F.E.B. FINANCE LTD AND ANOTHER v. TSE YIM

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JUDGMENT

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Penlington, J.A.:

1. This is the judgment of the Court.

2. This action has its roots in the heady days of the stock-market boom before October 1987. The appellant entered into an agreement dated the 19th June 1987 with Far East Bank Ltd. ("Bank") whereby it agreed to provide him funds for the purchase of shares on margin. However the funds so provided, $55 million, were in fact advanced by Far East Bank Finance Ltd. ("Finance") a company in the same group. The shares purchased were held by Finance as security in the usual way. It is not in dispute that when the stock market crashed the value of the shares held on behalf of the appellant were not enough to cover the advances made and they were sold. This resulted in a deficiency of some $18 million and a writ claiming that amount in its indorsement was issued on the 28th January 1988, Bank being named as the 2nd plaintiff and Finance as the 1st plaintiff. That. indorsement referred to an agreement between Bank and the appellant dated 4th July 1987. A statement of claim was filed on the 16th February in which that date was given as the 19th of June 1987 and the claim set out that Finance was suing as assignee of Bank's interest in the loans made.

3. To this claim a defence was filed in which the appellant said he had an agreement with Bank but not with Finance, dated the 20th June, and denying any agreement on his part to an assignment or the right of Finance to sue. He also counterclaimed for damages on the basis that Finance had no right to sell the shares.

4. Further and better particulars of the claim were sought and supplied in part. Inter alia it was stated that the assignment from Bank to Finance was an equitable oral transfer.

5. A reply and defence to the counterclaim was filed in which it was alleged that the shares had been purchased by Finance at the appellant's request, pursuant to the assigned agreement, and denying the appellant's claim for damages resulting from the sale of the shares.

6. Summonses were issued on both sides which were heard by Master Jones on 24th April 1989. By his summons issued on the 27th October 1988 the appellant sought an order striking out the action as being vexatious, an abuse of process and as showing no cause of action.

7. By their summons issued on the 12th January 1989 the plaintiffs sought to substitute a company called Osceola Ltd ("Osceola") as sole plaintiff, pursuant to an assignment between it and Finance dated the 18th May 1988, and to remove Finance and Bank from the proceedings as plaintiffs.

8. The plaintiffs also sought to amend the statement of claim by inter alia abandoning their allegation made in paragraph 4 of their original pleading that on the 19th June 1987 Bank had assigned to Finance the benefit of its agreement made with the defendant earlier on that date for the opening of the defendant's account.

9. By way of amendment the plaintiffs sought to introduce inter alia a new paragraph 3 alleging that the agreement of the 19th June 1987 had been made by the defendant through his agent Mr. Raymond Chan with Finance (not Bank as previously alleged). It appears to have been common ground that Mr. Chan was the Bank official who had witnessed the defendant's signature to the agreement of the 19th June 1987.

10. This material departure was in conflict with the affidavit evidence of Mr. Christopher Reade, a director of Osceola and a director and credit manager of Finance, filed on the 27th October 1988 in support of a summons issued by the plaintiffs on the same date (and abandoned on or about the 10th January 1989) whereby the plaintiffs had sought leave to amend their writ and statement of claim by merely adding Osceola as the assignee of Finance's interest in the agreement of the 19th June 1987. The basis of the claim against the defendant was not otherwise altered by the amendments then proposed.

11. Mr. Reade had deposed inter alia that the agreement of the 19th June 1987 had been made between Bank and the defendant and that on a prior date, namely the 1st June 1987, Bank had assigned the benefit of the agreement to Finance. Furthermore, on the 19th May 1988 the plaintiffs had given further and better particulars of paragraph 4 of their original statement of claim which included the allegation that the assignment by Bank to Finance of Bank's interest in the agreement had been made on the 1st June 1987. The same date of the alleged oral assignment had been repeated in further particulars of paragraph 4 on the 24th May 1988.

12. The master disallowed the plaintiffs' application to amend and said in his ruling that he dismissed the action without prejudice to any action by Osceola based on the proposed amendments. However the master's perfected order goes no further than striking out the plaintiffs' statement of claim.

13. The master took the view that matters were so confused it would be more efficient and would save costs in the long run to dismiss the action and to allow a fresh claim to be brought by the right party. He said "Counsel for the plaintiffs and for the intended plaintiffs commenced by conceding that we were faced with a mess. I entirely agree; there is a succession of mistakes relating to the most fundamental issues in the pleadings as they now stand. I am not sure however that the amendment does not bury the confusion. The nexus between the present 1st plaintiff and the defendant is established only in paragraph 3 and in the most tenuous of terms. Because of the recent history of mistakes the averment will inevitably provoke an exhaustive request for further and better particulars, with further delay and expenditure on both sides." He went on "the confusion which has existed in both pleadings and affidavits should now be brought to an end."

