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CACV000111/1985
IN THE COURT OF APPEAL
BETWEEN
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TSENG HSIANG WANG & 3 others
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Plaintiffs |
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(Respondent) |
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and
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YAMAICHI INTERNATIONAL (HK) LIMITED & 6 others
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Defendants |
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(KATAKURA INDUSTRY CO. LTD. - 7th Defendant) |
(Appellant) |
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Coram: Sir Alan Huggins, V.-P., Cons & Fuad, JJ. A.
Dates of Hearing: 3 to 5 December 1985
Date of Handing Down of Judgment: 23 December 1985
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JUDGMENT
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Sir Alan Huggins, V.-P. :
1. This is an appeal against the dismissal by Mayo, J. of an application by the 7th Defendant that various paragraphs of "the Amended Statement of Claim" be struck out as disclosing no reasonable cause of action or as being scandalous, frivolous or otherwise an abuse of the process of the Court. It was not until the second day of the hearing in this Court that it became apparent to us that the Amended Statement of Claim to which the application at first related was the document which appears at P. 3 of the appeal record but which bears no indication whatever that it is not the original (unamended) Statement of Claim. We had understood from what we had been told on the first day that, although the "Amended Statement of Claim" which appears at p.40 of the record had never been filed, it was, by consent of the parties, treated in the Court below as having been filed and that it was to that document that the summons referred. This shows once again that failure to observe the established rules of practice strictly almost invariably results in confusion. The true position now appears to have been that the "Amended Statement of Claim" at p.40 (which I shall I hereinafter refer to as "the draft Re-Amended Statement of Claim) was relied upon only at a later stage in the proceedings before Mayo, J. On 18th January 1985 he considered only the document at p.3 and it was that Statement of Claim which he then declined to strike out as he thought it did disclose a cause of action. Counsel for the 7th Defendant reminded the judge that his client had applied for parts of the Statement of Claim to be struck out on the alternative ground that they were embarrassing, and Counsel complained of para. 22 in addition to the paragraphs listed in the summons. Counsel for the Plaintiffs having indicated that he would wish to amend the Statement of Claim, the judge adjourned that aspect of the matter and it was then that the draft Re-Amended Statement of Claim came into existence. The hearing was resumed on 25th June and the judge proceeded on the assumptions that the Statement of Claim had been re-amended and that the summons had been amended to include an application to strike out para. 22 of the draft Re-Amended Statement of Claim. Since the present appeal is against the decision of 25th June, it is with the draft Re-Amended Statement of Claim that we are concerned. The appeal record is made even more confusing by the inclusion at p.87 of another "Amended Statement of Claim" which is in fact a draft Re-Re-Amended Statement of Claim, but with that we need not concern ourselves.
2. It is common ground that the claim against the 7th Defendant Company ("Katakura") is founded in conspiracy, but objection is taken that the nature of the conspiracy or conspiracies relied upon does not clearly appear and that, in so far as the overt acts have been indicated, they do not justify a claim against this Company.
3. Before we turn to the pleading as it is now deemed to stand, it is necessary to identify the parties to the action. The 1st Plaintiff (Mr. Wang) is a speculator in Hong Kong in shares of Japanese public limited companies. He is also Chairman, Managing Director and principal shareholder in the 2nd Plaintiff, a private limited company incorporated in Hong Kong. The 3rd and 4th Plaintiffs are associates of Mr. Wang. Katakura, whose appeal this is, is an old-established Japanese limited company which formerly traded principally in silk but which is now also a land developer. The 1st, 3rd and 5th Defendants are respectively Hong Kong stockbrokers controlled by the 2nd, 4th and 6th Defendants, which are Japanese stockbrokers.
4. Mr. Wang bought shares in Katakura and persuaded the 2nd, 3rd and 4th Plaintiffs to do the same. They all now allege that they were induced to buy their shares as a result of misrepresentations made to Mr. Wang by the 1st, 3rd and 5th Defendants on behalf of the 2nd, 4th and 6th Defendants, those misrepresentations being made pursuant to the conspiracy or conspiracies already mentioned.
