CHINA EVERBRIGHT - IHD PACIFIC LTD. v. CH'NG POH

CACV 513/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 513 OF 2001

(ON APPEAL FROM HCA NO. A12837 OF 1995)

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J U D G M E N T

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Hon Rogers VP and Hon Le Pichon JA:

1. This is an appeal from a judgment of Madam Justice Yuen given on 27 February 2001. By that judgment the judge gave judgment for the plaintiff in the sum of HK$127,617,747.88, less credit in the total sum of $58,574,315, together with compound interest from 17 August 1985, calculated at monthly rests, at the standard rate of prime plus 1 per cent.

Background

2. In 1985 the Ka Wah Bank was controlled by the Low family from Malaysia. CH Low was a member of that family. He was an executive vice-president of the bank. There had been a run on the bank because it was in financial difficulties. Those financial difficulties are only indirectly relevant to this case, but the suggestion is that they were caused by mismanagement, or worse, for which CH Low, amongst others, was responsible. The bank had to be given financial assistance. Announcements were made that HSBC and the Bank of China would provide credit lines. It would seem that this was done at the instigation, or at least with the encouragement, of the Hong Kong Government. The credit lines were, of course, a temporary arrangement. The Ka Wah Bank still needed to rearrange its own affairs and to eradicate some of the causes of its financial difficulties.

3. The Defendant Ch'ng Poh is also from Malaysia. He was not only a successful architect, but he had branched out. He professed himself to be a mature and experienced businessman. By 1985 he owned a number of business interests. He wanted to acquire a listed company to hold his various interests. In the spring of 1985, in the course of his quest to acquire such a company, he came to know CH Low.

4. CH Low set about interesting the defendant in buying a large portion of the shares in the plaintiff. CH Low told the defendant that the shares belonged to Quek Teck-huat ("Quek"), who needed money to pay estate duties. He also told him that Quek was one of the Ka Wah Bank's "bad loans" or "non-performing loans", and that it was in the Ka Wah Bank's interest to try to look for a buyer with a business plan.

5. At the time the plaintiff had an issued capital of 128,406,000 shares. The defendant was told that Quek owned 87,295,381 (or 68%) of those shares through a private company, Territorial. 38,000,000 shares were held by private companies known as Wanfong Nominees Ltd and Vestall Ltd. Only about 2,000,000 - 3,000,000 shares (about 2%) were held by members of the public.

6. CH Low told the defendant that he had authority to negotiate the sale of Quek's shares and that it was a "clean company". He said the Ka Wah Bank would provide 100% financing if he (the Defendant) would acquire the plaintiff. He showed him the management accounts of the plaintiff made up to April 1985 and a number of unaudited consolidated balance sheets and profit and loss accounts of the plaintiff. The defendant was satisfied that the company was "clean". Through its subsidiary companies, Accordance Limited and Land City Company Limited, the plaintiff owned a substantial part of a commercial and office building in Tsimshatsui East, Kowloon, known as Intercontinental Plaza. It had another subsidiary, Dixon Limited, which features later in the events. It also held shares in Seareef Investments Limited ("Seareef"). On the basis of the unaudited accounts, it seemed that the plaintiff's net asset value was more than $387 million.

7. Between May and July 1985 CH Low and the defendant discussed a number of proposals as to the way in which the purchase of the shares in the plaintiff could be structured. It is unnecessary to consider them all. One matter emerged from the evidence relating to them that is of some importance. The defendant knew of the existence of s.48 of the Companies Ordinance. His solicitors, Woo Kwan Lee and Lo, had advised him of its effect. He knew that a company was not allowed to give financial assistance for the purchase of its own shares.

8. It is unnecessary to set out the various negotiations relating to the purchase of the shares in the plaintiff. Suffice it to say that on 18 July 1985 a written agreement to purchase 77 million IHD shares was entered into between Territorial, acting as the vendor, Quek, acting as the warrantor and Join Park Limited as the purchaser. Join Park was a company jointly owned by the defendant and Mr Ngai Shiu-kit.

9. The essence of the written contract was that Join Park would buy the shares for $232,540,000. Completion was to be on 16 August 1985. The written contract recorded the sum of $123,540,000 as having already been paid in cash by Join Park to Territorial. The balance of $109 million was to be paid in cash, subject to an adjustment if the net asset value of the plaintiff shown in the audited accounts for the year ended 30 June 1985 were less than $374,945,520. The agreement also required Quek to procure Territorial to deliver to Join Park a banker's draft for $89,158,071 in favour of the plaintiff to discharge a debt shown in the plaintiff's unaudited accounts as being owed by Seareef to the plaintiff.

10. This written contract was, from the beginning, a facade. The sum of $123,540,000 was never paid to Territorial whether before or after 18 July 1985. The defendant, and all others concerned, saw fit to hide this fact from the solicitors. Also without telling the solicitors, the defendant and Mr Ngai arranged for companies which they controlled, namely Contech and Ganton, to draw down loans from the Ka Wah Bank in the total amount of $109 million on 25 July 1985. Instructions were given to the bank to credit the bulk of this amount to the account of Wanfong Securities Co. with the bank in respect of the share purchase agreement. Not only did Join Park and the defendant see fit to proceed with the purchase of the major shareholding in the plaintiff without any due diligence, but this payment was made before the audited accounts of the plaintiff were made available which might have reduced the total price payable.

11. The judge below did not accept the defendant's explanation as to early payment and attributed it to the fact that in the absence of the payment of $123,540,000, the payment of $109 million was a form of earnest to encourage Territorial to complete the transaction.

12. Completion of the sale transaction was delayed for one day until 17 August 1985. The judge found that before that had happened, on 9 August, the defendant had been appointed the chief executive of the plaintiff. That finding was challenged in this court. The challenge will be considered below.

13. The audited accounts for the year ended 30 June 1985 were eventually provided very shortly before the delayed completion of the share purchase. They showed that in addition to a loan due from an associated company, identified as Seareef, of $89,780,955 there were quoted investments overseas of something over $26 million and also, under the heading "debtors deposits and payment in advance", something over $14 million. The defendant was apparently told by CH Low that the plaintiff had overseas investments worth $26 million and there was a sum of about $10 million standing to the plaintiff's credit with Ariffin & Low, a firm of Malaysian stock brokers associated with the Low family. It was apparently agreed that additional sums would also be paid to the plaintiff at the same time, on completion, as the repayment of the $89 million loan to Seareef. These would represent the sale of the $26 million investments and the $10 million from Ariffin & Low. It was also agreed that Seareef would pay an additional $2 million in respect of interest on its loan.

14. On the day of completion, 17 August 1985, Miss Chiu, who was the manager of Wanfong Nominees Limited, went to the Ka Wah Bank. She was given 3 cashier orders totalling the sum of $127,617,747.88. The cashier orders were supplied against an application on behalf of Wanfong which indicated that their account would be debited. At the time Wanfong's account did not have sufficient funds. Miss Chiu had been instructed to obtain these cashier orders by Quek on the previous day. Miss Chiu knew Quek as a friend of her employer. His instructions had been confirmed in writing. He had apparently told Miss Chiu that the cashier orders would be authorised by a Mr Victor Tan. Victor Tan was an executive director and vice-president of the Ka Wah Bank. He was in charge of credit facilities. The cashier orders were drawn on the bank's own Cashier Order Account.

15. At about noon that morning, Doreen Yong, who was in charge of the administration of the plaintiff, but not a director, took the three cashier orders to the completion meeting. She gave them to Quek who gave them to the defendant. The defendant passed them to Mr Ngai who gave them to Join Park's solicitor to be photocopied. Apparently, Doreen Yong asked if she could take the cashier orders to the bank to save interest. They were then taken to the bank and, as the judge recorded, at 12:31 pm the bank's journal tape showed that an inquiry made in respect of the plaintiff's account showed that they had been credited by that time.

