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

HCA 143/2020

[2021] HKCFI 301

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 143 OF 2020

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REASONS FOR DECISION

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1.  This is an application by the defendant for an order that the writ of summons indorsed with the statement of claim be struck out and the action be dismissed under Order 18 rule 19 of the Rules of the High Court (Cap 4A) or the inherent jurisdiction of the court. At the conclusion of the hearing, the application was granted with costs on an indemnity basis against the plaintiff. These are my reasons for the decision.

The plaintiff’s claim

2.  The pleaded facts and claims of the plaintiff are as follows.  The plaintiff, Mr Gurdas, was the founder and a 50% shareholder and a director of Esquire (Electronics) Ltd (“Esquire”), a banking customer of the defendant.  In October 1981, the defendant provided 100% finance, with one‑third of it on a two‑year short‑term basis, to enable Esquire to purchase a property known as Li Fung House in Tsim Sha Tsui at the price of $180 million.

3.  Subsequently the Esquire group agreed to a restructuring of its loans with the defendant who imposed a condition that Esquire would have to sell its properties by the end of 1982 to repay a portion of the loans.  In about August 1982, Esquire received an offer from a third party, BASF China Ltd, to purchase the property at 10/F Wing On Plaza (“Wing On property”) for $60 million, but Mr Ian Donaldson, a manager of the defendant, told Esquire not to accept the offer as the defendant wanted to purchase the Wing On property for itself.  Although Esquire complied, the defendant failed to purchase the Wing On property, and Esquire was eventually forced to sell it in December 1986 for only $36 million.  If the defendant had purchased the Wing On property as promised in 1982, there would have been no necessity for the Restructuring Agreement (as described below) to come into being.

4.  On 22 February 1984, the plaintiff and the other 50% shareholder of Esquire, Mr Arjan Choithramani, attended a meeting with the defendant, its solicitors Johnson Stokes & Master (“JSM”) (now known as Mayer Brown), and other bank creditors of Esquire and their legal representatives, during which the plaintiff was presented with a Restructuring Agreement prepared by JSM.  As he was told that he had to sign it if Esquire was to be permitted to continue with its business, the plaintiff signed the Restructuring Agreement on behalf of Esquire and other companies in the group and also on his own behalf as a shareholder and guarantor.

5.  The plaintiff placed trust in the defendant, as the Esquire group’s largest banker, and in JSM, as lawyers acting for him as well as for the Esquire group and the defendant, to prepare the Restructuring Agreement in a fair, accurate and proper manner.  In fact, the Restructuring Agreement contained false information, in that it stated that the amount of the defendant’s “Property Portion” of the Esquire group’s indebtedness was $182.1 million as at 13 September 1983 when it was in fact only $152 million, as confirmed by a report dated 9 June 2006 by Mr Neil P Poole, a forensic accountant.  The defendant knowingly inserted, or allowed to be inserted by its legal representatives or otherwise, the false figure of $182.1 million in the Restructuring Agreement.  The plaintiff had no way of knowing the figure of $182.1 million was false until many years later.  The defendant’s fraudulent action was a primary cause of the plaintiff’s bankruptcy.  The Restructuring Agreement was therefore null and void.

6.  By way of relief, the Plaintiff claims against the defendant damages, interest and costs.

The defendant’s grounds for striking out

7.  Mr Norman Nip, appearing for the defendant, advanced the following grounds in support of the application for a strike‑out and dismissal:

(1)  The events concerning the alleged false figure of the Property Portion of the indebtedness to the defendant took place before the two bankruptcies of the plaintiff.  Any related cause of action has vested in the trustee in bankruptcy.  The plaintiff therefore has no standing to pursue any claim in that connection.

(2)  The statement of claim discloses no reasonable cause of action as there is no pleading of how the defendant’s conduct in relation to the Restructuring Agreement caused loss to the plaintiff and the amount of that loss.

(3)  The statement of claim is frivolous or vexatious or otherwise an abuse of process because the claim regarding the Restructuring Agreement could and should have been raised in the action brought by Esquire in 1994 against the defendant (HCA 11077/1994) (“Esquire Action”).

(4)  The statement of claim is frivolous or vexatious or otherwise an abuse of process because the claim regarding the Restructuring Agreement has been raised by the plaintiff in an action he brought against the defendant in 2011 (HCA 2073/2011) (“GSC Action”) and he is not entitled to raise it again in these proceedings.

