MAN SUN FINANCE (HOLDINGS) LTD v. FOO SAU CHUN, RICHARD AND ANOTHER

HCA 1297/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1297 OF 2002

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J U D G M E N T

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1. The Plaintiff's company is a family company owned and run by members of the Foo family. The 1st Defendant and the proposed fourth parties are brothers, and were, at the relevant time shareholders and directors of the Plaintiff company. They comprised three of the six directors of the Plaintiff company. The 2nd Defendant was a manager for the Plaintiff company, he was neither a director nor a shareholder of the company.

2. A dispute has arisen between the Plaintiff and the 1st and 2nd Defendants. It is alleged that the day-to-day management of the Company was in the hands of the Defendants and that they are liable to the Plaintiff in respect of a transfer of funds, (the refund instruction), from the Plaintiff company to another company, owned and controlled by the 1st Defendant. As the evidence appears to demonstrate that immediately after the funds were transferred to that other company a payment was made to the 2nd Defendant, both the 1st and 2nd Defendants are called to account to the Plaintiff, the Plaintiff alleging a conspiracy between the Defendants.

3. The 1st Defendant, in his defence to the claim, contends that the payments that were made were made with the full knowledge and notice of the Plaintiff and/or its directors and were authorized or approved by the Plaintiff and/or its directors. In so pleading, the 1st Defendant does not make any special allegation that the proposed fourth parties played any particular role in relation to the payments.

4. The 2nd Defendant for his part pleads that he was merely an employee of the plaintiff, and that the 1st Defendant had the express or implied authority of the Plaintiff to give the instructions that were given to him in relation to the transfer of funds. He has subsequently issued third party proceedings against the 1st Defendant contending that if any liability is found against him to the Plaintiff company, he is entitled to indemnity from the 1st Defendant, who gave him his direct instructions.

5. The 1st Defendant seeks to issue a fourth party notice in relation to any liability he may have to the 2nd Defendant under the third party notice. In the fourth party notice, he contends that the giving of the refund instruction was directed by the proposed fourth parties or induced by the representation of fourth parties to the 1st Defendant that they were authorized by the Plaintiff to approve or authorize the giving of the refund instruction, 11 sub-paragraphs of particulars are pleaded. In those 11 sub-paragraphs, no single direct allegation of either an instruction, a specific direction, or a representation in relation to the refund instruction is made. Instead, it is generally pleaded that the proposed fourth parties were appointed by the Plaintiff to act as the Plaintiff's representative in dealing with and discussing matters of the Plaintiff's property investments in Canada, out of which the refund payment arose.

6. Mr Ng for the Plaintiff and one of the proposed fourth parties, Mr Raymond Foo, opposes the issue of the fourth party notice on two primary grounds. First, he says that in the absence of any direct allegation of a warranty or representation by the fourth parties that they were empowered by the company to authorize the payment, the claim under that head must fail. The only allegation by the 1st Defendant of any direct instruction or warranty is a bare statement at paragraph 10 of his 3rd affirmation where he says:

"To conclude, I have verbally discussed repayment of the Plaintiff's debts to Fook Tai on many occasions with Raymond Foo and the amount of debts had been shown in various accounting records and reports. The extent of knowledge involvement of Raymond Foo and Jimmy Foo on the investment of the Canadian projects and indebtedness of the Company to Fook Tai are blatantly clear and obvious and thus supported documentary evidence."

7. It does not clear from this assertion whether those discussions were before or after the payment and there was a strong inference that they were after the payment. As the matter is pleaded in the fourth party notice, the proposed fourth parties have no idea at all what has being alleged against them, as no specific conversations or documents are referred to in either the pleadings or the affidavits.

8. There is nothing in the case to suggest that the 1st defendant can say anything other than that he had the general authority of the plaintiff to make the refund instruction, or that the payment was subsequently ratified by the plaintiff. Those assertions will no doubt form part of his defence to the claim. But it does not provide him with a separate cause of action against the proposed 4th parties. Mr. Soo was quite unable, apart from referring to the paragraph in the 1st defendant's 3rd affidavit that I have quoted, to suggest any other basis upon which there might be some liability on the proposed 4th parties as distinct from other members of the board of directors of the plaintiff. Other than his assertion that Raymond and Jimmy were the directors responsible for the Canadian operations, and an assertion not substantiated by the evidence, was the Soo, was able to say to me why he should elect to proceed against only two of the remaining of five directors of the Company.

9. In the circumstances there is not even a prima facie case of liability of the proposed 4th parties to the 1st defendant. To allow the proposed 4th party notice to proceed in those circumstances would be to prejudice or delay the plaintiff in the resolution of the claim.

10. Having so held, it is not necessary for me to consider the second limb of Mr. Ng's argument, namely that the damage allegedly suffered by the 1st defendant as against the 2nd defendant, is not the same as the damage allegedly suffered by the plaintiff, and that accordingly the 1st defendant is not entitled to contribution from the proposed 4th parties under the provisions of the Civil Liability (Contribution) Ordinance Cap 377. It is sufficient if I say that having considered the decision in Royal Brompton Hospital NHS Trust v Hammond & Ors [2002] 1 WLR 1397 HL, I am satisfied that while the amount of the damages may be the same the damage suffered by the 1st defendant and the plaintiff are plainly not the same. On the one hand the damage suffered by the plaintiff is financial loss caused by an alleged breach of fiduciary duty by the 1st defendant. That is quite different from financial loss as a result of an alleged breach of warranty or representation.

11. The Master's decision was correct. Leave to issue the 4th Party Notice is refused. Costs on the appeal to the proposed 4th parties.