16. Previously at about 11 am, 8 cash cheques, which had a total value of the same amount, drawn by Doreen Yong on the account of Dixon at the Ka Wah Bank in favour of Wanfong, had been taken to the bank. There were another 8 cash cheques this time drawn on the plaintiff's account and signed by Quek and Chew Kam-meng, another director of the plaintiff, again totalling $127,617,747.88 which were paid into Dixon's account. As the judge recorded, Wanfong's account was only debited with the amount of the 3 cashier orders after it had been credited with the payment resulting from the 8 cash cheques from Dixon.

17. The sequence as recorded by the judge was thus that when the Ka Wah Bank issued the 3 cashier orders in favour of the plaintiff, these were drawn on the bank's Cashier Order Account. The bank did not at first debit Wanfong's account. The cashier orders were delivered to the plaintiff. The plaintiff's account was credited with the amount of the cashier orders before it was debited with the amount of the 8 cash cheques which were paid into Dixon's account. Dixon's account was credited with the amount of the 8 cash cheques before it was debited with the amount of the 8 cash cheques to Wanfong. Likewise Wanfong was credited with the corresponding amounts from the Dixon cheques before it was debited with the amount of the cashier orders.

18. The judge found it unclear on the evidence as to whether the authorisation for Quek and Chew to sign on behalf of the plaintiff was still valid at the time the 8 cash cheques in favour of Dixon were signed. Certainly in the two days prior to the completion of the sale, new bank mandates had been prepared which would have meant that Chew could no longer have been a signatory whether alone or with others. As the judge noted, no complaint was ever made to the Ka Wah Bank that the signatures on the various cheques signed by Quek and Chew were unauthorised.

19. On 27 August 1985, there was another circular flow of funds between the same companies. The judge dealt with this very shortly. The amount involved was $571,892.39. As the judge pointed out, on this occasion, if there were a flow of funds, the funds appeared to flow in the opposite direction from the flow of funds on 17 August and there were no cashier orders. The plaintiff's cheques were signed by Quek and Chew.

20. On the same day a general offer was sent to minority shareholders. Quek was prohibited under the July sale agreement from accepting this offer in respect of any remaining shares which he held. It is of some significance that the offer price was $3.02 per share. This would have been the same price as Join Park would have paid Territorial for the 77 million shares if the entire $232,540,000 had been paid. On the following day, 28 August, the defendant became a director of the plaintiff.

21. The plaintiff's bank statements for the month ending 31 August 1985 and the balance sheet of the plaintiff's group as at 21 August 1985 showed investments by Dixon of $127,617,747.88. The defendant wrote an internal memorandum on 21 September 1985 to Quek in his capacity as the Executive Chairman of the plaintiff as at 31 August and to Doreen Yong inquiring as to the nature of these investments and as to why they had been made without his prior knowledge. The memorandum indicated that an explanation was required to be given to the directors at the board meeting in October. As the judge noted, there never was any reply to that memorandum nor did the defendant ever follow it up. Furthermore, the defendant never queried the Ka Wah Bank as to the debiting of the cheques.

22. The judge was equally dismissive of the defendant's evidence that he had visited Singapore in October 1985. The defendant said that he had met CH Low and Quek where they had showed him properties to the value of $127,617,747.88 said to be the result of the investment. Although the defendant claimed to have asked for verifying documents, no such documents had ever been produced.

23. At the end of November 1985, the corporate company secretary of Dixon wrote to Quek and Doreen Yong inquiring as to the exact nature of the investment of the $127 million made with the funds from the 8 Dixon cheques dated 17 August. Four days later, Doreen Yong replied that she and Quek were surprised to receive the inquiry from the company secretary since it was neither the company accountant nor the financial adviser. She said that the Dixon cheques had been issued with the "full knowledge and the awareness of Mr Bill Ch'ng, the Chief Executive of Intercontinental Housing Development Limited". The letter concluded that instructions had been given for the transactions in that way and that it would be more appropriate to obtain details as to the exact nature of the investments from the defendant.

24. The defendant immediately consulted the solicitors who had acted for and advised Join Park and himself in the course of the acquisition of the shares. It would seem that he did not mention his visit to Singapore or any promise to supply documents. The solicitors were firm in their advice. On 18 December, they wrote to the defendant advising him that the circumstances of the withdrawals, which they summarised accurately in the letter, were extremely suspicious and that the matter should be reported to the police; steps should be taken to recover the money as otherwise the directors would be in breach of their duties; the plaintiff should also inform the Commissioner of Securities and should possibly suspend trading.

25. That advice went unheeded. Instead, the annual general meeting of the plaintiff proceeded on the following day. The defendant made no mention at the meeting of the circumstances which had caused the solicitors to write the letter. On the contrary, the directors' report for the year ended 30 June 1985 was presented to the shareholders without any qualification at all. Amongst other things that report referred to the board having taken positive steps to reduce the plaintiff's indebtedness by disposing of its overseas quoted investments of $26,300,000 at book value and recalling an advance made to an associated company of $89,781,000. Not surprisingly, on the previous day the solicitor who had previously been on the board resigned. Two prominent local businessman also resigned their directorships on 19 December. In contrast, Quek, who was identified in the solicitors' letters of 18 December as one of the signatories of the 8 cheques of 17 August drawn on the plaintiff's account, was unanimously re-elected a director.

26. In January of the following year, a report was made to the police and on 7 January 1986 the plaintiff commenced High Court Proceedings CL1/1986 naming Quek, Chew, Doreen Yong, CH Low, Ka Wah Bank, Wanfong Nominees Limited and Dixon Limited as defendants. The primary claim against the personal defendants was one for damages for conspiracy quantified at $127,617,747.88. The pleadings recounted the various cashier orders and cheques which had been part of the transactions at completion. Crucial to the claim was the allegation that the plaintiff had at all material times been the owner of and/or entitled to the sum of $127,617,747.88 being the proceeds of the 3 cashier orders.

27. It did not take long for the 2nd and 3rd defendants to file a defence in CL1/1986 in which it was said that the drawing and payment of cheques on 17 August 1985 had been done not only with the defendant's knowledge but at his direction.

28. In July 1991, CH Low returned to Hong Kong from Malaysia and pleaded guilty to conspiracy with persons who included the defendant. In March 1992, the defendant was arrested. He ceased to be a director of the plaintiff in February of 1993. After a contested trial he was convicted of two offences. The first was conspiracy to defraud. The second was publishing a false statement contrary to section 21(1) of the Theft Ordinance.

29. The particulars of the conspiracy were that the defendant had conspired with CH Low, Doreen Yong, Quek and Victor Tan to defraud the plaintiff and actual or potential shareholders and creditors of the plaintiff by dishonestly

"causing and permitting I.H.D. to participate in an exchange of cashier orders and cheques which were on 17 August 1985 circulated through the Ka Wah Bank at 232 Des Voeux Road, Central, Hong Kong in order to conceal the fact that HK$127,617,747.88 belonging to I.H.D. was used improperly to give financial assistance to a company controlled by Ch'ng Poh namely Join Park Limited to purchase 77,000,000 shares in I.H.D. from Territorial Development Limited; and (2) causing and permitting the said $127,617,747.88 belonging to I.H.D. to be used improperly to give financial assistance in the purchase of the said 77,000,000 shares in I.H.D. by Join Park Limited from Territorial Development Limited in circumstance of risk that I.H.D. would not be repaid the said HK$127,617,747.88 or that I.H.D. would not receive assets worth HK$127,617,747.88 there being no or no adequate security or guarantee for I.H.D."

30. The false statement, the subject to the second charge, was that contained in the director's report relating to the steps to reduce the indebtedness which is referred to the above.

31. After a careful review of the evidence the judge found that there was a conspiracy which involved the defendant. As the judge found, from August 1985 until February 1993, the defendant controlled the plaintiff. Indeed, as the judge pointed out, he controlled the plaintiff and its legal actions. The conspiracy benefited Join Park and CH Low's companies to the detriment of the plaintiff. Join Park paid substantially less than the purchase price disclosed to the public. The result of the arrangement was that the share price would not have been depressed and in due course Join Park could dispose of some of the shares in the plaintiff at an inflated price. The conspiracy involved Join Park being treated as having paid the $123,540,000 to Territorial that never was paid. The second part of the conspiracy was that there was a purported discharge of the liabilities of CH Low's companies to the plaintiff.

