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HCA 902/2011
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 902 OF 2011
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BETWEEN
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JACKSON XU ZHAO ZE (徐銚澤) |
1st Plaintiff |
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LAI MING WAI (黎明偉) |
2nd Plaintiff |
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and |
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TSAI TIM YUEN (蔡添源) |
1st Defendant |
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JACKY MUK CHUNG WING (麥宗永) |
2nd Defendant |
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| Before: Deputy High Court Judge Winnie Tam, SC in Chambers |
| Date of Hearing: 15 March 2012 |
| Date of Judgment: 22 May 2013 |
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J U D G M E N T
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INTRODUCTION
1. This is the hearing of the 2nd defendant’s Summons under O18 r19 for the striking out of the action against the 2nd defendant. The grounds relied on are that it discloses no reasonable cause of action, and that the claim is frivolous and vexatious, under O18 r19(1)(a) and (b) respectively.
2. The 2nd defendant is an accountant by profession, and one of the joint and several provisional liquidators of Access Tree (“Access Tree”) Industrial Limited, China Profit Development Limited (“China Profit”), and Gold Mountain Enterprise Limited (“Gold Mountain”) appointed on 16 November 2005. Since 22 November 2006, the 2nd defendant was appointed one of the joint and several liquidators.
3. All three companies referred to in the preceding paragraph were part of the Weiyuen Group before they were wound up on 14 June 2006. Access Tree was 50%-owned by the 1st defendant. Access Tree in turn owned 100% of China Profit and Gold Mountain. China Profit in turn owned 100% of Weiyuen Foodstuff & Drinks (Shenzhen) Ltd (“Weiyuen Shenzhen”), a foreign owned enterprise in Shenzhen, of which the 1st defendant was the founder and legal representative.
4. The dispute between the parties arose out of certain agreements entered into between Weiyuen Shenzhen and the plaintiffs after the 2nd defendant was appointed one of the liquidators.
5. The cause of action relevant to the 2nd defendant herein is one of conspiracy with the 1st defendant to injure the 1st plaintiff’s economic interest, namely the 1st plaintiff’s investment with the 1st defendant/Weiyuen Shenzhen and/or conspiracy to use unlawful means. In addition to this cause of action, the plaintiffs claim against the 1st defendant for money had and received, account of profits, and for a declaration of part ownership of certain registered trade marks.
6. The application focuses on the manner in which the cause of action of conspiracy to injure/conspiracy to use unlawful means is pleaded against the 2nd defendant in the Amended Statement of Claim.
7. As a house-keeping matter, I note that while the 2nd defendant has obtained leave from Master De Souza on 9 March 2012 to file the 4th Affirmation of Jackson Xu Zhao Ze, no application was made for leave to file the 3rd Affirmation of Jackson Xu Zhao Ze out of time, and no consent was reached between the parties for its filing. While the latter was included in the hearing bundle before me, I have excluded the same from my consideration in the absence of any application before me for its inclusion as part of the evidence of the plaintiffs for the purpose of this application.
PRINCIPLES APPLICABLE TO THE STRIKING OUT OF PLEADINGS
8. It is well-established that pleadings should only be struck out in plain and obvious cases. Disputed facts are to be taken in favour of the party sought to be struck out. The claim under attack must be obviously unsustainable, the pleadings must be unarguably bad, and it must be impossible, not improbable, for the claim to succeed: Hong Kong Civil Procedure 2012 Vol 1 p 415 at 18/19/4.
9. A reasonable cause of action means a cause of action with some chance of success when only the allegations in the pleadings are considered: Hong Kong Civil Procedure 2012 Vol 1 p 415 at 18/19/6.
10. A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed: Hong Kong Civil Procedure 2012 Vol 1 p 415 at 18/19/8.
11. In the judgment of Ma CJHC in Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537, a list of the elements required in pleading a case of conspiracy to injure is set out as follows:-
(1) The agreement between two or more persons. The means of carrying out the agreement, whether lawful or unlawful, must be set out.
