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CACV000126/1990
| IN THE COURT OF APPEAL |
1990, Nos. 120 & 126
(Civil) |
BETWEEN
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Carrian Investments Limited |
Plaintiff
(Respondent)
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AND
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Deacons (a firm) |
Defendants
(Appellants)
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Coram: Sir Derek Cons, Ag. C.J., Silke, V.P., & Macdougall, J.A
Date of hearing: 5 September 1990
Date of delivery of judgment: 7 September 1990
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JUDGMENT
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Sir Derek Cons, Ag. C.J.:
1. The Plaintiff, Carrian Investments Limited ("CIL"), was a public listed company fashionable on the stock markets of Hong Kong until the collapse of the entire Carrian Group. It was put into compulsory liquidation on the 9th November 1983. In September 1986, through its liquidation, it issued a writ, followed a year later by a Statement of Claim, alleging negligence against Deacons, the firm of solicitors who had advised and acted for it, inter alia, in connection with the sale of what at the time was known as Gammon House. The building was shortly thereafter re-named The Bank of America Tower. The action was also brought against two partners in the firm.
2. Stripped down to the basic essentials that are necessary to understand the present proceedings, the allegations contained in the fairly lengthy Statement of Claim are as follows.
3. On the 2nd September 1990 CIL and another company, Eastern Realty Limited, were as to 75% and 25% respectively the owners of a private company, Extrawin Limited, whose sole asset was Gammon House.
4. The same day CIL and Eastern agreed to sell their shares in Extrawin to Bylamson and Associates (Nominee) Limited together with an option, exerciable by Extrawin, to sell the podium, except for the 4th floor, to CIL and another company associated with Eastern namely Inland Realty Limited. (I may add that this agreement was a rehash, for tax purposes, of an earlier agreement between CIL and Eastern on the one hand and Bylamson on the other made on the 13th August.)
5. The agreement was effected by means of three written instruments executed on the 4th September, namely the B and C Share Agreements, and the Option Agreement.
6. The B Share Agreement called for a deposit of HK$38 million which was paid that day by a cheque in favour of Deacons and for the balance of the payment due under the Agreement by the 31st October.
7. The C Share Agreement acknowledged the payment of a deposit of HK$70 million, which had already been paid by a similar cheque on the 13th August, called for a further payment of HK$155 million on completion, which was then set for the 8th of September, and for the balance under the Agreement to be paid also by the 31st October.
8. On the same 4th September Deacons caused to be sent to the then four stock exchanges of Hong Kong announcements in these terms:
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"Mai Hon Enterprises Limited (as CIL was then still known) wish to announce that they and Eastern Realty Limited have reached new agreement for the disposal of their entire interest in Gammon House ("the Property") to Bylamson & Associates (Nominee) Limited ("Bylamson") upon terms which attribute a value of HK$1,680,000,000 to the Property. The new agreement supersedes the previous agreement under which Bylamson was to acquire a 75% interest in Extrawin Limited which is the owner of the Property.
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Bylamson is associated for the purposes of this transaction with members of the Tsang family and their associates. Deposits have been paid, and the transaction will be completed in full on or before the 31st October 1980." |
9. These announcements were made pursuant to listing undertakings which had been given by CIL to each of the stock exchanges to the effect:
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"that it would immediately notify the exchange of any information necessary to enable its shareholders to appraise its position or to avoid the establishment of a false market in its shares". |
10. On the following day, i.e. the 5th September, CIL made a public announcement in identical terms.
11. The date for completion of the C Share Agreement was extended to the 10th September but on that date Bylamson neither paid the further HK$155 million nor completed.
12. Even so Bylamson commenced, or perhaps continued, negotiations for the on-sale of Extrawin or Gammon House to a Mr. Kenneth Thomas Mackinnon, who had earlier shown an interest in the property. An agreement was negotiated on the 13th October, but it fell through and subsequent re-negotiations came to nothing. It is alleged that by the 24th October it was obvious that there was no prospect of Bylamson being able to complete the 4th September agreements by the 31st October if even at all. In consequence the deposits of HK$38 million and HK$70 million would become liable to forfeiture and CIL would be required, by virtue of its listing undertakings, to advise the stock exchanges that the position was no longer as had been earlier announced and to make a public announcement to similar effect. However it was the wish of CIL to make no announcements at all and it so informed Deacons.
