GURDAS S CHOITHRAMANI v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

CACV 117/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 117 OF 2014

(ON APPEAL FROM HCA 2073 OF 2011)

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J U D G M E N T

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Hon Yuen JA:

1.  Two matters fall to be decided in this Judgment. They are set out in para. 19 below. However by reason of the rather complex history of these proceedings, it is necessary to set out a brief summary of the relevant background.

The Esquire action

2.  In HCA11077/1994, a company (“Esquire”) controlled by Gurdas S Choithramani (“GSC”) commenced proceedings in the High Court (“the Esquire action”) against a bank (“HSBC”) with which it had business. GSC was not a party to the action.  The final result was that the action was dismissed in 2006.

The 1996-2003 bankruptcy

3.  In the meantime, in 1996 GSC was adjudicated bankrupt on a petition presented by BNP.  The bankruptcy order was discharged in 2003 (“the 1996-2003 bankruptcy”).

The GSC action

4.  In HCA2073/2011, GSC commenced proceedings against HSBC (“the GSC action”).  The statement of claim was 54 pages long and after setting out various factual allegations, contained claims under 13 headings.  Although GSC and HSBC are in disagreement as to how many causes of action are contained in it, all the wrongs alleged in the statement of claim (with one exception) occurred before the 1996-2003 bankruptcy.  The exception was an allegation of “wrongful procurement of judgment” which allegedly occurred in 2006 (when the Esquire action was dismissed).

Application to strike out the GSC action

5.1.   On 17 July 2012, HSBC applied by summons to strike out the statement of claim and to dismiss the GSC action on the following grounds¹:

(1) GSC had no locus standi;

(2) the proceedings were an abuse of process;

(3) all claims (save for the “wrongful procurement of judgment” claim) were time-barred;

(4) the “wrongful procurement of judgment” claim, amongst others, was in any event barred by the rule against reflective loss.

5.2.   It should be noted that Section E of the Skeleton Submissions of leading counsel for HSBC made it clear that the term “locus standi” was used in 2 different respects:

(1) where the right of action was vested in Esquire alone (Section E1);

(2) where the right of action was vested in the OR by reason of the 1996-2003 bankruptcy (Section E2).

5.3.   However, as will be seen below², it may be that the term was understood differently in the course of oral arguments at the hearing of the strike-out summons.

5.4.   The strike-out summons was fixed to be heard before Deputy Judge Whitehead SC (“the judge”) on 28 April 2014.

GSC’s application to adjourn the strike-out summons

6.1.   Two weeks before the hearing, GSC applied for an adjournment so that he could procure the Official Receiver (“OR”), the trustee in the 1996-2003 bankruptcy, to assign to him the right to commence the GSC action, or to consent to his continuation of it.

6.2.   On 16 April 2014, Au-Yeung J dismissed the application.

6.3.   On 28 April 2014, GSC renewed the application before the judge.  It is clear from the transcript of the oral ruling that the application was again refused for unreasonable delay.

Hearing of strike-out application

7.1.   The judge proceeded to hear the strike-out application.  It would appear from the judge’s narration of counsel’s arguments that he regarded the “no locus standi” argument as being confined to the impact of GSC’s bankruptcy (Section E2), and not including the argument that the loss was suffered by Esquire alone (Section E1).

7.2.   Thus, the judge said in the Ruling of 28 April 2014 (“the Ruling”):

“3. As to ... no locus standi, Mr Fung SC, counsel for [HSBC] asserts that as the causes of action pleaded in the Statement of Claim have accrued before or upon [GSC]’s bankruptcy, that the only party who can prosecute these proceedings in respect of the purported causes of action is the [OR].

4. Mr Reynolds, counsel on behalf of [GSC] accepts that Mr Fung’s analysis is correct. The court also accepts that this is the position, and as such the Statement of Claim is bound to be struck out on the basis that [GSC] has no locus standi”.

The Ruling

8.  The judge held that:

(1) as GSC had no locus standi to commence the GSC action, the court had no jurisdiction to deal with the other issues³;

(2) even if the court did have jurisdiction to deal with the other issues, he would nevertheless decline to rule on them.  The judge’s reason was that as it was unlikely that the OR would take the matter further, there would be no justification in spending further “court time adjudicating upon issues which, in the event, may never need to be decided in order to resolve this case”⁴. 