(2) The intention to injure the plaintiff, whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in case of an unlawful means conspiracy).
(3) The acts that were carried out pursuant to the agreement and the stated intention.
(4) The damage caused to the plaintiff.
12. In relation to element (3) above, it has been said that “the gist of the tort of conspiracy is not the conspiratorial agreement alone, but that agreement plus the overt act causing damage” (Marrinan v Vibart [1963] 1 QB 234 at 238). An Overt act establishing the existence of a conspiracy is an overt act which shows that the agreement which is alleged to be conspiratorial has already been made (Belmont Finance v Williams Furniture [1979] 1 Ch 250 at 263).
13. It has been said in Aktieselskabet Dansk Skinsfinansiering v Wheelock Marden & Co. Ltd [1994] 2 HKC 264 that in the absence of a pleading of an overt act with the aforesaid characteristics, “allegations of knowledge, common purpose and intention cannot alter that or render it harmless. They are not acts. Also, it might be added, they have, in any event, to be viewed with some caution: because, when the mass of particulars pertaining to them are examined, it can be seen that they involve piling one layer of inference on top of another in order to obtain the end product.”
14. Allegations of fraud must be pleaded distinctly with the utmost particularity: Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co Ltd; ibid at 270 B-C.
15. A party’s claim should be formulated clearly and cogently in pleadings, and not left to inferences to be drawn from the matters pleaded: Pido, ibid at §25. Inferences are matters of evidence and cannot substitute material facts in pleading. Speculations and conjectures are impermissible in pleadings as the bases upon which inferences are invited to be drawn. §§18-19 Total Lubricants Hong Kong Limited & Ors v Christophe de la Cropte de Chanterac HCA 1694 of 2008 (unreported) Poon J 15 December 2009.
16. It is well-established that where a defective pleading is capable of being cured by amendments and provision of further and better particulars, it should not be struck out : Hong Kong Civil Procedure 2013 18/19/6, 18/19/9. However, if the pleading is so defective that no amendment can cure it or if the proposed amendment is incapable of improving the defects, the pleading is liable to be struck out and the proposed amendment should be refused. In Total Lubricants, at §15, Poon J has remarked that proposed amendment should be properly and exactly formulated with all the necessary averments or mandatory particulars included. Counsel for the 2nd defendant accepts that it is not an inflexible rule.
THE PLEADING AGAINST THE 2ND DEFENDANT
17. In paragraph 10 of the Amended Statement of Claim, the plaintiffs made the following allegations against both defendants:-
“The 1st and 2nd plaintiffs aver that the 1st and 2nd defendants and each of them, wrongfully and with intent to injure the 1st and 2nd plaintiffs, conspired and agreed together to wrongfully and/or unlawfully misappropriate money of the 1st and 2nd plaintiff, and/ or do other unlawful acts against the 1st and 2nd plaintiffs (“the Conspiracy”) as pleaded hereinbelow.”
18. The plaintiffs then allege that the 1st defendant made certain representation to the plaintiffs to induce the latter to make loans for to Weiyuen Shenzhen to enable its business to be continued and expanded (“the 1st Representation”). The 2nd defendant was not alleged to have been complicit in the making of the 1st Representation. It was alleged that as a result of the 1st Representation, the plaintiffs were induced into advancing loans to Weiyuen Shenzhen, which the latter was not in a position to repay, despite representations otherwise.
19. In paragraphs 15 to 16 of the Amended Statement of Claim, the plaintiffs further allege that the 1st defendant made some other representation to induce the plaintiffs to invest into his business (“the 2nd Representation”). It is alleged that as a result of the 2nd Representation, the plaintiffs entered into the Cooperation Agreement, pursuant to which further loans were advanced totaling HK$10,000,000 taking account of the previous loans. A separate sum being accrued interest was also acknowledged. Again, the 2nd defendant is not alleged to have made or participated in the making of the 2nd Representation.
