CACV 177/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 177 OF 2008 (ON APPEAL FROM HCCL NO. 59 OF 2004) ------------------------- BETWEEN AKAI HOLDINGS LIMITED (IN Plaintiff LIQUIDATION) and THANAKHARN KASIKORN THAI Defendant CHAMKAT (MAHACHON) (ALSO KNOWN AS KASIKORNBANK PUBLIC LIMITED COMPANY) ------------------------- Before: Hon Tang VP, Le Pichon JA and Cheung JA in Court Dates of Hearing: 8 - 12 June 2009 Date of Judgment: 10 August 2009 ___________________ J U D G M E N T ___________________ Hon Tang VP: Introduction 1. Akai Holdings Limited (In Liquidation) (“Akai”) was incorporated in Bermuda. It was formerly known as Semi-Tech Global Company Limited. At all material times, its shares were listed on the main board of the Hong Kong Stock Exchange (“HKSE”). It was ordered to be wound up in Hong Kong on 23 August 2000 and in Bermuda on 29 September 2000. 2. The defendant bank, Thai Farmers Bank (“TFB”), carries on the business of banking in Thailand, Hong Kong, and until 2000, in London. 3. Akai was 43% owned by STC Canada, a company listed on the Toronto Stock Exchange. 57% of the shares in Akai was owned by the public. Mr James Ting, was the Executive Chairman and Chief Executive Officer (“CEO”) of Akai. 4. STC was owned as to 45% by Mr Ting and 55% by the public. 5. STC owned 50% of the shares in Singer Company NV (“Singer NV”) which was listed on the New York Stock Exchange, the balance being owned by the public. Singer NV indirectly owned 48% of Singer Thailand (listed on the stock exchange of Thailand). 6. Mr Ting was the chairman, president and CEO of the STC. He was the chairman and a director of Singer NV. At the material time, the CEO and President of Singer NV was Mr Stephen Goodman. 7. We are concerned with a loan agreement dated 4 December 1998 (“the Loan Agreement”), under which Akai was granted a loan facility of US$30,000,000 by TFB (“Akai Credit Facility”), to be secured by a pledge of 56,000,000 shares in Akai Electric Company Limited (“Akai Electric”) (listed on the Tokyo Stock Exchange) which was 70.8% owned by Akai. 8. It is common ground that the Akai Credit Facility was made on the basis that the proceeds would be used to repay a loan of US$30,000,000 then owing by Singer NV to TFB. The parties have described the arrangement as a Switch Transaction. The Singer NV loan was secured by 6,000,000 shares in Singer Thailand. Under the terms of the Singer NV loan, the value of the loan should not exceed 70% of the market value of the pledged shares. By October 1998, the value of the Singer Thailand shares covered only 4.2% of Singer NV’s outstanding debt to TFB. 9. On 4 December 1998, Akai entered into a Share Pledge Agreement under which 56,000,000 shares of Akai Electric were pledged to TFB as security in respect of the Akai Credit Facility. It was a term of the Akai Credit Facility that the value of the loan would not exceed 70% of the market value of the pledged shares. 5.5 million of Akai Electric shares were released to Akai on 30 June 1999 as a result of a positive movement in the Akai Electric share price. 10. On 13 September 1999, Singer NV filed for Chapter 11. On 6 December 1999, Akai defaulted upon the Akai Credit Facility. An event of default was declared by TFB on 23 December 1999, and in April and May 2000 TFB exercised its rights under the Share Pledge Agreement, sold the remaining security of 50.5 million shares in Akai Electric, and applied the proceeds of US$20,504,295.38 towards payment of the amount then outstanding under the Akai Credit Facility. A balance of US$13,243,618.38 remained due and owing to TFB, in respect of which TFB sought to prove in the Akai liquidation. 11. By Notice of Adjudication of Proof of Debt dated 16 August 2002, the Hong Kong liquidators notified TFB that its claim against Akai had been adjudicated to be US$13,243,618.38 in the Hong Kong liquidation of Akai, and by Notice of Adjudication of Proof of Debt dated 16 August 2002, the Bermudian liquidators of Akai notified TFB that its claim against Akai in the Bermudian liquidation had been adjudicated to be US$13,402,457.15. These adjudications have been relied on by TPB in its defence of election. 12. The present proceedings were commenced on 3 December 2004, one day prior to the expiry of the 6 year period after Mr Ting had executed Akai’s Loan and Share Pledge Agreements with TFB on 4 December 1998. 