13. In the light of that wish Mr. John Wimbush, the then Senior Partner of Deacons, came up with a somewhat complicated scheme set out in what has become known as the Wimbush Memorandum of the 29th October which involved the use of a third party and payment by way of promissory notes redeemable against the sale of the building floor by floor. Deacons put the scheme forward to CIL with the advice that it
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"would amount to completion in full of the disposal of CIL's and Eastern's entire interest in Gammon House on 31st October 1980 as forecast in the 4th September Announcements, and consequently the 4th September Announcements would require no correction if the proposals were implemented." |
14. CIL accepted the advice thus proffered by Deacons and the scheme was implemented by instruments executed principally on the 31st October, with some later in November. The third party used was a company by the name of Wallop which was a shell company having little or no assets and owned by Deacons.
15. The present claim of CIL is based on the allegation that such advice was negligent. A further allegation that Deacons acted in breach of fiduciary duty has since been abandoned, as have the claims against the individual partners.
16. The particulars of negligence set out in the Statement of Claim are, and I simplify and paraphrase loosely,
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(1)
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the proposals did not have the effect quoted above, and
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(2)
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Deacons ought to have advised that a corrective announcement to the stock exchanges and to the public generally was in the circumstances absolutely unavoidable. |
17. For convenience I shall refer to these as "the Original Particulars".
18. At one stage there had been a third particular, that Deacons had failed to advise that the deposits from Bylamson of HK$38 million and HK$70 million had become liable to forfeiture and should, in the best interest of the company, be forfeited. This had been withdrawn on the 1st June. It was replaced, with the leave of Nazareth J., by what I shall term "the Amended Particulars" which suggest, and again I simplify and paraphrase loosely, that Deacons should have advised
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A.
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that failure to make corrective announcements would involve CIL and its directors in liability for
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1. |
conspiracy to defraud,
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2. |
deceit of the investing public,
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3. |
creation of a false market in securities contrary to Section 135 of the Securities Ordinance, Cap. 333, and
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4. |
breaches of the listing undertakings;
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B.
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that this would lead in turn to
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1. |
suspension of trading in CIL shares on the stock exchange,
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2. |
investigations by the stock exchanges, and
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3. |
investigations by other financial authorities; and
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C.
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that unless such corrective announcements were made Deacons would or could no longer act for CIL in that respect. |
19. There seems to me implicit in the Amended Particulars, as there must be also in the Original Particulars, the suggestion that if such advice had been given it was inevitable, or at least more likely than not, that CIL would not have implemented the Wimbush proposals, but would instead have forfeited the deposits paid by Bylamson. If that is not so then the whole action would appear to be incompetent, and no suggestion of that kind has been made.
20. Leave for the Amended Particulars was given on the 4th July. On the 18th of the same month Nazareth J. refused an application by Deacons to strike out paragraph 88 of the Statement of Claim by which CIL seek to recover directly or by way of damages that part of Deacons' bill of costs which can be attributed to the wimbush scheme and its implementation.
21. It is against the two orders of Nazareth J. that these appeals are brought. In the one we are asked to set aside the leave to amend that he granted; in the other we are asked to make the order striking out that he refused.
22. The lines of argument taken by Mr. Rokison, who now appears for Deacons, are much the same as were taken below. They can be summarised, as they were by him, into four propositions:
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(1)
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the questions raised by the Amended Particulars are academic in that they are based upon unfulfilled hypotheses;
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(2)
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in particular they would necessarily involve trials within trials upon a purely putative basis;
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(3)
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they would not assist the judge to resolve the essential issues in the case which are whether the advice given was negligent and whether, if so, that negligence led to the losses claimed; and
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(4)
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they are doomed to failure, either because they disclose no reasonable cause of action, there being nothing in the Statement of Claim to suggest as a necessary basis for their success resistance on the part of CIL to accept the advice set out in the Original Particulars; or because the consequences suggested have not in fact come to pass. |
23. The propositions overlap to a large extent and the arguments in support likewise. I hope I shall be forgiven for not attempting succinctly to set out those arguments, but it seems to me that the central theme is that of the Amended Particulars' hypothetical nature, and for my part I am unable to accept that. To my mind they raise a simple concrete issue, "were Deacons negligent in not giving to CIL the series of warnings now suggested?"