5. Paragraph 22 of the draft Re-Amended Statement of Claim reads:
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In or about July or August 1978 the Defendants or some of them with or without others unknown wrongfully and fraudulently conspired to injure the Plaintiffs or one or more of them by inducing the Plaintiffs or some of them to purchase shares in Katakura and to procure purchasers for such shares upon the false and fraudulent misrepresentations below mentioned upon a scale and amount for which purchasers could or might not otherwise be found in the thin and uncertain market in Katakura shares. Such representations were made in circumstances in which to the knowledge of the Defendants or those of them party to the conspiracy, and to the intent of Katakura, the Plaintiffs who bought shares in Katakura upon the faith of such representations would be unable to buy more than 25 per cent in aggregate, under the law mentioned in paragraph 23(12) below. In such circumstances the Plaintiffs would be unable to purchase sufficient shares in Katakura to obtain control of that company and so could not realise the value of the assets on the basis of which the Plaintiffs were induced to buy shares in Katakura upon the representations aforesaid. The Plaintiffs were and were intended to be locked into a minority position. The Plaintiffs will at the trial refer to the market price of and turnover in Katakura shares for the period from January 1973 to October 1984 which are set out in Schedule 1 annexed hereto. Having induced the Plaintiffs to make such purchases, they took measures to keep the Plaintiffs' capital locked up and to prevent the Plaintiffs from disposing of such shares at all or only at great financial loss. Alternatively, it would be and was the inevitable consequence of the Plaintiffs' inability to obtain a controlling interest in Katakura and of the thin and uncertain market in Katakura shares that the Plaintiffs would be unable to sell the said shares at all or only at great, financial loss and that the Plaintiffs' capital was locked up." |
What is required in pleading a conspiracy is a clear statement of the precise tortious agreement which is alleged and then a statement of the overt acts which show that each conspirator was party to that agreement - and, of course, damage to the Plaintiff. Mr. Hamilton, for the 7th Defendant, points out that the judge began his final decision with the words
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I am satisfied that the conspiracy or conspiracies referred to in para. 22 are sufficiently described" |
and he reasonably argues that, if the judge did not know whether there was one conspiracy or more, it or they could not have been sufficiently described. The judge had or 18th January thought that the conspiracy originally pleaded was "a continuing conspiracy". At the outset of the appeal we asked Mr. Wright to tell us what he contended was revealed by the new pleading, and he told us that there was one conspiracy to cause loss to the Plaintiffs by inducing them by misrepresentations to buy shares and by improper conduct thereafter both to prevent them from selling their shares at a reasonable price and from buying more shares so as to enable them to acquire control of the company. I cannot accept that such a conspiracy is readily apparent from para. 2 or even that it is there to be wrung out from amongst the mass of extraneous matter set out in that paragraph. The plea is so obscure as to place an intolerable burden upon the 7th Defendant and its advisers.
6. Even if that be wrong and the agreement itself is sufficiently pleaded, I think the pleader has failed to allege any overt acts which would show that the 7th Defendant was party to the agreement. He purports to allege the overt acts in para. 23, which so far as is material is as follows
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The following are particulars of the conspiracy and from which the existence of such conspiracy is to be inferred and the overt acts used to carry the same into effect.
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(1) |
Early in August 1978 Yamaichi HK on its own behalf and/or on behalf of Yamaichi by Mr. Takahashi the Manager of Yamaichi HK without request by Mr. Wang put to Mr. Wang in Hong Kong a trial list ("the List'') of latent profits of Katakura. The List contained particulars set out in Schedule 2 annexed hereto of properties alleged to be owned by Katakura. The List was supplied by Yamaichi HK to Mr. Wang for the purpose of attracting investment in Hong Kong in shares of Katakura. Alternatively, the List had been supplied to Yamaichi HK by Yamaichi with the intent that it should be used in Hong Kong to attract investors in Katakura. The List was false in the respects set in Schedule 3 annexed hereto which falsity was known or ought to have been known to Yamaichi and/or Yamaichi HK by reason of the fact that Yamaichi was the underwriter or sole underwriter of the shares of Katakura, by reason of Yamaichi's connection with Katakura through Fuji Bank, by reason of Yamaichi's general standing as a stockbroker, by reason of the circumstances in which the List was given to Mr. Wang and the representations mentioned in the next two following sub-paragraphs were made to Mr. Wang which circumstances are set out in sub-paragraph (11) of this paragraph and by reason of the participation of Yamaichi HK and/or Yamaichi in the said conspiracy or for any or more of such reasons. The Plaintiffs will at the trial refer to the List for its full terms and effect.
