Civil Air Transport Inc. v Claire Lee Chennault
| Jurisdiction | Hong Kong |
| Date | 13 May 1950 |
| Docket Number | Case No. 45 |
| Court | Supreme Court (Hong Kong) |
(Williams, Acting C.J.; Gould and Scholes JJ.) (Full Court.)
Recognition of Governments — Effects of De Facto and De Jure Recognition — State-Owned Property Abroad in Possession of De Facto Government — Possession Illegal by Local Law — Whether De Facto Government still Entitled to Immunity in Local Courts in Respect of that Property — Attempted Sale of the Property by the De Jure Government — Subsequent Recognition De Jure of De Facto Government — Effect of.
States — Immunity from Jurisdiction — State-Owned Property Abroad in Possession of De Facto Government — Illegality of Possession by Local Law — Relevance of — Immunity of — Irrelevance of Purpose to which Property is put — Date of Possession — Attempted Sale of the Property by the De Jure Government — Effect of — Subsequent De Jure Recognition of the De Facto Government — Effect of — Statements of the Executive in the Matter of Recognition.
The Facts.—The full Supreme Court of Hong Kong, sitting in its appellate capacity, heard this joint appeal from two judgments of Sir Leslie Gibson C.J. The plaintiff in each action was a United States Corporation, known as Civil Air Transport Incorporated. The defendants in both were General Chennault and Mr. Willauer. The actions concerned the assets in Hong Kong of the China National Aviation Corporation (C.N.A.C), a corporation incorporated in China, and the Central Air Transport Corporation (C.A.T.C.), a department of the Government of China. These assets were alleged to have been sold on December 12, 1949, by C.N.A.C. and C.A.T.C. respectively to the defendants and resold by them to the plaintiffs on or about December 18, 1949. The claim in each case was for the delivery up of these assets and damages for wrongful detention. The defendants, prior to these applications for receivers, issued on each writ a third party notice to certain persons (a different group in each case) claiming to be indemnified by them in respect of the claim of the plaintiff corporation to damages, on the ground that the third parties had prevented the defendants from giving delivery of the assets. The defendants in each action consented to the appointment of receivers, but the third parties opposed the appointment, on the ground that it impleaded a foreign sovereign (the People's Republic of China), and the appeal was argued on behalf of the plaintiffs and of the third parties.
The relevant facts and events preceding the case are of considerable complexity, and the summary that follows is taken from the judgment of Williams, Acting C.J. (quoting Sir Leslie Gibson in the lower Court):
“The C.N.A.C. was incorporated in China in 1945, in pursuance of an Agreement dated 21st December, 1945, and made between the Ministry of Communications of the Nationalist Government and Pan American Airways Corporation. It is governed by a Memorandum and Articles of Association. Article 33 of this document provides that anything not included in the Articles shall be dealt with in accordance with the company law governing limited companies and with the Agreement. Article 2 sets out the main purpose of the corporation in general terms but Article V section 1 of the Agreement requires the corporation, so long as the Agreement is in force, to operate on certain specific air routes within China. Article 3 of the Memorandum and Articles says that the head office is at Shanghai. Article 5 provides that the Ministry of Communications is to subscribe for 80% of the shares and Pan American Airways the remaining 20%. The shares are to be registered and are not to be transferable except in accordance with the Agreement. Article IX section 2 of the Agreement deals with the transfer of shares, but I have only the English version of the Agreement in evidence (although it is stated in the Agreement that the Chinese version is authoritative) and I find myself in a difficulty in construing this provision. By Article 13 of the Memorandum and Articles, the corporation is to have nine directors—seven of them nominated by the Ministry of Communications, and two by Pan American Airways with the approval of a shareholder's meeting. Under Article 17, important contracts are to be approved by the Board of Directors.
“The corporation naturally felt the impact of the civil war in China. In May 1949 Shanghai was captured by the forces of General Mao Tse-tung and on the 1st October, 1949, the Central People's Government was proclaimed as the Government of China. By that date it was in effective control of the whole Chinese mainland with the exception of five provinces. On that date, the Central People's Government purported to dismiss the former Nationalist Ministers and appointed new ones. Some time after the fall of Kweilin and Chungking in October, the Nationalist Government established itself in Formosa. The result of these events was that a number of the planes and a lot of the equipment of C.N.A.C. were moved to Hong Kong for safety and the directors apparently used Hong Kong as the Company's headquarters.
“In October, 1949, an effective majority of the C.N.A.C. employees in Hong Kong, whose sympathies were apparently with the Central People's Government, declined to recognise the authority of the directors who were nominees of the Nationalist Government and Pan American Airways and, as a consequence, an action (O.J. Action No. 517 of 1949) was started against certain of them in the name of C.N.A.C. Certain directors were dismissed and new ones appointed and the employees were suspended until they could be vetted as to their sympathies. As a consequence also, the Nationalist Government grounded the aircraft in Hong Kong by suspending their certificates of registration. Interim injunctions were obtained and have remained in force by consent, which are designed, inter alia, to prevent the removal of the assets of C.N.A.C. from Hong Kong.
“On 5th December, 1949, the defendants in the present action wrote a letter to the Nationalist Ministry of Communications in Formosa offering to purchase all the assets of C.N.A.C. and C.A.T.C. (an unincorporated body which was a department of the Nationalist Government and also operated an airline), and also the shares of the Nationalist Government in C.N.A.C. and C.A.T.C. In view of the status of C.A.T.C. there were not, of course, any shares in it to be affected by this offer. The letter makes it clear that the object was to prevent the assets and shares falling into Communist hands. It fixes the price of C.N.A.C. assets at U.S. $1,500,000 and of C.A.T.C. at U.S. $2,000,000. No prices are mentioned for the shares. The defendants offer to issue promissory notes for the two sums above to C.N.A.C. and C.A.T.C. and to undertake to cause a corporation to be formed (the present plaintiff corporation) to take over the assets and shares and issue promissory notes in substitution for those to be issued by the defendants. On this letter are endorsements stating that the terms are accepted and approved—one dated 13th December, 1949, by Nih Chun-sung as Deputy Secretary-General of the Executive Yuan and concurrently Chairman of the Board of Directors of C.N.A.C. and the other dated 12th December, 1949, signed by Liu Shao-ting as Vice-Minister of Communications and concurrently Chairman of the Board of Directors of C.A.T.C. On 12th December, 1949, Mr. Yen Hsi-shan wrote as Nationalist Premier to the defendants from Formosa accepting their offer. On 19th December, 1949, the defendants purported to sell the assets of C.N.A.C. and C.A.T.C. to the plaintiff corporation. On 31st December, 1949, a meeting of directors is alleged to have taken place in Hong Kong at which resolutions were passed approving the action of the Government in accepting the offer of the defendants, ratifying...
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