24. I accept that the Amended Particulars will involve at the trial investigation of whether the need for the suggested warnings was soundly based, for a reasonable solicitor will not needlessly alarm his client.
25. I accept also that the investigation will need to look into the future, as best it can, as at the time in question. But I do not see that as raising hypothetical questions of the kind that courts will always refuse to consider. I see it as assessing the impact of the fact or omission of particular advice upon the situation as the judge finds it to have been at the time.
26. Nor do I find it conclusive that the possibilities which are suggested ought to have been foreseen by Deacons and brought to the attention of CIL have not in fact come to pass. Good advice to take an umbrella in overcast conditions is not rendered retrospectively bad because in fact the clouds do not break. There is dispute in the present instance as to whether the skies were indeed overcast, but that will be a matter for the trial judge.
27. I accept still further that the Amended Particulars are dependent upon the Original in this sense, that if CIL fail on the Original they will inevitably fail also on the Amended. On the other hand if these particulars had been incluaed in the original Statement of Claim I see no possibility of their being separately struck out. They are part and parcel of what CIL allege should have been told to them by Deacons and may have a bearing on what CIL's conduct would have been in that circumstance. They have come into the action at a very late stage. But the judge who is to try that action was satisfied, in the exercise of his discretion, that they should nevertheless be allowed in. For my part I see no justification for interference with that exercise of his discretion by this Court and would dismiss the first appeal, i.e. 120 of 1990.
28. The second appeal, as I indicated earlier, concerns the refusal of the judge to strike out CIL's claim for that part of Deacons' bill of fees which represents the costs of the Wimbush scheme and its implementation. The argument before the judge appears to have turned upon the abandonment by that stage of the claim based on breach of fiduciary duty. In particulars given in June 1988 CIL had stated:
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"Deacons were not entitled to fees earned in respect of work done for CIL in respect of matters in which Deacons should not have acted for CIL in view of the conflicts of duty and interest referred to in paragraph 80 of the statement of claim." |
29. By the time the application was brought before the judge those particulars had been deleted, leaving, it was suggested, no basis in the pleadings to support this particular aspect of the claim.
30. Subsequent to the judge's decision voluntary particulars have been served in their place
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"Deacons are not entitled to any fees in respect of work done by them which by reason of their negligence or breaches of duty was wholly fruitless and accordingly CIL is entitled to be refunded such fees." |
31. The curious phrase "wholly fruitless" was possibly not derived from the original thought of the pleader, for it appears in a similar context in paragraph 72(3) of Deacons' Defence. Be that as it may, it provides the opportunity for the argument that the Wimbush scheme was not wholly fruitless, for it was in fact executed and monies were received by CIL as a result.
32. With respect that seems to me a blinkered approach which ignores the very foundation of CIL's claim, namely that the Wimbush scheme was part and parcel of what is suggested to have been wholly negligent advice. Deacons cannot be unaware of that suggestion and thus do know the nature of the claim against them in this particular respect. If paragraph 88 were struck out now and CIL were at the trial to succeed in their action they would still find themselves liable to pay for what had then been found to be negligent advice and all that was done in pursuance thereof. That is a situation which would cause me serious anxiety, as well it may have done the judge below.
33. For these reasons I would dismiss the second appeal as well.
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(Sir Derek Cons)
Acting Chief Justice |
Silke, V.P.:
34. I am in agreement with the judgment just delivered by My Lord, its reasoning and conclusion. There is nothing I can usefully add.
35. I too would dismiss the appeals.
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(W.J. Silke)
Vice President |
Macdougall, J. A.
36. I agree.
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(N. Macdougall)
Justice of Appeal |
Representation:
Kenneth Rokison, Q.C., and Daniel Fung, Q.C. (M/s Lovell, White Durrant) for Defendants/Appellants
Lord Irvine of Laig, Q.C., and Michael Bunting (M/s Baker & Mckenzie) for Plaintiff/Respondent
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