RAMADA PACIFIC LTD v. CHINA TRADE-OMNI DEVELOPMENT CENTRE LTD AND ANOTHER

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JUDGMENT

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Fuad, V.-P.:

1. This is an interlocutory appeal by the plaintiff in this action against a decision reached by Nazareth, J. on 11th July 1989 on its application for summary judgment under R.S.C. O.14. The plaintiff, Ramada Pacific Limited, is a company incorporated in Hong Kong and carries on business as a developer and manager of hotels. The 1st defendant, China Trade-Omni Development Centre Limited, is also a company incorporated under the Companies Ordinance and is in the hotel development business. The 2nd defendant, Mr. (Tony) Fung Tak Shing, is a director of the 1st defendant and effectively runs the company.

2. The 1st defendant company and a Chinese organisation called the China Youth Travel Service ("CYTS") entered into a joint venture to build an hotel in Guilin. The vehicle for the joint venture arrangement was a company incorporated in China under the name Guilin Garden Hotel, the 1st defendant and CYTS having a 50% share each in the ownership of the hotel. On 15th April 1986 the joint venture company entered into a management agreement relating to the hotel with Ramada International Inc., a Delaware Company associated with the 1st defendant.

3. On 30th May 1986, the plaintiff entered into a loan agreement with the 1st defendant to provide certain finance for the latter's joint venture obligations, and by a guarantee in writing of the same date, Mr. Tony Fung unconditionally guaranteed to pay the plaintiff on demand all sums due and payable by the 1st defendant under the loan agreement whether by acceleration or otherwise.

4. On 9th August 1988 the plaintiff issued a writ against the two defendants which was endorsed with a Statement of Claim. The Statement of Claim sets out the essential terms of the loan agreement relied upon and how the loan was to be repayable as well as the consequences of any act of default. It goes onto aver that between 18th September 1986 and 20th March 1987 sums totalling US$2,200,000 were advanced to the 1st defendant under the loan agreement by the plaintiff. The Statement of Claim then avers that in breach of the terms of the loan agreement the 1st defendant failed to pay sums of interest which were due by the 30th September 1987 and 29th March 1988. It is then pleaded that in accordance with the terms of the loan agreement the plaintiff, by notice in writing addressed to the 1st defendant, declared the whole amount of the loan then outstanding (US$2,200,000) to be immediately due and payable as well as the sum of US$5,000 accrued interest and other costs and expenses claimable under the loan agreement. The total sum said to be due as at 15th April 1988 and claimed in the action was therefore US$2,386,845.33.

5. The terms of the guarantee undertaken by Mr. Tony Fung is then pleaded and the fact that he failed to pay the sum due under the loan agreement by the principal debtor despite a demand in writing.

6. On 27th September 1989 the defendants filed their defence and counterclaim. In effect, this pleading admitted the material facts alleged by the plaintiff in its Statement of Claim and the defences which were put forward were set-offs. The pleading purported to add further parties to the action - CYTS and the Guilin Garden Hotel were joined as co-plaintiffs by counterclaim, and Ramada International Inc., the original plaintiff's associate company, was joined as a defendant by counterclaim.

7. We were informed that this pleading was the mirror image of the Statement of Claim filed in High Court Action 5341 of 1988. In the Statement of Claim in that action filed on 27th September 1988, the 1st defendant in this action sued as the 1st plaintiff, CYTS as the 2nd plaintiff and the Guilin Garden Hotel was the 3rd plaintiff. The defendants in that action were Ramada International Inc. and Ramada Pacific Limited. We have also been told that these proceedings have effectively been stifled by a number of successful interlocutory applications and to some degree this explains the delay in issuing the application for summary judgment under O.14 by Ramada Pacific Limited in the present action.

8. It seems reasonably clear why additional parties were purportedly joined in this way; it does not appear that the defendants in this action themselves had a cause of action against the plaintiff under the averments made in the defence and counterclaim. There were also a number of allegations in the counterclaim which depended on alleged breaches of contractual obligations between parties other than those in this action.

9. The next thing which happened was that on 28th October 1988 Ramada Pacific Limited successfully applied to a Master for an order that CYTS and the Guilin Garden Hotel should be struck out as plaintiffs by counterclaim on the grounds that the relevant Rules of Court had not been complied with. Then on 4th April 1989 Mayo, J. granted the defendants leave to withdraw their counterclaim, the application not being objected to by the plaintiff. At the same time the defendants had sought leave from Mayo, J. to amend their defence by incorporating most of the abortive counterclaim but leave was refused.

10. It seems that the effect of Mayo, J.'s decision was that the defendants were left with a pleading which contained a bare denial of the right of the plaintiff to claim repayment of the loans and so it was that on 11th April 1989 Ramada Pacific Limited issued its application for summary judgment under O.14. I would mention here that on 2nd May 1989 the defendants filed an application seeking leave to appeal out of time to the Court of Appeal against Mayo, J.'s order of 4th April refusing leave to amend their defence but this was rejected by the single judge (Macdougall, J.A.) on 12th June 1989.

