HCMP000769/2002
HCMP769/2002
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO.769 OF 2002
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IN THE MATTER OF Order 88 of the Rules of the High Court
AND
IN THE MATTER OF the property known as No.11 Changsha Street, Kowloon (all those portion of Kowloon Inland Lot No.7339)
AND
IN THE MATTER OF a Debenture dated 29 October 1999
AND
IN THE MATTER OF a Tenancy Agreement dated 20 October 2001 made between Labour Buildings Limited and China States Limited
AND
IN THE MATTER OF a Sub-Lease dated 16 November 2001 made between China States Limited and Hongkong International Fraternity Association of Heilongjiang Limited
AND
IN THE MATTER OF a Sub-Lease dated 22 November 2001 made between China States Limited and Chance Land International Limited
AND
IN THE MATTER OF a Sub-Lease dated 19 November 2001 made between China States Limited and Yim Shui Fong
AND
IN THE MATTER OF a Sub-Lease dated 28 November 2001 made between China States Limited and Invest China Limited
AND
IN THE MATTER OF 2 Sub-Leases respectively dated 23 January 2002 and 29 January 2002 made between China States Limited and World Honest Holdings Limited
AND
IN THE MATTER OF a Sub-Lease dated 29 January 2002 made between China States Limited and Daisy Decorative Tin (Hong Kong) Limited
AND
IN THE MATTER OF a Sub-Lease dated 29 January 2002 made between China States Limited and South Metal Construction
AND
IN THE MATTER OF a Sub-Lease dated 5 February 2002 made between China States Limited Christian Cornerstone Church
AND
IN THE MATTER OF a Sub-Lease dated 9 February 2002 made between China States Limited and Maltese Music Art And Education Centre
AND
IN THE MATTER OF a Sub-Lease dated 29 January 2002 made between China States Limited and Lau Shut Hon
AND
IN THE MATTER OF 2 Sub-Leases respectively dated 9 February 2002 and 21 February 2002 made between China States Limited and Cosmo Energy International (HK) Limited
AND
IN THE MATTER OF a Sub-Lease dated 28 February 2002 made between China States Limited and Idealtours Centre Limited
AND
IN THE MATTER OF a Sub-Lease dated 27 February 2002 made between China States Limited and Golf (China) Limited
AND
IN THE MATTER OF a Sub-Lease dated 1 March 2002 made between China States Limited and Sasa Bridal Salon Company
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BETWEEN
THE BANK OF EAST ASIA, LIMITED
Plaintiff
AND
LABOUR BUILDINGS LIMITED
1st Defendant
CHINA STATES LIMITED
2nd Defendant
HONGKONG INTERNATIONAL FRATERNITY ASSOCIATION OF HEILONGJIANG LIMITED
3rd Defendant
CHANCE LAND INTERNATIONAL LIMITED
4th Defendant
YIM SHUI FONG
5th Defendant
INVEST CHINA LIMITED
6th Defendant
WORLD HONEST HOLDINGS LIMTIED
7th Defendant
DAISY DECORATIVE TIN (HONG KONG) LIMITED
8th Defendant
SOUTH METAL CONSTRUCTION (a firm)
9th Defendant
CHRISTIAN CORNERSTONE CHURCH
10th Defendant
MALTESE MUSIC ART AND EDUCATION CENTRE (a firm)
11th Defendant
LAU SHUT HON
12th Defendant
COSMOS ENERGY INTERNAITONAL (HK) LIMITED
13th Defendant
IDEALTOURS CENTRE LIMITED
14th Defendant
GOLF (CHINA) LIMITED
15th Defendant
SASA BRIDAL SALON COMPANY (a firm)
16th Defendant
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Coram: Deputy High Court Judge Muttrie in Chambers
Date of Hearing: 19 April 2004
Date of Ruling: 27 April 2004
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R U L I N G
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1. The plaintiff applies for an "unless" order for the 1st and 2nd defendants to give further and better particulars of their Defence and Counterclaim, or in default for the Defence and Counterclaim to be struck out and judgment entered for the plaintiff; or in the alternative that such parts of the Defence and Counterclaim as the court thinks fit be struck out.
2. The plaintiff claims against the 1st defendant for money lent on the security of a debenture incorporating a mortgage and a floating charge made between the parties in 1999. The loan secured thereby was intended partly to re-finance a loan made under a similar debenture and mortgage in 1997. The sum sued for is in excess of $47 million plus interest. The property mortgaged is 11 Changsha Street, Kowloon. The plaintiff seeks payment or in default delivery of possession of the property. The 2nd defendant is sued as an unauthorised tenant and/or occupier of the property and the plaintiff seeks delivery of possession and mesne profits. The other defendants are sued as unauthorised sub-tenants and/or occupiers and again the plaintiff seeks possession and mesne profits.