13. In this claim, Akai seeks, inter alia, a declaration that TFB held the Akai Electric’s shares as constructive trustee for Akai, a declaration that the Loan Agreement and the Share Pledge Agreement both dated 4 December 1998 are void, and that TFB is liable to Akai for all benefits and profits received by TFB from Akai pursuant to these agreements, and equitable compensation for breach of trust, including compensation for the loss of use of money and available assets, damages, including damages for loss of use of money and assets. 14. After a 20-day trial, Stone J dismissed Akai’s claim essentially on the basis that “424. … in entering into the Akai Loan and Share Pledge Agreements on 4 December 1998 that TFB was entitled to rely upon the apparent authority of Mr Ting, whose course of conduct throughout his dealings with TFB, culminating in Akai’s entry into these Agreements, unequivocally had represented his ability and authority to bind Akai.” and that upon the defendant’s counterclaim, he granted a declaration that Akai’s Loan and Share Pledge Agreements on 4 December 1998 are valid, subsisting and binding, and further that as at October 2000, Akai was indebted to TFB in the sum of US$13,243,618.38, and that TFB is entitled to a distribution within the liquidation of Akai according to the Notices of Adjudication as filed. The Appeal 15. This is Akai’s appeal. 16. The background facts were set out by the learned judge in paras. 26 to 147 of his 194-page- judgment. There is little or no dispute over these facts. I gratefully adopt his statement of the background facts. I will refer to such of them as may be necessary for this judgment. 17. Stone J said: “13. The fundamental issue in this trial is the validity of, and thus the entitlement of TFB to rely upon and to enforce the Loan Agreement and Share Pledge Agreement made between itself and Akai.” 18. That is so, but at the heart of Akai’s claim is the complaint that it was contrary to Akai’s interest for it to take up a debt of US$30 million from Singer NV and in the process pledge the Akai Electric shares. Knowing Akai’s claim 19. Mr Kosmin, QC, appearing for Akai put Akai’s claim on two basis: (1) TFB is liable to Akai for knowing receipt (2) the Akai Loan & Share Pledge Agreements were not binding on Akai because they were entered into without authority, actual or apparent. 20. The leading authority on knowing receipt is BCCI v. Akindele [2001] Ch 437, a decision of the English Court of Appeal. I will refer to this decision in greater detail in due course. For the present purpose, the following passage from the headnotes suffices: “(2) That, although a knowing recipient would often be found to have acted dishonestly, dishonesty was not a prerequisite to liability under the knowing receipt head; that in order to be liable for knowing receipt the recipient had to have knowledge that the assets received were traceable to a breach of trust or of fiduciary duty, the single test for which was whether the recipient’s state of knowledge was such as to make it unconscionable for him to retain the benefit of the receipt;” 21. Mr Kosmin put knowing receipt at the forefront of his case. He submitted that the principles applicable to knowing receipt will provide the answer to Akai’s claim. Lack of apparent authority is his secondary argument. 22. Mr Richard Snowden QC, for TFB, submitted that Akai is fundamentally wrong to contend that this case is primarily about knowing receipt. The key issue is that of authority, namely whether Akai was bound by the agreements by reason of Mr Ting’s actual or apparent authority. Authority was key 23. Stone J held that authority was the key issue and determinative of Akai’s claim. 24. Stone J said knowing receipt: “450. … would arise only if – contrary to my earlier finding – TFB cannot hold Akai to the Loan and Share Pledge Agreements by virtue of Mr Ting’s actual or apparent authority: see the analysis of Lord Nicholls in Criterion Properties v. Stratford UK Properties ([2004] 1 WLR 1846), at 1848: ‘…If a company (A) enters into an agreement with B under which B acquires benefits from A, A’s ability to recover those benefits from B depends essentially on whether the agreement is binding on A. If the directors of A were acting for an improper purpose when they entered into the agreement, A’s ability to have the agreement set aside depends upon the application of familiar principles of agency and company law.