CHINA EVERBRIGHT-IHD PACIFIC LTD. v. CH'NG POH AND OTHER and LOW CHANG HIAN AND OTHERS (Third Party)

CACV49/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 49 OF 1999

(ON APPEAL FROM HCA NO. 12837 OF 1995)

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J U D G M E N T

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Chan, CJHC (giving the judgment of the court) :

1. On 13 January 1999, on the application of the 5th third party, Yuen J struck out the 1st defendant's Third Party Statement of Claim against the 5th third party on the ground that it disclosed no reasonable cause of action. The 1st defendant appealed against that decision and on 30 August 1999, the Court of Appeal dismissed the appeal. This is an application by the 1st defendant for leave to appeal to the Court of Final Appeal under section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance, Cap.484, on the ground that the questions involved in the proposed appeal ought to be submitted to the Court of Final Appeal for consideration by reason of their great general or public importance or alternatively that there is some other reason for doing so.

2. Originally only two causes of action were pleaded in the Third Party Statement of Claim, namely, indemnity and contribution or recoupment in equity. At the hearing before the Court of Appeal in July 1999, the 1st defendant sought to introduce two further causes of action, namely, unjust enrichment and inconsistent dealing with a trust property. The questions which the 1st defendant is asking the Court of Final Appeal to consider relate to three of the four causes of action, dropping the cause of action on indemnity.

3. In respect of the question relating to contribution or recoupment in equity, the legal basis relied upon by the 1st defendant is the equitable principle as stated by Vaughan Williams LJ in Bonner v. Tottenham and Edmonton Permanent Investment Building Society [1899] 1 QB 161 at pages 174-176 and the factual basis relied on is that there is a community of interest between the 1st defendant and the 5th third party. With regard to the principle stated by the learned Lord Justice, it appears that for the last 100 years, the principle, if it exists, has not been applied in any case other than general average claims and contribution claims between landowners. But that is, in our view, irrelevant to the present case. For the judge held and the Court of Appeal confirmed that even if the principle does exist, the 1st defendant has not been able to show from his pleadings including the various proposed amendments and the materials placed before the court that there is any factual basis for the application of such principle. This is because if the plaintiff's allegations can be substantiated (and this must be the basis for the 1st defendant's liability), the 1st defendant would be liable to pay to the plaintiff for what he had taken pursuant to the alleged conspiracy. Neither the plaintiff nor the 1st defendant himself has alleged that the 5th third party was ever involved in the conspiracy. The 1st defendant has failed to identify "the subject matter in which he has a community of interest with" the 5th third party. There is simply no community of interest on which the principle can be applied. In his submission, counsel queries whether the principle extends to cases in which the plaintiff has not been obliged to make payment to another. In our view, this is inconsistent with the principle on which he relies, since this was, as counsel clearly knows, one of the bases of the principle as stated by the learned Lord Justice at p.176 :

"...the plaintiff may be entitled to recover within the equitable principle, if he has been compelled to pay or bear the burden and can establish that the defendant has such an interest or benefit as to make the maxim apply" (emphasis added)

4. Since there is absolutely no factual basis for the application of the equitable principle, it would be futile to ask the Court of Final Appeal to consider its existence or applicability to the present case.

5. In respect of the cause of action based on unjust enrichment, there was no dispute before the Court of Appeal as to the relevant principles. The arguments related to whether there was any factual basis on which the 1st defendant could rely to invoke those principles, i.e. whether the 5th third party had received or dealt with the shares to the value of about $19 million and was unjustly enriched to that extent at the plaintiff's expense. The case of Re Schuppan (a bankrupt) No.2 [1997] 2 All ER 685 was referred to the court to support the argument that receipt for the purpose of this cause of action can be beneficial receipt through one's companies. In our view, the receipt of a property, be it actual, beneficial or otherwise, and its disposal and any unjust enrichment or benefit derived therefrom are related and dependent on the attendant factual circumstances which form the basis of a claim in unjust enrichment. The Court of Appeal held that it had not been sufficiently pleaded in the Third Party Statement of Claim how the 5th third party had received the shares in question, how he had disposed of them and how he had been unjustly enriched. The question which the 1st defendant seeks to be submitted to the Court of Final Appeal for consideration in relation to this cause of action would not arise on the facts as pleaded.