11. Somewhat unusually perhaps, while the application for leave to appeal to the Court of Appeal was pending, on 6th May 1989, the defendants took out another summons for leave to amend their defence. It was explained to us that the draft pleading attached to that application contained a number of mistakes and was superseded by another draft of a pleading which was the one placed before Nazareth, J. at the hearing of the plaintiff's summons under O.14. The judge heard the application for leave to amend the defence at the same time as he dealt with the summary judgment summons.

12. The hearing before Nazareth, J. out of which this appeal arises took place on 4th, 5th and 6th July 1989 and the learned judge delivered a reserved judgment on 11th July. The judge noted the simplicity of the plaintiff's case and that the defendants did not deny the averments that the plaintiff had advanced monies to the defendants under a loan agreement, that the defendants had defaulted in payment of interest and that therefore the plaintiff was entitled under the agreement to repayment of the amounts advanced together with interest but, in the judge's words "[the defendants] plead and seek leave to plead in defence cross-claims and also a counterclaim for damages arising out of a conspiracy to injure them and also of breach of the loan agreement by both delay and failure in making tranches of the loan available."

13. The judge then observed that there had initially been some question as to precisely what was the nature of the conspiracy and breaches of contract alleged, however, these matters had in his view been made sufficiently clear because of the contents of a further affirmation made by Mr. Tony Fung and produced to the Court at the hearing on 5th July. The judge acknowledged that Mr. Bunting had what he called "prima facie plausible grounds" for his contention that the defence put forward was shadowy for it seemed inherently improbable that an international hotel organisation would be party to a conspiracy to ruin the part-owner or developer of a major hotel which it was to manage and for which its wholly owned subsidiary was providing substantial finance notwithstanding the alleged motive put forward which was to secure a longer tenure of management and better terms.

14. The judge added:

"Likewise, the discovery of evidence of the conspiracy which it was conceded up to then was a matter of suspicion, only days after Mayo, J. refused leave to amend seems rather too much of a coincidence. There was simply no real evidence at all of the alleged conspiracy."

15. The judge then reviewed the contents of Mr. Tony Fung's affirmation of 5th July which he said transformed the position and came to the conclusion that the defendants' allegations had sufficiently seen verified, contrary to the arguments being advanced at that time by Mr. Bunting.

16. The judge went on to deal with Mr. Bunting's submission that the defence was shadowy and a sham. He remarked again that the situation had been transformed by the contents of Mr. Tony Fung's second affirmation. The judge then observed:

"To dismiss that evidence deposed to on oath, albeit in an oblique though adequate way, would require the credibility of the evidence to be determined, and that is a matter for trial not O.14 proceedings. Likewise, notwithstanding the prima facie improbability of international organizations like Ramada conspiring in the manner alleged, the fortuitous timing of the discovery of evidence, the oblique verification of the allegations and, what I have not already mentioned, the apparent inflation on a gross scale of certain items of damage, I find myself unable in all the circumstances to conclude that the defendant's defence and counterclaim is not bona fide. For those reasons the plaintiff's O.14 application must fail."

17. Turning then to the defendants' application for leave to amend, the judge said that in the light of the conclusions he had reacned when rejecting the O.14 application, their application for leave must be granted on ordinary principles unless there was some good reason for not doing so. It was therefore only necessary to address the omission in the proposed amendment to plead a predominant intention to injure the defendants which Mr. Bunting had submitted was essential upon the authority of Metall und Rohstoff A.G. v. Donaldson Lufkin and Jenrette Inc. and Another [1989] 3 WLR 563.

18. The learned judge concluded his judgment as follows:

"I do not propose to canvass the matters and authorities so fully reviewed in that judgment. I find it difficult to fault that conclusion which requires the intent to injure to be pleaded as the sole or predominant purpose. This, the proposed amendment does not do, on the contrary, it pleads the intent to injure and cause loss to Omni and Tony Fung and to benefit the conspirators themselves. This does not meet the requirements of the tort of conspiracy which the Court of Appeal in the Rohstoff case so clearly held to be necessary. In those circumstances, I must refuse leave to plead the conspiracy in that way. The same difficulty does not arise in relation to the pleading of a breach of contract in relation to the soft opening agreement (and which is also strengthened by the allegation of conspiracy in the affidavit of 5th July) and I would be disposed to grant leave for that.

 

            How those conclusions will be resolved remains to be seen. There will accordingly be liberty to apply as to the form of amendments to be made in pursuance of the limited leave I would grant. As to whether that leave should be conditional or not, I indicated to the parties I would hear submissions. Also as to costs I will also hear counsel."

