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Abn Amro Bank N.v. v Chiyu Banking Corporation Ltd. And Others

Judgment Cited authorities 12 Cited in 1 Precedent Map Related
Vincent
Judgment Date22 May 2000
Year2000
Citation[2001] 2 HKLRD 175
Judgement NumberHCMP2793/1999
Subject MatterMiscellaneous Proceedings
CourtHigh Court (Hong Kong)
HCMP002793/1999 XCHRX ABN AMRO BANK N.V. v. CHIYU BANKING CORPORATION LTD. AND OTHERS

HCMP002793/1999

HCMP 2793/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2793 OF 1999

____________

IN THE MATTER of an application by Readen Company Limited (In Liquidation)

and

IN THE MATTER of certain deposits held by Chiyu Banking Corporation Ltd, Wing Hang Bank Ltd and Generale Belgian Bank
BETWEEN
ABN AMRO BANK N.V. Plaintiff
AND
CHIYU BANKING CORPORATION LIMITED 1st Defendant
WING HANG BANK LIMITED 2nd Defendant
GENERALE BELGIAN BANK 3rd Defendant

____________

Coram: Deputy High Court Judge S. Kwan in Chambers

Dates of Hearing: 22, 23 and 24 March 2000

Date of Handing Down Decision: 22 May 2000

_____________

D E C I S I O N

_____________

1. The Plaintiff in these proceedings, ABN Amro Bank N.V. ("ABN"), issued an Originating Summons seeking determination of the issues of whether the Defendants were entitled to exercise a right of set-off in respect of various fixed deposits placed by Readen Company Limited (in liquidation) ("Readen") with the Defendants or whether the sums of money represented by the deposits should be paid to the receivers or liquidators of Readen as secured by or otherwise available in settlement of the outstanding sum due and owing by Readen to ABN.

2. At the outset of the hearing, a compromise was reached between ABN and Generale Belgian Bank, the 3rd Defendant herein, and I made an order in terms of the consent summons. The 3rd Defendant took no further part in the proceedings.

3. The relevant facts and matters leading to the dispute between ABN and the first two Defendants may be summarised as follows.

4. On 19 September 1994, Readen executed a debenture in favour of ABN ("the Debenture") whereby a first floating charge was created to secure all monies which may from time to time be owing by Readen to ABN. The scope of the charging clause in the Debenture is a matter in contention. On 28 September 1994, the charge created in favour of ABN was duly registered at the Companies Registry pursuant to Section 80 of the Companies Ordinance, Cap. 32.

5. On 10 July 1997, Readen placed a fixed deposit with Chiyu Banking Corporation Limited, the 1st Defendant herein ("Chiyu"), in the sum of HK$1,300,000.00. On 11 July 1997, a further fixed deposit of HK$550,000.00 was placed by Readen with Chiyu. On the same day, Readen entered into a deed of charge on deposits and set-off with Chiyu in respect of these two deposits in the total sum of HK$1,850,000.00. It is ABN's contention that these monies were already charged by and subject to the Debenture. By the deed, a fixed charge was created by Readen in favour of Chiyu to secure all monies. Chiyu's deed of charge was likewise registered with the Companies Registry.

6. On 27 August 1997, Readen executed a letter of pledge and set-off agreement in favour of Wing Hang Bank Limited ("Wing Hang") for securing all monies and liabilities over the deposits not less than HK$3,000,000.00 under a fixed deposit account with Wing Hang in the name of Readen. Upon execution of the document and on the same day, a shareholder of Readen, Chanberg Holdings Limited ("Chanberg") transferred HK$3,000,000.00 to Readen's fixed deposit account with Wing Hang as security for Readen's indebtedness. Wing Hang's charge was also registered with the Companies Registry. There is dispute between the parties whether Wing Hang's charge was a fixed charge or a floating charge.

7. On 1 September 1997, Readen executed a further deed of charge on deposits and set-off in favour of Chiyu over all monies in respect of another fixed deposit with Chiyu for HK$2,000,000.00. On the same day, a fixed deposit for HK$2,000,000.00 was created by Readen with Chiyu. As in the previous instance, this was a fixed charge and was duly registered with the Companies Registry.

8. Following a letter of demand dated 28 February 1998 from the solicitors for Chiyu to Readen, Chiyu exercised its right to set-off under the deeds mentioned above on 5 March 1998 (the amount set-off was HK$2,076,052.70) and on 16 March 1998 (the amount set-off was HK$1,942,717.70).