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(2) |
On 30th August 1978 Mr. Takahashi, the Manager of Yamaichi HK telephoned Mr. Wang in Hong Kong and, on behalf of Yamaichi HK and/or Yamaichi urged him to study the List which showed the value of shares in Katakura and urged him to buy shares in Katakura.
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(3) |
On 31st August 1978 Mr. Takahashi again telephoned Mr. Wang in Hong Kong and on behalf of Yamaichi HK and/or Yamaichi, urged him to buy Katakura shares. The Plaintiffs will rely on the urgency and vigour with which Mr. Takahashi pressed the purchase of Katakura shares.
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(4) |
The representations aforesaid were made fraudulently knowing them to be false or recklessly careless whether they were true or false and with the intent that they should be relied upon by Mr. Wang and Newpis and other prospective investors in shares of Katakura introduced by Mr. Wang. Yamaichi and Yamaichi HK well knew from previous investment by Mr. Wang in quoted Japanese companies that his practice was to buy a huge amount or 10% of the capital of any Japanese company in which he invested, being the maximum individual foreign holding permitted by Japanese law and to recommend friends and associates to buy further shares so that together they could exert more influence than they could individually seek. Previous investments included Kao Soap, Ajinomoto and Oji Paper.
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(5) |
Relying on the said representations Mr. Wang and Newpis on his behalf (who likewise so relied) between 1st and 27th September 1978 purchased 3,500,000 shares in Katakura being the maximum permitted individual foreign shareholding. In High Court Action No. 6482 of 1980 (which it will be sought to consolidate with this action) Mr. Wang and Newpis are seeking damages for fraudulent misrepresentation, damages and relief under the Protection of Investors Ordinance, Chapter 355, and the Securities Ordinance, Chapter 333.
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(6) |
On the 14th September 1978, an article appeared in the Japan Economic News in Japan stating that Nichibi, a 70% owned subsidiary of Katakura, had invented a new process for the treating of fabrics, which article caused the price of Katakura shares to rise sharply as appears from Schedule 1 aforesaid. Such article was false since no such process had been invented. Either such article was inspired, requested or instigated by Katakura or that company acquiesced in and did not deny such article, thereby conniving at the consequential creation of a false and inflated market in the shares of Katakura. The Plaintiffs will at the trial refer to the said article and a true translation thereof for their full terms and true effect.
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(7) |
In or about October 1978 NKK on its own behalf and/or on behalf of NKK Tokyo by its managing director, Mr. Shiraishi without request by Mr. Wang and for the purpose of inducing Mr. Wang to buy or procure purchasers for further Katakura shares wrongfully and fraudulently supplied to Mr. Wang in Hong Kong a document containing information about the assets of Katakura and concluding that the liquidation value of such assets was about ¥1,768 per share. A translation of the said document is annexed hereto as Schedule 4. When supplying such document Mr. Shiraishi on behalf of NKK and/or NKK Tokyo orally represented that the information therein was true and urged and advised Mr. Wang to buy or procure purchasers for further Katakura shares in reliance thereon. The Plaintiffs will at the trial refer to such document for its full terms and true effect. The information contained in such document was false in the respects set out in Schedule 5 annexed hereto.
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(8) |
The representations made by supplying such document in manner aforesaid were made fraudulently knowing them to be false or recklessly, careless whether they were true or false, and with the intent that they should be relied upon by prospective investors in Katakura shares. Such knowledge or recklessness is to be inferred from NKK's connection with Katakura through Fuji Bank, Mitsui NKK Tokyo and Yamaichi, as aforesaid, from NKK's general standing as a stockbroker and from the circumstances in which such document was delivered and such representations were made as set out in sub-paragraph (11) below, from the participation of NKK in the said conspiracy and from the connection of NKK with Katakura through Mitsui, Fuji Bank and Yamaichi or from any one or more of such grounds.
