by the Bank for formal
reasons. In effect, he said, the ExCo
minutes did not detract from the Bank’s contention that it relied on Mr Ting’s
apparent authority to commit Akai to the Switch Transaction, by virtue of his
role as executive chairman and chief executive offcier of Akai. The Court of Appeal took a very different
view. They held that the Bank’s
requirement for a document such as the ExCo minutes was fatal to the Bank’s
case on apparent authority: the Bank could not say that it relied on his
position in Akai to clothe him with authority to commit Akai if, at the same
time, it had required documentary evidence of his authority to do so.
114. Subject to my views as to the effect of the
contents of those minutes, I am in agreement with Stone J, rather than the
Court of Appeal, albeit for slightly different reasons. I do not think the Court of Appeal would have
been entitled to interfere with the Judge’s conclusion that the Bank regarded
the provision of the ExCo minutes as effectively only a formality.
115. It does not seem to me that the provision of
the minutes undermined the Judge’s conclusion on reliance. It was Mr Ting who produced those minutes, Mr
Ting who signed the minutes, Mr Ting who was recorded as presiding at the
meeting referred to in the minutes, and Mr Ting whose authority and reputation
founded the whole of the Bank’s case on apparent authority. In those circumstances, the production of the
minutes at the 4 December 1998 meeting to satisfy the Bank’s formal
requirements seems to me to have been simply part and parcel of Mr Ting’s
alleged authority: it was because he produced them and was clearly so closely
involved in the alleged decision that the minutes were accepted as effective.
116. The Bank sought to rely on the minutes to
bolster its case on apparent authority.
As just mentioned, the minutes were produced and signed by Mr Ting, and
to invoke them to support the contention that he had apparent authority might
well fall foul of the general rule laid down in Armagas [1986] AC 717,
777C-778D, cited above. It is
unnecessary to decide that point, however, because examination of the ExCo
minutes appears to me to justify the contention that, rather than reinforcing
Mr Ting’s apparent authority, they actually weaken the Bank’s case on reliance,
as they should have added to the Bank’s concerns as to whether Mr Ting really
could have had authority to bind Akai to the Switch Transaction.
117. Before summarising the features of the minutes
which I consider justify this conclusion, it is right to refer to Akai’s
bye-laws, which were in the possession of the Bank in anticipation of the
Switch Transaction. Although one must be
careful of attributing knowledge of such bye-laws to a third party, it appears
to me right to do so in this case, given that the Bank had been specifically
provided, at its request, for the very purpose of the transaction. The bye-laws prohibited Mr Ting from any
involvement in the approval of the Switch Transaction. In particular, given his interest in Singer
NV, arts 103 and 104 required him both to disclose his interest and to refrain
from voting on the transaction. Not only
do these bye-laws thus cast a shadow over the Bank’s primary case on Mr Ting’s
authority to commit Akai to the Switch Transaction, as already mentioned: they
impinge on anybody reading the ExCo minutes in the context of the transaction.
118. In particular, the minutes:
o Are not, and do not purport to be,
minutes of a meeting of Akai’s board of directors, which according to the
Bank’s own evidence, is what one would expect even in a “normal” transaction –
a view supported by the documents relating to the Pfaff transaction;
o Contain no disclosure of interests,
notwithstanding the position of patent conflict of Mr Ting and, indeed, Dr
Holmes;
o Contain no suggestion that Mr Ting or
Dr Holmes did not vote at the alleged meeting;
o Do not describe the nature or purpose
of the Switch Transaction let alone its true purpose, which was to cause Akai
to assume Singer NV’s liability to the Bank;
o Do not identify any benefit to Akai
from the Switch Transaction or, indeed, any purpose for the loan;
o Were signed only by Mr Ting, who was in
the most obvious position of conflict;
o Disclose no involvement in the
purported approval process by any of the independent, non-conflicted directors
of Akai; and
o Make no reference to the public
shareholders of Akai, much less to any consideration of any regulatory
requirements.
119. These features were either not noted or
ignored by the Bank. Although the Bank
had Akai’s bye-laws in its possession, there is no suggestion that the minutes
were checked against the bye-laws, as was the Bank’s normal practice, and the
practice of a reasonable Thai bank.