32. The judge also found that the 3 cashier orders were valid documents which had been issued by the bank and that the withdrawal of the sum of $127,617,747.88 out of the control of the plaintiff's group was a dealing with the money contrary to the rights of the plaintiff. Thus the dealing with the 3 cashier orders and the cheques to the same amount deprived the plaintiff of that sum and was also a conversion of the pieces of paper which constituted the chattels. The value of those converted chattels was the money that was received as a result of the cheques.

33. Finally the judge held that the defendant was in breach of fiduciary duties to the plaintiff. Those fiduciary duties emanated from the fact that not only was he the Chief Executive as from the 9 August 1985 but also because he had had control of the 3 cashier orders which were made out in favour of the plaintiff and were for the purpose of discharging the various loans which had been made to the plaintiff.

This appeal

34. The judge set all this out in a careful and precise judgment. Before this court, Mr Strachan QC on behalf of the defendant, has put forward no less than 17 grounds of appeal. He said in argument that they were all equally meritorious. That, as will be seen, is a conclusion to which this court has also come. None of them has met with success.

35. This court was not assisted by the fact that the written submissions on behalf of the defendant extended to more than 100 pages. Albeit the skeleton argument may have been less than 15 pages, but that was no more than an introduction to an expansive speaking note and appendices. The Practice Direction in respect of civil appeals makes clear that skeleton arguments should be no more than 10 to 15 pages. On previous occasions that has been repeated. Indeed the defendant's submissions drew attention to that fact on the first page. Despite that, the lengthy bundle was sent in. No small part of it, we are told, was simply copied from the written submissions in the court below. Indeed, not content with that, on the pretext of supplying page references to certain documents, the defendant's counsel saw fit to submit a further page of submissions on the day following the conclusion of the hearing of the appeal. The plaintiff's team also supplied a lengthy "aide-memoire". This is, apparently, the name given to a document which is produced sometime during a hearing setting out the arguments that the party concerned has by then appreciated need to be made.

36. The speedy and proper resolution of appeals requires the preparation of a simple document that will indicate in a few short pages precisely what points will be taken in argument. It should indicate those points to which the court's attention should be directed in the preparation of the hearing, give the references in the bundles that the court should consider and the passages in any authorities that are of particular importance. It does not need to be written in prose of which any award-winning author would be proud. Structured bullet points are of assistance. A lengthy bundle of written submissions is not.

37. It would be convenient, at the outset to mention the complaint in respect of the judge's reference to the effect and weight of the defendant's convictions. Mr Strachan's argument was that the defendant's convictions should have been given no weight at all. Before dismissing that argument, it is pertinent to note what was said in the judgment. The judge noted that the conviction followed a full trial. The defendant had been represented by leading counsel. The conviction was upheld on appeal. An application for leave to appeal was considered and rejected by the Privy Council. In those circumstances, the judge said that the convictions should be given substantial weight. In so saying, the judge acknowledged that the court had to consider and evaluate evidence which had not been considered by the jury. In that respect it was noted that that evidence had been considered by the Court of Appeal and nothing new of importance had been disclosed. Finally the judge noted that the court had not just the convictions "but a great deal of contemporaneous documentary evidence which are relevant to the determination of the issues raised."

38. The judge's approach was entirely correct. Section 62(1) of the Evidence Ordinance provides that evidence may be given of the convictions of an offence for the purpose of proving, where relevant, any issue in the proceedings that the person concerned had committed the offence. Subsection (2) goes on to provide that where such a conviction is proved the person concerned should be taken to have committed the particular offence. Section 62(2)(b) provides that:

"without prejudice to the reception of any other admissible evidence for the purpose of identifying the facts on which the conviction was based, the contents of any document which is admissible as evidence of the conviction, and the contents of the information, complaint, indictment or charge on which the person in question was convicted, shall be admissible in evidence for that purpose."

39. Mr Strachan relied heavily on the judgment of Buckley L.J. in the case of Stupple v Royal Insurance Co. [1971] 1 QB 50 at pages 75-77. That was apparently the first case to be decided after the coming into force of the Civil Evidence Act 1968. That Act had for the first time permitted evidence of convictions to be given in civil cases. All the judges in that case referred to the evidence of the convictions shifting the onus of proof to the party convicted so that it then fell on him to disprove the fact that he had committed a particular act. Buckley L.J. considered that beyond that the evidence of conviction would carry no weight. In the context of that case the observations were hypothetical because, at the end of his judgment he said:

"With respect to the learned judge, I think that he was unnecessarily alarmed at the possibility of his reaching a different conclusion from the conclusion reached at the criminal trial, where both the burden of proof and the standard of proof differed from those in the action, and by the Court of Criminal Appeal. The conclusion which he did reach was one which, I think, was clearly open to him on the evidence before him, and I see no reason to disturb it."

40. In the light of section 62 it is idle to suggest that evidence of a conviction can be given but that it is to be given no weight. As the judge remarked, the weight to be given depends upon the particular facts of the case and the issues involved. This approach is entirely in keeping with the speech of Lord Diplock in Hunter v Chief Constable of the West Midlands Police [1982] AC 529 see especially p. 544 D-H.

41. In the present case, it is clear on reading the lengthy and detailed judgment that it cannot be said that the judge gave undue weight to the convictions. In reality the convictions played little part other than to give some form of confirmation that the conclusion which the judge reached that the defendant's evidence was not to be relied upon, was a conclusion to which the jury must also have come.

The defendant's case

42. As referred to above, the plaintiff's claim is based on 3 causes of action. They are conspiracy, conversion and breach of fiduciary duties. It is contended that the claims failed for the following reasons. In respect of all causes of action it is said that the plaintiff suffered no loss. Furthermore, in respect of the cause of action in conspiracy it is said that there was no breach of section 48 of the Companies Ordinance. In relation to conversion it is said that there was no conversion of the cheques. In relation to the breach of fiduciary duties it is said that, in the first place, the defendant owed the plaintiff no fiduciary duty at the relevant time and, in the second place, it is said that there was no breach of any fiduciary duty that was owed.

43. Before considering each of the arguments on behalf of the defendant in turn, it can be noted that many of the points raised involved challenges to the findings of fact made by the judge below. It is right to point out at the commencement that no basis has been shown for disturbing any of the findings of fact by the judge, save, perhaps, in very minor respects which would not, on any basis, result in a different conclusion being reached nor would they be grounds for allowing the appeal in any respect.

The plaintiff suffered no loss

44. The first argument advanced by Mr Strachan was that the circular payment of money constituted by the 3 cashier orders and the two sets of cheques, which were dealt with by the Ka Wah Bank on 17 August 1985, involved no real payment to the plaintiff. The argument was that each of the 3 payments constituted by the cashier orders and the two sets of cheques constituted paper transactions where there were no real funds. The argument for the defendant focused for its support primarily on the judgment in Selangor United Rubber Estates Limited v Cradock and others (No. 3) [1968] 1 WLR 1555. That argument was, in essence, an attempt to rely upon the authority for the facts rather than to extract any principle of law said to be derived from or applied in that case.

45. Before turning to the Selangor decision, it must be noted that the judge carefully examined the facts in relation to the issue of the cashier orders. As already noted the cashier orders were debited from the bank's Cashier Order Account. The judge noted that the bank's financial position, not least because of the financial support given to the bank by HSBC and the Bank of China, was clearly sufficient to honour the cashier orders. The funds represented by the cashier orders were therefore the bank's own funds and, as the judge found, real money and real funds.

46. The finding by the judge was that the 3 cashier orders issued by the Ka Wah Bank in favour of the plaintiff were equivalent to cash. Therefore, the observation that the factual matrix was different from that in the Selangor case was clearly correct.