3. The defence of the 1st and 2nd defendants is primarily that the debentures are void and not binding on them as being ultra vires of the 1st defendant's power to borrow money, under its Memorandum and Articles, and this was known to the plaintiff. The defendants also aver that in granting the original banking facilities to the 1st defendant in 1997 the plaintiff acted in concert with the directors and those in control of the majority shareholder of the 1st defendant, one APH Hong Kong Ltd, to the detriment of the 1st defendant, and acted in assisting breach of duties by the directors, and that the 1997 debenture came about as a result of an act of concert by the plaintiff and the directors.
4. The further and better particulars relate to these latter averments. The particulars sought are Items Nos. 10,11, 17, 18, 21, 22 and 25 of the request originally made on 31 July 2003, annexed to the plaintiff's summons dated 19 August 2003 and ordered to be given by the order of Master Woolley dated 10 September 2003. By that order the 1st and 2nd defendants had 21 days to give the particulars which they did not. An "unless" order allowing seven days was made on 31 October 2003 and the particulars were filed on 27 November 2003. The plaintiff through solicitors claimed that the particulars served failed to answer the requests numbered above but the defendants did not respond and so the plaintiff took out the summons now before me.
5. Paragraph 27 of the Defence and Counterclaim reads :
"In purporting to grant the banking facilities to the 1st defendant under the 1997 debenture, the Plaintiff acted in concert and with the then directors of the 1st Defendant and those in control of APH to the detriment of the 1st Defendant and has also acted in assisting the breach of fiduciary duties by the then directors of the 1st Defendant.
PARTICULARS
(b) The Plaintiff acted in concert with the 1st defendant's then directors and those in control of APH by entering into the 1997 Debenture and by actually purporting to release funds in pursuance of the terms of the 1997 Debenture."
6. By Item Nos.10 and 11 of its Request the plaintiff referred to the opening of Paragraph 27 and asked whether the plaintiff was alleged to have acted in concert with the directors and those in charge of APH and, if the answer was in the affirmative, whether the agreement was made orally in writing; if orally, the defendants were asked to give particulars of where, when and between whom the agreement was made, etc., and if in writing, they were asked to identify the relevant documents.
7. The 1st and 2nd defendants' reply was :
"10. Not entitled. This Request is interrogational in nature and further is a request for evidence by which the relevant facts are to be proved. The 1st and 2nd Defendants refer to Order 18, Rule 7(1) of the Rules of the High Court.
11. Not Applicable."
8. By Item Nos.17 and 18 the plaintiff requested particulars in respect of the Particulars at (b) in Paragraph 27 in identical terms. The 1st and 2nd defendants' reply was also in identical terms to their reply above.
9. The plaintiff referred to part of Paragraph 30 of the Defence and Counterclaim which reads :
".... the 1999 Debenture was the result of an act of concert on the part of the Plaintiff and the directors of the 1st Defendant when both of them knew or ought to have known that this was not bona fide for the benefit of the 1st Defendant and was an act in breach of the fiduciary duties of the directors of the 1st Defendant;
...."
10. By Item Nos.20 and 21 the plaintiff sought similar particulars to those sought in Item Nos.10 and 11, 17 and 18. The 1st and 2nd defendants' reply was in identical terms to those given above.
11. The plaintiff referred to part of Paragraph 34 of the Defence and Counterclaim which reads :
"The 1st Defendant avers that the payments were made under the mistaken belief that the 1st Defendant was bound by the 1997 Debenture and was liable to repay the Plaintiff the monies allegedly due to Plaintiff under the 1997 Debenture."
12. The plaintiff requested the defendants to state the overt acts and all other facts relied on to support the allegation that the 1st defendants had the mistaken belief alleged. The defendants replied that they relied on Paragraphs 9 to 13 of their Defence and Counterclaim. Those paragraphs contain the averments as to the invalidity of the 1997 Debenture.
13. I will deal with the last item first. The plaintiff says that the answer is illusory and does not provide the information requested because the paragraphs referred to only tend to support the allegation that the debenture was not binding, but does not tend to show that the 1st defendant had the mistaken belief that it was bound thereby. The defendants argue that they can say no more, because if the 1997 debenture was void and not binding, any repayment made under it must have been made under the mistaken belief that there was a legal obligation to pay. I think this must be right. On the face of it the debenture binds the 1st defendant. I do not see what overt act or other fact could be pleaded. Either the 1st defendant through its officers believed the debenture was binding, or they did not and no doubt they will at trial say that they did. At trial, either the debenture will be found to be binding or it will not. If it was not binding then the belief was mistaken.
