HEALTHY PEACOCK LTD v. JAN G.W. BLAAUW AND OTHERS

IN THE HIGH COURT OF THE HONGKONG SAR

COURT OF FIRST INSTANCE

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REASONS FOR JUDGMENT

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1. On 5^th May 1999, I allowed the appeal from the Master's order striking out paragraph 30 and prayers 1 and 2 of the Statement of Claim and I now give my Reasons.

2. The Plaintiff is the owner of a property mortgaged to the Chase Manhattan Bank. The Plaintiff was in default and the Mortgagee Bank pursuant to the power given under the Mortgage appointed the Defendants Receivers. The Defendants are accountants. The property was sold by the Defendants and there was after the sale a surplus of some $21 million. This was in July 1997. But instead of paying all or most of the $21 million to the Plaintiff, the Defendants informed the Plaintiff that they would need another two months to terminate the receivership and that only $16 million would be paid to the Plaintiff and that the Defendants would be retaining $5 million odd, of which $2 million odd as reserve for costs and $3 million odd for contingencies. The Plaintiff objected to all this, saying the receivership should have been terminated and asked for payment and accounts and documents in support of accounts. On 31^st July 1997 the Defendants paid the Plaintiff some $16 million odd while retaining in excess of $5 million. There was further correspondence in which inter alia the Plaintiff informed the Defendants that accounts and documentation and information requested were required for the annual audit and the Tax authorities. There were further correspondence leading to the payment of $1 million on the 7^th of February 1998 and enclosing a 2^nd account which showed that $2.5 million had been charged by way of legal and professional fees and $3 million odd was retained by the Defendants. There was further correspondence with the Plaintiff demanding payment of money retained while the Defendants tried to justify their position. On 9^th of April 1998, the Plaintiff issued the Writ endorsed with Statement of Claim. In essence the Plaintiff sought 2 orders from the Court namely one that the Defendants pay the Plaintiff the $3 million odd retained and two that there should be a declaration that the Defendants indemnify the Plaintiff for all penalties which might be levied or charged by the tax authorities on the Plaintiff by reason of the Plaintiff failure to summit the Plaintiff's financial statements before 31^st January 1998 due to the actions and omission of the Defendants.

3. The Defendants did not file a Defence to the Statement of Claim and incredibly even now some one year after the Writ there is no Defence filed by the Defendants. Instead the Defendants did three things, first it paid $2 million to the Plaintiff which would suggest that the Plaintiff was right in launching the Action for payment of the $3 million odd. Secondly it increased the alleged legal and professional fees by some $1.2 million (letter of 20^th June 1998) and thirdly it issued a Summons on the 18^th of July 1998 to strike out paragraph 30 of the Statement of Claim and prayers 1 and 2.

4. The Summons to strike out was heard on the 4^th January 1999 but prior to the hearing, the Plaintiff as a matter of precaution took out a Summons to amend the Statement of Claim to add paragraphs 31-33 and two new prayer basically with an additional and alternative claim for the ordering of an accounts by the Court and for the payment upon the taking of the accounts. Master Kwan on the hearing of the two Summons acceded to the strike out application and also granted the leave to amend the Statement of Claim. The result is that therefore of the three causes of action or three claims of the Plaintiff:-

the Master struck out 1 ("Payment Claim") and 2 ("Indemnity Claim") and allowed the addition of 3 ("Accounts Claim"). I am informed that at the hearing of the appeal, the Master took the practical approach and was persuaded that as the receivership was not terminated and would go on so that by the time the Action would be tried, there would be nothing left of the remaining $200,000 odd in the hands of the Defendants decided there was no point in retaining the Payment Claim. As for striking out of the Indemnity Claim apparently the same practical approach was taken by the Mater at the urging of the Defendants.

5. I must say that I do not agree with the approach of the Master as it is no business of the Court to take practical approach which in fact terminated what are perfectly arguable claims of the Plaintiff. It is dangerous for a Court or Tribunal to be beguiled by the sophistry of lawyers appearing for the Defendants. It cannot be doubted that the Defendants, even after having paid post Writ another $2 million, has retained some $1 million odd. The right of the Defendants to charge under their 3 Invoices some $1.8 million was in serious contention and I do not see how in these circumstances, it would be right for the Master to dismiss the Plaintiff Payment Claim. But in any event the right to $200,000 was in dispute. The non logical argument that because $200,000 would be spent by the Defendants further in the continuing receivership ignores the Plaintiff's point that receivership ought to have been terminated a long time ago. In my judgment, regrettably the Master failed to have regard to the fundamental nature of all strikeout applications, that it is only in the most plain and obvious case that the court should or could make an order of strikeout. This is neither a plain nor obvious case and the striking out of the Payment Claim was wrong. As for the striking out of the Indemnity Claim, it is equally indefensible. There was no evidence filed by the Defendants to say that the concern of the Plaintiff of penalty by the tax authorities is without any basis or that in the circumstances, the tax authorities would not impose any penalty and that therefore there was no further basis for the Indemnity Claim. It is not for the Master on a strikeout application and without proper evidence to make the drastic order of striking out.

6. It follows therefore that the appeal of the Plaintiff must be allowed with costs here and below.