20. In paragraph 19, the plaintiffs plead a collateral agreement said to have been made with the 1st defendant personally in consideration for the plaintiffs agreeing to enter into the Cooperation Agreement, with the effect that the plaintiffs were promised a 40% interest in the companies holding the trade mark rights of “Weiyuen 味源” in Hong Kong and the PRC. The 2nd defendant is not alleged to be a party to this agreement, nor is he alleged to have done any act to induce the plaintiffs to enter into this agreement.
21. In paragraph 22, it is alleged that the receipts evidencing the amount of loans advanced to Weiyuen Shenzhen by the plaintiffs bear the signature of the 1st defendant and the company chop of Weiyuen Shenzhen.
22. While the plaintiffs plead no overt acts on the part of the 2nd defendant in relation to the above agreements, paragraph 23 pleads actual, or alternatively, imputed knowledge on the part of the 2nd defendant of the First and Second Representations, the Cooperation and Collateral Agreements, and the receipts referred to in paragraph 22 of the Amended Statement of Claim. The Plaintiffs alleges, therefore that the 2nd defendant knew or ought to have known of the plaintiffs’ economic interests in Weiyuen Shenzhen and in the company holding the aforesaid trade mark rights.
23. The above plea of knowledge or imputed knowledge purports to lay the foundation for the pleas of conspiracies in paragraph 26 and 27 between the 1st and 2nd defendants. The first of the conspiracies, as pleaded in paragraph 26, was with regard to procuring Weiyuen’s holding entity, China Profit to sell off its equity interest in Weiyuen Shenzhen to Techson (HK) Ltd pursuant to a sale and purchase agreement (“the Techson Agreement”). §26(a) reads as follows:-
“Despite the 1st and 2nd plaintiffs’ economic interests under the Cooperation Agreement and/or Collateral Agreement, the 1st defendant acting in concert with the 2nd defendant and in pursuance of the Conspiracy, caused and/or procured China Profit (ie the 100% holding company of Weiyuen Shenzhen) to enter into a sale and purchase agreement dated 14 August 2007 with one Techson (HK) Ltd.”
24. §26(b) reads as follows:-
“The aforesaid agreement was affixed with China Profit’s purported company chop (“the Company Chops”). The 1st and 2nd plaintiffs aver that the Company Chop affixed on the same were forged by the 1st and/or the 2nd defendants; alternatively, the 1st and/or the 2nd defendants had used the Company Chops (or caused them to be used) without authority.”
25. A further conspiracy purported to be founded upon the pleas of knowledge or imputed knowledge as aforesaid is pleaded in paragraph 27, wherein the 2nd defendant is alleged to have conspired with the 1st defendant to set off ownership of the registered trade marks of “Weiyuen 味源” by disposing of the equity interest of the owner of the registered trade marks, Yuen Tai Food Dealers Ltd (“Yuen Tai”) under a framework agreement with three other companies (“the Yuen Tai Shares Agreement”). §27(a) reads as follows:-
“Despite the 1st and 2nd plaintiffs’ economic interests under the Cooperation Agreement and/or Collateral Agreement, on a date unknown to the 1st and 2nd plaintiffs (which according to the 1st and 2nd plaintiffs’ best knowledge should be no later than 30 September 2008), the 1st defendant, acting in concert with the 2nd defendant, and in pursuance of the Conspiracy, caused and/or procured China Profit to enter into a framework agreement with three other parties, namely深圳市同心控股集團有限公司, 深圳市集川投資管理有限公司, 深圳市凱亞實業有限公司.”
26. Under the Yuen Tai Shares Agreement, the 1st defendant was to procure China Profit to sell off the shares of Yuen Tai to three companies and himself, with the result that the 1st defendant owns 51% of the interest and the three companies divide up the remaining shares in Yuen Tai. The 1st defendant is alleged to have received RMB 126,900,000 from the three companies pursuant to the Yuen Tai Shares Agreement. A supplemental framework agreement was subsequently entered into to supplement the terms under the framework agreement (“Yuen Tai Shares Supplemental Agreement”).