(5)  The statement of claim is frivolous or vexatious or otherwise an abuse of process because the plaintff’s claims are time‑barred.

(6)  Any claim raised in relation to the Wing On property should also be struck out because (i) the plaintiff lacks standing to pursue it; (ii) the claim could and should have been raised in the Esquire Action; (iii) the claim could and should have been raised in the GSC Action; (iv) the claim is time-barred; and (v) any loss suffered by the plaintiff would merely be reflective of the loss suffered by Esquire and would not be actionable by the plaintiff.

Summary of decision

8.  In summary, I take the view that the plaintiff’s statement of claim should be struck out and his action dismissed on ground (1), namely that the plaintiff does not have the standing to pursue it.

9.  This is an independently sufficient ground for dismissal, and thus, strictly speaking, it is not necessary for me to consider the other grounds advanced by Mr Nip.  Nevertheless, for the sake of completeness, I would address them below insofar as they would have afforded me alternative, independent bases to strike out the pleading or dismiss the action or any part thereof. 

Ground (1) — The plaintiff’s lack of standing due to his bankruptcies

10.  The plaintiff does not dispute the following matters in his written submissions or during the hearing, when he was represented by Mr Byron Chiu:

(1)  The plaintiff was made a bankrupt on two occasions.  He was first bankrupted on 30 December 1996, and then again on 9 March 2015.

(2)  On each occasion, the Official Receiver became his trustee in bankruptcy.

(3)  By virtue of section 58(1) of the Bankruptcy Ordinance (Cap 6) (“BO”), on the making of each of the bankruptcy orders, the plaintiff’s pre-existing property (including his things in action) became vested in the Official Receiver as trustee in bankruptcy.

(4)  Such property included any such cause of action that the plaintiff might have as pleaded in the present case, as it had accrued before the bankruptcies, which does not fall within the “personal action” exception allowing a bankrupt to retain rights to actions that are personal to him.

(5)  By a letter dated 12 May 2020, the Official Receiver informed the plaintiff’s solicitors that she had not assigned any cause of action to the plaintiff or otherwise consented to the plaintiff’s pursuing any cause of action by commencing legal proceedings, including the pleaded cause of action herein.

11.  On these premises, there is no escape from the conclusion that it is the Official Receiver alone who has standing to pursue the present action, and that, without an assignment by or the consent of the Official Receiver, the plaintiff has no standing to pursue it.

12.  On this ground alone, the plaintiff’s claims must be struck out, and the action dismissed: Colvin Morton Brown v HSBC [2019] HKCFI 526, [30] (Deputy High Court Judge Le Pichon); Koo Ming Kown v Pacific Online Ltd (unrep, HCA 2333/2016, 16 May 2017), [23] (Deputy High Court Judge To).  In fact, the statement of claim in the GSC Action begun by the plaintiff in 2011 was struck out by DHCJ Whitehead SC precisely for this reason (see Ruling in HCA 2073/2011 dated 28 April 2014).  That decision was supported by the observations of Yuen JA in her judgment on the defendant’s application for security for costs of the plaintiff’s appeal (see Judgment in CACV 117/2014 dated 3 December 2014, at [15] & [34]) and eventually upheld by the Court of Appeal (see Judgment in CACV 117/2014 dated 21 July 2017).[1]

13.  In his written and oral submissions, Mr Chiu drew the Court’s attention to certain ongoing proceedings brought by the plaintiff against the Official Receiver:

(1)  The first set of proceedings is HCA 1548/2020, which is apparently a claim alleging breach of duties committed by the Official Receiver.

(2)  The second set of proceedings is an application under BO sections 83 and 84 which, according to Mr Chiu, seeks a declaration that the Official Receiver has consented to the commencement of the action herein.

14.  So far as the first set of proceedings is concerned, the first problem is evidential.  The statement of claim in HCA 1548/2020 has not been produced in evidence.  Indeed, none of the underlying court documents are.  All that is said in the plaintiff’s affirmation is that he has commenced proceedings against the Official Receiver, “claiming for breach of duties in respect of the handling of [his] bankruptcy”. The scope and content of HCA 1548/2020 remains entirely opaque to this court.  There is no evidence whether that action relates to the Official Receiver’s conduct (or omissions) in relation to the present action at all.  

