HKN Invest Oy v Incotrade PVT Ltd ((in Liquidation))

• Jurisdiction: Ireland
• Judge: Mr. Justice Costello
• Judgment Date: 01 January 1993
• Neutral Citation: 1992 WJSC-HC 3720
• Docket Number: [1991 No. 13862P]
• Court: High Court
• Date: 01 January 1993

HKN INVEST OY v. INCOTRADE PVT LTD

BETWEEN:

HKN INVEST OY AND ANOTHER

Plaintiffs

and

INCOTRADE PVT LTD. AND OTHERS

Defendants

1992 WJSC-HC 3720

No. 13862P/1991

THE HIGH COURT

Synopsis:

COMPANY

Contract

Ratification - Power - Exercise - Liquidator - Promoter's negotiations before company formed - Liquidator's statutory power to ratify acts of promoter - (1991/13862 P - Costello J. - 2/10/92) - [1993] 3 I.R. 152

|HKN Invest Oy v. Incotrade PVT Ltd.|

WINDING UP

Assets

Ownership - Dispute - Promoter - Bank account - Credit balance - Moneys obtained by promoter before incorporation pursuant to contracts to be performed by company - Moneys so obtained by promoter after incorporation - Moneys lodged to credit of promoter's personal bank account - Contractual obligations not discharged by company after incorporation - Moneys retained by promoter - Judgment for liquidated sum recovered against promoter by defrauded plaintiff - Plaintiff's garnishee claim to moneys in promoter's bank account - Claim resisted by liquidator of company - Money held by promoter on constructive trust for company - Moneys available to satisfy claims of company's creditors - Ratification by liquidator of promoter's acts before incorporation - Companies Act, 1963, ss. 37, 231 - (1991/13862 P - Costello J. - 2/10/92) - [1993] 3 I.R. 152

|HKN Invest Oy v. Incotrade PVT Ltd.|

CONTRACT

Ratification

Company - Powers - Exercise - Liquidator - Promoter's negotiations before company formed - Liquidator's statutory power to ratify acts of promoter - (1991/13862 P - Costello J. - 2/10/92) - [1993] 3 I.R. 152

|HKN Invest Oy v. Incotrade PVT Ltd.|

TRUSTS

Creation

Company - Promoter - Moneys - Receipt - Contracts - Acts anticipating incorporation of company - Contractual obligations not discharged by company when incorporated - Moneys retained by promoter - Constructive trust - (1991/13862 P - Costello J. - 2/10/92) - [1993] 3 I.R. 152

|HKN Invest Oy v. Incotrade PVT Ltd.|

Citations:

PALMER COMPANY LAW 1987 PARA 20.02

NEWBORNE V SENSOLID (GB) LTD 1954 1 QB 45

COMPANIES ACT 1963 S37

COMPANIES ACT 1963 S231(2)(i)

LYDNEY & WIGPOOL IRON ORE CO V BIRD 33 CH D 85

HUSSEY V PALMER 1972 3 AER 744

HANBURY MODERN EQUITY 218

1 Judgment of Mr. Justice Costello Delivered the 2nd day of October 1992

THE FACTS

2 Gunter Knieper, Alfred Eiger and Jurgan Heilser were three German nationals who came to Ireland in the first half of 1991 and started up in Cork a bogus loan brokerage business by means of which they defrauded a number of Irish and foreign nationals of substantial sums of money. In September of 1991 they departed this country hurriedly only a few steps ahead of the Irish and German police. They left behind them a number of angry creditors and a cluster of legal problems as to who is now entitled to the benefit of certain assets which they had failed to take with them. They had formed a company called Incotrade Pvt Ltd. incorporated on the 13 August 1991. It is now in liquidation and the liquidator claims that certain assets including credits standing in a bank account in the name of Mr. Knieper and another in an account in the name of Mr. Eiger, and four large expensive motor cars and two large expensive motor cycles, are the company's property and should be available for the company's creditors, whilst the plaintiffs in these proceedings, who have obtained judgment both against the company and the three individuals I have named, maintain that these assets belong to the individuals and that they should be allowed to complete execution against them by way of the garnishee proceedings they have instituted.