27. Paragraph 27(d) reads as follows:-
“The aforesaid agreement was affixed with the Company Chop of Weiyuen Shenzhen. The 1st and 2nd plaintiffs aver that the Company Chops affixed on the same were forged by the 1st and 2nd defendants; alternatively, the 1st and/or the 2nd defendants had used the Company Chops (or caused them to be used) without authority.”
28. Lastly, in paragraph 28, the 2nd defendant together with the 1st defendant were alleged to have converted all the loans advanced under the Cooperation Agreement and the Collateral Agreement to their own use. No particulars are given as to the complicity of the 2nd defendant in this regard.
WHETHER THE CLAIM AS FRAMED AGAINST 2ND DEFENDANT IS DEFECTIVE
(i) The inference of knowledge on plaintiffs’ economic interest
29. Counsel for the 2nd defendant, Mr Maurellet, argues that the pleaded case against the 2nd defendant is based entirely on inferences invited to be drawn upon speculations. In reliance of Pido §22 and §25, it is submitted that the claim should be struck out in the absence of material aspects of the conspiracy having been properly and clearly pleaded.
30. Whereas certain misrepresentations are alleged to have been made by the 1st defendant, the 2nd defendant is not alleged to have taken any part in such acts. On the other hand, even if the 2nd defendant were to have the alleged knowledge of the representations being false, that does not transform knowledge into acts on the part of the 2nd defendant.
31. In any event, says Mr Maurellet, no proper particulars were given on the alleged knowledge on the part of the 2nd defendant. What is now relied on in evidence as inferring knowledge are based on assumptions that are at odds with the evidence or defies common sense, he submits. The evidence he refers to is §§29-37 of the 1st Affirmation of Jackson Xu Zhao Ze, wherein he argues that the 2nd defendant “ought to have (by his own due diligence or by other reasonable means) actual knowledge of the 1st and 2nd Misrepresentations and the Cooperation and Collateral Agreements for the following reasons:-
(1) He has been a joint liquidator of China Profit exercising control over China Profit and its major assets, that includes its interest in Weiyuen Shenzhen.
(2) Therefore all relevant activities of Weiyuen Shenzhen which had been carried out by and through the 1st defendant “should have been” done within the knowledge and consent and/or connivance of the 2nd defendant.
(3) All company chops of Weiyuen Shenzhen were handed over to the 2nd defendant and were in his exclusive possession. If the 1st defendant were able to use the chops afterwards, it must have been with the consent of the 2nd defendant. It is therefore suggested that the use of the chops are therefore an “act in concert” between the two defendants.
32. Counsel for the plaintiffs, Mr. Chan, submits that because of the above, there is no doubt that all relevant activities of Weiyuen Shenzhen, which had been carried out through the 1st defendant, must have been carried out with the knowledge and consent of the 2nd defendant. These include the various loans advanced by plaintiffs to Weiyuen Shenzhen and the various agreements entered into between them dated between 2 April 2007 to 2 July 2007. However, Mr Maurellet points out that some of the loans were advanced even before KPMG was appointed as the Provisional Liquidators.
33. As pointed out above, the plea of the 2nd defendant’s knowledge under §23 of the Amended Statement of Claim is the foundation of the alleged conspiracies between the 1st and 2nd defendants. Such allegation of knowledge was in turn founded upon inferences invited to be drawn on the fact that the 2nd defendant was in a position to exercise certain powers as one of the joint and several liquidators of China Profit at the time.
34. Before turning to the question of whether the pleading is sufficient if material allegations constituting a cause of action are founded upon inferences, it is necessary to examine what pleading and evidence is before this court as would warrant the drawing of the inference.
