AHU KUAN CO OF ZHUHAISEZ v. BRICKELL LTD (IN LIQUIDATION) AND OTHERS

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REASONS FOR JUDGMENT

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The Applications

1. There are before the Court four applications in the terms following:-

2. Each of the strike out applications are issued pursuant to Order 18 rule 19(1)(a)(c) and (d) RHC and under the Court's inherent jurisdiction.

Orders Made

3. At the conclusion of argument, the Court refused the relief sought in the strike out applications and dismissed these summonses, at the same time granting leave to the Plaintiff to re-amend the Amended Points of Claim in terms of the draft placed before the Court (save for one minor amendment to that draft involving the replacement of the first three words of para.40F(ii) ("In the premises") with the words ("Further or alternatively")).

4. At the time of making these orders, I indicated that I would subsequently provide brief reasons for these decisions, together with making the necessary costs orders which arise. This I now do.

The Factual Background

5. The case itself is not without interest, albeit thus far it has not travelled a smooth procedural route, and appears thus far to have taken an untoward amount of time to arrive even at its present position.

6. This is a commercial dispute which in my view is entirely appropriate to be litigated in the Commercial Court. It involves tin concentrate, and its subsequent processing into tin ingots. The Plaintiff is a company incorporated in the Mainland which operates from the Zhuhai Special Economic Zone. In November 1992, it was carrying on the business of supplying tin concentrates to a Hong Kong company known as Mainland Metals and Minerals Limited ("Mainland") in order for such concentrates to be processed into tin ingots, which ingots would in the ordinary course of business be returned to the Plaintiff. Mainland however fell into financial difficulties and was restructured by its creditors, with a new company, Brickell Limited ("Brickell"), the 1^st Defendant herein, being established to assume the trading arm of Mainland's business. Brickell in fact traded for some four to five months before it, too, was put into liquidation.

7. The Plaintiff contends that the tin concentrates which it had supplied to Mainland under the November 1992 processing contract were transferred to Brickell on 26^th March 1993, and that it was agreed that Brickell would provide the Plaintiff with 106.2008 MT of tin ingots which Mainland had not yet delivered to it.

8. This did not happen. Brickell was placed into liquidation, and during that liquidation the stocks of tin held by Brickell were sold, at the behest inter alia of the 4^th Defendant, and the proceeds distributed to its secured creditors, among whom are numbered the 4^th and 5^th Defendants.

9. No distribution was made to the Plaintiff in respect of the 106.2008 MT of tin alleged to be held by Brickell, and hence in this action the Plaintiff maintains it has been deprived of the tin or its value. As the prayer to the draft Re-Amended Pleading makes clear, it claims against all Defendants, not only for the monetary equivalent of the tin as at different dates, but also for an account or damages.

The draft Re-Amended Points of Claim

10. The foregoing is no more than a simplified overview of the matters variously pleaded in what is a lengthy draft Re-Amended Points of Claim, on the face of which document, at least, it appears that the Plaintiff has legitimate grounds for complaint. The concentrate provided by the Plaintiff to Mainland in November 1992 is said to be subject to an alleged agreement whereby all tin supplied to the Plaintiff would be returned to the Plaintiff regardless of the outcome of the restructuring of the Mainland Group (para.12(iii)), and it is further alleged (at para.16) that at a Third Creditors' Meeting on 3^rd November 1992, Mainland was permitted by its principal creditors to enter into "tolling" contracts with the Plaintiff, which contracts "were agreements whereby Mainland processed tin or zinc concentrates into ingots from raw materials supplied by the Plaintiff or other parties without Mainland acquiring title to the metal". It is further alleged that all principal creditors, including the 4^th and 5^th Defendants, authorised Mainland to enter into the tolling contracts and requested the Plaintiff to provide tin concentrates for processing.