14. The other items all relate to the plaintiff having acted in concert with the directors of the 1st defendant and others pursuant to some agreement. Acting in concert necessarily requires agreement. In effect the defendants seek to say that there was an agreement between some unknown official of the plaintiff and some unknown directors of the 1st defendant, and those in control of APH to assist the former in breach of their fiduciary duties, both sides knowing that the transaction was not bona fide for the benefit of the 1st defendant and was an act in breach of the fiduciary duties of the directors of the 1st defendant. There are also averments which go to the state of mind of the plaintiff and suggest dishonesty though these, being in the form of what the plaintiff "knew or ought to have known" are unsatisfactory. An allegation that a party "knew or ought to have known" is not a clear and unequivocal allegation of actual knowledge and will not support a finding of fraud; see Armitage v. Nurse [1998] Ch. 241.
15. What is averred here is a conspiracy to defraud even though the words "conspiracy" and "fraud" have not been used. Fraud must be distinctly pleaded, with the utmost particularity. It is not allowable to leave fraud to be inferred from the facts. Per Barker JA in Marquis Trading Co. & Ors v. Associated Bankers Insurance Co. Ltd & Ors [1982] HKLR 434 at 439-440 :
"In the notes to Order 18 rule 8 of the Annual Practice 1982, the following appears at 18/8/4 'Any charge of fraud or misrepresentation must be pleaded with the utmost particularity'. I agree. As Thesiger, L.J. said in Davy v. Garrett [1877] 7 Ch.D. 473 at p. 489:
'In the Common Law Courts no rule was more clearly settled than that fraud must be distinctly alleged and as distinctly proved and that it was not allowable to leave fraud to be inferred from the facts'.
In Bullen and Leake and Jacob's Precedents of Pleadings, Twelfth Edition the following appears at p. 341 'The Statement of Claim (i.e. in a case where the plaintiff is alleging conspiracy to defraud) should describe who the several parties are and their relationship with each other. It should allege the agreement between the defendants to conspire and state precisely what was the purpose or what were the objects of the alleged conspiracy, and it must then proceed to set forth, with clarity and precision, the overt acts which are alleged to have been done by each of the alleged conspirators in pursuance and in furtherance of the conspiracy....
... I must advert to the argument, oft reiterated by Counsel for the defendants, that... the defendants have pleaded the best particulars of fraud they can on the information available to them. The answer to this argument is that if the defendants do not have at their disposal sufficient information to plead fraud with proper particularity, they ought not to plead it at all.'"
16. The same principles were set out by Bokhary JA, as he then was, in Aktieselskabet Dansk Skibsfinansiering v. Wheelock Marden & Co. Ltd [1994] 2 HKC 264 at 270.
17. Here there is no specification as to who the conspirators were, although one would have thought that the identities of the directors who dealt with the plaintiff, and the plaintiff's officers who dealt with them could be discovered from the 1st defendant's own internal documents at the very least. There is a blank refusal to plead what the agreement was, by whom it was made or how it came into being. It appears that the defendants are seeking to leave fraud to be inferred from the facts.
18. The 1st and 2nd defendants have therefore not complied with the order of Master Woolley which required each of the requests to be answered. There is an "unless" order in place so I accept the argument put forward for the plaintiff that the proper course is to strike out Paragraphs 27 and 30 of the Defence, to which these requests relate.
19. There will accordingly be an order that Paragraphs 27 and 30 of the Defence be struck out.
20. As to costs, the plaintiff seeks gross sum costs and that these should be awarded on the indemnity basis because of the 1st and 2nd defendants' contumelious refusal to comply with the orders for further and better particulars. The original order was made on 10 September 2003 and an "unless" order was made on 31 October 2003. A skeleton bill has been put before me showing profit costs of $104,760.00 and disbursements of $32,862 and I am in effect invited to award the plaintiff the whole of those sums.
21. There must be some special or unusual feature to justify an order for indemnity costs : see Sung Foo Kee Ltd v. Pak Lik Co. [1996] 3 HKC 570. I do not think there is such a feature here. I do not see that there is contumely here. The 1st and 2nd defendants took a view which turned out, on my finding to be wrong. There is nothing special or unusual in that. The plaintiff must have the costs of the summons but the order must at the same time reflect its failure in respect of the request relating to Paragraph 34. In my view it is obvious that the further and better particulars sought are not necessary. So there must be some reduction in the costs to reflect this. In the circumstances I think it better that the costs be taxed rather than that a gross sum order be made. I order that the plaintiff be awarded 75% of its costs, to be taxed if not agreed.
(G.P. Muttrie)
Deputy High Court Judge
Representation:
Mr Steven Kwan, instructed by Messrs Deacons, for the Plaintiff
Mr Kenneth Lee, instructed by Messrs David W.T. Chan & Co., for the 1st and 2nd Defendants
Appeal by the 1st and 2nd Defendants to Court of Appeal. Appeal dismissed. Please refer to CACV138/2004.
Appeal dismissed: see CACV138/2004 dated 12 November 2004