35. As pointed out by the 2nd defendant in evidence, the Provisional Liquidators were not appointed over Weiyuen Shenzhen itself, but only over China Profit which holds the shares of the former. While the Provisional Liquidators could and did inform Weiyuen Shenzhen and the 1st defendant not to deal with Weiyuen Shenzhen’s assets without their knowledge and consent, there is no basis to infer complicity, less still conspiracy, where there is no basis to assume that such instructions were adhered to, and Mr Tsai and the Weiyuen Shenzhen management were co-operative and forthcoming with the Provisional Liquidators.
36. The 2nd defendant’s evidence in this regard is that he had no knowledge of the plaintiffs’ alleged economic interests in Weiyuen Shenzhen before receiving the letter dated 17 February 2008 from Lau Kwong and Hung. In fact, the plaintiffs, for reasons best known to themselves, did not see fit to bring to the attention of the 2nd defendant the loans they had allegedly already advanced to Weiyuen Shenzhen when they met the 2nd defendant on 2 December 2005 to discuss their possible plan to invest in the company.
37. Regarding the China Profit Chops used on the Techson Agreement, these were chops that were in the control of KMPG as the Provisional Liquidators. They were used on the Techson Agreement with the consent of the 2nd defendant and in accordance with the Provisional Liquidators’ statutory powers, after the plaintiffs had withdrawn their offer of HK$5 million to buy Weiyuen Shenzhen. There is no dispute that the transaction was approved by the Committee of Inspection. There is no question of forgery or lack of authority to use the company chop.
38. Regarding the Weiyuen Chops, the 1st plaintiff’s evidence as set out in paragraph 30 above, even if it were to be formulated as particulars of the pleading, do not begin to point to knowledge or consent on the part of the 2nd defendant at all. Contrary to what was asserted by the 1st plaintiff in evidence, the 2nd defendant did not go as far as to “confirm” the receipt of all chops of Weiyuen Shenzhen. In §8 of his 1st Affidavit, the 2nd defendant recounted how the Provisional Liquidators requested the 1st defendant and the management of Weiyuen Shenzhen to hand over all chops, and in response to the request, 6 chops were handed over, and they were said by the 1st defendant to be all the chops of Weiyuen Shenzhen in the control of the 1st defendant and the management. The 2nd defendant did not, and was hardly in a position to, “confirm” in his affidavit that all the chops required to be handed over were in fact handed over, nor could he have ruled out the obvious possibility of similar or identical chops coming into the possession of the 1st defendant or his associates in Weiyuen Shenzhen thereafter, without the knowledge of the Provisional Liquidators.
39. Accordingly, no inference could reasonably be drawn that the 1st defendant or Weiyuen’s management could not have retained other Weiyuen Shenzhen chops, or that replicas of the Weiyuen Shenzhen chops could not have been caused to be made and retained by the 1st defendant for continued illicit use without the knowledge or consent of the 2nd defendant, such that any use of these chops after their handover to the 2nd defendant would implicate the 2nd defendant.
40. Further, in respect of the Collateral Agreement which on the plaintiffs’ case was an agreement the 1st defendant entered into personally with the plaintiffs, there is no particularization nor any evidence as to why the 2nd defendant knew or would have learned about it from the 1st defendant. There is no materials upon which an inference could be drawn that the 1st defendant would have been motivated to disclose the agreement to the 2nd defendant.
41. In my view, the allegation of knowledge on the part of the 2nd defendant is speculative, and without foundation or proper particularity. It is based on assumptions and layers of inferences piled one on top of another which cannot reasonably be drawn. It follows that a cause of action in conspiracy to injure, and indeed any cause of action, if dependant on the alleged knowledge being proven, is frivolous and not capable of reasoned argument, without foundation and cannot possibly succeed. On this ground alone, the claim against the 2nd defendant should be struck out.