Moreover, also contrary to its usual practice the Bank did not obtain
any legal advice from a lawyer qualified to assess whether the minute was in
fact proper evidence of Mr Ting’s authority.
120. It is worth emphasizing that the ExCo minutes
did not purport to authorize Mr Ting to commit Akai to the very aspect of the
Switch Transaction which was so extraordinary, namely using the US$30m facility
to pay off the liability of Singer NV to the Bank. What the minutes purported to authorize Mr
Ting to do was agree the loan facility, and to draw on it, as well as to pledge
Akai Electric shares as security. All
those aspects of the Switch Transaction were unexceptionable. The fact that there was no mention of the
extraordinary aspect of the transaction both undermines the Bank’s argument
that it reasonably relied on the minutes and strengthens Akai’s case that the
Bank’s belief in Mr Ting’s authority was irrational. Particularly as a representation has to be
“clear and unequivocal”, the absence of any mention of discussion, let alone
approval, of the US$30m being used to pay off Singer NV’s liability must destroy
the Bank’s case that the minutes support the rationality of its belief that Mr
Ting was authorized to commit Akai to that course. Indeed, given my view of the position in the
absence of the ExCo minutes, I consider that the absence in the minutes of any
reference to the use to which the US$30m was to be put actually renders the
Bank’s case on rationality even weaker.
121. In my opinion, these failings on the part of
the Bank in relation to the ExCo minutes provide significant reinforcement for
the view that the Bank was irrational in its belief that Mr Ting had authority
to commit Akai to the Switch Transaction, with all its remarkable features as
discussed above. I am therefore of the
opinion that the ExCo minutes assist the conclusion that the Bank’s case on
apparent authority must fail.
What is
the correct amount to be awarded to Akai?
Introductory
122. On the basis that Akai is entitled to succeed
in its claim that Mr Ting had no authority to enter into the Switch Transaction
on its behalf, the Court of Appeal awarded Akai the sum of US$22,541,332 plus
compound interest, which was also the sum which the Judge would have awarded if
he had found for Akai on that issue.
This sum is calculated on the basis that the Bank received a total of
US$20,504,295 for the Shares when it sold them, with the balance being
accounted for by interest and fees.
123. This is clearly the correct sum to have
awarded Akai by way of common law damages.
As Mr Ting had no authority to enter into the Switch Transaction on
behalf of Akai, then, as between the Bank and Akai, the Switch Transaction was
void, and the Bank had no right to retain the share certificates or to sell the
Shares. Accordingly, Akai had a claim
for conversion of the Shares. On that
basis, it is clear that Akai’s damages should be measured by the value of those
shares at the date they were sold: see BBMB Finance (Hong Kong) Ltd v. Eda
Holdings Ltd [1990] 1 WLR 409. The Privy
Council’s decision in that case is accurately summarised in the headnote, [1990]
1 WLR 409, 409H-410A:
“[T]he general rule [is] that
where property [is] irreversibly converted the measure of damages for
conversion [is] the value of the property at the date of conversion, and that,
… since the plaintiffs’ shares had been irrevocably sold by the defendant, the
plaintiffs were entitled to damages for that conversion … at the date of
conversion … .”
As the
Shares were sold on the open market by the Bank, the value of those shares must
be measured by reference to what the Bank obtained for them.
124. However, by its cross-appeal, Akai contends
that it is entitled to a greater sum than $22,541,332, because, over and above
its claim based on want of authority and conversion, it has a claim against the
Bank based on the proposition that, when they accepted the Electric shares in
December 1998, or in the alternative in December 1999, the Bank at once became
liable to Akai for knowing receipt.
Hence Akai’s cross-appeal.