47. The claim in the Selangor case had been that the defendants should account as trustees. There had been two transactions which were involved in that case. Arising out of the first transaction one company, Woodstock, had incurred an indebtedness to the plaintiff. A few years later it was decided between the various parties that Woodstock's indebtedness would be transferred to other parties. Part of the transaction involved two series of 3 cheques. There was a cheque from the existing debtor to the plaintiff, a cheque of the same amount from the plaintiff to the new debtor and a cheque from the new debtor to the existing debtor. At page 1573 B-D it was noted that all 3 cheques were taken to the bank at the same time. The person in charge of the bank was told that the cheques were exchanged for "internal accounting reasons" or "internal book-keeping reasons". On that day all 3 cheques were debited and credit entries were made as requested. The second series of cheques were dealt with apparently in the same way. In passing, it might be noted that it is unlikely that, in 1968, the Waterloo Place branch of the Bank of Nova Scotia would have been equipped with computers. But even if it were, the person in charge of the bank had clearly authorised the entry in the bank books of what was no more than simultaneous paper entries. On page 1574 the questions of law which were said to arise included:

"(6) How far was the payment to the plaintiff of the ￡249,000 satisfaction of its claim in respect of the first transaction?

(7) Was there any loss to the plaintiff by reason of the second transaction?"

48. At the end of the passage in the judgment dealing with question (6) Ungoed-Thomas J said at page 1651B:

"Such payments, if treated in isolation, would constitute satisfaction. But do they constitute satisfaction in the circumstances in which they were made? If these payments, amounting to ￡249,500, were only made as part of the three cheque circular movements, by which the payments to the plaintiff were dependent upon corresponding payments out by the plaintiff's directors from the plaintiff's account to the payer, by a scheme in which the payer participates and without advantage to the plaintiff, then the payer is giving with one hand what he at the same time takes away with the other." (emphasis added)

It is clear that it was crucial to the judge's conclusion that the payment, if indeed there was one other than a simple book entry, was only made by the bank because of the presence of the two other cheques. Hence, the use of the word "dependent". In the present case, as the judge correctly pointed out, the Ka Wah Bank had funds with which the cashier orders were backed. The honouring of the cashier orders was, therefore, not dependent upon the existence or presentation of the cheques drawn by Doreen Yong on Dixon's account in favour of Wanfong.

49. Mr Strachan on behalf of the defendant placed considerable reliance upon the passage in Ungoed-Thomas J's judgment which followed immediately:

"The plaintiff has the satisfaction of a conduit pipe. Even if one whistles half time when the money is in the plaintiff's hands, yet it must be the final result that matters in this as in other little games, the more so if the game is fraudulent and dishonest and fixed from the start. Satisfaction must be true and real satisfaction and not part of what makes satisfaction a mockery. I do not find it surprising that there is no authority for such a conclusion: and it is my conclusion."

50. That passage goes to a slightly different point. The first passage goes as to whether there was any real money which at any time went into the plaintiff's bank account. When the judge used the word dependent he was saying that none of the entries in the banks accounts could have happened without the other cheques. The second passage goes to the question of whether the original debtor, Woodstock, would still remain liable on its original debt. All the judge was saying in that passage was that if somebody makes a payment of money, which, to use a metaphor, has a string attached to it by which it is immediately retrieved whilst the payee is not looking, even if there be real money involved in the payment, it does not discharge the original debtor's debt. That, for the purposes of the present argument, is irrelevant. The present case is not concerned with whether the plaintiff also has a cause of action against Seareef, Quek, CH Low or any of his companies.

51. It was on the basis of those findings that Ungoed-Thomas J came to the conclusion in respect of question (7) that there was no loss. The judge came to the conclusion that the plaintiff had received no money which was capable of being misapplied.

52. In relation to the arguments raised as to the lack of consideration moving from the plaintiff, a distinction must be drawn between those arguments that go to the question as to whether the plaintiff had suffered any loss and those that go to whether the plaintiff gave any consideration which would support any payment to it.

53. In respect of the first point, the argument is, essentially, that there were no debts owing either from Seareef, Ariffin & Low or any other companies associated with CH Low. It is said that they were paper transactions. In this respect reliance is placed upon the finding of the judge at page 70F-G that there were "no genuine commercial transaction behind the transfer of funds" relating to the sums which amounted to $127 million. That, however, is to take in isolation one statement in the judgment and to ignore the following paragraph, where the judge continued "the fact remains that there were in the first instance funds which belonged to IHD which moved to these companies." There was ample evidence for the judge's finding in this respect. Both the accountancy evidence of Mr Lees and the evidence of Doreen Yong established that money had been transferred. Moreover, this court's attention was drawn to the plaintiff's ledger accounts and the accounts receivable ledger showing that the payments resulting from the payment of the 3 cashier orders were treated in discharge of debts owed by Seareef and Ariffin & Low. Whether the transfers had been to those companies or other entities controlled by CH Low and Victor Tan matters not. They were monies which had been transferred and had to be repaid.

54. Mr Strachan attempted to make some headway on the basis that at least $36 million, if it had been paid at all, had come from the accounts of Accordance Limited and not from the plaintiff's account. Accordance Limited was a wholly owned subsidiary of the plaintiff. It is recorded in the plaintiff's accounts as a property holding company. The notes to the 1985 audited accounts showed that there were loans from the plaintiff to Accordance Limited which were interest free with no fixed term for repayment. The exact amount of the loan to Accordance is not shown in those accounts; what can be determined is that the combined amount of loans to Dixon and Accordance was $188 million in 1984 and $109 million in 1985. The balance sheets of the plaintiff's group as at 21 August 1985, which are included in the bundle, show a loan to Accordance of $366,148,100.56.

55. Hence, whatever internal arrangements were made between the plaintiff and its subsidiaries, the fact appears that Accordance was little more than the "alter ego" of the plaintiff, wholly under its control, with its finances run by and at the direction of the plaintiff. If the plaintiff lent money it clearly could have done so through Accordance.

56. All the accounting documents, both of the plaintiff and Seareef, are consistent as to the existence of a loan in the order of $89 million; indeed all the public documents, including the general offer disclosed that.

57. In all the circumstances, therefore, the judge's finding that there were true debts that were owed from CH Low's companies to the plaintiff cannot be disturbed.

Title to the cashier orders

58. At pages 74 to 80 of the judgment the judge dealt with the question of whether title passed in respect of the 3 cashier orders irrespective of whether it was induced by fraud. The crucial finding of the judge is in the passage at page 76D-M. On the authority of Citibank NA v Brown Shipley & Co. Ltd [1991] 2 All ER 690, the judge held that, since the plaintiff had received the money from the cashier orders in good faith and for consideration, title to the cashier orders and the money could still pass. There was effective delivery because, although the authority to deliver the cashier orders was induced by fraud, that authority of the Ka Wah Bank and its officers was not avoided at any stage before the cashier orders were credited to the plaintiff's account. Relying on the decision of Yan v Post Office Bank Limited [1994] 1 NZLR 154, the judge held that it did not avail the bank that there had been no consideration between the bank and its own customer, in this case Wanfong, since the cashier orders were made out to a named payee, the plaintiff, and the bank had entrusted them to its customer.

59. It was not sought to be contended on this appeal that the knowledge of the various directors and Doreen Yong should be imputed to the plaintiff so as to defeat any claim which the plaintiff may have for conspiracy. What was said, however, is that the various persons' knowledge would be attributed to the plaintiff in respect of any claim which the Ka Wah Bank could make against it in respect of a "notional issue" as to whether the plaintiff had obtained good title to the cashier orders.

60. There are two matters which are relevant to this. In the first place, there is no such notional issue which arises in this case. The fact is that the cashier orders were duly honoured. The proceeds of the cashier orders were paid into the plaintiff's account. In the second place, the submission runs counter to established authorities and common sense. In the ordinary way the knowledge and state of mind of a director will be imputed to a company on whose behalf he is acting. But there is an exception to that: where a director is acting in fraud of the company and his actions are against the company's interests. As Vaughan Williams J said in the case of In re Hampshire Land Company [1896] 2 Ch 743 at 749, knowledge cannot be inferred where the agent is acting in fraud of the company. Viscount Sumner in J.C. Houghton and Company v Nothard, Lowe and Wills Limited [1928] AC 1 said at page 19 that it had long been recognised that it would be contrary to justice and common sense to treat the knowledge of delinquent directors as the knowledge of the company because it could not be taken that such persons would make a clean breast of their own delinquency.