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(9) |
In or about the end of November 1978 Nikko on its own behalf and/or on behalf of Nikko Tokyo by its President Mr. Toida, without request by Mr. Wang and in order to induce Mr. Wang to buy further shares in Katakura and to induce others to do so, wrongfully and fraudulently supplied to Mr. Wang in Hong Kong a document dated 20th November 1978 called "Business Investigation News" stated on its face to have been prepared by the Research Centre of Nikko Tokyo and authenticated by a chop purporting to contain information about assets of Katakura and stating that the company owned 1,000,000 square metres of land which if converted to appraised price would result in a profit of ¥7,000,000,000, i.e. ¥2,000 per share. A translation of the relevant part of the said document is annexed hereto as Schedule 6. Shortly after supplying such document, Mr. Toida, on behalf of Nikko and/or Nikko Tokyo orally represented that the information therein was true and urged and advised Mr. Wang to buy Katakura shares and procure purchasers of such shares in reliance thereon. The plaintiffs will at the trial refer to the said document for its full terms and true effect. The information contained in such document was false in the respects set out in Schedule 7 annexed hereto.
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(10) |
The representations made by supplying such document in manner aforesaid were made fraudulently knowing them to be false or recklessly careless whether they were true or false and with the intent that they should be relied upon by prospective investors in Katakura shares. Such knowledge or recklessness is to be inferred from Nikko Tokyo's and Nikko's connection with Katakura through Mitsui, from Nikko's general standing as stockbroker, and from the circumstances in which such document was supplied and such representations were made as set out in the next following sub-paragraph, and from the participation of Nikko in the conspiracy or any one or more of such reasons.
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(11) |
The List and the documents supplied by NKK and Nikko as aforesaid all followed a consistent, cumulative and unusual pattern. Yamaichi HK, NKK and Nikko follow and at all material times followed the usual practice of brokers in Hong Kong by providing printed or typed bulletins in English upon Japanese investments. Occasionally representatives of each of them would telephone Mr. Wang with particular pieces of advice. The Plaintiffs are unable to give further particulars of any such telephone calls. The List and each of the said documents were handwritten in Japanese, each depended for its impact upon precise information or misinformation about properties belonging to or said to belong to Katakura, and in each case the approach was one of urging rather than advising investment. It is to be inferred that the information or source of the information in the List and in each such document was provided by Katakura. The Plaintiffs cannot give further particulars of the source until after Discovery and/or Interrogatories.
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(12) |
Prior to about December 1980 foreigners were not allowed to own in aggregate more than 25% of the equity share capital of any Japanese company without the consent of the company concerned and of the Japanese Government. In 1978 the Plaintiffs and each of them expected that such restrictions would be lifted as far as Katakura was concerned in the close foreseeable future. International pressure had by then been brought to bear on the Japanese authorities for some years to remove such restrictions. By Article 2 of the supplementary provisions of the amended Japanese Foreign Exchange and Foreign Trade Control Act coming into operation in December 1980 those restrictions were removed except where their removal would "result in injuring Japan's national security, disturbing the maintenance of its public order or interfering with the preservation of the people's safety; or causing any substantially adverse effect on the operation of its national economy". The plaintiffs will at the trial refer to the said Act and a translation thereof for their full terms and effect.
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(13) |
The initial list to which such restrictions applied comprised 11 companies. Six were oil companies, namely, Arabian Oil, General Sekiyu, Showa Oil, Mitsubishi Oil, Toa Nenryo Kogyo and Koa Oil. Four others were companies operating in technical fields, namely Hitachi and Fuji Electric (Defense Industry Nuclear Power), Tokyo Keiki (Aircraft), and Sankyo (Pharmaceutical). The last was Katakura. Katakura is the smallest quoted company. It is one of the fear remaining silk spinners in a declining industry of no national strategic importance. Only one half of Katakura's business is concerned with silk. The decline of the silk industry left Katakura with large areas of unused land. No Japanese company concerned with land development is on the said list. The inclusion of Katakura on the said list is not justified upon the criteria set out in the said Act.