125. Akai’s case in this connection may be
summarised as follows:
(a) The
classic test for a claim in knowing receipt is whether trust property was
received in circumstances where there is unconscionability on the part of the
recipient;
(b) The
facts which justify Akai’s case against the Bank on apparent agency also
justify its case on unconscionability;
(c)
Accordingly, Akai has a claim against the Bank for knowing receipt in respect
of the Shares;
(d)
Given that Akai has claims based on conversion and knowing receipt, it can
elect between the two claims when it comes to assessing compensation;
(e) While damages based on the conversion claim
are assessed according to common law principles, equitable compensation for
knowing receipt are assessed on a different basis;
(f) In
this case, equitable compensation should be assessed by the value of the
Shares, as at either (i) when they were wrongly received by the Bank, or (ii)
when the Bank wrongly refused to hand them back, namely by reference to their
value in (i) December 1998 or (ii) December 1999, as either basis would produce
a higher level of compensation than assessment by reference to the proceeds of
sale; and
(g)
Accordingly, Akai is entitled to (i) US$50,775,000 being the value of the
retained shares at the time they were wrongly received by the Bank, or (ii)
US$32,904,372, the value of the shares on 6 December 1999, rather than the
US$20,504,295, which the Bank received for those shares when it sold them
(plus, in all cases, plus interest and fees).
126. Proposition (a) is not in contention, and,
provided Akai establish propositions (b) and (c), propositions (d) and (e) are
not in contention either. However,
propositions (b), (c) and (f) are challenged by the Bank. Proposition (g) is not precisely agreed, but
it raises no issue of significance, if propositions (a) to (f) are made out.
Akai’s
propositions which are not in dispute
127. So far as Akai’s proposition (a) is
concerned, the characterisation of the precise state of mind on the part of a
defendant needed to render him liable for knowing receipt has been the subject
of much debate in judgments and academic articles. In Bank of Credit and Commerce International
(Overseas) Ltd v. Akindele [2001] 1 Ch 437, the law on the topic was reviewed
by Nourse LJ in a full and careful judgment (with which Ward and Sedley LJJ
agreed). At [2001] 1 Ch 437, 455, Nourse
LJ concluded that:
“[J]ust as there is now a single
test of dishonesty for knowing assistance, so ought there to be a single test
of knowledge for knowing receipt. The recipient’s state of knowledge must be
such as to make it unconscionable for him to retain the benefit of the receipt.
A test in that form, though it cannot, any more than any other, avoid
difficulties of application, ought to avoid those of definition and allocation
to which the previous categorisations have led. Moreover, it should better
enable the courts to give commonsense decisions in the commercial context in
which claims in knowing receipt are now frequently made …”
128. This approach was subsequently followed by
the English Court of Appeal in Criterion Properties plc v. Stratford UK
Properties LLC [2003] 1 WLR 2108, although a little doubt may be cast on it by
an uncharacteristically obscure remark of Lord Nicholls of Birkenhead in
Criterion in the House of Lords – [2004] 1 WLR 1846, para.4, first
sentence. Nonetheless, in Charter v.
City Index Ltd [2008] Ch 313, para.8, the English Court of Appeal reaffirmed
that the conclusion reached in Akindele [2001] 1 Ch 437 represented the
law. In the light of this, without
deciding the point, I am prepared to proceed on the basis of Mr Sumption’s
realistic concession, and to assume that proposition (a) is correct.
129. Before turning to the contentious propositions,
it is right briefly to explain why I am also prepared to proceed on the basis
that propositions (d) and (e) are correct, and what is at stake in relation to
proposition (g).
130. Proposition (d) rests on the general
principle that, where a person can bring a claim on two alternative bases, he
can elect to proceed on the basis which is more beneficial to him. This proposition is not challenged -
unsurprisingly, as it receives support from three decisions of the House of
Lords, Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145, 193, Kleinwort
Benson Limited v. Lincoln City Council [1999] 2 AC 349, 387 (in each case per
Lord Goff of Chieveley), and Deutsche Morgan Grenfell Group Plc v. Inland
RevenueCommissioners [2007] 1 AC 558, para.51 (per Lord Hope of Craighead).
131. As for proposition (e), the notion that
equitable compensation is assessed on a somewhat different basis from common
law damages is clearly right (albeit that the difference can be overstated). That is clear from another decision of the
House of Lords (to which it will be necessary to return). In Target Holdings Limited v. Redferns [1996]
1 AC 421, 434D-G, Lord Browne-Wilkinson said this:
“… If specific restitution of the
trust property is not possible, then the liability of the trustee is to pay
sufficient compensation to the trust estate to put it back to what it would
have been had the breach not been committed … Even if the immediate cause of
the loss is the dishonesty or failure of a third party, the trustee is liable to
make good that loss to the trust estate if, but for the breach, such loss would
not have occurred … Thus the common law rules of remoteness of damage and
causation do not apply. However there does have to be some causal connection
between the breach of trust and the loss to the trust estate for which
compensation is recoverable, viz. the fact that the loss would not have
occurred but for the breach...”