14. The plaintiffs appealed against that decision and by an order of 17th May 1989 Sears, J. allowed the appeal and gave leave to amend the writ and statement of claim to substitute Osceola as plaintiff, Finance and Bank remaining as defendants to the counterclaim. He said in relation to the amendment by which it was alleged that the contract was between the defendant and Finance, not Bank. "The position is that the amendment sets out the factual case as would be presented to the Court. It is of course for the Court to decide what was the contract and what is the liability dependent upon the facts which is finds."

15. Sears, J. went on to say that "all that has happened is that because of the confusion between these associated companies, the case now put forward is that the contract was between the defendant and the 1st plaintiff (Finance) and not the 2nd plaintiff (Bank). That is a matter of importance to the defendant, because the assignment only assigned the debts of Finance and not Bank and the defendant wants to dispute that his contract was between him and Finance."

16. This dicta was clearly based on the amendment then sought to be made under which Finance was suing the defendant pursuant to a contract made between them via the agency of Mr. Raymond Tam.

17. The appellant now appeals against the order of Sears, J. and seeks to have the master's order dismissing the action restored.

18. When the matter came on for hearing there was even a confusion as to solicitors, Messrs John Pickavant and Co. being then on the record as acting for Finance and Bank.Mr. Clifford Smith appeared for Osceola on their instructions and Mr. John Scott appeared for Bank and Finance, both of whom are in liquidation, on the instructions of Richards and Butler who act for the liquidators. Mr. Scott said that, pursuant to Sears, J.'s order, his clients were not parties to the action except as defendants to the counterclaim. They had only been advised of the hearing of this appeal the previous evening and had not been served with papers.

19. Mr. Pirie then sought leave to perfect the order made by Sears, J. so that the names of the parties on the papers would be correct. This was not however necessary as the order has been perfected and Osceola should have been named as plaintiff pursuant to the order of Sears, J. He also agreed that an application by the appellant for discovery should not proceed immediately and that the hearing be confined to the applications to strike out and to amend. This was agreed to and Mr. Scott was released, his position as to costs being reserved.

20. An application by Mr. Pirie to produce further evidence was not opposed by Mr. Smith and was granted. This evidence consisted of an affidavit by Mr. Thomas Lam, Secretary of Finance and Bank and of Mr. Joseph Leung, the appellant's solicitor.

21. The position as it now stands by virtue of the order of Sears, J. is that the plaintiff is Osceola, Bank and Finance only being involved as defendants in the counterclaim. The basis of Osceola's pleaded claim is however one of assignment to it by Finance, who was a party to the agreement of 19th June 1987 between the appellant, by his agent Raymond Chan, and Bank.

22. This is not an easy matter and has not been assisted by the very frequent changes of Counsel for the plaintiffs. Clearly there have been conflicting views taken as to the best way the action should be pleaded. What is however now clear, but which only emerged when Mr. Smith was addressing us in his reply to the appellant's argument on this appeal is that the substituted plaintiff Osceola now relies for Finance's cause of action, which it has since assigned to Osceola, on Finance having been Bank's undisclosed principal when the agreement dated 19th June 1987 was executed by the appellant. He concedes that basis of claim has not been specifically pleaded but says the plaintiff is not required to do so.

23. We find that a somewhat startling argument and Mr. Smith was not able to refer us to any authority to support it. It is the fundamental principle of pleadings that they should clearly show what is the case on each side and we cannot believe that it is not necessary for a vital link in the plaintiffs cause of action - the relationship between Bank and Finance - to be clearly pleaded. Indeed Mr. Smith conceded that further amendments would be necessary if this claim goes ahead. This was a factor which was not before Sears, J. who assumed, as he had ever reason to do, that the plaintiff's case had been finally formulated.

24. We are satisfied that on any view of the evidence before us, including the fresh evidence filed since the hearing of the appeal before Sears, J., that this claim, as presently pleaded, cannot succeed. It does not represent the case now sought to be advanced by Osceola. Substantial amendments will be required which will change the basis of the cause of action and which will probably be strongly disputed. Mr. Smith made no application for amendment before this Court to introduce the allegation that Finance had been Bank's undisclosed principal at the material time. We consider that this can be more conveniently done by the statement of claim being struck out, leave being given to file a fresh statement of claim to clearly set out the exact basis of the plaintiff's claim.

25. We are satisfied that this is a case where the amendments required to give this action any chance of success would be such as to change substantially the nature of the claim and in view of the amendments already made this can more conveniently be done by a completely new statement of claim (Raleigh v. Geschen 1898 1 Ch. 73). We therefore allow the appeal, and restore the order of Master Jones that the statement of claim be struck out and we direct that there be leave to file a new statement of claim. We mention that the amendment of the writ by the judge should have been permitted pursuant to Order 15, rule 7 under an order to carry on. The title to the writ and to all future proceedings should therefore be appropriately amended in accordance with the practice indicated in the Supreme Court Practice, Vol. 1, para.15/8/3.

26. We make an order nisi awarding the appellant the costs of this appeal and before Sears, J. and restore the master's order as to costs before him.