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(14) |
The inference is that Katakura was placed on the said list at the request or instigation of Fuji Bank and/or Mitsui and/or Katakura or with their consent or acquiescence.
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(15) |
The purpose of such inclusion was to prevent the Plaintiffs or any of them from buying further shares in Katakura so as to obtain control of that company and obtain the benefit of the full value of Katakura's properties notwithstanding that such properties and their true value were the foundation of the representations upon which the Plaintiffs and each of them were induced to buy shares in Katakura.
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(17) |
In March 1980, Mr. Wang sent his assistant Mr. Lui Wah Lee to attend the annual general meeting of Katakura to be held in Tokyo in March 1980 to ask questions and urge the development or realisation of the lands referred to in the List and the said documents. Before such meeting Mr. Lui Wah Lee met Mr. Yanagizawa, a managing director and Mr. Akiyama, a director of Katakura who advised in intimidatory terms not to ask questions or raise difficulties at the annual general meeting. Therefore at such general meeting Mr. Lui refrained from asking questions. The Plaintiffs will at the trial refer to such meetings for their full proceedings. It was as a result of such meetings that inquiries were made disclosing the falsity of the representations aforesaid." |
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(Sub-paragraph (16) has been abandoned). There are, therefore, four overt acts which are said to connect the 7th Defendant with any conspiracy:
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(i)
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Misrepresentations in "the List" made by the 1st, 3rd and 5th Defendants on behalf of the 2nd, 4th and 6th Defendants, with all of whom Katakura is alleged to have had a connection;
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(ii)
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misrepresentations in other documents circulated by the 1st, 3rd and 5th Defendants to their clients;
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(iii)
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misrepresentations in an article published in the Japan Economic News, which Katakura is similarly alleged to have inspired, requested or instigated, or to have acquiesced in and not denied; and
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(iv)
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the allegedly unjustified inclusion of Katakura's name in the list of companies exempted from the removal of the statutory restrictions on the involvement of foreigners in Japanese companies. |
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Nowhere does the pleading unequivocally implicate the 7th Defendant, and the pleader's evasiveness raises the gravest doubt about the validity of the claim.
7. Even if the 7th Defendant had been directly alleged to be implicated, there would remain the argument that the case is based upon inferences of involvement which are wholly unjustified. The fact that a third party publishes information about a company's business does not justify an inference that the company inspired, requested, instigated or connived at the publication, whilst the fact that the third party urges rather than advises investment in the company does not assist in fixing the company with involvement in the production and distribution of the document. It matters not that the third party may be associated with the company, nor, in my view, does the fact that information was passed in an unusual manner, nor does the fact that it was passed by three stockbrokers at the same time alter the position. I am not persuaded that the information given was of a nature which could only have been obtained by the stockbrokers with the privity of the 7th Defendant. Even less does the inclusion of a company's name in a list of companies exempted from the operation of a statute suggest, let alone begin to prove, that the company has been guilty of improper pressure upon the legislating authority, whether or not the inclusion of its name is at first sight justifiable. These matters may arouse suspicion, but I do not think they justify the launching of legal proceedings with a view to a fishing expedition for possible evidence which might support them. The Court will be slow to drive away a plaintiff before his evidence has been heard, but, where it is clear that the only evidence he has does not begin to justify the action, it seems to me that the defendant must be protected from being vexed with proceedings which have no prospect of success.