9. On 25 June 1998, ABN exercised its right under the Debenture and appointed Mr Nicholas Hill and Mr Alan Rennie as the receivers of Readen. The claim of ABN against Readen was in excess of HK$5.4 million as in May 1999, when Mr Hill filed his affidavit in these proceedings. Also on 25 June 1998, Mr Todd Bourse and Mr Geoff Bourne were appointed joint and several provisional liquidators of Readen. The receivers gave notice to Readen of their appointment under the Debenture by a letter dated 26 June 1998.

10. On 29 June 1998, Wing Hang issued a demand letter to Readen demanding repayment of HK$4,507,338.32 and US$89,988.08. On 21 July 1998, Wing Hang exercised its right of set-off under the letter of pledge dated 27 August 1997 to debit the credit balance of Readen's fixed deposit account in the sum of HK$3,653,441.97 and applied the same towards part payment of Readen's indebtedness to Wing Hang.

11. The shareholders of Readen passed a special resolution to wind-up the company voluntarily on 29 July 1998.

12. On 23 September 1998, the receivers wrote to the liquidators and copied their letter to, inter alia, Chiyu and Wing Hang. The receivers asserted that by the terms of the Debenture, the floating charge created by the Debenture had crystallised directly once Readen had charged, pledged or otherwise encumbered any of the undertaking, property or assets charged to ABN or had attempted to do so without the prior written consent of ABN. The prior written consent of ABN was not obtained when Readen created subsequent charges in favour of Chiyu and Wing Hang. The receivers claimed that as the floating charge had crystallised automatically into a fixed charge, this gave the charge in favour of ABN priority over any right of set-off asserted by Chiyu or Wing Hang. Replies were received from Chiyu and Wing Hang asserting that they had no liability to return the deposits and rejecting ABN's claim. As a result, the Originating Summons was issued by ABN on 11 May 1999.

The issues

13. There are two principal issues in these proceedings:

(1) whether the deposits charged by Readen to Chiyu and Wing Hang in the subsequent charges in 1997 would fall within the scope of the floating charge created in favour of ABN upon the true construction of the Debenture;

(2) if the answer to (1) is yes, whether the subsequent charges created in favour of Chiyu and Wing Hang would have priority over the charge in favour of ABN because the subsequent chargees did not have actual, inferred or constructive notice of the restrictive clause or the automatic crystallisation clause in the Debenture.

Relevant clauses in the Debenture

14. I am concerned with the construction of three clauses in the Debenture. I shall refer to them as the charging clause (clause 3.01), the automatic crystallisation clause (clause 3.02) and the restrictive clause (clause 7.01(h)). These provisions are as follows:

15. The charging clause

"3.01 In consideration of the premises and with the object and intent of affording to the Lender a security for the Secured Indebtedness and the due fulfilment by the Company of the agreements, covenants and conditions contained in this Debenture, the Company as Beneficial Owner doth HEREBY CHARGE to the Lender by way of FIRST FLOATING CHARGE Firstly all stocks shares bonds and securities of any kind whatsoever whether marketable or otherwise and all other interests including but not limited to loan capital of the Company both present and future in any company firm consortium or entity wheresoever situate including all allotments accretions offers rights benefits and advantages whatsoever at any time accruing offered or arising in respect of or incidental to the same and all stocks shares rights money or property accruing thereto or offered at any time by way of conversion redemption bonus preference option or otherwise in respect thereof; and Secondly all book and other debts revenues and claims both present and future (including things in action which may give rise to a debt revenue or claim) due or owing or which may become due or owing to or purchased or otherwise acquired by the Company and the full benefit of all rights and remedies relating thereto including but not limited to any negotiable of [sic] non-negotiable instruments guarantees indemnities debentures legal and equitable charges and other security reservation of proprietary rights rights of tracing liens and all other rights and remedies of whatsoever nature in respect of the same; and Thirdly the stock in trade of the Company wheresoever both present and future (hereinafter collectively called 'the undertaking, property and assets hereby charged')."

16. The automatic crystallisation clause

"3.02 Notwithstanding anything herein contained, if the Company charges pledges or otherwise encumbers (whether by way of fixed or floating security) any of the undertaking, property and assets hereby charged or attempts so to do without the prior consent in writing of the Lender or if any creditor or other person attempts to levy any distress execution sequestration or other process against any of the undertaking, property and assets hereby charged, the floating charge hereby created over the such undertaking, property and assets the subject thereof shall automatically without notice operate as a fixed charge instantly such event occurs."

17. The restrictive clause

"7.01 THE COMPANY HEREBY FURTHER COVENANTS WITH THE LENDER that during the continuance of this security the Company will and shall...

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