15.  Further, even if HCA 1548/2020 is shown to relate to the Official Receiver’s refusal to consent to the prosecution of this action, it still does not cure the plaintiff’s lack of standing herein.  That is because, as accepted by Mr Chiu, a personal action of that kind, alleging default on the part of the Official Receiver, does not impugn the validity of the relevant bankruptcy orders.  The operation of the statutory vesting under section 58(1) is unaffected.  The position remains that the right to pursue the present action, if any such right exists, is vested in the Official Receiver.

16.  So far as the application under sections 83 and 84 is concerned, I cannot take account of it because there is no proper evidential basis for it to be considered.  There is no mention of the application in the plaintiff’s affirmation, in Mr Chiu’s written submissions, or in any material produced to this court.  It was only mentioned orally by Mr Chiu at the hearing, and no relevant document was produced.  Without such basic materials, it is impossible for this court to take into account that application.  In any event, Mr Chiu accepted that before the grant of the declaratory relief which is apparently being sought under that application, it could have no effect on the plaintiff’s standing in this action.

17.  In the light of the foregoing, the plaintiff has no standing to pursue the action herein.  The statement of claim must therefore be struck out and the action dismissed.

The other grounds

18.  For the sake of completeness, I would address the following grounds briefly on the basis that I would have accepted each of them as an independent ground for striking out the statement of claim and/or dismissing the action herein, in whole or in part.

Ground (2) — Causation

19.  To resist this ground for strike out and dismissal, Mr Chiu, in his written submissions, pointed to paragraphs 14(6) and 16 of the plaintiff’s statement of claim (a pleading signed by the plaintiff himself).  These paragraphs aver as follows:

“ 14(6). The inclusion of the false figure in the [Restructuring Agreement] by [the Defendant] left the Plaintiff financially exposed and vulnerable and, as a result, led to the Plaintiff’s bankruptcy and immeasurable suffering, both personally and financially, over many years.

…

16. Further, and in any event, the Property Portion figure was fundamental in achieving the purpose of the [Restructuring Agreement], and the actions taken by [the Defendant] as referred to above in respect of the false figure provided by [the Defendant] in Schedule II of the [Restructuring Agreement], and the subsequent actions taken by [the Defendant] and its legal representatives in concealing the facts from the Plaintiff, as well as the other parties to the [Restructuring Agreement] and the courts, resulted in the failure of that purpose, and to the subsequent liquidation of Esquire and to the bankruptcy of the Plaintiff, which should be annulled.  In the premises, the [Restructuring Agreement] was rendered null and void, and the Plaintiff claims damages from [the Defendant] for the substantial losses caused to him by the stated actions of [the Defendant].”

20.  Had it been necessary for this court to make a ruling, I would have considered these pleadings of causation between, on the one hand, the insertion of the false figure in the Restructuring Agreement, and, on the other, the loss suffered by the plaintiff, to be deficient.  Plainly, the plaintiff did not plead how the false figure “left the Plaintiff financially exposed and vulnerable”, how “the Property Portion figure was fundamental in achieving the purpose of the [Restructuring Agreement]”, what that “purpose” was, and how the falsity of the figure “resulted in the failure of that purpose, and to the subsequent liquidation of Esquire and to the bankruptcy of the Plaintiff”.  Without these pleadings, there is no discernible causal link between the insertion of the false figure in the Restructuring Agreement and any loss allegedly suffered by the plaintiff, including presumably the plaintiff’s bankruptcies.

21.  Mr Chiu said that the plaintiff’s pleadings were “substantiated” by his affirmation.  It is unclear what this means.  If Mr Chiu seeks to suggest that an affirmation could fill in the gaps in material facts which are omitted in the pleadings, the suggestion must be rejected.  Affirmations are no replacement for the averment of material facts in the statement of claim.  

22.  In any event, the paragraph Mr Chiu referred to does not reveal the needed causal link.  The material sentences simply say:

“ However, what actually happened is that [the Defendant] used its position as the ‘Lead Bank’ to manipulate the accounts of the Esquire companies for its own benefit and to conceal its wrongful actiosn from the other parties to the [Restructuring Agreement], including [the Plaintiff]. By acting wrongfully in breach of the terms of the [Restructuring Agreement], [the Defendant] was responsible for causing the Esquire companies’ failure to meet their financial obligations under the [Restructuring Agreement], and BNP then called on my guarantee. In other words, Esquire’s default led directly to my bankruptcy, with both the default and my bankruptcy being caused by [the Defendant’s] callous breaches of the [Restructuring Agreement] and the bank’s dishonesty and fraudulent acts.”