(ii) Pleading of act of participation in the conspiratorial agreement
42. For completeness, I shall go on to consider whether the plea of conspiracy to injure should stand if I were wrong on the view I take on the plea of knowledge against the 2nd defendant. The 2nd defendant’s complaint is with regard to lack of pleading on any acts of participation in the agreement, and on any intention to injure.
43. The plaintiffs’ pleaded case on the conspiracy relating to the Techson Agreement appears to be based on the fact that the 2nd defendant is a party to the agreement, and the fact that the Techson Agreement bears the China Profit chops that were in the 2nd defendant’s control. Apart from the plea under paragraphs 26(b) of forgery or consent to use the chops without authority, there is no other overt act pleaded against the 2nd defendant, or any particularization of how the 2nd defendant had taken part in “causing and/or procuring China Profit” to enter into the agreement.
44. The overt act of “causing and/or procuring” pleaded against the 2nd defendant under paragraph 26 of the Amended Statement of Claim is entirely dependent on inference. The inference of the 2nd defendant’s involvement invited to be drawn is in turn based on assumption and inferences on the 2nd defendant’s knowledge of the plaintiffs’ economic interest in Weiyuen.
45. Further, the unparticularised participatory act of “causing and/or procuring” in paragraph 26 does not begin to show any agreement alleged to be conspiratorial has been made with regard to the Techson Agreement. In order to complete the plea of conspiracy in this regard, the plaintiffs will have to rely on the inference of alleged knowledge on the part of the 2nd defendant of the plaintiffs’ economic interest in the form of loans to Weiyuen Shenzhen, which itself is based on an inference from the receipts of loans bearing Weiyuen Shenzhen’s company chops the use of which the 2nd defendant is assumed to have total control by reason of the appointment of KPMG as the Provisional Liquidators of China Profit.
46. The overt act of forgery can be disposed of quickly. On the plaintiffs’ case, the company chops of both China Profit and Weiyuen were in the possession and control of the 2nd defendant. There would have been no reason for the 2nd defendant to have to forge them if he had participated in or allowed the use of those chops on the Techson Agreement and the Yuen Tai Shares Agreements. On the other hand if the 1st defendant had had to forge the two sets of company chops in order to be able to use them on the agreements, it would necessarily exonerate the 2nd defendant from the alleged conspiracy.
47. As regards the alleged use of the chops without authority, the Techson Agreement was entered into with the necessary approvals, as set out above. There is no evidence to suggest that necessary approval and proper procedures were not followed by the Provisional Liquidators, who were expected to look for an alternative purchaser of Weiyuen Shenzhen when the plaintiffs withdrew their offer. As regards the Yuen Tai Shares Agreement, the 2nd defendant claims no knowledge of the existence document until he was given a copy by email from the 1st plaintiff. The 2nd defendant would have had the authority to use the Weiyuen Shenzhen chops had he known of and approved the agreement. No question of authority would have arisen. On the other hand, if the agreement had been entered into without his knowledge, the Weiyuen Shenzhen chops used would have been chops surreptitiously retained or caused to be replicated by the 1st defendant. There is likewise no question of the 2nd defendant authorizing their use.
48. The inference of knowledge, as analysed above, cannot possibly be drawn without reliance on a number of assumptions which are plainly without foundation. By piling up multiple layers of inferences, some built on baseless assumptions, the plaintiffs argue that the conspiracy claim against the 2nd defendant in respect of the Techson Agreement ought to be allowed to stand. I am unable to agree to that proposition.
49. In view of the preceding paragraph and what has been said in paragraph 34 above on the nature of the Techson Agreement and the powers of the 2nd defendant, I am unable to accept that an arguable claim on conspiracy to inquire or conspiracy to use unlawful means has been or can be formulated against the 2nd defendant in respect of the Techson Agreement on the basis of what the plaintiffs are able to put forward at present in pleading and evidence. To allow the claim to stand would be against the principles stated in Pido and Total Lubricants cited above.