The same
view was taken by the High Court of Australia in Maguire v. Makaronis (1997)
188 CLR 449 – see especially at 188 CLR 449, 469-470 per Brennan CJ, citing
Target [1996] 1 AC 421 with approval.
132. Proposition (g) concerns the precise
valuation of the Shares in December 1998 or December 1999, and is only relevant
if Akai succeeds in establishing its claim for more compensation than the Judge
would have awarded, and the Court of Appeal did award. Although I have little hesitation in
rejecting the argument (for reasons given below) I can see some logical basis
for arguing that compensation for knowing receipt should be assessed by
reference to the value of the Shares in December 1998, i.e. by reference to
what might be said to be the date of receipt.
However, I cannot see any basis for the December 1999 date: that was the
date on which the US$30m became repayable under the Loan Agreement. If that agreement was valid, then the share
certificates were lawfully retained, as they were security for repayment of the
loan, and it was not repaid. If, on the
other hand, that agreement was void (as was the case for treasons already
given), then ex hypothesi the date has no relevance.
133. At the hearing, we were told that there were
small disagreements between the parties as to the valuations of the Shares as
at those dates. If any of those
disagreements had been relevant to the assessment compensation, I would have
thought it right to refer them to the High Court, in the event of Akai
succeeding on its propositions (b), (c) and (e), the three propositions which I
now turn to consider.
Proposition
(b): the requisite state of mind of a recipient in knowing receipt
134. Proposition (b) raises the issue of the
Bank’s state of mind when it received the share certificates in December
1998. Applying the test laid down in
Akindele [2001] 1 Ch 437, 455, cited above, the question is whether its state
of mind when it accepted the share certificates was such that it would be unconscionable
for it to have retained the Shares. I
have already explained that the Bank was irrational, but not dishonest, in
believing, or more accurately in assuming, that Mr Ting had authority to commit
Akai to the Switch Transaction. In my
view, subject to considering proposition (c), the facts of this case provide a
good illustration of how it can be unconscionable for a party to retain
property in circumstances which do not involve dishonesty, but which do involve
irrationality.
135. Indeed, particularly in a commercial context,
the test which equity applies to a claim in knowing receipt of an asset is
effectively identical to the test which the common law would apply to determine
whether there was what I have called reasonable reliance on the apparent
authority of an alleged agent to commit the principal to handing over the
asset. It makes little commercial sense,
and would provide a fertile source of confusion and inconsistency, if the tests
were different. It is true that common
law talks about actual knowledge and presumed knowledge whereas equity
sometimes refers to actual notice and constructive notice. But, above all in a case involving knowing
receipt in an arm’s length commercial context, I consider that, at any rate
absent very special facts, equity would follow the law.
136. This conclusion receives support from the
penetrating analysis in the judgment of Sir Robert Megarry, V-C in In re
Montagu’s Settlement Trusts [1987] 1 Ch 264, 277D-F, 278B-D, and 285B-F
(especially propositions (4) and (5)).
This judgment was described as “seminal” in Akindele [2001] 1 Ch 437,
452C, by Nourse LJ, who summarised its effect at [2001] 1 Ch 437, 453D as being
“that, in order to establish liability in knowing receipt, the recipient must
have actual knowledge (or the equivalent) … and that constructive knowledge is
not enough”.
137. If the recipient’s reliance on the alleged
agent’s apparent authority, when accepting the asset from the alleged agent on
behalf of the principal, was dishonest or irrational, it seems to me that it
would be unconscionable for the recipient to retain the asset against the
wishes of the principal, or, to put it another way, the recipient would have
the relevant “actual knowledge (or the equivalent)”. On the other hand, if the reliance was merely
negligent, then I doubt that the unconscionability test would, at least
normally, be satisfied – at best it would amount to “constructive knowledge”.
Proposition
(c): is there a claim for knowing receipt in this case?
