NISSEI SANGYO AMERICA, LTD v. PHILIP LAWRENCE CHOY

Civil Appeal No 38 of 1991

Headnote

    The exercise of the jurisdiction to strike-out, the principles of legal and equitable tracing and the parameters of the decision in Norwich Pharmacal Co v Customs 5 Excise Commissioners [1974] AC 133 considered.

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J U D G M E N T

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Kempster, JA:

1. On 19 September last, in a judgment to which I would refer for the background to this litigation, we allowed the appeal of Philip Lawrence Choy, the defendant, and struck out the part of the prayer in the statement of  Claim dependent on the cause of action in deceit. We have now heard argument on the cross-appeal of the plaintiffs, Nissei Sangyo America Ltd, against that part of the order of Mayo J made on 11 February 1991 whereby paragraphs 18 to 23 of the Statement of Claim, together with such part of the prayer as sought discovery of certain facts and matters and of related documents, were struck out pursuant to RSC O18 r 18 and the inherent jurisdiction as showing. no reasonable cause of action. By notice filed on 26 November, in effect repeating part of his Notice of Appeal, the defendant provided a reminder that it was his case that the action as a whole constituted an abuse of the process: He invited us to uphold the material part of the judge's order on that further ground.

2. At the outset of the resumed hearing reference.was made to the plaintiffs' application for leave so to amend their Statement of Claim as specifically to claim a tracing remedy and to supplement the allegations of fraudulent misrepresentation on the part of the defendant in Hong Kong, which in the absence of writing cannot, we have held, ground proceedings, with like allegations against a Hong Kong corporation, Camaro Trading Co Ltd ("Camaro"), by reference to misrepresentation alleged to have been made in Alabama and not to be justifiable by the laws of that State. It is not sought to join Camaro as a defendant. In the course of argument the parties also sought to rely upon further affidavits which were read de bene esse and, on the last day of the hearing, admitted in evidence pursuant to RSC 059 r10(2) by consent.

3. The plaintiffs complain or seek to complain that by reason of the defendant's fraud and that of Camaro they have been made potentially liable to the Internal Revenue Service of the United States for various pains and penalties and that by the paragraphs and part of the prayer struck out, a fortiori by the terms of their draft amended pleading, they have sought and seek, by the discovery of the identity of the beneficial owners of Camaro and of the movement of the monies paid by way of commission, to put themselves in a position to contest any such liability to the United States Revenue or, by negotiation or otherwise, to rid themselves of such contingent liability. If, by paragraph 2l of the Statement of Claim they contend, it can be demonstrated to the United States Revenue that the beneficial owners of Camaro are United States registered taxpayers and that funds paid to Camaro, having been sent abroad, have been returned to the United States the beneficial owners will be liable for the tax.

4. By paragraphs 10 and 18 of the Statement of Claim the plaintiffs plead that commission cheques, including sums which should have been deducted for tax, addressed to the defendant in Alabama were forwarded to Hong Kong where he endorsed them in favour of Berlin Company Exchange Ltd, ("Berlin") who paid to him, on behalf of Camaro, the discounted proceeds by cheque or in cash. The information required is therefore:

"(1) the identity and location of the beneficial owner or owners of the shares of and in Camaro; and,

(2) the destination, and the identity of the payee,' of the discounted amounts of the cheques paid by Berlin according to his (the defendant's) instructions as aforesaid."

as stated in paragraph 23.

5. Interesting submissions have been addressed to-us in relation to the parameters of the decision of the House of Lords in Norwich Pharmacal Co v Customs & Excise Commissioners [1974] AC 133 where the Commissioners were ordered to disclose to the owners and licensees of a patent the identity of importers alleged to have infringed their rights. At p 175, after reviewing the authorities, Lord Reid said that:

"They seem to me to point to a very reasonable principle that if through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrongdoing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full 'information and disclosing the identity of the wrongdoers."