50. In respect of the conspiracy pleaded regarding the Yuen Tai Shares Agreements (§27), the 2nd defendant is alleged to be a co-conspirator with the 1st defendant in having “caused and/or procured” China Profit to enter into the “Framework Agreement”, under which the 1st defendant was to receive RMB 126.9 million from 3 companies. In plaintiffs’ Counsel’s submissions, participation of the 2nd defendant was said to take the form of “causing and/or allowing”, which is slightly at odds with the pleadings. Apart from the unparticularized and speculative allegation in paragraph 27(d) against the 2nd defendant on forgery of the chops or use of the chops without authority, no other overt act or any act of participation by the 2nd defendant in the alleged conspiracies is pleaded against the 2nd defendant.
51. There are no other particulars given on how the 2nd defendant had allegedly forged the chops in conspiracy with the 1st defendant, or that the 2nd defendant had used the Weiyuen company chops apart from the inferences invited to be drawn, as referred to in paragraph 31 above. In paragraphs 46 and 47 above, I have already set out my views on this allegation regarding the Yuen Tai Shares Agreement.
52. Mr Chan for the plaintiffs states his case to be one of conspiracy to injure and conspiracy to use unlawful means. Relying on the dicta of Chu J in Metrowell Holdings Ltd v Periwin Development Ltd & Ano [2001] 3 HKLRD 182, Mr Chan argues that as long as overt acts are pleaded, whether those acts were in furtherance of a combination or conspiratorial agreement involving the defendant is a matter of inference to be drawn from the facts pleaded. Unless the inference is impossible to be drawn, the plea on conspiracy is arguable and should not be struck out.
53. In Metrowell, the proposed amended statement of claim pleads that the defendant had acted in combination or an agreement on the basis of irresistible inference to be drawn from the circumstances.
54. In the present case, no reasonable inference, let alone irresistible inference, of an agreement between the 1st and 2nd defendants has been pleaded, nor could any be drawn from the evidence without relying on the speculative and groundless plea of knowledge against the 2nd defendant. Even if the defect in the plea of knowledge alone does not justify the striking out of the claim, the lack of a clear pleading on how the alleged knowledge is to infer an agreement between the 1st and 2nd defendants or the latter’s participation in a conspiracy would still render the claim of conspiracy defective.
55. Further, Mr Chan relies on “causing and/or allowing” the 1st defendant to enter into the Yuen Tai Share Agreements with the alleged knowledge, actual or imputed, as the act of participation in the conspiracy. On the other hand, in paragraph 27(a) of the Amended Statement of Claim, it is alleged that the 1st defendant, acting in concert 2nd defendant, had caused and/or procured China Profit to enter into the agreement. The Statement of Claim therefore pleads an overt act against the 1st defendant in respect of this agreement, but none was pleaded against the 2nd defendant.
56. In written submissions, Mr Chan relies on a clause within the Supplemental Framework Agreement (that supplements the Yuen Tai Share Agreements) which contains a guarantee to the effect that the proceeds to be received by Weiyuen Shenzhen under the Yuen Tai Share Agreements would be used to discharge outstanding debts owed to KMPG, the Provisional Liquidators. This is to infer that the 2nd defendant has a motive to act in concert in a conspiracy with the 1st defendant. However, motive or intentions are incapable of being elevated to pleading of acts of participation: Wheelock Marden.
57. I do not agree with Mr Chan that the above evidence raises “some suspicion” of the 2nd defendant’s involvement in the conspiracy. Even if the clause were to give rise to suspicion, that suspicion does not translate into an inference of any act of participation by the 2nd defendant. KPMG is not a party to the agreement. Even more importantly, according to the 2nd defendant, no debt is owed from Weiyuen Shenzhen to KPMG. Fees due to KPMG as Provisional Liquidators of China Profit are paid out of the assets of China Profit, not from the assets of Weiyuen Shenzhen, and are only payable after proper independent approval. There is no evidence to suggest any possibility otherwise.