8. Mr. Hamilton further argues that, even if the pleading were otherwise sufficient, the agreement relied on was not one which had as its predominant purpose the injury of the Plaintiffs: para. 33 expressly states that the overt acts "were perpetrated by the Defendants and each of them for their own benefit and profit or with the motive of benefiting and profiting themselves in total disregard of the in of the Plaintiffs". He relies upon Lonrho Limited v. Shell Petroleum Company Limited (No. 2) 1982 A. C. 173, and in particular upon a passage in the speech of Lord Diplock at p. 189F:
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I am against extending the scope of civil tort of conspiracy beyond acts done in execution of an agreement entered into by two or more persons for the purpose not of protecting their own interests but of injuring the interests of the Plaintiff". |
It is true, of course, that in that case it was conceded that there was no intention to injure the Plaintiffs, so that there was no question what was the predominant motive. Mr. Wright here relies upon para. 22 as alleging the motive of the conspiracy, and he says that para. 33 was necessary to found a claim for aggravated damages. I do not so read para. 33, and it seems to me that para. 22 is as equivocal as much of the rest of the draft Re-Amended Statement of Claim: it says that "the Defendants or some of them" conspired to injure the Plaintiffs, and, since the "some of them" may not include the 7th Defendant, the Plaintiffs have alleged no cause of action against it. Nevertheless, I accept that para. 22 does allege that the aim of the conspiracy was to injure the Plaintiff, and, if the 7th Defendant were party to the conspiracy, it would be for the trial judge to decide whether that was the predominant motive. The most that can be said in favour of the Defendants is that the draft Re-Amended Statement of Claim is ambiguous as to the motive of the conspirators. If that had been the sole objection I would not have struck out any part of the draft pleading.
9. Although it is not necessary to do so, for the sake of completeness I would express my view on the contention that paras. 14 to 21 should have been struck out on the ground that they were irrelevant. Mr. Wright submits that they are relevant as similar facts and that the rules require them to be pleaded. He says that it is not essential that similar facts should be relied upon as establishing a system. For my part I think that similar facts can rarely be logically relevant unless they do tend to establish a system. Here it is conceded that the evidence "did not show the same kind of operation", but it is relied upon as showing "that Katakura was prepared to embark on the kind of conduct of which [the Plaintiffs] complain to achieve their purpose". It cannot do that unless it proves that Katakura had embarked on such conduct before: similar fact evidence is not admissible to show merely that Katakura has broken the law. The Plaintiffs endeavour to connect those earlier breaches of the law with the present case by alleging that it is to be inferred from such breaches, and from what Katakura did before and after those breaches, that Katakura had, when committing them, the principal motive of insuring that the two associated companies retained control of Katakura. Then it is said that retention of control was the ultimate object of what has been described as "the second prong'' of the conspiracy now alleged. As it seems to me, the issue before us is whether the inference which the Plaintiffs seek to draw is, like the other inferences they have relied upon, so manifestly unjustifiable that the facts pleaded in paras. 14 to 21 could not be relevant. I would not have been prepared to hold that they were necessarily irrelevant, nor do I think it would have been oppressive to admit such evidence.
10. However, for the reasons given earlier in this judgment I would allow the appeal and strike out the Plaintiffs' claims against the 7th Defendant.
Cons, J. A.:
11. I have had the advantage of reading the judgment of my Lord the Vice-President and agree with it entirely.
Fuad, J. A.:
12. I agree with my Lord the Vice-president that the appeal should be allowed. I, too, would strike out the Plaintiffs' claim against the 7th Defendant. However, since my Lord has gone on to consider paragraphs 14 to 21 of the Statement of Claim (the "similar facts" allegations) I must respectfully indicate that on this issue, I am not in agreement with him. When one examines the nature of the conspiracy alleged against the 7th Defendant, and the overt acts pleaded, for my part I find it impossible to hold that the similar fact evidence is "logically probative, that is ..... logically relevant in determining the matter which is in issue" to apply part of Lord Denning's test in Mood Music Publishing Co v. De Wolfe Ltd. [1976] 2 W. L. R. 451, at p.456. I cannot find a sufficient nexus between the similar facts pleaded and the facts in issue and have reached the conclusion that they clearly fall on the wrong side of the line. I cannot discern any features in the evidence that paragraphs 14 to 21 would permit to be adduced which provides the necessary link, even when one recognises the distinction, which turns on degrees of relevance, between the application of the "similar fact rule" in civil, as opposed to criminal cases.
13. And so, I would have struck out paras. 14 to 21 of the Statement of Claim as "tending to prejudice, embarrass, or delay the fair trial of the action".
Sir Alan Hugging, V.-P.:
14. We are agreed that there should be an order nisi that the Respondents pay the costs here and below.
23rd December 1985
Representation:
G. Hamilton, Q. C. & M. Bunting for Appellant
O. Cheung, Q. C., R. Wright, Q. C. & K. H. Woo for Respondent
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