9.  I shall discuss these rulings later in this Judgment⁵.

The Deputy Judge’s order

10.  The judge ordered:

(1) the Writ and Statement of Claim be struck out on the ground that GSC had no locus standi to pursue the claims in the action;

(2) the action be dismissed;

(3) the costs of the action, including the costs of the strike-out application, be taxed and assessed at $1,550,000 and be paid by GSC to HSBC within 28 days.

GSC’s appeal (CACV117/2014)

11.1.   GSC filed a Notice of Appeal against the judge’s order on 26 May 2014 (“the appeal”).  The grounds were subsequently amended⁶ and the current grounds may be summarized as follows:

(1) the judge had misunderstood the submission of counsel for HSBC as well as the concession of counsel for GSC in relation to which of the causes of action were vested in the OR at the time of the hearing (amended Ground 1);

(2) “even if it were correct that it is only the [OR] who can prosecute particular Causes of Action because they accrued before [GSC]’s bankruptcy and thus vested in the [OR], it would have been necessary for the Court to call for and hear full submissions upon and determine which Causes of Action (if any) were of that kind and which were not rather than proceeding on a prima facie basis with regard to the Statement of Claim as a whole without any specific enquiry into each individual impugned Cause of Action and thus striking out the entire Statement of Claim without any regard to its specific contents” (amended Ground 2).  (Emphasis added).

11.2.   In other words, the focus was not on what the judge held in respect of the causes of action that had vested in the OR, but on what the judge did not hold in respect of any causes of action that had not vested in her. 

The 2015 bankruptcy

12.1.   Shortly after the Notice of Appeal was filed however, HSBC served a statutory demand on GSC as he had failed to pay the costs pursuant to the judge’s order. 

12.2.   On 9 March 2015, a bankruptcy order was made against him.  The OR was made trustee in bankruptcy.  The bankruptcy is extant.

Directions pursuant to the 2015 bankruptcy

13.  The hearing of the appeal was stayed as the OR had just been appointed trustee in the 2015 bankruptcy.

14.1.   After lengthy but inconclusive correspondence between HSBC’s solicitors and the OR on the approach to the appeal, the court gave directions on 23 September 2016 that the appeal be restored for hearing, and that notice of hearing be given to GSC, the OR as the trustee in both the 1995-2003 bankruptcy as well as the 2015 bankruptcy, and HSBC.

14.2.   The original notice of hearing indicated that the hearing was “for directions”.  It was corrected before the hearing fixed for 14 February 2017 to reflect that the appeal was being restored for hearing. 

Hearing on 14 February 2017 - GSC’s application for adjournment

15.1.   At the hearing, Miss Margaret Ng counsel for GSC⁷, applied for an adjournment again.  She submitted that the appeal should not be heard pending:

(1) GSC’s application by summons filed on 27 January 2017 to annul the 1995-2003 bankruptcy (“the annulment application”) and failing that,

(2) GSC’s proposed application in the 1995-2003 bankruptcy for a declaration that the OR has by conduct given consent to him to commence and continue the GSC action; or alternatively, for an order that the OR do assign those proceedings to him (“the proposed assignment application”).

15.2.   In any event, Miss Ng submitted that she was not ready with submissions on the issues arising on the appeal as the original notice of hearing was said to be for directions, and she did not have sufficient time after the corrective notice to prepare for submissions on the issues arising on the appeal.

15.3.   We reserved judgment on the application for adjournment, and indicated that if the application is dismissed, the parties would have 7 days after our judgment to provide written submissions on the issues arising on the appeal.

Decision on application for adjournment

16.1.   We handed down judgment on the application for adjournment on 17 February 2017. In brief, we held that the annulment application and the proposed assignment application had come far too late.  GSC had alluded to his intention to make those applications as early as April 2014, but had delayed in making any application for more than 2½ years.

16.2.   Accordingly, we refused the application for adjournment and made an order nisi that GSC pay the costs of the application to the OR and HSBC.

Submissions on issues arising on the appeal

17.  The OR by letter dated 23 February 2017 indicated that she had no further submissions to those provided on 10 February 2017.  HSBC and GSC provided written submissions on 24 February 2017 and 27 February 2017 respectively. 

Summons to vary costs order nisi

18.1.   Shortly afterwards, on 2 March 2017 GSC applied to vary the costs order nisi of 17 February 2017, for an order that there be no order as to costs between him and the OR⁸. Directions were agreed for written submissions.