58. I do not agree that on the pleading or the evidence, an act of participation in a conspiracy can be inferred upon an inference of a motive on the part of the 2nd defendant to act in concert with the 1st defendant in entering into the agreement said to arise from a clause in the Supplemental Yuen Tai Shares Agreement. Less still is any act of participation pleaded that is referrable to the alleged agreement between the defendants.
(iii) Pleading of an intention to injure
59. Next I turn to the complaint about the lack of the pleading of an intent to injure. The pleading is absent from the Amended Statement of Claim, although it is not disputed that it is one of the essential elements of the claim of conspiracy to insure and conspiracy to use unlawful means.
60. Given the factual circumstances of the case, and the fact that the 2nd defendant is a professional accountant who was one of the joint and several liquidators of China Profit, I find it impossible for a common intent to injure the plaintiffs to be inferred from the facts without clear and specific pleading on this element of the tort. Even for the purpose of establishing an unlawful means conspiracy, it is necessary to plead and establish an intention to injure the plaintiffs, though not a predominant intention or purpose to do so: Pido. Although intention could be a matter of inference, the facts and circumstances must be examined to see what inferences could be drawn. The formulation of the cause of action falls far short of being clear and cogent as it is required according to Pido, but is left to an exercise of drawing inferences. This would not be permissible in pleading such a claim.
61. While I am prepared to accept that Poon J in Total Lubricants only went as far as saying it is desirable, not mandatory, to have formulated draft amendments put before the court where pleadings are under attack, the absence of any formulated amendments before me only makes it even more unconvincing that the claim of conspiracy is one that can be cured by amendment, or is defective only in the lack of particulars.
62. I have considered carefully the various points of evidence highlighted by Counsel for the plaintiffs casting suspicion over the 2nd defendant’s intentions, or as being capable of giving rise to inferences of a conspiratorial agreement and the 2nd defendant’s participation in it. I do not find any of those matters assist in remedying the major defects in the absence of the necessary averments outlined above.
63. Counsel for the plaintiffs submits that the lack of particulars should not be a good enough reason for striking out the claim. This principle is well-accepted, and striking out the claim is not appropriate if the defect lies in a deficiency in particulars only. However, if the claim is built on layer upon layer of assumptions, speculations and inferences, particularly where the allegation is one of fraud, it is a completely different situation.
64. I find that what is lacking in the Amended Statement of Claim goes well beyond a deficiency in particulars, and renders the pleading without foundation, frivolous, and impossible to succeed. The absence of material averments in accordance with Pido also means that the pleading fails to properly disclose the only cause of action against the 2nd defendant.
65. Next it is urged that discovery in the action would yield evidence that would assist in remedying the defects in the pleading. However, it is trite law that a party in litigation must not be allowed to look to discovery as a means of fishing for an action if it is unable to plead a complete cause of action to begin with. In appropriate cases where justice requires it, the O 24 r 7A provides a means for a party to seek pre-action discovery in order to properly formulate its case on pleadings. I do not accept that major defects in pleadings could be absolved in the hope that a half-pleaded claim can be improved upon discovery.
CONCLUSION
66. I find the claim of conspiracy against the 2nd defendant frivolous, vexatious, and embarrassing and ought to be struck out. I also find that no reasonable cause of action was disclosed against the 2nd defendant on the Amended Statement of Claim.
67. For the above reasons, all the claims in the Amended Statement of Claim against the 2nd defendant are struck out, and the action against the 2nd defendant dismissed.
68. I will make an order nisi that the 2nd defendant shall have the costs of the action against him, including the costs of this application.
69. I thank Counsel for both sides for their able arguments.
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(Winnie Tam, SC) |
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Deputy High Court Judge |
Mr Kenneth CL Chan, instructed by Paul Kwong & Co, for the 1st and 2nd plaintiffs
Mr Jose Antonio Maurellet, instructed by Tanner De Witt for the 2nd defendant
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