19. With very great respect to the learned judge, I am bound to say that I find it difficult to understand precisely what order he intended to make. Part of the difficulty may have arisen in view of the fact that he dealt with the application for summary judgment under O.14 and the defendants' application to amend their pleading at the same time. In relation to the O.14 application, as we have seen, the judge said " ...... For those reasons the plaintiff's O.14 application must fail" and the order drawn up as a result of his decision had it that "The plaintiff's summons dated 11th April 1989 be dismissed".

20. The practice on an O.14 summons is clearly set out in the White Book 1988 and I have particularly in mind paragraph 14/3-4/1 at p.139. If summary judgment is not given for the plaintiff then leave to defend is given either conditionally or unconditionally. As re-stated in O.14, r. 7 and explained in paragraphs 14/7/1 to 14/7/5, applications under O.14 fall to be dismissed if the application relates to a case which is not within the Order or if it appears that the plaintiff knew that the defendant relied on a contention which would entitle him to unconditional leave to defend.

21. It seems to me that the whole matter has been left rather in the air but it is understandable that Mr. Bunting's impression was that the learned judge had indicated that he would give the defendants limited leave to defend: in relation to the conspiracy claim when it was properly pleaded and to the extent of US$162,000 only for breach of what has been called the alleged Soft-Opening Agreement. I would mention here that Mr. Bunting does not seek to overturn the judge's decision about the claim for a set-off to the extent of US$162,000.

22. If that is what the judge meant, it seems to me that the appeal must succeed. As recently as 11th January 1990, this Court (Sir Derek Cons, V.P., Clough and Power, JJ.A.) held in The Wing On Bank Limited and Another v. Wai Man Estates Limited and Another, Civil Appeal No. 100 of 1989 (so far not reported) that a predominant intention to injure the plaintiff is an essantial ingredient in the tort of conspiracy. In so doing, the Court followed the decisions of the House of Lords in Lonrho Ltd. v. Shell Petroleum (No.2) [1982] AC 173 and of the English Court of Appeal in Metall und Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc. and Another.

23. I do not intend here to review the contents of the pleading that was before Nazareth, J. raising a set-off based, inter alia, on the allegations of conspiracy. In broad terms from the pleading and the supporting affirmations filed by Mr. Tony Fung it is abundantly clear that the objective of the alleged conspiracy was primarily to benefit CYTS by bringing about a forfeiture of the interest in its joint venture partner and thus to benefit Ramada International Inc. by allowing it to have a much longer management contract and on better terms.

24. The averments in the pleadings and the allegations in the affidavits are not all entirely consistent as to the objectives of the conspiracy but it is perfectly plain that it has not been shown that the essential ingredient of the tort of conspiracy identified and re-stated in the Wing On Bank case has been satisfied. In that case at page 11 of the transcript Sir Derek Cons found helpful the observations of Hirst, J. in Allied Arab Bank v. Hajjar (No.2) [1988] 1 QB 944 at p.953B-D. Employing the same approach, in this case too, it seems to me that it would be impossible for any reasonable Court to infer from the material facts sought to be pleaded in the draft defence taken together with all the evidence before the Court in the form of the affirmations and their annexes, that the sole or predominant purpose of the conspiracy was to injure the defendants or one of them. Such a cause of action could not now be pleaded and presented.

25. However, we agreed with Mr. Bunting, particularly in view of the fact that the defendants were not represented by counsel before us, that we should be taken through all the allegations made against the plaintiff to see whether there were triable issues or questions that for any reason ought to be tried on the footing that the learned judge did not intend to confine the leave to defend he would give to the matters to which reference has earlier been made. I will not refer to every allegation but only to those that seem to me to be important. There is a conspiracy alleged in relation to a firm called O'Phee Travel. The co-conspirators are alleged to be Ramada International Inc., CYTS and the plaintiff in this action. These three co-conspirators are also alleged to have conspired to publish certain malicious falsehoods. However, none of the overt acts pleaded in support of these conspiracies are alleged to have been performed by the plaintiff. Rather, it is pleaded that the plaintiff or CYTS "induced" Ramada International Inc. to act in the way that it did to the detriment of the defendants. These averments are not in any way particularised and there is no support for them in any of the material before the Court in the affidavits and their annexes. There were certain other allegations concerning the inducing of breach of contracts to the detriment of the defendants but again they suffered from the same insuperable defects in the context of O.14 proceedings.

26. As regards the claims sought to be advanced by the defendants for damages for breach of the loan agreement in that the plaintiff was in breach of its obligation under the agreement to advance the balance of the loan amounting to US$1,120,000 and that in advancing 9 of the amounts that were advanced the amounts were made available later than the date specified, Mr. Bunting has satisfied me that no viable set-offs have been shown. The evidence indicates quite clearly that non-payment only began when the amounts sought to be drawn out by the defendants would have exceeded the amounts allowed to be drawn for pre-opening expenses in terms of the loan agreement. Moreover, before the first refusal the 1st defendant was already in default of the payment of interest due under the same agreement.