61. The argument that the cashier orders were not delivered in terms of section 2 the Bills of Exchange Ordinance, Cap. 19 was founded upon the fact that Victor Tan was complicit in the fraud. It was not Victor Tan who drew the cashier orders or signed them. As the judge held at page 74F, it was not disputed that the 3 cashier orders were probably drawn and signed by the correct officers. The assumption was that Victor Tan's fraud had brought about a situation in which that had happened. Clearly the other servants of the Ka Wah Bank had delivered the cashier orders to Wanfong for the purpose of their being passed on to the plaintiff, the payee of the cashier orders. The transmission of the cashier orders from Wanfong via Ch'ng Poh, as part of the completion meeting, and finally to Doreen Yong, for payment into the plaintiff's account, was entirely as envisaged in the agreement of 18 July. There can be no question but that the cashier orders had been delivered to the plaintiff. Whether or not in a hypothetical situation the Ka Wah Bank could have resisted a claim by the plaintiff if the bank had refused to credit the plaintiff's account with the proceeds of the cashier orders is not a matter which arises in this case.

Section 48 Companies Ordinance

62. As it stood in 1985, this section provided that:

"... it shall not be lawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connexion with a purchase made or to be made by any person of any shares in the company ..."

That prohibition can cause little difficulty in comprehension.

63. At page 41 of the judgment, it was said succinctly:

"... the debts at CH Low's companies would be treated as having been repaid to IHD, in exchange for a reduction in the purchase price payable by Join Park to Territorial for IHD's shares. That is a breach of section 48 Companies Ordinance ..."

From page 50, the judgment deals with the question of a receipt for $123,539,400 which was produced at the criminal trial. It was a receipt made out by Territorial in favour of "Camden Limited and Earlstone Limited". It was expressed to be for "payment of seventy-seven million Intercontinental Housing Development Limited shares purchased for account of Join Park Limited". As was pointed out in the judgment, that was a clear acknowledgement of receipt of the sum which in fact never was received. It was also inconsistent with the defendant's version of events, namely, that Territorial had only received a loan of that sum from Quek and that Join Park had retained the sum for up to a year. The judge rejected that evidence of the defendant. Indeed, she also rejected the defendant's explanation that he received that receipt some time after he had commenced making enquiries as to the missing sum of $127,617,747.88. Finally, the judge reached the conclusion:

"I find that the copy receipt for $123,539,400 is evidence supporting the finding that the parties had treated that part of the purchase price as having been paid, in exchange for the discharge of the liabilities of CH Low's companies to IHD through the payment and withdrawn of the cashier orders."

Abatement of loss of $571,892.39

64. It was argued that if, contrary to the defendant's primary case, the plaintiff had suffered loss in relation to the sums involved with the 3 cashier orders, then by parallel reasoning the reverse circulation of cheques in the sum of $571,892.39 should be taken into account in the defendant's favour. The judge dealt with this matter very briefly and appropriately. At page 27 of the judgment, it was pointed out that the transactions took place without the intervention of cashier orders and the bank's own funds was not interposed. At page 72 the judge repeated that finding and held that the transaction was a true circle of cheques and that as a result the plaintiff had never received any part of that money. This argument, too, must fail.

Conversion

65. Two points were raised in respect of conversion. The first was that the plaintiff did not have actual possession of the cashier orders at the time that the judge found that the defendant had converted them. The second point argued was that the defendant had not dealt with the cashier orders in a manner inconsistent with the plaintiff's rights. The argument was that the cashier orders had been paid into the plaintiff's account in a manner that would have happened in any event.

66. In respect of the first point, the matter can be briefly considered with the aid of reference to a passage from the judgment of Holt CJ in Baldwin v Cole (1704) 6 Mod. Rep. 212 which was cited by McNair J. in Douglas Valley Finance Co. Ltd. v S. Hughes (Hirers) Limited [1969] 1 QB 738 at 752:

"The very denial of goods to him that has a right to demand them is an actual conversion, and not only evidence of it, as has been holden; for what is a conversion, but an assuming to one's self the property and right of disposing of another's goods ..."

67. Under the agreement of 18 July 1985 as extended to include the full sum of $127 million, Quek was required to deliver cashier orders payable to the plaintiff. Those were in respect of debts which were owed to the plaintiff. Once those cashier orders had been delivered to the defendant and Join Park as part and parcel of the transaction whereby Join Park purchased the 77 million shares, the plaintiff's right to possession of those cashier orders was complete.

68. Therefore, not only was the judge correct at pages 68R - 69E in saying that the defendant had passed the 3 cashier orders via Ngai and Susan Chow to Doreen Yong with the intention that the proceeds of the cashier orders would be ultimately withdrawn through Dixon's cheques and that the withdrawal of the sum out of the control of the plaintiff's group was a dealing with the money contrary to the rights of the plaintiff, the defendant was thus liable on that footing to the plaintiff for conversion. It could also be said that conversion took place at the time that the defendant put in train the active part of the conspiracy by passing the cashier orders to Doreen Yong in circumstances where the immediate withdrawal of the proceeds of the cashier orders had already been secured by the deposit of the cheques in favour of Dixon and by the agreed course which Doreen Yong would take in signing and delivering the 8 Dixon's cheques in favour of Wanfong.

Breach of fiduciary duties

69. One of the points taken by Mr Strachan, on behalf of the defendant, was that the judge was wrong in concluding that the defendant had been the chief executive of the plaintiff from 9 August 1985. There is an insurmountable difficulty to this argument. That was a finding of fact by the judge based not only on a review of the documentary evidence but, of course, on having heard the evidence, particularly that of the defendant. Mr Strachan put forward some documents in support of the argument that the appointment as chief executive had not taken place until 29 August. Heavy reliance was placed on the fact that Quek and Chew had not been in Hong Kong on 9 August when the board resolution appointing the defendant as chief executive was said to have been made. These matters are not conclusive. Indeed, although Chew in his affirmation of the 7 April 1986 filed in CL1/1986, states that the defendant had requested the resolution appointing him chief executive to be back-dated, that does not exclude all possibilities. There is no reason to believe that the judge did not take account of all relevant matters. In answer to a question by the court Mr Strachan conceded that there were relevant documents that indicated the appointment as chief executive on 9 August and other documents that indicated 29 August as the relevant date. None of the matters put forward by Mr Strachan, whether taken singly or together, are sufficient to disturb the judge's finding of fact in this regard.

Fiduciary duty

70. On the basis of the finding of fact as to the defendant's appointment as chief executive other considerations become irrelevant. Nevertheless, at page 84 the judge went on to consider the defendant's position on the basis that he had not held any official position in the plaintiff on 17 August 1985. Quite simply on the basis that clause 6(vi) of the Share Purchase Agreement required the delivery to Join Park of the banker's draft in favour of the plaintiff for the purpose of discharging the loans, Join Park thereby came under duty to deliver the cashier orders to the plaintiff for the plaintiff's benefit. Thus, as the judge said, Join Park came under a fiduciary duty. Since the defendant effectively controlled Join Park, that fiduciary duty extended to him. As was pointed out a fiduciary duty may be self-imposed. The self-imposition of such a duty is specifically referred to by Lord Macnaughten in Lyell v Kennedy (1889) 14 App Cas 437 at 463. Whereas the fact in cases such as Lyell v Kennedy and Burdick v Garrick (1870) Law Rep. 5 Ch App 233 may be different from the present case, the proposition of law still holds good.