18.2.   Written submissions were provided by GSC on 8 May, by the OR on 22 May, and in reply by GSC on 29 May 2017.

Discussion

19.  This Judgment therefore deals with the following matters:

(1) issues arising on GSC’s appeal from the judge’s Ruling given on 28 April 2014; and

(2) GSC’s application to vary the costs order nisi in our Judgment of 17 February 2017.

(1)   Issues arising on GSC’s appeal from the Ruling

20.1.   GSC’s counsel contended that, notwithstanding the 1996-2003 bankruptcy, he had locus standi to pursue 2 causes of action against HSBC:

(a)   wrongful procurement of the 1996-2003 bankruptcy, causing him loss of business reputation, which is personal to him and is not vested in the OR as the trustee in bankruptcy;

(b)   wrongful procurement of the judgment against Esquire which occurred in 2006, after the date of the 1996-2003 bankruptcy.

20.2.   HSBC’s solicitors submitted that, although the Ruling did not contain any discussion on these contentions, the judge must have examined the individual causes of action in the statement of claim and must have satisfied himself that each one was bad. 

20.3.   With respect, I do not agree that the judge had considered these arguments before making the Ruling.  If that had been the judge’s approach, he would not have expressed himself in the way he did in the Ruling.  In para. 3, he referred to an argument (attributed to HSBC’s leading counsel) that the OR was “the only party who can prosecute” the GSC action, and in para. 4, he explicitly accepted that position after the “concession” of lack of locus standi by GSC’s counsel.  Clearly the judge understood the “concession” to have covered all the claims in thestatement of claim, for it led to his view (in para. 7) that the court had no jurisdiction to deal with the other issues.  He also declined to exercise his discretion (assuming he had it) by taking into account the position of only the OR (paras. 9-12).     

20.4.   As for the disagreement between the parties now as to what was understood (or misunderstood) by counsel and/or the judge, in my view it is not constructive to trawl through the transcript to see whether the judge’s understanding of counsel’s concession was correct or not, because in any event concessions of law can be withdrawn⁹. Instead, it would be a more efficient use of the court’s resources for us to consider Miss Ng’s arguments substantively.

(a)   “Wrongful procurement of bankruptcy, causing loss of business reputation”

21.1.   In respect of (a), it is submitted on behalf of GSC that the cause of action is “wrongful procurement of bankruptcy, causing loss of business reputation”.  It is submitted that this has been pleaded in paras. 209 and 211 - 214 of the statement of claim. 

21.2.   Para. 209 pleaded that by reason of HSBC’s wrongdoing, Esquire was unable to pay its debts and went into liquidation.  Para. 211 pleaded BNP’s proceedings against GSC as guarantor of Esquire’s debts to BNP, para. 212 pleaded BNP’s petition for his bankruptcy, para. 213 pleaded the bankruptcy order and para. 214 pleaded that by reason of the bankruptcy, GSC’s business reputation was irrevocably harmed, whereby he lost the opportunity to derive any substantial income. 

21.3.   Reliance was placed on Wilson v United Counties Bank Ltd¹⁰.  In that case, a bank had an agreement with a customer who was going abroad on military service.  The agreed questions put before the jury included the following question¹¹:

Did the bank agree with the customer that

(a) the manager would generally supervise the customer’s business and see it carried on, and in particular the financial side thereof?

(b) the bank would take all reasonable steps to maintain the customer’s credit and reputation and that the customer could rely on the bank to look after his financial affairs?       

21.4.   The jury found that there was such an agreement and that due to the bank’s negligent management, the customer became bankrupt. 

21.5.   The customer and his trustee in bankruptcy sued the bank.  Their causes of action were for breach of contract.  The jury awarded a sum of money to the customer’s estate in bankruptcy, and a separate sum to him personally for his loss of credit and reputation.  

21.6.   The jury’s award was upheld by the Privy Council.  Lord Birkenhead LC held that as a result of the “peculiar language of the agreement”¹², “the express obligation of the [bank] to maintain the credit of [the customer] as a trader”¹³, that the breach was actionable and the customer had a right of action separate from that of his trustee in bankruptcy.

21.7.   Viscount Finlay held¹⁴:

“It is clear that the fact of bankruptcy must injure the credit of the person made bankrupt apart from damage to the estate. In an action for negligence against a solicitor leading to the bankruptcy of his client, even if owing to fortuitous circumstances, the estate had not been damaged, it seems on principle that the jury might give substantial damages for injury to the credit of the person made bankrupt. For a libel falsely imputing bankruptcy to the plaintiff, damages might be recovered in respect of injury to his credit. It is difficult to see on what principle such damages might not be given if there had been an actual bankruptcy as the result of breach of contract on the part of the defendant to take steps to prevent it. If the imputation of bankruptcy would give a right to such damages in an action for libel, why should not the fact of the bankruptcy owing to the defendants’ breach of duty confer a similar right upon the plaintiff?” (Emphasis added).