27. When one turns to the matter of late payment the defendants also face difficulties. In the draft pleading which was before Nazareth, J. the defendants were saying that they had suffered loss and damage as a result of the late payments and that breaches of the loan agreement in this respect had caused financial difficulties to the Guilin Hotel and to the 1st defendant but these are not in any way sought to be quantified. I do not know how seriously such allegations can now be taken when we know that in the defence and counterclaim dated 27th September 1988 the defendants had computed their damages in respect of late payment of the money due under the loan agreement at the figure of US$160,823.42 as being the loss of the use of the money due to the late payment. It is clear from the schedule that the alleged loss was interest that could have been obtained on the money has it been paid earlier. But the plaintiff points out that under the loan agreement the 1st defendant was only entitled to draw on the loan facilities for the uses stipulated in the loan agreement and these certainly do not include the right to lend the money out at interest. In my judgment, a viable set-off in respect of late payment has simply not been shown.

28. I do not wish anything I have said to detract from the observations of Hunter, J.A. with which I respectfully agreed in Worldcap Investment Ltd. v. Bosswell Estates Ltd., Civil Appeal No. 108 of 1988, (unreported, 20th October 1988) where we adopted certain observations made by Lord (as he now is) Donaldson M.R. in Lloyd's Bank Limited v. Ellis-Fewster [1983] 1 WLR 559. There can be no doubt that a plaintiff who seeks to appeal against a decision of a judge under O.14, r.4 that there is a triable issue on evidence put before him undertakes a very difficult task indeed but on the facts of the instant case, and with very great respect to the judge, I have reached the conclusion that the appeal should be allowed if injustice to the plaintiff is to be avoided.

29. I would set aside the learned judge's Order of 11th July 1989, which is wrongly dated 6th July 1989, and in its place enter judgment for the plaintiff against the defendants jointly and severally in the sum of US$2,224,845.33 (which is the amount originally claimed in the action less US$162,000 Which relates to the defendants' claim in connection with the Soft-Opening Agreement) together with interest thereon at 2 per cent over the London Inter-Bank Offered Rate from 15th April 1988 to today, and for the amount of the Plaintiff's costs, losses and expenses recoverable pursuant to the agreement referred to in paragraph 4(5) of the Statement of Claim, to be assessed by a Master.

30. I would give unconditional leave to the defendants to defend up to the amount of US$162,000 but I would not grant a stay of execution of any part of the judgment debt to be entered in favour of the plaintiff in the light of all the circumstances of the case.

Clough, J.A.:

31. I agree with Fuad, V.-P. that, for the reasons he has given, this is one of those exceptional cases where this court should allow an appeal from a judge's order which, ex abundanti cautela, I prefer to regard as having the effect of giving unconditional leave to defend under Order 14, albeit expressed in inappropriate language of dismissal of the plaintiff's application for summary judgment followed immediately by the giving of apparently limited leave to amend the defendant's defence and counterclaim.

32. With respect to the judge, he seems to me to have erred in not appreciating that, even if they were substantiated, the factual averments in the proposed defence and counterclaim and in the evidence of the second defendant could not, whichever way it might be pleaded, reasonably support the inference that the sole or dominant purpose of the alleged conspirators was to injure the defendants or either of them. The conspiracy claim was therefore hopeless in the light of the Metall und Rohstoff case as applied in Hong Kong in the recent Wing On case.

33. The set-off and counterclaim based on the alleged breach of the alleged Soft-Opening Agreement remains in issue in the action in the circumstances indicated by Fuad, V.-P. I will therefore say no more about the strength or weakness of that claim except that I agree with Fuad, V.-P. that it should not be permitted to give rise to a partial stay of execution of the summary judgment in favour of the plaintiff.

34. In his judgment the judge did not deal specifically with the other allegations of what Mr. Bunting called "mini-conspiracies" or the other claims based on injurious falsehood, inducement of breach of contract and breach of contract with which the wider conspiracy allegation was interwoven. However I was wholly persuaded by Mr. Bunting's submissions, which were based on matters of law and not credibility, that none of those other claims raised any triable issues as between the first and second defendants and the plaintiff.

35. Accordingly I too would allow this appeal and make the Orders proposed by Fuad, V.-P.

Penlington, J.A.:

36. I have had the advantage of reading the judgment of Fuad, V.-P., in draft. I agree with it and the Orders he proposes.

Fuad, V.-P.:

37. In handing down these judgments we make an order nisi tthat the 2nd defendant pays the costs of this appeal. We also give the parties liberty to apply if any problems arise in implementing the orders we have made.