6. In respect of the cause of action based on inconsistent dealing with trust property, the legal basis relied upon by the 1st defendant is the existence and applicability of the 4th and 5th categories of knowledge suggested by Peter Gibson J in Baden v Societe Generale [1993] 1 WLR 509N and the factual basis relied on is that the 1st defendant had received and dealt with the shares in question. The Baden categorization was doubted by the Privy Council in Royal Brunei Airlines v. Tan [1995] 2 AC 378. The Court of Appeal in this case did not decide on the point, but held that there was no factual basis for this cause of action for the same reason that there was no factual basis for the cause of action of unjust enrichment. (See pages 20 and 21 of the judgment of the Court of Appeal.) Hence, while the questions relating to these two causes of action appear to be couched in the form of questions touching on legal principles, whatever the views of the Court of Final Appeal on these issues, they are irrelevant to the present case since they would not arise at all for the application by the trial judge on the facts as pleaded.

7. For the purpose of the present application for leave to appeal to the Court of Final Appeal, the 1st defendant suggests another proposed amendment to the Third Party Statement of Claim. This involves an amendment to paragraph 6 of his pleading.

8. The previous proposed amendment to paragraph 6 pleaded (1) the 5th third party defaulted on repayment of the monthly interest on his share of the loan from the Ka Wah Bank; (2) the 5th third party "thereby" disposed of the 20.02 million shares without having first fully paid up for them; (3) the same were repossessed by the bank; and (4) the 5th third party's dealing in these shares was for his sole benefit. In the proposed amendment to paragraph 6 which was placed before us today, it is now pleaded (1) the Ka Wah Bank demanded Ganton to settle the outstanding indebtedness which comprised the loan of $14 million and overdrafts with the bank in or about May 1987; (2) the 20.02 million shares held by Global Grace, Gransail and Join Park were sold to the bank under the direction and/or with the consent of the 5th third party pursuant to two settlement deeds both dated 30 May 1987 in settlement of the indebtedness of Ganton to the bank. The repossession of the shares by the bank was deleted in the proposed amendment and is no longer relied upon. Counsel for the 1st defendant submits that this latest proposed amendment is nothing but a re-drafting and a clarification of paragraph 6. We cannot see how it can be regarded as a clarification. It is nothing short of an attempt to change completely the 1st defendant's case on his allegation that the 5th third party had received and dealt with the shares in question. There is no satisfactory explanation as to why the settlement deeds could not have been relied upon and pleaded much earlier. From the history of this case, it can be noted that the main action was commenced in December 1995. The 1st defendant issued third party proceedings in October 1997, almost two years after the issue of the writ and his Third Party Statement of Claim was filed on 1 April 1998. The 5th third party applied to strike out the Third Party Statement of Claim on 14 October 1998. Before the hearing in the court below, the 1st defendant proposed an amendment by issuing a summons returnable before the judge. At the hearing in January 1999, the 1st defendant, through his counsel, submitted to the judge a slight amendment to the proposed draft. Before the Court of Appeal, he proposed yet another amendment introducing two new causes of action. The present proposal is probably the 4th proposed amendment, or as counsel for the 5th third party said, the 5th one (and this is not disputed by the 1st defendant).

9. It is not clear from the proposed amendment now placed before this court what the details of the two settlement deeds relied upon are. There are also no particulars with regard to the allegation that the "sale" of the 20.02 million shares to the bank was under the "direction and/or with the consent of the 5th third party". While it was previously pleaded that these shares were re-possessed by the bank, it is now sought to allege that they were in fact sold pursuant to two settlement deeds. We cannot but doubt that this proposal is put forward in order to make out a case to go to the Court of Final Appeal. We do not think that the proposed amendment is made bona fide. It is surprising that after so many years and at this very late stage, the 1st defendant is still trying to shift the factual basis upon which his Third Party Statement of Claim on unjust enrichment and inconsistent dealing is founded, bearing in mind that these causes of action were not even relied upon initially in the court below. We cannot see any reason why such proposed amendment can be or should be allowed for the purpose of obtaining leave to appeal to the Court of Final Appeal on the questions posed by the 1st defendant.

10. The 1st defendant also submits that there is a good reason for the case to be considered by the Court of Final Appeal and that although the order striking out the Third Party's Statement of Claim is not a final order, it does have the effect of finality. It is submitted that the claim is very substantial, being in excess of $19 million plus interest and that the Court of Appeal should exercise its discretion and grant leave. It would seem that if there is no factual basis to invoke the application of the relevant legal principles as submitted by the 1st defendant, the Third Party's Statement of Claim is bound to fail. There is in fact a good reason to put an end to all these allegations and proposed amendments. Furthermore, as counsel for the 5th third party submits, the liability of the 5th third party is not at all clear or certain as the 1st defendant's liability towards the plaintiff is not clear or certain. We do not think that the court's discretion should be exercised in favour of the 1st defendant.

11. For these reasons, we would dismiss this application with costs.