138. That brings me to Akai’s proposition (c),
which raises the question of whether there is in fact a claim for knowing
receipt. Mr Sumption’s argument that
there is no such claim, is based essentially on two reasons. The first is that no legal or equitable title
passed in the share certificates or the Shares, when the certificates were
received by the Bank, because the Switch Transaction was void: accordingly,
there is no “receipt” in respect of which a knowing receipt claim can be
mounted. The second reason is that,
especially in the commercial context, where the claimant has a perfectly good
common law claim, it is both unnecessary and undesirable to permit him to
invoke equity: his claim should be satisfied by his common law claim, and an
equitable claim would create a proprietary interest which would rank ahead of
subsequent equitable interests, or legal interests acquired with notice of the
proprietary interest. Both these reasons
are said to be supported by the reasoning of Lord Browne-Wilkinson in
Westdeutsche Landesbank Girozentrale v. Islington London Borough Council [1996]
AC 669.
139. So far as the first reason is concerned, at
[1996] AC 669, 706E-F, Lord Browne-Wilkinson explained that “[u]nless and until
there is a separation of the legal and equitable estates, there is no separate
equitable title”. In this case, says Mr
Sumption, legal and equitable title in the Shares remained with Akai until the
shares were sold, and therefore there can be no claim against the Bank for
knowing receipt of the Shares.
140. The arguments on this point were not
developed in any detail by either party, and, in the light of my conclusion on
Akai’s proposition (f), it is unnecessary to resolve it. Because it may give rise to a rather
controversial and difficult issue of some significance in other cases, I am, in
these circumstances, rather reluctant to express a firm conclusion on the
point.
141. It may well be that the correctness of Mr
Sumption’s contention stands or falls on determining whether the Bank had an
equitable interest in the Shares at the moment that the share certificates were
pledged. That in turn may be resolved by
construing the pledge agreement (and possibly other documents signed on 4
December 1998). If the Bank merely had a
contractual right to sell the Shares, which right was protected by the pledging
of the certificates, then, at least until the Shares were sold and the proceeds
of sale retained by the Bank, there may have been no asset or money in the
possession of the Bank on which a claim for knowing receipt could bite. However, even if that is right, when the
Shares were sold, the proceeds of sale were retained by the Bank as its own
money, so there would, I think, be a claim for knowing receipt of the proceeds
of sale of the Shares.
142. This is not quite the point which Lord Browne-Wilkinson
had in mind in the Westdeutsche case [1996] AC 669, 706E-F, as he was
addressing an issue relating to an alleged resulting trust. More in point is another passage relied on by
Mr Sumption, in the opening two sentences of the judgment of Hoffmann LJ in El
Ajou v. Dollar Land Holdings plc [1994] 2 All ER 685, 700:
“This is a claim to enforce a
constructive trust on the basis of knowing receipt. 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 he received are traceable to a breach of
fiduciary duty.”
Even
though it emanates from Lord Hoffmann, this should not, I acknowledge, be
treated as a comprehensive definition of the essential ingredients of a knowing
receipt claim in every case.
143. Nonetheless, it may usefully highlight the
need for “beneficial receipt” of an asset or money by a defendant in a knowing
receipt claim. It is true that, by
holding the certificates, the Bank did receive a benefit, but it was merely a
protection of its alleged right to sell the Shares, and Akai’s claim relates to
the Shares. (There is, I suppose, an
argument, which, even for the purpose of this hypothesis, need not be
considered, that when the Bank actually purported to exercise its right of sale
of the Shares, there was a scintilla temporis before sale when it was
exercising sufficient degree of control over the Shares to have beneficial ownership
of them.)
144. I propose to take this point no further. Even if it is correct to says that no claim
in knowing receipt could be made in respect of any time before the Bank
acquired an equitable interest in the Shares or proceeds of sale, it would be
necessary to construe the pledge agreement (and, possibly, other documentation)
in order to be able to identify and characterise the Bank’s rights in the
Shares, and we heard no submissions on that issue.
145. I would, however, reject the Bank’s alternative
contention that, as a matter of principle, there should be no equitable claim
in this area. It is true that in
Westdeutsche [1996] AC 669, 704G-705B, Lord Browne-Wilkinson warned against
“the wholesale importation into commercial law of equitable principles
inconsistent with the certainty and speed which are essential requirements for
the orderly conduct of business affairs”.