3 What happened to the plaintiffs is probably fairly typical of the unfortunate experiences of other creditors. The plaintiffs are Finnish companies who provide services for their clients by arranging loan facilities for them in foreign currencies on International markets. In July 1991 two of their representatives travelled to Cork having learnt that a firm call Incotrade Pvt Ltd. was offering services as a loan broker. Following discussions with the three defendants it was agreed that loans would be procured for some of the plaintiffs clients at a rate of 5.5%, that the plaintiffs would pay commission at the rate of 1% on the amount of the loans, that the commission would be paid in advance of any draw down of the loan, that the commission would be repaid if the loan was not advanced in thirty days. The plaintiff paid commission amounting to 670,400 DMs in the months of July and August 1991. When no loan was forthcoming, their representatives travelled to Ireland on the 20 September 1991 only to find that the company's offices were deserted and that the three defendants had disappeared. They sued Incotrade and the three defendants individually obtaining judgment in default of appearance on the 3rd February 1992 for 670,400 DMs (being £251,276.86 Irish pounds). They ascertained that there was a sum standing of £84,727.35 to the credit of Gunter Knieper in an account No. 20915189 at the Bishopstown Branch of Allied Irish Banks and a sum of £16,181.31 standing to the credit of Alfred Eiger in the same branch. They obtained a conditional order of garnishee over the bank's indebtness on the 2 March 1992. Their motion to have this order made absolute was served on Incotrade's liquidator. As they claimed relief in relation to the vehicles also, another motion dated 26 February was served on three Irish creditors who claimed to have obtained proprietary interests in the vehicles. For the moment I will defer consideration of the issues on that motion and concentrate on the issues relating to the bank accounts, and the garnishee proceedings.

4 The salient facts as appearing from the affidavits filed and the inferences I draw from them are as follows:

5 (1) Incotrade was incorporated on the 13 August 1991 but for some time before its incorporation the three personal defendants had been carrying on business. They had stationery printed, all of which was headed "Incotrade Pvt Ltd.". Most of the documents emanating from the defendants in relation to loans and the payment of commission were signed by two of the personal defendants purporting to do so on behalf of "Incotrade Pvt Ltd.".

6 (2) Persons carrying on business with the defendants believed that in the negotiations which took place the personal defendants were acting on behalf of Incotrade. When they entered into contracts in respect of loans to be obtained and commission to be paid they understood that the contracts were entered into with Incotrade and that commission was payable to Incotrade. In most, if not all, cases the sums paid by way of commission were made payable to the Incotrade and not to the personal defendants. Where contracts were entered into and payments of commission made before the 13 August 1991 none of the persons so contracting and so paying were aware that the company had not been incorporated at the time.

7 (3) Whilst I have not, of course, have had the benefit of evidence from any of the personal defendants, I think that it is reasonable to infer that they caused the company to be established (or purchased a "shelf" company for this purpose) to avoid any personal liability on any of the contracts that were entered into and that they intended that the business they were purporting to carry on would be carried on by the company when it was incorporated.

8 (4) A number of contracts purporting to be made by Incotrade were made before the company was incorporated. A number of payments were made to "Incotrade Pvt Ltd." before it was incorporated. Commission was paid after the date of incorporation in respect of contracts made both before and after incorporation.

9 (5) Gunter Knleper opened a personal account in his own name in the Bishopstown Branch of AIB on the 16 July 1991. This is account No. 20915189. He caused to be paid into this account the commission which was payable to "Incotrade Pvt Ltd." both before the company was incorporated and after the company was incorporated. It is accepted that no funds were transferred into the account from the company after it was incorporated, and no sums were lodged from Mr. Knieper's own resources into this account.

10 (6) After the company was incorporated it opened an account in its name in the branch of AIB at 26 Patrick Street Cork on the 21 August 1991. This is account No. 10422–010. At the date of liquidation this account was in credit in the sum of £30,250.54. The company opened a second account in this branch of the 17 September 1991 (account No.10422–366) and there was a sum of £81,327.93 standing to the company's credit in this account on the date of liquidation. It appears that even though the company had after incorporation its own account sums payable by way of commission on contracts entered into with the company after incorporation were paid by Mr. Knieper into his private account at the Bishopstown branch of AIB.

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