Limitation

71. The judge upheld the plaintiff's submission that although the events in question occurred on 17 August 1985, more than 10 years before the issue of the writ on 12 December 1995, sections 26(1)(b), 4(7) and 20(1)(b) of the Limitation Ordinance, Cap. 347 applied such that the proceedings were not statute-barred. The defendant appeals against such findings and the plaintiff seeks to have the judgment affirmed on the additional grounds that the plaintiff's claims also came within sections 26(1)(a) and 20(1)(a).

Section 26(1)

72. Section 26(1) provides that where in the case of any action for which a period of limitation is prescribed by the Limitation Ordinance, either

(a) the action is based upon the fraud of the defendants; or

(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or concealment or could with reasonable diligence have discovered it. It was specifically provided in subsection (3) that for the purposes of subsection (1), deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

73. In her ruling dated 20 January 2000, the judge held (at pages 6J - 7R) that the word "fraudulently" in paragraph 6(1) of the re-re-amended statement of claim described the conspiracy but not the unlawful means used which were the contravention of section 48 of the Companies Ordinance, the concealment of that contravention and the conversion. Fraud was not an essential ingredient in any of the relevant causes of action in the present case. For that reason, the judge did not consider that paragraph (a) of section 26(1) was applicable: see Beaman v A.R.T.S. Limited [1949] 1 KB 550 at 558, 567 and 571.

74. In its respondent's notice, the plaintiff contended that the judge was wrong, that section 26(1)(a) also applied and formed an additional reason for affirming the judgment below. The plaintiff submitted that the word "fraud" was not used in the common law sense but in the equitable sense and if that was right, "fraud" must be given the same meaning in both limbs of the same subsection. It relied on the observations of Somervell LJ in Beaman's case at 567 to the effect that there may perhaps be equitable claims in which there would be scope for argument as to whether the claim was based on fraud and on King v Victor Parsons & Co. [1973] 1 WLR 29. But the question before the Court of Appeal in that case related to the predecessor provision of a different limb of section 26(1), namely, paragraph (b) rather than paragraph (a). Moreover, the successor provision to paragraph (b) of section 26(1) of the 1939 Act no longer refers to concealment by fraud but to deliberate concealment. In these circumstances, King v Victor Parsons case can be of no assistance in the construction of section 26(1)(a). In our judgment, the reasoning of the court in Beaman's case stands and paragraph (a) of section 26(1) of the Limitation Ordinance cannot avail the plaintiff.

75. In relation to paragraph (b) of section 26(1), the judge made the following findings of fact:

* the defendant deliberately concealed his participation in the conspiracy from the plaintiff

* from August 1985 to February 1993 ("the relevant period") the defendant was at the helm of the plaintiff, in control of the plaintiff and its legal actions, a fact accepted by the defendant

* in CL1/1986, he made affirmations portraying the accusations of the other conspirators as sinister attempts to frame him and throughout he portrayed himself as simply the head of the victim company

* there was a constant turnover in membership of the board and those directors who stayed for any period of more than a few months before December 1989, other than the defendant's wife, were three Malaysians who were non executive directors resident overseas, close friends of the defendant who had been invited to join the board by the defendant and to whom the defendant had protested his innocence and concealed his participation in the conspiracy

* those persons would not reasonably have been expected to undertake the sort of investigations which were taken by the authorities in the criminal trial

* even if they had attempted to do so, the defendant would have been able to react effectively against it because of his position both as the controlling shareholder and the person who appointed them to the board in the first place

Based on those findings, the judge concluded that the plaintiff could not have discovered with reasonable diligence the facts relevant to its claim before the relevant date. She added:

"In reality, it was not free to do so by reason of the defendant's control over it."

76. To come within section 26(1)(b), it is sufficient for the plaintiff to prove:

(i) that the defendant had deliberately concealed his involvement in the conspiracy; and

(ii) that it could not with reasonable diligence have discovered the concealment prior to 12 December 1989 ("the relevant date").

The question when the plaintiff discovered the concealment is not essential for the purposes of section 26(1)(b) since that is an alternative to establishing (ii) above.

77. In substance, the defendant's submissions were an ill-disguised attempt to challenge the clear finding of the judge that the defendant was in control of the company and its actions during the relevant period. It was submitted that the judge failed to take into account certain evidence given by the defendant in his examination-in-chief and re-examination relating to the alleged independence and the freedom of action of (i) Tom Tong, a director and legal adviser to the plaintiff who was consultant to the firm of solicitors having the conduct of CL1/1986 on behalf of the plaintiff and (ii) the accountant. The short answer is that the judge disbelieved the defendant and had rejected his evidence on these matters. The defendant's credibility is entirely a matter for the trial judge.

78. It was also contended that the judge failed to take into account the knowledge of the various directors of the plaintiff of the matters engendered by CL1/1986 and to whom a copy of the minority shareholders' action and "poison pen" letters had been sent. To put this in context, the defendant's role has to be borne in mind. On 6 January 1986, he was given authority by the board to deal with the 1986 litigation on behalf of the plaintiff. It is apparent from his report to the board on 25 March 1986 he took an active role in the litigation, giving it the necessary "steer", namely, that there was "a clear pre-meditated desire by past directors and management to pass their past 'criminal frauds' to the new management and to implicate the new comers." The allegations made in the 1986 action and in the "poison pen" letters were dealt with in similar vein. That was how matters were presented to and perceived by the board. This was ample evidence of concealment of the conspiracy and of the defendant's role in it from the board. Insofar as the directors alluded to were the defendant's wife and the three Malaysians mentioned by the judge, the defendant's attempted challenge to the judge's specific findings in that regard was doomed from the start given the heavy burden on the defendant (appellant) in such cases.

79. It would appear that a number of persons numbering at least three (other than the defendant's wife and the three Malaysians mentioned by the judge) held office as directors during a period of 17 months prior to the relevant date. The exact number is unclear given the curious fact that according to the agreed schedule of directors, at least two were alternates to 'directors' who themselves were described as 'alternates'. Be that as it may, the defendant asserted that they were persons "over whom the defendant had no influence". Suffice to say that that assertion cannot be correct given the critical finding (at 92G) that:

"[The defendant] has accepted that he was in control of the [plaintiff] and its legal actions."

Moreover by the time these persons became directors, CL1/1986 was 'history' inasmuch as the substantive case had settled by the autumn of 1987.

80. In our judgment, there was ample evidence before the judge which supported the findings of fact made by her. Given those findings, the judge's conclusion that the plaintiff could not have discovered with reasonable diligence the facts relevant to its claim in this action before the relevant date is unimpeachable.

Section 20(1)

81. No limitation period applies where the action is by a beneficiary under a trust to recover from the trustee trust property or the proceeds thereof previously received by the trustee and converted to his use: see section 20(1)(b). "Trust" and "trustee" have the same meanings as in the Trustee Ordinance, Cap. 29 and thus extend to constructive trusts: see section 2(1) of the Limitation Ordinance. Given the judge's finding that in breach of his fiduciary duty the defendant caused the plaintiff's monies to be applied in part payment for the shares he acquired through Join Park from Territorial, it is plain that the claim for an account of profits fell fairly and squarely within section 20(1)(b) such that no period of limitation applied to that claim. The defendant's submission has no merit.

82. Insofar as the plaintiff's submission that the judgment should be affirmed on the additional ground that its claim fell within section 20(1)(a) of the Limitation Ordinance is concerned, suffice to say that no case has been made out for attributing a different meaning to the term "fraud" used in that paragraph different to the meaning of that term as used in section 26(1)(a) considered above.

Section 4(7)

83. As an alternative to the award for damages, the judge held that the plaintiff was entitled to an account of profits from the defendant as constructive trustee. The defendant submitted that the judge was wrong in holding that the plaintiff's claim for an account was not subject to any limitation period having regard to section 4(2) and the fact that the common law claim for an account had become obsolete by the time the Limitation Ordinance was enacted.

84. The question raised has become academic since the plaintiff has elected for damages. Nothing further need be said than that the point raised is not a valid one given that the claim is one which falls within section 20(1)(b).