21.8.   Lord Atkinson held¹⁵:

“The difficulty involved in this question arises from the fact that the same breach of contract, the neglect of the [bank] to take reasonable steps to maintain [the customer]’s credit and reputation, caused loss to his estate, and at the same time, inflicted upon him as a trader (for it was in reference to his trade and business the contract was entered into) pain and humiliation and loss of credit and repute”. (Emphasis added)

22.  In my view it is clear from the judgment in Wilson that the customer’s cause of action was for breach of contract, viz. part (b) of the agreement.  In making that agreement to “maintain his credit and reputation”, the bank undertook an obligation to his “person”, not his property.  Because of the character of that obligation, its breach¹⁶ gave rise to a cause of action which did not vest in the trustee in bankruptcy.

23.  By contrast, I cannot see any obligation to GSC’s “person” (as distinguished from any obligation to his property) which was owed to GSC by HSBC, the breach of which gave rise to a cause of action.  There is no pleading of an agreement whereby HSBC undertook an obligation to “maintain credit and reputation”, of the peculiar nature found in Wilson.  There is no pleading of a personal tort such as defamation.  GSC has only pleaded causes of action against HSBC affecting his property, such as conversion (Headings 6 and 11), breach of implied terms of the Restructuring Agreement to which he was a party (Heading 12), and breach of fiduciary duty (Heading 13), but these are causes of action which are vested in the OR.  It is insufficient simply to plead that the bankruptcy has caused the alleged loss of business reputation, for there is no pleading of any obligation owed to his “person”, the breach of which caused the bankruptcy. 

24.  Miss Ng submitted that “causation would be readily apparent”¹⁷, but the primary difficulty lies in the identification of an obligation which bears the character of being owed to his “person”.  None has been advanced in the submissions and no draft amendments to the Statement of Claim have been proffered.  Accordingly there is no ground for acceding to the request that leave be granted to amend the statement of claim to correct defects in it¹⁸.

25.  Accordingly, I take the view that the judge would have struck out this cause of action had he adjudicated upon it. 

(b)   Wrongful procurement of judgment

26.  This can be dealt with briefly, such that it is not necessary for us to even consider the question whether this is a cause of action which has now vested in the OR as trustee in the 2015 bankruptcy. 

27.  The judgment referred to as a cause of action against HSBC is the judgment against Esquire in the Esquire action.  GSC was not a party to that action. Consequently if the judgment in that action was procured wrongfully, the party to sue in respect of that wrong would be Esquire.  Any loss allegedly suffered by GSC would be merely reflective loss for which generally no action would lie.  This was established in Johnson v Gore Wood & Co¹⁹, referred to in HSBC’s submissions before the judge²⁰. It has not been addressed in Miss Ng’s submissions for GSC. 

28.  Accordingly, I take the view that the judge would also have struck out this cause of action had he adjudicated upon it. 

Order

29.  I would dismiss the appeal with an order nisi that GSC should pay the costs of the appeal.

(2)   GSC’s application to vary the costs order nisi of 17 February 2017

30.1.  It was submitted on GSC’s behalf that he should not be liable for the OR’s costs, although he accepted he should be liable for HSBC’s costs.  The reason given was that it was because the OR and HSBC were unable to agree on the approach to the appeal that it was necessary for the court to restore the hearing.  In any event, it was submitted, it was not necessary for the OR to instruct senior counsel.

30.2.   With respect, the time fixed for the hearing on 17 February 2017 was taken up by GSC’s late (and unsuccessful) applications to adjourn the hearing. Having said that, I agree that it was not necessary for senior counsel to be instructed and this view will no doubt be reflected in the taxation of costs, if there should be one. 

31.  Accordingly, I would dismiss the summons, and the costs order of 17 February 2017 is therefore absolute.  As an application to vary a costs order nisi is regarded as part of the working out of the order, the costs incurred in the summons would be treated as part of the costs of 17 February 2017.

Hon Kwan JA:

32.  I agree with the judgment of Hon Yuen JA.

Hon Poon JA:

33.  I agree with the judgment of Hon Yuen JA.