The question when it is right to invoke an equitable right in a
commercial context is not always easy to resolve. There are dicta which, if read in isolation,
appear to provide some support for the Bank’s case on the point – see e.g. per
Millett LJ in Paragon Finance Ltd v. D B Thakerar & Co. [1999] 1 All ER
400, 409e-g, and, as Lord Millett, in Dubai Aluminium Co Ltd v. Salaam [2003] 2
AC 366, 404D-H.
146. However, in Bristol and West Building Society
v. Mothew [1998] 1 Ch 1, 18A-F, Millett LJ, after pointing out that the mere
fact that a person with fiduciary duties to another had been negligent would
not of itself give rise to an equitable remedy, referred to:
“… those duties which are special
to fiduciaries and which attract those remedies which are peculiar to the
equitable jurisdiction and are primarily restitutionary or restorative rather
than compensatory. A fiduciary is someone who has undertaken to act for or on
behalf of another in a particular matter in circumstances which give rise to a
relationship of trust and confidence. … A fiduciary must act in good faith; he
must not make a profit out of his trust; he must not place himself in a
position where his duty and his interest may conflict; he may not act for his
own benefit or the benefit of a third person without the informed consent of
his principal.
…
… Breach of fiduciary obligation,
therefore, connotes disloyalty or infidelity.
Mere incompetence is not enough.”
This
seems to me to apply here: Mr Ting clearly owed a fiduciary duty to Akai, which
he equally plainly breached when he intentionally, indeed dishonestly,
purported to commit Akai to the Switch Transaction, without its authority or
knowledge, for the benefit of Singer NV.
147. Mr Sumption also relied on Criterion [2004] 1
WLR 1846, where the House of Lords held that a claim for knowing receipt was
effectively irrelevant in a case where the claimant’s case was based on want of
authority of an alleged agent. I do not
consider that that case assists. It
involved an executory contract, so a claim for knowing receipt could not arise
as the contract had not been completed, and no property had changed hands. If the claim based on want of authority
succeeded, the contract would have been void and unenforceable, so there could
be no receipt. If, on the other hand,
the claim based on want of authority failed, the House of Lords took the view
that the claim for knowing receipt would also fail. (This appears to me to imply fairly strong
support for my view that what is required of the recipient’s state of mind in a
knowing recipient claim in a case such as this is the same as the test of want
of honest and rational belief for the purpose of defeating apparent
authority.) Mr Kosmin suggested that a
different result might obtain if the potential recipient acquired knowledge
between contracting with the agent and receiving the property; that could be
right, but that takes matters no further here.
Proposition
(f): the measure of equitable compensation
148. I turn to Akai’s proposition (f), namely that
the measure of equitable compensation should be the value of the Shares at the
date they were first received by the Bank, in December 1998, or the date the
Bank refused to hand them back, in December 1999. In a nutshell, assuming in Akai’s favour that
a claim for knowing receipt arose in December 1998, its primary case is that it
is entitled, as a matter of principle, to be compensated, if it so elects, by
reference to the value of those shares as at that date. (Alternatively, the Bank should have handed
the share certificates back in December 1999, which is the alternative
valuation date alleged by Akai.)
149. In support of the contention that, if the
claim for knowing receipt arose in December 1998, equitable compensation should
be assessed by reference to the value of the Shares as at that date, Mr Kosmin
relied on dicta in a number of cases.
Some of those cases were concerned with the duty of a person in a
fiduciary position to account for a profit or a bribe; others arose out of a
trustee’s duty to make good a loss made on an unauthorised investment. In my view, none of those circumstances are
in point here, even as useful analogies.
150. Thus, I do not see how Akai gets help from
the proposition which was expressed by Nourse LJ in these terms in In re
Duckwari Plc [1999] Ch 253, 262H:
“If a trustee applies trust moneys
in the acquisition of an unauthorised investment, he is liable to restore to
the trust the amount of the loss incurred on its realisation: see Knott v.
Cottee (1852)16 Beav. 77.”