Certainly a court may order someone who, wittingly or unwittingly and directly or indirectly has facilitated the tortious acts of another, by affidavit or by discovery of documents to disclose the identity of that other to a person thereby wronged but the plaintiffs contend for a wider obligation and place great` reliance upon the words "full information" in Lord Reid's speech. None of the other law lords expressed the duty so widely. At p 205 Lord Kilbrandon formulated his conclusions thus:

"...the respondents, in consequence of the relationship in which they stand, arising out of their statutory functions, to the goods imported, can properly be ordered by the court to disclose to the appellants the names of persons whom the appellants bona fide believe to be infringing these rights, this being their only practicable source of information as to whom they should sue ..."

However he, Lord Morris, Viscount Dilhorne and Lord Cross referred to Moodalay v Morton (1785] 1 Bro CC 469 in which case the plaintiffs, authorised by the East India Company to supply the inhabitants of Madras with tobacco, were granted a Bill of Discovery against the Company by Lord Kenyon MR on the basis of their allegation that, by their servants in India, it had purported to grant such rights to another. The plaintiffs intended to sue the East India Company but in order so to do they needed discovery from the Company to ascertain by whom and under what authority the purported rights of the other supplier of tobacco had been granted. The identity of the assumed wrongdoer was known but not the evidence which could bring home liability. As Viscount Dilhorne said at p 185 of Norwich Pharmacal:

"Discovery was sought not to ascertain the identity of anyone but whether the company was responsible for the injury the plaintiffs had suffered. I regard the case as an authority for the proposition that discovery can be granted before an action is instituted, but it was information, not names, that was sought; information to discover whether the company were responsible not to identify the wrongdoer."

6. Mr Rogers, for the plaintiffs, argued that the principle of Norwich Pharmacal has since been perceived to embrace the wider ambit described by Lord Reid. He relied upon a number of authorities. The first was Radio Corporation of America v Reddington's Rare Records [1975] RPC 95 in which an interlocutory order was" made in favour of the owners of the copyright in certain gramophone records for an affidavit from alleged infringers:

"setting forth the names and addresses so far as is known to the defendant of all persons or companies responsible for supplying (the defendant) with and to whom they have supplied such infringing copies

Reginald Goff J relied upon Lord Reid's statement of principle on Norwich Pharmacal. The second authority relied upon was Bankers Trust v Shapira (1980) 1 WLR 1274. There the plaintiffs sought against the Discount Bank (Overseas) Ltd a tracing order in relation to funds of which they had been deprived by fraud and to which, as monies had and received or paid under a-mistake of fact, they made a proprietary claim against other defendants.

7. To quote Lord Denning MR at pp 1279 and 1281 the plaintiffs:

"want information as to these accounts. They want to know how much money is now in the accounts. Money has been taken out in the last six months. They want to know what has happened to the money in the accounts it may have been paid over to third persons: and they may want to follow the money into the hands of those third persons. So they have asked for discovery of the documents relating to the moneys which the bank had, and what has happened to them. ...

...In order to enable justice to be done in order to enable these funds to be traced - it is a very important part of the court's armoury to be able to order discovery. The powers in this regard, and the extent to which they have gone, were exemplified in Norwich Pharmacal Co v Customs & Excise Commissioners

He then quoted the passage from the speech of Lord Reid already referred to and, at p 1282, concluded:

"So here the Discount Bank incur no personal liability: But they got mixed up, through no fault of their own, in the tortious or wrongful act of these two men: and they come under a duty to assist the Bankers Trust Co. of New York by giving them and the court full information and disclosing the identity of the wrongdoers. In this case the particular point is 'full information'".

He went on to sound a note of warning:

"This new jurisdiction must, of course, be carefully exercised. It is a strong thing to order a bank to disclose the state of its customer's account and the documents and correspondence relating to it. It should only be done when there is a good ground for thinking the money in the bank is the plaintiff's money - as, for instance, when the customer has got the money by fraud - or other wrongdoing - and paid it into his account at the bank. The plaintiff who has been defrauded has a right in equity to follow the money. ... If the plaintiff's equity is to be of any avail he must be given access to the bank's books and documents for that is the only way of tracing the money or of knowing what has happened to it."

