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HCA 964/2012
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 964 of 2012
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| BETWEEN |
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YINGGAO RESOURCES LIMITED |
Plaintiff |
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and |
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ECO METAL (HONG KONG) LIMITED
(綠色金屬(香港)有限公司) |
1st Defendant |
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CITIBANK, N.A. (花旗銀行) |
2nd Defendant |
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| Before: Recorder Whitehead SC in Court |
| Date of Hearing: 23 February 2016 |
| Date of Handing Down of Decision: 16 March 2016 |
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D E C I S I O N
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1. This is an appeal against a Master’s decision in relation to the plaintiff’s application to amend its pleadings by which the Master ordered:
(i) The application for amendment as per the draft Amended Statement of Claim against the 2nd defendant is disallowed.
(ii) There be an order nisi that the costs of and occasioned by the application be paid by the plaintiff to the 1st and 2nd defendants, with certificate for counsel payable forthwith, to be taxed forthwith if not agreed.
BACKGROUND
2. On 14 December 2011 the plaintiff, through its nominee, entered into a preliminary sale and purchase agreement to purchase a house at Regalia Bay. This was followed by a formal sale and purchase agreement on 28 December 2011 with completion fixed for 8 February 2012.
3. By an agreement dated 6 January 2012, the 1st defendant agreed to sell and deliver copper scrap to the plaintiff for sub‑sale to the plaintiff’s buyer. The plaintiff and 1st defendant’s eventual agreement was on the basis that the sale and sub‑sale of the copper scrap should be completed well before the completion date of the aforesaid purchase of the house at Regalia Bay.
4. On this basis and on 17 January 2012 the plaintiff remitted two sums of HK$26 million and US$2,240,000 to the designated account of the 1st defendant as pre‑payment (“the Prepayment”).
5. On or about 18 January 2012 the 1st defendant tried to utilize the pre‑payment funds in his accounts with the 2nd defendant bank but on or about 20 January 2012 the 2nd defendant, according to the plaintiff, represented to the 1st defendant that the accounts were frozen by the Customs and Excise Department (“the C&E”), which representation was passed on to the plaintiff.
6. The plaintiff asserts that it was subsequently discovered that the accounts were not in fact frozen by the C&E, and thus the plaintiff takes out its present claims for loss and damage. In this context the plaintiff seeks to amend its Statement of Claim to add two new causes of action, namely claims in misrepresentation and in negligence, against the 2nd defendant.
APPLICABLE PRINCIPLES
7. The principles relevant to an application to amend by adding new causes of action are well established. The amendment must arise out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed, and the amendment must be necessary either for disposing fairly of the cause or matter, or for saving costs.
8. If these two conditions are satisfied, then leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. Mr Ronny Tong SC, who appears together with Mr Justin Tong on behalf of the plaintiff, has stressed that for the purposes of an application to amend, the facts pleaded in the Statement of Claim are assumed to be true and correct, and the court will take the applicant’s proposed pleaded case at its highest. Mr Eugene Fung SC, who appears together with Ms Theresa Chow on behalf of the 2nd defendant, accepts that he cannot dispute the facts that appear in the pleadings, and that such facts are assumed to be true. Both Mr Tong and Mr Fung are clearly correct in this approach, and it is the approach that I will adopt in this matter.
9. In short Mr Tong says that on the assumption that the facts pleaded in the proposed Amended Statement of Claim are true, that the proposed amendments are at least arguable and not bound to fail, that the amendments involve factual or legal issues requiring investigation at trial, and thus the amendments should be allowed.
THE PLAINTIFF’S CASE UPON THE AMENDMENTS
The misrepresentation claim
10. In summary, the plaintiff has pleaded a factual background from which it is said that the 2nd defendant, through the 1st defendant, knew that the monies in question came from the plaintiff, and that the plaintiff required these monies to purchase the house at Regalia Bay. Furthermore, that it must be inferred and reasonably foreseeable that whatever the 2nd defendant informed the 1st defendant as to the availability of the funds, that the same would be repeated to the plaintiff, and the plaintiff would rely upon the same.
11. The plaintiff says that the 2nd defendant’s representation as to the unavailability of the funds was indisputably false. The representation being untrue and known to the 2nd defendant to be untrue is sufficient, says Mr Tong, to support an allegation in fraud.