23.  This passage does not refer to the false figure at all, but instead focusses on other kinds of alleged wrongdoing on the part of the defendant.  It does not suffice to “substantiate” the plaintiff’s defective pleaded case.

24.  Accordingly, had it been necessary for me to rule on this ground, I would have found the plaintiff’s pleadings on causation to be deficient, and struck out the false figure claim in the statement of claim on this basis.

Ground (5) — Time bar

25.  There is no dispute that the applicable limitation period to this claim is 6 years as prescribed by section 4(1) of the Limitation Ordinance (Cap 347) (“LO”).

26.  The plaintiff invoked LO section 26 in order to postpone the running of time on the ground of fraud and concealment.  The material provision is section 26(1), which provides as follows:

“ Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either –

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

27.  For the action concerning the false figure in the Restructuring Agreement to be in time, the plaintiff must not have discovered, and must not have been able to discover, the alleged fraud or concealment before 24 January 2014, ie 6 years before the date of the writ herein.

28.  In his affirmation, the plaintiff averred that he only acquired the “requisite knowledge” in 2014, when, in the course of the GSC Action, the defendant produced the relevant bank statement showing “just” the Property Portion of the indebtedness.  It is not clear what the plaintiff meant when he referred to “requisite knowledge”.

29.  In any event, this aspect of his evidence contradicts his own pleaded case, where he pleaded “the relevant bank statements were made available for the first time in early 2006” although they “officially came into the Plaintiff’s position only in April 2014”.[2]  If so, the 6‑year limitation period should have expired by early 2012 at the latest.  Furthermore, the plaintiff’s supplemental witness statement dated 14 April 2003 filed in the Esquire Action originally included certain paragraphs[3] stating that the property portion of Esquire’s indebtedness to the defendant was $152 million in respect of one account and $18 million in respect of another account, totalling $170 million, but in the Restructuring Agreement the defendant stated the property indebtedness was $182.1 million, or $12.1 million more than the actual figure.  Those paragraphs were subsequently removed on the ground of irrelevance before the plaintiff gave oral evidence.  For present purposes, however, they show that, as early as 2003, the plaintiff had already taken the view and stated that the figure of $182.1 million had been inflated.  Transcripts of the plaintiff’s cross‑examination at the trial of the Esquire Action in 2004 show that, in his oral evidence, the plaintiff alleged the property portion of the indebtedness had been inflated by $30.1 million (the very same inflation he complains of in the present action).  On the available materials and on the plaintiff’s own pleading, it would appear that the plaintiff had discovered the alleged falsity of the figure much earlier than 2014, and indeed at the latest by early 2006.

30.  On behalf of the plaintiff Mr Chiu submitted that the question of limitation is a fact-sensitive one, having regard in particular to LO section 26.  He relied on the fact that copies of the relevant bank statements were only provided in 2014.  He did not, however, address the plaintiff’s own pleading that whilst the bank statements were “officially” provided to the plaintiff in 2014, they were “made available for the first time in early 2006”.

31.  Accordingly, had it been necessary for me to rule on this ground, I would have held that the claim would have been time‑barred, and thus must be struck out. 

Ground (6) — no cause of action in relation to Wing On property

32.  During the hearing, Mr Chiu accepted that the pleadings in relation to the Wing On property did not independently support any cause of action, as the pleaded “promise” fell short of the pleading of an actionable agreement.  Rather, it is the plaintiff’s position that they provide the “context” in which the complaint about the false figure in the Restructuring Agreement falls to be considered.  It follows that they should be struck out unless they otherwise form the material factual background for a viable cause of action, which, for the reasons stated above, they do not. 

Conclusion and costs 

33.  For the above reasons, I ordered that the statement of claim be struck out, and the action be dismissed. I do not express any views on grounds (3) and (4).

34.  As to the costs of the action, I ordered that the plaintiff pay the defendant’s costs on an indemnity basis, in view of the fact that essentially the same claims had already been advanced, and struck out, in the GSC Action.  There is therefore in my view an abuse of process warranting an indemnity costs order: Lee Chick Choi v Best Spirits Co Ltd [2018] HKCA 449, [22].