Waller LJ added at p 1283:

''Again, in my opinion, an order of that breadth is completely justified in a case of this sort because, unless there is the fullest possible information, the difficulties of tracing the funds will be well-nigh impossible."

8. Lord Denning referred to three then unreported cases: London and Counties Securities Ltd (In Liquidation) v Caplan; Mediterranea Raffineria Siciliana Petroli S.p.a. v Mabanaft G.M.B.H, and A v C. The first.involved a claim to trace monies alleged to have been embezzled. That necessarily imported a proprietary claim or a claim for breach of fiduciary duty. In the second it was sought to trace monies paid under a mistake of fact and in the third (now reported - [1981] 1QB 9.56), another claim to trace money on a proprietary basis. Mr Barlow, on behalf of the defendant, therefore contends that no reliance need have been placed on the speech of Lord Reid in Norwich pharmacal and contends for the narrower interpretation of the principle established by that authority.

9. We were also referred to British Steel v Granada [1981) AC 1096 in which an order requiring the defendants to disclose the name of the plaintiff's employee who had furnished them with material in breach of his duty of confidence was upheld. It was not found necessary for the plaintiffs to allege a positive intention to sue the wrongdoer so long as they demonstrated a prima facie right of action. Coming closer to home, in the course of his judgment in Computerland Corporation v Yew Seng Computers pte Ltd and Ors Civil Appeal No 98 of 1985 (unreported) Sir Alan Huggins VP found that:

"Norwich Pharmacal may not be limited to obtaining the identity of a possible defendant and I would accept that Radio Corporation of America v Reddington's Rare Records shows that in a proper case additional information may be sought which can be used as evidence, but the information must be necessary for justice to be done."

And Cons JA:

"After some initial doubts ... I was eventually persuaded that (Mr Rogers') first proposition is good. Norwich Pharmacal is not limited to pure identity: information may be obtained and used in appropriate cases. I am satisfied that that is accepted by the English authorities."

On the other hand in Lonrho Plc v Fayed and Ors (NO 2) [1992] 1 WLR 1 at pp 13 and 14 Millett J said:

"By the cross-summons Lonrho seeks immediate inspection of documents identifying the source of the finance with which the defendants acquired shares of House of Fraser. The documents have been collected together and are now in the possession of the defendants' solicitors pursuant to an order of Harman J. ... the application is based on the principle established by the House of Lords in Norwich Pharmacal Co v Customs & Excise Commissioners. That permits an independent action to be brought against a third party for discovery only in appropriate circumstances. If the party from whom discovery is sought is already a defendant in an existing action, discovery may similarly be sought by an application in the existing action and may extend to documents not normally discoverable in that action. It is, however, a prerequisite for the exercise of the jurisdiction that the applicant can demonstrate a prima facie cause of action against a party or parties whose identify cannot be ascertained without the information sought. The jurisdiction is founded on judicial necessity: its justification lies in the fact that the information will not otherwise become available, so that to withhold relief would amount to a denial of justice.

In my judgment, neither of the two essential conditions for the making of an order has been satisfied in the present case. Lonrho has not shown that it has a prima facie or any cause of action against whoever supplied the funds with which the defendants acquired House of Fraser, and it has not shown that it has no other means of ascertaining the identity of the person who supplied those funds."

10. By reference to the sworn evidence Mr Barlow also suggests that the plaintiffs have failed to disclose other avenues available to them for the ascertainment of the facts and matters which they need to meet the anticipated claims of the united States Revenue.

11. It does not fall to us, at this juncture, to say who is right in relation to these issues. We have to determine whether or not Mayo J was correct in striking out that part of the plaintiffs' claim whereby discovery was sought at an interlocutory stage.