12. Alternatively, the plaintiff says that the representation was made recklessly or negligently. In this regard Mr Tong has relied upon the seminal case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 in which it was said:
“… if, in the ordinary course of business, including professional affairs, a person seeks advice or information from another, who is not under any contractual or fiduciary obligation to give it, in circumstances in which a reasonable man so asked would know that he was being trusted or that his skill or judgment was being relied on, and such person then chooses to give the requested advice or information without clearly disclaiming any responsibility for it, then he accepts the legal duty to exercise such care as the circumstances require in making his reply.”
Accordingly, says Mr Tong, the claim of misrepresentation is at very least arguable.
The negligence claim
13. In summary, the plaintiff’s case is that the 2nd defendant owed a duty of care to the plaintiff when it refused to release the Prepayment which caused the loss of the agreement and forfeiture of the purchase of the house at Regalia Bay. This, says Mr Tong, is also a question of mixed law and fact. In respect to the question of proximity in the context of a negligence case, Mr Tong relies upon Caparo Industries plc v Dickman & others [1990] 2 AC 605 per Lord Oliver at p 638C:
“… What can be deduced from the Hedley Byrne case, therefore, is that the necessary relationship between the maker of a statement or giver of advice (‘the adviser’) and the recipient who acts in reliance upon it (‘the advisee’) may typically be held to exist where (1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given; (2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and (4) it is so acted upon by the advisee to his detriment. …”
14. Mr Tong submits that whether the 2nd defendant owed a duty of care to the plaintiff would depend upon whether the 2nd defendant’s acts might reasonably be foreseeable to cause harm to the plaintiff, and in this regard he relies upon a meeting between the plaintiff and the 1st defendant during which a telephone call was made to the 2nd defendant, and what he describes as “correspondence between the 2nd defendant and the plaintiff”. Mr Tong further relies upon Wells v First National Commercial Bank [1998] PNLR 552 in which the facts were similar to the present case save that there was no communication between the intended beneficiary and the bank. Mr Tong points to the judgment of Evans LJ at p 563D that:
“Finally, I would add this: if the plaintiff had communicated with the bank then it could be, I say no more, a situation which was in Lord Devlin's words ‘equivalent to contract’. It may be that in such a situation it would be arguable that a Hedley Byrne duty would arise. …”
THE 2ND DEFENDANT’S CASE UPON AMENDMENT
15. Mr Eugene Fung SC takes five primary points in objecting to the proposed amendments.
16. First, in relation to the fraud plea, he submits that none of the particulars pleaded in the proposed amendments go anywhere to supporting a case of fraud against the bank.
17. Second, Mr Fung says that the plaintiff’s case in negligent misrepresentation must fail because the bank cannot be said to be in a Hedley Byrne type relationship with the plaintiff.
18. Third, in relation to misrepresentation, Mr Fung submits that none of the pleaded particulars establish the bank, when making the alleged representation to the 1st defendant, intended or expected for that representation to be passed on to the plaintiff.
19. Fourth, in respect of the negligence claim, Mr Fung submits that a bank which receives funds from a third party and credits a customer’s account cannot also owe any tortious duty of care to the third party; and that Wells v First National Commercial Bank is a clear authority that foreseeability of harm to a plaintiff alone would not give rise to any duty of care on the part of the bank towards the plaintiff.
20. Fifth, in relation to a plea made in respect of section 3 of the Misrepresentation Ordinance (Cap 284), that it is well established that section 3 has no application where the representor is neither himself the other contracting party nor the agent of the other contracting party.
ANALYSIS
Fraud
21. It is well established that fraud must be pleaded distinctly and with the utmost particularity, and must be distinctly proved.
22. In the present case, the particulars of fraud relied upon by the plaintiff are found in §25 of the proposed amendments, as follows:
“(1) The 2nd Defendant knew or ought to have known there was no restraint order issued by any court restraining the use of the Accounts.
(2) The 2nd Defendant ought to, but failed, to take steps to ascertain if the mode and operation of the payer of the funds, namely, the Plaintiff, was the subject matter of investigation of the C&E and that there was any legal justification at all for freezing the Accounts.
(3) The 2nd Defendant accordingly knew or ought to have known that the investigation by the C & E was not a matter that was caused by the Plaintiff or its making of the Prepayment.
(4) The 2nd Defendant accordingly knew or ought to have known that the investigation by the C & E was not directed at the Prepayment made by the Plaintiff, but the legality of the operations of the 1st Defendant.
(5) In the premises, the Representation was made fraudulently without any honest belief that the same was true.”
