Meridian Global Funds Management Asia Ltd v Securities Commission

JurisdictionUK Non-devolved
Judgment Date26 June 1995
Date26 June 1995
CourtPrivy Council
[PRIVY COUNCIL] MERIDIAN GLOBAL FUNDS MANAGEMENT ASIA LTD. Appellant and SECURITIES COMMISSION Respondent [APPEAL FROM THE COURT OF APPEAL OF NEW ZEALAND] 1995 May 9, 10; June 26 Lord Keith of Kinkel, Lord Jauncey of Tullichettle, Lord Mustill, Lord Lloyd of Berwick and Lord Hoffmann

New Zealand - Company - Knowledge of company - Chief investment officer on behalf of company acquiring substantial security holding in public issuer - Managing director and board unaware of acquisition - Company failing to give prescribed notice - Whether investment officer's knowledge attributable to company - Whether company in breach of duty to give notice - Securities Amendment Act 1988 (No. 234 of 1988), ss. 20(3)(4)(e), 35

K., the chief investment officer of an investment management company, and N., its senior portfolio manager, with the company's authority but unknown to the board of directors and managing director, used funds managed by the company to acquire shares in a public issuer. The company thus became for a short period a substantial security holder in that public issuer, but the company did not give notice thereof as required by section 20(3) of the Securities Amendment Act 1988.F1 The Securities Commission instituted proceedings in the High Court of New Zealand against the company for failing to comply with section 20. The judge made a declaration that the company was in breach of its duty to give notice under section 20(3), holding that for the purposes of section 20(4)(e) the knowledge of K. and N. should be attributed to the company. The Court of Appeal of New Zealand upheld that decision on the basis that K. was the directing mind and will of the company and so his knowledge was attributable to the company.

On the company's appeal to the Judicial Committee: —

Held, dismissing the appeal, (1) that a company's rights and obligations were determined by rules whereby the acts of natural persons were attributed to the company normally to be determined by reference to the primary rules of attribution generally contained in the company's constitution and implied by company law and to general rules of agency; but that, in an exceptional case, where application of those principles would defeat the intended application of a particular provision to companies, it was necessary to devise a special rule of attribution to determine whose act or knowledge or state of mind was for the purpose of that provision to be attributed to the company; that, although the description of such a person as the “directing mind and will” of a company did not have to be apposite in every case, knowledge of an act of a company's duly authorised servant or agent, or the state of mind with which it was done, would be attributed to the company only where a true construction of the relevant substantive provision so required (post, pp. 418C–E, G, 419E–F, 422H–423A).

Tesco Supermarkets Ltd. v. Nattrass [1972] A.C. 153, H.L.(E.) and In re Supply of Ready Mixed Concrete (No. 2) [1995] 1 A.C. 456, H.L.(E.) applied.

The Truculent [1952] P. 1; H. L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd. [1957] 1 Q.B. 159, C.A. and The Lady Gwendolen [1965] P. 294, C.A. considered.

Dictum of Viscount Haldane L.C. in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [1915] A.C. 705, 713, H.L.(E.) explained.

(2) That, having regard to the policy of section 20 of the Act of 1988, on the true construction of section 20(4)(e) the appropriate rule of attribution to be implied was that a corporate security holder knew that it was a substantial security holder in a public issuer when that was known to the person who had acquired the relevant interest with the company's authority, whereupon the company was obliged to give notice under section 20(3); and that, accordingly, K.'s knowledge of the transaction was attributable to the company irrespective of whether he could be described in a general sense as its directing mind and will, and so in failing to give notice the company had been in breach of its duty under section 20(3) (post, p. 423C–F).

Per curiam. Section 35 of the Securities Amendment Act 1988 would not assist the commission since, although the knowledge of K. and N. would have activated the presumption that the company knew, at the material time, of the existence of a relevant interest in voting securities in a public issuer, the company could rebut that presumption if the knowledge of K. and N. were not attributable to the company because the evidence clearly showed that neither the managing director nor the board knew about that relevant interest (post, p. 424B–C, C–D).

Decision of the Court of Appeal of New Zealand [1994] 2 N.Z.L.R. 291 affirmed.

The following cases are referred to in the judgment of their Lordships:

Bolton (H. L.) (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd. [1957] 1 Q.B. 159; [1956] 3 W.L.R. 804; [1956] 3 All E.R. 624, C.A.

Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [1915] A.C. 705, H.L.(E.)

Moore v. I. Bresler Ltd. [1944] 2 All E.R. 515, D.C.