Interest

Compound interest

85. The judge awarded compound interest

"by reason of the defendant's breach of fiduciary duty benefiting himself at the company's expense (Wallersteiner v Moir (No. 2) 1975 1 Q.B. 373)."

The appeal against this award was based on two grounds: first, that the judge was wrong in finding that the defendant had acted in breach of a fiduciary duty owed the plaintiff and, second, that the court had no jurisdiction to award compound interest where the plaintiff was not entitled to a proprietary remedy. Since we have held that the judge was correct in finding that the defendant was a fiduciary vis-à-vis the plaintiff, the first ground simply falls away. As to the second ground, the defendant relied heavily on the decision of Hobhouse J in Kleinwort Benson Ltd v South Tyneside Metropolitan Borough Council [1994] 4 All ER 972. As the judge below based her award of compound interest on the decision of the English Court of Appeal in Wallersteiner v Moir (No. 2), that is the logical starting point for considering the parameters of the court's jurisdiction to award compound interest.

86. Wallersteiner v Moir (No. 2) arose out of the judgment of the Court of Appeal given on May 21, 1974 ([1974] 1 WLR 991) when it awarded, inter alia, ￡234,773 and interest against W on M's counterclaim against W and two companies controlled by W. M was a minority shareholder who had brought a counterclaim against W for breaches of the Companies Act 1948. He also claimed declarations that W had been guilty of fraud, misfeasance and breach of trust. As Scarman LJ put it (at 406E), it was a case where W who was engaged in the business of finance obtained substantial financial assistance from the two companies in order to finance the acquisition of shares which gave him effective control of those companies. W had conducted financial operations through a complex structure of companies with a view to profit.

87. W made further applications to the Court of Appeal, inter alia, in respect of the interest awarded. It was held that interest had not been ordered under section 3(1) of the Law Reform (Miscellaneous Provisions) Act 1934 but under the court's equitable jurisdiction. Lord Hatherley LC's observations in Burdick v Garrick (1870) Law Rep. 5 Ch App 233 were relied on by all three members of the court.

"... in equity, interest is never awarded by way of punishment. Equity awards it whenever money is misused by an executor or a trustee or anyone else in a fiduciary position - who has misapplied the money and made use of it himself for his own benefit. The court:

"presumes that the party against whom relief is sought has made that amount of profit which persons ordinarily do make in trade, and in these cases the court directs rests to be made," i.e., compound interest: see Burdick v. Garrick, 5 Ch.App. 233, 242, per Lord Hatherley L.C.

The reason is because a person in a fiduciary position is not allowed to make a profit out of his trust: and, if he does, he is liable to account for that profit or interest in lieu thereof."

per Lord Denning MR at 388 C-D. Buckley LJ's classic formulation of the principle is substantially the same. He held (at 397 B-G):

"It is well established in equity that a trustee who in breach of trust misapplies trust funds will be liable not only to replace the misapplied principal fund but to do so with interest from the date of the misapplication. ... Where a trustee has retained trust money in his own hands, he will be accountable for the profit which he has made or which he is assumed to have made from the use of the money. In Attorney-General v. Alford, 4 De G.M. & G. 843, 851, Lord Cranworth L.C. said:

"What the court ought to do, I think, is to charge him only with the interest which he has received, or which it is justly entitled to say he ought to have received, or which it is so fairly to be presumed that he did receive that he is estopped from saying that he did not receive it."

This is an application of the doctrine that the court will not allow a trustee to make any profit from his trust. The defaulting trustee is normally charged with simple interest only, but if it is established that he has used the money in trade he may be charged compound interest: see Burdick v. Garrick, 5 Ch.App. 233, per Lord Hatherley L.C., at p. 241, and Lewin, Trusts, 16th ed. (1964), p. 226, and the cases there noted. The justification for charging compound interest normally lies in the fact that profits earned in trade would be likely to be used as working capital for earning further profits. ...

The application of this rule is not confined to cases in which a trustee or agent has misapplied trust funds or a principal's property, nor is it confined to trustees and agents. It was enunciated by Lord Herschell in Bray v. Ford [1896] A.C. 44, 51, in these terms:

"It is an inflexible rule of a court of Equity that a person in a fiduciary position, ... is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict."

For Scarman LJ, the question whether simple or compound interest should be awarded depended on what the accounting party had or was presumed to have done with the money, citing Lord Hatherley LC in Burdick v Garrick at 241:

"the court does not proceed against an accounting party by way of punishing him for making use of the plaintiff's money by directing rests, or payment of compound interest, but proceeds upon this principle, either that he has made, or has put himself into such a position as that he is to be presumed to have made, 5 per cent., or compound interest, as the case may be."

88. Lord Denning MR alone advanced an additional reason for the award of compound interest (at 388 E):

"... in equity interest is awarded whenever a wrongdoer deprives a company of money which it needs for use in its business. It is plain that the company should be compensated for the loss thereby occasioned to it."

which observation was independent of and had no impact on the ratio of that case. Moreover, it will have become apparent that the nature of the remedy, whether it was proprietary or personal, did not form part of the reasoning in any of the judgments for the award of compound interest.

89. Turning now to the Kleinwort Benson case, the basic facts were these. The bank had entered into interest rate swap contracts with the local authority. When as a result of the House of Lords decision in an unconnected case that such transactions were ultra vires the local authorities and void ab initio, the bank brought this action claiming restitution of money paid under the contracts and compound interest thereon. In Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994] 4 All ER 890 which also involved similar interest rate swap agreements, compound interest had been awarded by Hobhouse J as part of the equitable remedy of tracing. In the Kleinwort Benson case, the matter proceeded on the hypothesis that no tracing remedy was available. In considering the scope of the jurisdiction in equity to award compound interest, Hobhouse J cited Buckley LJ's statement of the law in Wallersteiner v Moir (No. 2) at 397-398 cited above and noted that Scarman LJ made a similar statement of law but that neither of them agreed with the wider formulation of Lord Denning MR at 388E (cited above). Hobhouse J considered Buckley LJ's judgment in Wallersteiner v Moir (No. 2) to be authority for the following proposition of law (at 993A):

"Where fraud or breach of trust or some similar equitable obligation is involved, compound interest may be awarded on the basis that the defendant must not be allowed to make any profit from his trust."

He then went on to consider the relationship between personal and proprietary remedies including the decision of the Court of Appeal in In re Diplock [1948] Ch. 465 a case concerning the recovery of monies by legatees from persons who had been wrongly paid through the mistake of the personal representatives who bore the primary liability and drew the following conclusions (at 994 g-j):

"... if a plaintiff is entitled to a proprietary remedy against a defendant who has been unjustly enriched, the court may but is not bound to order the repayment with compound interest. If the plaintiff is only entitled to a personal remedy and unable to trace the sum in the hands of the payee, then there is no subject matter to which the rationale on which compound interest is awarded can be applied."

Pausing there, it would seem that Hobhouse J was holding that a proprietary remedy was essential to the award of compound interest. However, he went on to say this (at 994 J):

"The payee cannot be shown to have a fund belonging to the payer or to have used it to make profits for himself. The legal analysis which is the basis of the award of compound interest is not applicable." (emphasis added)

The second part of the first sentence can only be referable to the holding in Wallersteiner v Moir (No. 2) which, it will be noted, was a decision of the Court of Appeal and binding on Hobhouse J. In the particular circumstances of that case, the first and second sentences could be read on the basis that whilst Hobhouse J accepted the ratio of Wallersteiner v Moir (No. 2) and Burdick v Garrick, he held that that ratio was not applicable in the case he was considering because the facts did not show a retention of the fund long enough to use it.

90. In our judgment, nothing in the Kleinwort Benson case affected or qualified the ratio in Wallersteiner v Moir (No. 2). The only question then is whether the ratio in that case is applicable given the facts of the present case. Here the defendant was a fiduciary. Through a conspiracy and at the expense of the plaintiff, he was able to acquire 77 million shares in the plaintiff thereby acquiring control of the plaintiff without paying the full consideration for them. By virtue of that shareholding the defendant was able to remain at the helm of the plaintiff which is a publicly listed company with diverse business interests. The observations of Scarman LJ in Wallersteiner v Moir (No. 2) at 406F appear equally apposite to the present case.