23. Mr Tong has confirmed that the above particulars are the only particulars advanced by his client in support of an allegation of fraud.
24. Mr Fung has relied on the judgment of Millett LJ in Armitage v Nurse [1998] Ch 241 at 256–257. Mr Fung submits and I accept, that an allegation that the defendant “knew or ought to have known” is not a clear and unequivocal allegation of actual knowledge and will not support a finding of fraud.
25. Furthermore, Mr Fung submits and I agree, that the plea that the 2nd defendant ought to but failed to make certain enquires with the C&E about the plaintiff has no basis as to why this should be so, and in any event at best supports an allegation of negligence.
26. In short, I find that the plea of fraud made against the 2nd defendant and the particulars provided do not in any way support a case of fraud against the bank. In my view the allegation of fraud is unarguable, and is bound to fail.
Negligent misrepresentation
27. Mr Tong submits that in order to maintain his cause of action in misrepresentation, that he does not need fraud to succeed. In answer to Mr Fung’s submission that the bank cannot be said to be in a Hedley Byrne relationship with the plaintiff, Mr Tong refers to Charlesworth & Percy on Negligence at §2/190 as follows:
“A person is under no general duty to speak or act but by undertaking to speak or to act or by inducing reliance in some way, responsibility is assumed, and the basis for a duty of care comes into existence.”
28. In my view and upon the assumption that the matters pleaded in the proposed amendments are true, the factual circumstances in which the representation is said to have been made and have been imparted to the plaintiff, together with the subsequent conduct of the bank, raises in my view at least an arguable case that a Hedley Byrne relationship between the 2nd defendant and the plaintiff did in fact arise. As such I find that the proposed amendments in relation to the claim for negligent misstatement are maintainable and should be allowed.
The negligence claim
29. The distinction between Wells v First National Commercial Bank and the present case is that there appears in this case to be communication between the 2nd defendant and the plaintiff, albeit indirect and perhaps inferentially. I take Mr Fung’s point that some of the communications relied upon were made after the alleged representation was made, but on the basis that the present averments in the Amended Statement of Claim are correct, there are pleas to the effect that the 2nd Defendant knew of the agreement made between the Plaintiff and the 1st Defendant, and when the representation was made the same was communicated with the 2nd defendant’s knowledge, by the 1st defendant to the plaintiff. Mr Tong has relied uponCommissioners of Customs and Excise v Barclays Bank plc [2007] 1 AC 181 that issues of fact are plainly questions for trial and are not to be determined at an interlocutory stage. I also bear in mind the dicta of Evans LJ in Wells v First National Commercial Bank as noted, that where there is a communication between the plaintiff and the bank it may be that in such a situation it would be arguable that a Hedley Byrne duty would arise.
30. In these circumstances I cannot say that the plea in negligence is unarguable, and thus the amendments in respect of this plea will be allowed.
Section 3 of the Misrepresentation Ordinance
31. I accept Mr Fung’s submission that the plaintiff’s reliance upon section 3 is misconceived. It is not pleaded that bank has ever been a party to any contract allegedly entered into by the plaintiff as a result of the alleged representation. The section 3 representation plea is disallowed.
CONCLUSION
32. My decision is as follows:
(i) The proposed amendments in respect of the claim in fraud and any consequential amendment thereto are disallowed.
(ii) The proposed amendments in respect of negligent misrepresentation and any consequential amendments thereto are allowed.
(iii) The amendments in respect of the claim in negligence and any consequential amendments thereto are allowed.
(iv) The amendment in respect of section 3 of the Misrepresentation Ordinance is disallowed.
33. The Master’s decision orally delivered on 17 July 2015 is accordingly set aside.
COSTS
34. The plaintiff has substantially but not entirely succeeded in its appeal. Regard must be had to the fact that the 2nd defendant has succeeded in resisting the plaintiff’s proposed amendments in fraud, and also in respect of section 3 of the Misrepresentation Ordinance. Accordingly, I make an order nisi to become absolute in 14 days of the date of this decision that 50% of the costs of and occasioned by this appeal, and in the application to the Master below, be paid forthwith by the 2nd defendant to the plaintiff with certificate for two counsel, to be taxed if not agreed.
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(Robert Whitehead SC) |
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Recorder of the High Court |
Mr Tong Ronny SC and Mr Tong Justin, instructed by Ng & Partners, for
the plaintiff
Mr Fung Eugene SC and Ms Chow Theresa, instructed by Wilkinson & Grist,
for the 2nd defendant
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