Multinational Gas and Petrochemical Co. v. Multinational Gas and Petrochemical Services Ltd. [1983] Ch. 258; [1983] 3 W.L.R. 492; [1983] 2 All E.R. 563, C.A.

Supply of Ready Mixed Concrete (No. 2), In re [1995] 1 A.C. 456; [1994] 3 W.L.R. 1249; [1995] 1 All E.R. 135, H.L.(E.)

Tesco Supermarkets Ltd. v. Nattrass [1972] A.C. 153; [1972] 2 W.L.R. 1166; [1971] 2 All E.R. 127, H.L.(E.)

The Lady Gwendolen, The [1965] P. 294; [1965] 3 W.L.R. 91; [1965] 2 All E.R. 283, C.A.

Truculent, The [1952] P. 1; [1951] 2 All E.R. 968

The following additional cases were cited in argument:

Canadian Dredge & Dock Co. Ltd. v. The Queen (1985) 19 C.C.C. (3d) 1

El Ajou v. Dollar Land Holdings Plc. [1994] 2 All E.R. 685, C.A.

Appeal (No. 48 of 1994) with leave of the Court of Appeal of New Zealand by the company, Meridian Global Funds Management Asia Ltd., from the judgment of the Court of Appeal of New Zealand [1994] 2 N.Z.L.R. 291 (Cooke P., Hardie Boys J. and Sir Gordon Bisson) given on 17 December 1993 dismissing the company's appeal from the order of Heron J. in the High Court of New Zealand on 23 November 1992, the reasons for which were in judgments delivered on 10 December 1991 and 23 November 1992, whereby in an action brought by the Securities Commission against the company and others he had declared that the company had acquired a relevant interest in Euro-National Corporation Ltd. (“E.N.C.”) and should have given notice of such relevant interest, and had ordered the company to pay $50,000 towards the commission's costs and $15,000 towards the costs of a minority shareholder in E.N.C.

The facts are stated in the judgment of their Lordships.

Michael Beloff Q.C., John Stevenson (of the New Zealand Bar) and Andrew Tabachnik for the company.

R. A. Dobson and N. F. Miller (both of the New Zealand Bar) for the commission.

Cur. adv. vult.

26 June. The judgment of their Lordships was delivered by Lord Hoffmann.

In 1990 a group of people in New Zealand, Malaysia and Hong Kong tried to gain control of a cash-rich publicly listed New Zealand company, Euro-National Corporation Ltd. (“E.N.C.”), and use its assets for their own purposes. The predators included a New Zealand businessman called David Lee Sian Mun, two Hong Kong investment managers called Norman Koo Hai Ching (“Koo”) and Norman Ng Wo Sui (“Ng”), who were employed by the appellant company, Meridian Global Funds Management Asia Ltd. (“Meridian”), and members of a Malaysian sharebroking firm called Hwang & Yusoff Securities Sdn. Bhd. (“Hwang & Yusoff”). Their scheme required the purchase, through apparently respectable New Zealand merchant bankers, of a 49 per cent. controlling holding in E.N.C. for N.Z.$18.2m. The intention was to fund this purchase out of E.N.C.'s own assets, but bridging finance was needed to fill the gap between buying the shares and gaining control of the company's money. This was provided by Koo and Ng out of funds managed by Meridian. Meridian is a substantial Hong Kong investment management company, a subsidiary of National Mutual Life Association of Australasia Ltd. Koo was its chief investment officer, Ng a senior portfolio manager. Their Lordships do not know exactly how they were to receive their share of the spoils. But they funded the scheme by improperly using their authority to buy and sell Asian shares. They contracted on behalf of Meridian, through Hwang & Yusoff, to buy a parcel of shares in Malaysian and Indonesian companies from E.N.C. for $21m. and at the same time to resell the same shares to E.N.C. for a slightly greater price. Payment for the purchase was made to Hwang & Yusoff on 30 October and payment for the resale was to be made by E.N.C. on 19 November. E.N.C. did not own the shares in question and the persons who purported to sell on its behalf had at that stage no authority to do so, but Meridian paid the money and on 9 November Hwang & Yusoff used $18.2m. to buy the shares in E.N.C. But the scheme to pay Meridian back out of E.N.C.'s money on 19 November was frustrated by the independent directors of E.N.C., who imposed conditions on the use of the company's funds with which the predators could not comply. Unable to get their hands on the company's money, they had to unwind the scheme as best they could. It is unnecessary to go into the details of how the participants tried to extricate...

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