"Though the truth is unlikely ever to be fully known, shrouded as it is by the elaborate corporate structure within which Dr. Wallersteiner chose to operate, one may safely presume that the use of the money (or the capital it enabled him to acquire) was worth to him the equivalent of compound interest at commercial rates with yearly rests, if not more."

The defendant ought not to be allowed to profit from his trust. The judge was fully entitled to order the payment of compound interest.

91. Before leaving the topic of compound interest, it should be mentioned that the Westdeutsche case went on appeal to the House of Lords on the question of compound interest. The House of Lords overruled Sinclair v Brougham [1914] AC 398 holding that the recipient of monies under a contract subsequently held void for a mistake or as being ultra vires did not hold those monies on a resulting trust. As the local authority was neither a trustee of, nor in a fiduciary position in relation to, the monies which had been received from the bank, nor had it improperly profited from the use of those monies, the majority held that the bank should recover simple interest only. The decision of Hobhouse J in the Kleinwort Benson case was subjected to trenchant criticism by the dissenting minority, Lord Goff of Chieveley and Lord Woolf (at 693F - 697A and 726H - 730H respectively) whilst the majority did not consider it necessary to deal with that judgment. As pointed out, it may be that the passage in Hobhouse J's judgment was open to unintended interpretation: Hobhouse J was referring to the facts of his case making compound interest not relevant, rather than saying that as a matter of law compound interest could not be claimed from a trustee who has disposed of a trust fund. However, what was not controversial was the jurisdiction of the court to award

"compound (as opposed to simple) interest against a defendant who is a trustee or otherwise in a fiduciary position by way of recouping from such a defendant an improper profit made by him."

See per Lord Browne-Wilkinson at 702D. Wallersteiner v Moir (No. 2) remains good law. The judge's award of compound interest is within the principles laid down in Wallersteiner v Moir (No. 2) and is to be upheld for that reason.

92. The defendant's argument based on Hobhouse J's judgment in the Kleinwort Benson case which was decided in 1994 is surprising given his stance below. Paragraph 95(5) of the final submission of leading counsel for the defendant summed that up:

"Compound interest may however be awarded in cases involving a breach of fiduciary duty."

Monthly rests

93. The judge ordered monthly rests in relation to compound interest on the ground that the experts were agreed that that was the norm in Hong Kong and that no good ground had been advanced for any longer rests. The defendant submitted that the expert evidence relied on merely related to the way Hong Kong banks levy interest on borrowings whereas the rationale underlying the award of compound interest is to deprive the fiduciary of the benefit made from the use or presumed use of the money and was not a measure of the profit derived by the defendant. But is that analysis correct?

94. In the present case, the conspiracy enabled the defendant to apply approximately $127 million of the plaintiff's money in part payment for the 77 million shares in the plaintiff acquired by him through Join Park. If the defendant had had to borrow the $127 million, he would undoubtedly have had to pay compound interest with monthly rests.

95. Southern Cross Commodities Pty Ltd (in liq) v Ewing (1988) 14 ACLR 39 is a case in point. There the master had ordered compound interest to be paid on Southern Cross's total proof of debt up to the date of liquidation of "Manufacturers", the company of which the respondent was liquidator, with half yearly rests. It was made on the basis that it was the presumed benefit received by Manufacturers from the fraudulent use of Southern Cross's monies. There was no proof of the amount of profit made by Manufacturers but there was unchallenged evidence before the master which established, inter alia, the market rates at the time and the practice in regard to the basis of compounding. If Manufacturers had had to go out and borrow money on the investment market then that was the basis upon which interest would have been paid. It was held that the master was amply justified in making his award of compound interest with six monthly rests. As profit was made by the use of Southern Cross monies, interest should be charged on the same basis. See the judgments of Legoe J at 63 and Von Doussa J at 70, who reached that conclusion after specifically noting that in Halsbury's Laws of England 4th Edition Vol 48 para. 956, it is stated that normally compound interest will be charged with yearly rests at one per cent above the clearing bank's base rate from time to time.

96. In our view, the reasoning in Southern Cross v Ewing is equally applicable to the present case and given the evidence before the judge, she was amply justified in ordering compound interest with monthly rests.

Abatement for unreasonable delay

97. The defendant identified certain periods prior to judgment as periods of unreasonable delay which he submitted were not attributable to him and that the judge ought to have abated interest in respect of those periods. In essence, the complaint comes to this: (1) the proceedings could have been brought earlier than December 1995; (2) hearsay notices filed late by the plaintiff occasioned an adjournment with a resulting delay in the conclusion of the proceedings; and (3) the delay of a year between the last day of the hearing and the date of the judgment was inordinate.

98. The judge rejected the first point taken given that criminal proceedings had been commenced against the defendant and despite his conviction in July 1994, there was a possibility of a retrial because of his application for fresh evidence to be adduced. In those circumstances, inordinate delay on the part of the plaintiff had not been made out. We agree. As to the second point, in granting the plaintiff's application for leave to serve those hearsay notices out of time, the judge had concluded that there was no real prejudice caused by the plaintiff's failure to comply with the rules and that such failure was not deliberate. See [1999] 1 HKC 278. Having regard to that ruling, the delay cannot be said to be a matter that merited abatement. As to the final point, on no view of the matter can this action be considered "run of the mill"; it is evident from the judgment which runs to almost a hundred pages that quite apart from the complexity of the facts and the voluminous evidence that had to be considered including the transcript of the criminal trial, there were many points that had to be resolved. No one, and least of all the judge concerned, would have wanted to take longer than necessary for the completion of a judgment of this kind. The length of the period elapsing between the date of the last hearing and the date of the judgment alone is insufficient to support an inference of inordinate delay. In our view, no legitimate criticism can be levied at the judge and no abatement is warranted.

Rate of interest

99. In its respondent's notice, the plaintiff sought to vary the rate of interest from prime plus 1 per cent to prime plus 2.5 per cent. It was common ground that the general guideline is to be found in the judgment of Forbes J in Tate & Lyle Food and Distribution Ltd. v Greater London Council [1982] 1 WLR 149 at 154D-E cited with approval by the Court of Appeal in Komala Deccof & Co. S.A. v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 at 223D-F, namely, that the court should look at the rate at which a plaintiff with the general attributes of the actual successful party could borrow money unless there was something exceptional that would justify a modification of that approach. The judge noted the fact that the plaintiff is a publicly listed company owning a substantial number of units in a modern building in a popular though not first class commercial location. It is also clear from the Tate & Lyle case that whilst the general attributes of the actual successful party are to be taken into account, it is not correct to take into account to any special or peculiar attribute (at 154F).

100. The evidence before the judge included a loan from Canadian Eastern Finance Ltd to the plaintiff at the rate of prime plus 1.85 per cent, a loan from the Ka Wah Bank charged at 2.5 per cent and the opinion of Mr Lees the plaintiff's expert. Having regard to the fact that Canadian Eastern Finance was a finance company granting a short term loan upon an urgent request made to it and the Ka Wah Bank had a 'special' relationship with the plaintiff, the judge was right to be sceptical that those rates were indicative of a normal commercial rate of interest and, in our view, rightly rejected the submission that these loans were reliable indicators of the rate of interest which a plaintiff with the general attributes of IHD would have been able to borrow money.

101. The judge's reasoning cannot be faulted. It has not been shown that she had taken into consideration the relevant evidence or that the wrong principles had been applied. Accordingly, we can discern no basis for modifying the rate of interest awarded.

Order

102. In our view the appeal should be dismissed. The respondent's notice, effectively the cross-appeal, should also be dismissed. There should be an order nisi that the costs of this appeal be to the plaintiff.

Hon Suffiad J:

103. I had the benefit of reading the judgment of Rogers VP and Le Pichon JA in draft. I agree with all that was said and have nothing more to add.

Hon Rogers VP:

104. There will be an order as proposed in paragraph 102 above.