In a
case where a trustee acquires an unauthorised investment or wrongly retains an
investment (as in Fry v. Fry (1859) 27 Beav 144), one can well see the logic of
holding that the beneficiaries should have the option of keeping the investment
or requiring the trustee to reimburse the trust the cost of the investment: if
the investment has gone down in value, the trust will have suffered a loss
through the wrongful act of the trustee, which he ought to be required to make
good.
151. However, it is important to recall that a
basic principle applicable to equitable compensation is that, as already
quoted, “there does have to be some causal connection between the breach of
trust and the loss to the trust estate for which compensation is recoverable
viz. the fact that the loss would not have occurred but for the breach” – per
Lord Browne-Wilkinson in Target Holdings [1996] 1 AC 421, 434G. That chimes with what he said at [1996] 1 AC
421, 432E-G, 437C-E, 439A-B and 440E-F.
In the third of those passages, after referring with approval to certain
passages in the judgment of McLachlin J in the Canadian case of Canson
Enterprises Ltd v. Boughton & Co. (1991) 85 DLR 129, 160-163, he said this:
“Equitable compensation for breach
of trust is designed to achieve exactly what the word compensation suggests: to
make good a loss in fact suffered by the beneficiaries and which, using
hindsight and common sense, can be seen to have been caused by the breach.”
152. The same point underlies the decision of the
Court of Appeal in Mothew [1998] 1 Ch 1.
The same approach, as I have indicated, has been adopted in Australia
and Canada. As McLachlin J expressed it
in Canson Enterprises 85 DLR 129, 163, “the losses made good are only those
which, on a common sense view of causation, were caused by the breach”. Kirby J put it this way in Maguire 188 CLR
449, 496:
“[Equitable] remedies will be
fashioned according to the exigencies of the particular case so as to do what
is ‘practically just’ as between the parties. The fiduciary must not be
‘robbed’; nor must the beneficiary be unjustly enriched.”
153. In this case, it appears to me clear that
equitable compensation should be assessed by reference to the value of the
Shares at the date when they were sold by the Bank, even if the claim for
knowing receipt arose some 18 months earlier.
As Mr Sumption pointed out, until the Shares were actually sold, it was
always open to Akai to recover them from the Bank. Even more significantly, it seems to me clear
that, if the Bank had not accepted the share certificates and retained them
until selling the shares, Akai would have retained those shares until Akai
Electric was placed into [administration] by the Japanese courts. The uncontested evidence very strongly
suggests that this is so: Akai Electric was Akai’s effective operating
subsidiary; there was no history of the STC group transferring its assets, let
alone its shareholdings in subsidiaries, out of its ultimate control; after the
Bank returned the 5.5m Akai Electric shares to Akai, they were retained by Akai
until they became valueless.
154. In those circumstances, it is clear on the
balance of probabilities, indeed it is, in truth, clear beyond any real doubt,
that, if the Bank had returned the share certificates to Akai, far from being
sold earlier than the date upon which the Bank sold them, Akai would have kept
the Shares until they had become worthless.
The ironic fact is that Akai is substantially better off as a result of
the Bank having received and sold the Shares.
Of course, that does not mean that Akai has no right to equitable
compensation, and the Bank is entitled to keep the proceeds of sale of the
Shares: normal equitable principles entitle Akai to elect between receiving a
sum equal to the proceeds of sale of the Shares or, unless it is impossible to
obtain them, an equivalent number of Akai Electric shares.
155. Accordingly, even though I consider that,
although Akai may well have a claim in knowing receipt, it takes matters no
further. I should add that, even if the
principles so far discussed had suggested that Akai was entitled to equitable
compensation in an amount greater than it should recover by way of common law
damages, I would have been very sympathetic to the notion that the equitable
remedy would have to be refashioned so as to equate the amount of such
compensation with the common law damages.
In that connection, I draw support from what was said by Lord
Browne-Wilkinson in Target Holdings [1996] AC 421, 432F-433A (already referred
to) and 435F-G, and by Millett LJ in Mothew [1998] Ch 1, 17G-H.
Issues
on interest
156. Towards the very end of the oral argument,
the question was raised as to whether the Judge was right (a) to have awarded
Akai compound interest on the damages or compensation, and (b) to have ordered
that such interest should start to run from 6 December 1999. Neither point had been raised before the
Court of Appeal or in the Bank’s notice of appeal or written case, but Mr
Sumption indicated that he wanted leave to amend the bank’s notice of appeal,
at least in relation to issue (b).