12. In its unamended form paragraph 7 of the Statement of Claim states that Camaro were the plaintiffs' agent for the sale of cassette mechanisms to Chrysler; thereby implicitly alleging a fiduciary relationship. Paragraph 13 alleges that the inclusion of the tax element in the commission payments resulted from a mistake of fact and by reason of fraud. As was succinctly pointed out by Fox LJ in Agip (Africa) Ltd v Jackson & Ors [1991) Ch 547 at p 566:

"Both common law and equity accepted the right of the true owner to trace his property into the hands of others while it was in an identifiable form. The common law treated property as identified if it had not been mixed with other property. Equity, on the other hand, will follow money into a mixed fund and charge the fund. ... It is, however, a prerequisite to the operation of the remedy in equity that there must be a fiduciary relationship which calls the equitable jurisdiction into being."

It is apparent from the fourth ground of the plaintiffs' cross-appeal that the relief sought by paragraph 5(a) of the prayer in the unamended Statement of Claim was based on the wider interpretation of the principle defined by Lord Reid in Norwich pharmacal and that by paragraph 5(b) implicitly on an entitlement to trace the monies paid by Berlin to the defendant.

13. I hesitate to quote again the classic words of Lindley MR in Hubbuck v Wilkinson [1899) 1 QB 86 at p 91:

"Two courses are open to a defendant who wishes to raise the question whether, assuming a statement of claim to be proved, it entitles a.plaintiff to relief. One method is to raise the question of law ....the other is to apply to strike out the statement of claim ... . The second and more summary procedure is only appropriate to cases which are plain and obvious, so that any master or judge can say at once that the statement of claim as it stands is insufficient, even if proved, to entitle the' plaintiff to what he asks. The use of the expression 'reasonable cause of action' ...shows that the summary procedure there introduced is only intended to be had recourse to in plain and obvious cases."

Assuming that Mayo J was favoured with argument as full as that addressed to us it is difficult to understand how he could have been satisfied that the plaintiffs' claims to discovery were plainly and obviously unsustainable. With all respect to him, the fact that the routing of the monies allegedly obtained by fraud and in breach of fiduciary duty is beset with uncertainty is no bar to a claim to trace otherwise maintainable nor, in my opinion, is it properly "characterised as a fishing expedition".

14. It also falls to consider the submissions made on behalf of the defendant, which the terms of the judgment do not suggest were 'pressed below, that the plaintiffs have never had any genuine belief in their claim to have been defrauded by the defendant and that, by non-disclosure, they have sought to mislead the court as to the basis of their case. While all these matters may provide grist for the mill of cross-examination in due course I do not believe that, on the basis of affidavits, they can avail the defendant now. Even if there is some evidence from another quarter as to the identity of the beneficial owners of Camaro I consider that the plaintiffs are entitled to have the answer of the defendant who is best qualified to furnish such information.

15. Since, without recourse to the proposed amendments, I am satisfied that it was wrong to strike out in limine the plaintiffs' claim to discovery as presently pleaded I would allow their cross-appeal and restore paragraphs 18 to 23 and paragraphs (5) and (6) of the prayer. I would also make an order nisi that, subject to paragraph 6 of the order which this Court made on 19 September 1991, the plaintiffs should have their costs of the cross-appeal and half of their costs of the hearing before Mayo J. Further, in the exercise of the discretion of this Court and in order to save additional costs, I would accede to the application to amend the Statement of Claim in the form finally proposed and direct that the defendant should have the costs of and occasioned thereby.

Penlington, JA:

16. I agree.

17. There is considerable authority in support of the remedy of discovery sought by the plaintiff in Norwich pharmacal, both in the dicta of Lord Reid and also, in particular, what was said at p 185 by Viscount Dilhorne. I am satisfied this is not a case for striking out those paragraphs of the statement of claim which seek that remedy.

Bewley, J:

18. I also agree.