Akai vs. the Bank: Legal Decisions and Reasoning - Free Essay

The Court decided to dismiss the Akai's cross-appeal and the bank's appeal. This decision was because James did not have apparent authority to get the company to the Switch deal, and the bank was constrained to the standard law extent of damages. Akai claimed that the bank was not entitled to sell the shares because it was not a party to the transaction so the company would recover sales proceeds from the bank (Lower, 2011). Akai also held the bank liable for knowing the receipt, and it had to compensate Akai equitable compensation. However, the appeals were dismissed on the condition that the award of interest would vary and run from the dates on which the shares were sold by the bank (para.162). Regarding costs, the Court ordered that they be used as written submissions so that the parties could get printed guidelines from the registrar (para.163).

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The Court disagreed with the claim that the bank depended on James Ting's apparent authority. Lord Neuberger stated that the bank would only rely on him if his authority was irrational or dishonest. Even though Ting's authority was not apparent, Neuberger noted that as the company's chief executive officer, James Ting possessed a considerable measure of actual power (para.81). Nevertheless, the Court rejected all their claims. Neuberger also stated the irrationality of the bank by believing that James Ting had power and that the Switch Transaction benefited another company that gained substantial liability (Goddard, 2010). According to Harris (2015), when a third party gets into a deal with a company's agent, the authenticity of the contract relies on whether the organization’s agent had apparent power to join the transaction. Besides, the agent must also comply with internal procedures needed by the internal governing of the company’s document. The first requirement is ruled by the agency's law, while the second requirement is monitored by the rule of indoor management (Jurkevicius and Pokhodun, 2019).

The Reasoning of the Court Behind the Decisions

The Court of Final Appeal stated that the transaction should not have blinded the bank and noticed several curious features (Yip and Tan, 2011). Firstly, James Ting was the director of both companies, i.e., Singer NV and the plaintiff company. Secondly, the plaintiff company did not receive any benefit from the Switch deal, but the benefit was for the bank and Singer NV. Besides, the bank was not given a commercial reason why the plaintiff company was not involved in the transaction. Thirdly, Akai was registered in the Hong Kong Stock Exchange, which required all transactions in a company to be disclosed because it was an agreement between connected people (Tam, 2017). Therefore, the deal would probably have required approval from the shareholders and the board. Nonetheless, the bank had a contention that James Ting had the authority to do the transaction. Fourthly, the bank would have requested evidence showing no conflict of interest in the transaction. The minutes of the meeting handed over by James Ting did not show that he had a conflict of interest and were used for the benefit of the third party. The Court rejected that the bank relied on these minutes as evidence of apparent authority, but they were purported only to approve the loan and provide security. Lastly, the amount transacted was unusual. The bank did not seek legal advice or resolution from the director to approve the transaction.

Akai was entitled to the common law damages. The company was entitled because the bank was selling shares that belonged to Akai. Akai claimed that the bank should be held liable for knowing the receipt, hoping to receive a more generous compensation (Lower, 2011). According to Akai, the bank had retained the shares in situations that were unconscionable for it to retain them (para.125). However, it was questionable whether the bank had retained the shares in unconscionable ways, but Lord Neuberger suggested that unconscionability arose from irrationality and not dishonesty (para.134). He stated that relying on apparent authority is also an indication of the unconscionability of knowing receipt (para.135). According to the Court, the common law damages entitled to Akai would be the same as the equal measure of compensation. Akai had to prove to the Court that there was no connection between Akai's loss and the knowing receipt by the bank concerning the share in Akai Electric. The evidence shown here suggests that Akai would have retained the shares until they were worthless, had it not been for the bank's shares sale. It was a benefit to Akai because the bank sold the shares while they still had value. It means that Akai was entitled to either sales proceedings or an equal number of shares in Akai Electric. Even if the principles of equitable compensation showed a higher amount in a measure of compensation than the common law damages, Lord Neuberger states that the two should be made equal (para.155). Hence, equitable compensation for knowing receipt would be the same amount as the conversion damages that occurred when the bank sold the shares.

Reference List

Goddard, R., 2010. Hong Kong: Court Of Final Appeal Considers Apparent Authority Of Executive Chairman And Chief Executive. [online] Corporatelawandgovernance.blogspot.com. Available at: <http://corporatelawandgovernance.blogspot.com/2010/11/hong-kong-court-of-final-appeal.html> [Accessed 6 August 2020].

Harris, B., 2015. Third-Party Suspicion of Lack of Authority on the Part of the Company Agents Comparative Study and a Suggested Rule. J. Pol. & L., 8, p.98.

IN THE COURT OF FINAL APPEAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION FINAL APPEAL NO. 9 OF 2010 (CIVIL) (ON APPEAL FROM CACV NO. 177 OF 2008) [2010] 9.

Jurkevicius, V. and Pokhodun, Y., 2019. The doctrine of apparent authority as a precondition for sustainable business.

Lower, M.L., 2011. The decision in Akai: the interaction of apparent authority and knowing receipt. Available at SSRN 1802325.

Tam, W., 2017. Citizens v. Government: litigation outcomes before the Hong Kong Court of final appeal. China Review, 17(3), pp.167-180.

Yip, A. and Tan, J., 2011. Thanakharn Kasikorn Thai Chamkat (Mahachon) V Akai Holdings Ltd (In Liquidation) Lexology. [online] Lexology.com. Available at: <https://www.lexology.com/library/detail.aspx?g=9e1a4425-e67b-4d68-9e78-84bda6ab6219> [Accessed 6 August 2020].