157. I would not allow the Bank to raise the issue
of compound interest. The circumstances
in which interest should be awarded on a compound basis are not always entirely
clear and it seems to me that it would be unfair on Akai to allow it to be
raised at the last minute, and determined without full argument. Further, there is no commercial injustice in
requiring a bank to pay compound interest on money it has wrongly been holding
for a few years, at least in circumstances such as the present.
158. The issue of the date from which interest is
to run stands on a different footing.
If, as the Court of Appeal rightly held, damages or compensation should
be based on the proceeds of sale received by the Bank for the Shares, then I
can see no possible justification for ordering that interest should run from
any date earlier (or indeed later) than the date (or dates) on which the
proceeds of sale were received by the Bank (unless there was some unjustifiable
delay in getting in the proceeds). In particular,
there is no possible justification for choosing the date on which the US$30m
became repayable under the Loan Agreement, not least because the reason the
claim has succeeded is that that agreement was void. The point is really the same as that already
discussed in relation to Akai’s proposition (g) on the measure of the
compensation payable.
159. There was an argument that the Bank delayed
unnecessarily in selling the Shares. In
my view, in agreement with the Court of Appeal, that argument plainly fails on
the facts: the Bank understandably considered that it should get certain
regulatory clearances before it sold the Shares, which delayed the sale for a
few months. Although it is unnecessary
to decide the point, I strongly suspect that that argument fails on the law as
well: the Bank was not under a duty to sell the Shares with any particular
despatch, or at all, so far as I can see.
160. In order to avoid the risk of any argument
that the Bank took an unreasonable time to get in the proceeds of sale, and in
order to ensure that Akai is not prejudiced in that connection, I think it
would be fair if interest ran from the date (or, more accurately, the dates) of
sale of the Shares. After all, the Bank
is very much in mercy by having raised this point so very late.
Conclusion
161. It would be wrong to end this judgment
without referring to the quality of the judgments below, from all of which I
have derived considerable assistance. I
have inevitably referred to aspects of the judgments in the courts below which
appear questionable. However, this
should not detract from the fact that Stone J delivered an admirably full and
carefully considered judgment, and, although I have not made much specific
mention of the judgments in the Court of Appeal, perusal of those judgments
will reveal that I have applied and followed most of the points made in the
incisive and well reasoned judgments of Tang VP, Le Pichon and Cheung JJA.
162. In the event, for the reasons given above, my
conclusions are that (a) Mr Ting did not have authority to commit Akai to the
Switch Transaction, and (b) the Bank is limited to the common law measure of
damages. Although I do not agree with
all their reasoning on issue (a), I consider that the Court of Appeal reached
the right conclusion on both those two issues.
Accordingly, I would dismiss both the Bank’s appeal and Akai’s cross-appeal,
but I would vary the award of interest so that it runs from the dates on which
the Bank sold the Shares.
163. So far as costs are concerned, I would order
that they be dealt with on written submissions as to which the parties should
seek written directions from the Registrar.
Chief
Justice Ma :
164. For the above reasons, the Bank’s appeal and
Akai’s cross-appeal are dismissed. The
Order of the Court of Appeal dated 10 August 2009 is varied only to the extent
that the award of compound interest (on the damages totalling US$22,541,332)
will begin to run as from the dates on which the Bank sold the Shares. Costs will be dealt with as indicated in
para.163 above.
(Geoffrey Ma)
(Kemal Bokhary) (Patrick Chan)
Chief
Justice Permanent Judge Permanent Judge
(R.A.V. Ribeiro)
Permanent
Judge (Lord Neuberger of Abbotsbury)
Non-Permanent
Judge
Mr
Jonathan Sumption, QC and Mr Eugene Fung (instructed by Messrs Baker &
McKenzie) for the appellant in FACV 16/2009 and respondent in FACV 9/2010
Mr
Leslie Kosmin, QC and Ms Linda Chan (instructed by Messrs Hogan Lovells) for
the respondent in FACV 16/2009 and appellant in FACV 9/2010
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