11. The pleading then recites (at para.17(i)) the Plaintiff's processing contract with Mainland dated 18^th November 1992 whereby the Plaintiff agreed to supply 700 metric tonnes of tin concentrates for processing before continuing (at para.17(ii)) in the terms which have provided the focal point for argument in this case; in the circumstances it is, I think, worth setting out the subparagraph in full as it appears in the draft Re-Amendment:-

As I have indicated, this subparagraph provided the starting point for the argument, it being accepted by Counsel for the Applicants that the numerous other paragraphs and subparagraphs sought to be struck from this pleading are in effect derivative from that which is pleaded in subparagraph 17(ii).

The Argument

12. Mr Barma for the 1^st to 3^rd Defendants, Mr Fok for the 4^th Defendant and Mr Mak for the 5^th Defendant presented a united front on the strike out applications. I have had the advantage of excellent detailed skeleton arguments delivered in advance from them, together with one in response from Mr Reyes, who now has the conduct of the case on behalf of the Plaintiff.

13. The Applicants had two main lines of attack, or, as Mr Reyes aptly termed it, they had identified two 'fatal flaws' justifying the application to strike out. These I will characterise as the 'trust point' and the 'mixing point'.

14. I take the latter point first. In a nutshell, it was asserted on behalf of the Defendants that the mixing of the Plaintiff's tin stock with similar stock of Brickell necessarily resulted, as a matter of law, in the loss by the Plaintiff of all proprietary interest (legal or beneficial) in such stock.

15. The authorities in this difficult area are various and formidable, as the skeleton arguments made clear. For present purposes, I decline to lock horns with an argument in an area of the law which, if this case progresses, may require to be digested carefully and at length. This, however, is an interlocutory strike out application, with the relevant benchmark being obvious unsustainability. That benchmark is not attained here, and I agree with Mr Reyes that the Defendants' conclusion on the point is far from inevitable as a matter of law. In fact, Mr Barma for the 1^st to 3^rd Defendants (whose general submissions were adopted by both Mr Fok and Mr Mak), with characteristic probity felt himself unable to suggest to the Court that this complex area was sufficiently free from doubt for it fairly to be asserted that the point was demurrable on its face. So that, from the strike out perspective, this argument fails to assist the Applicants, at least at this stage.

16. It was the trust point, a point of dispute which has festered between the parties for some time, which provided the effective focus for the debate. In this connection, the basic position taken by all Defendants was that the proposed Re-Amended Points of Claim provided no explanation regarding the separation of the legal and beneficial interest in the tin stock claimed by the Plaintiff. So that in the absence of any such clear separation, there could be no question of a trust arising, be it constructive or resulting, on the basis of which the tin stock could be said to be held by one or more of the Defendants on behalf of the Plaintiff.

17. This particular line of attack appears to have had its origin in an answer to a request for further and better particulars of the Amended Points of Claim provided by the Plaintiff and dated 11^th December 1996. I can see how the controversy arose, given the terms of the pleading at that stage. The allegation then in issue was to the effect that "it was an express or alternatively an implied term of the contract that at all material times Mainland would hold the tin supplied by the Plaintiff on trust for the Plaintiff", the relevant request being "whether it is the Plaintiff's case that the legal title in the tin was held by Mainland; if so, when was such legal title transferred to Mainland", to which came the answer 'No'. This exchange then led to the usual pre-application letter duly signed by Counsel to the Plaintiff's then Counsel, Mr Kerr. I further note in this context that an inordinate amount of time then elapsed prior to the oft-promised proposed amendments which it had been anticipated would be successful in heading off the threatened strike out.

18. Counsel for the Applicants object that the proposed re-amendments do not meet the criticisms raised, and complain that the Plaintiff's objective appears to be to construct some form of unjustified proprietary claim against the 1^st Defendant so as to overcome the effect of the distribution of the 1^st Defendant's assets to its secured creditors, which distribution left no surplus for the Plaintiff qua unsecured creditor.

19. Whatever the earlier pleading inconsistencies which provoked the criticisms made, it seems now to be tolerably clear what the Plaintiff's position actually is. As Mr Reyes pointed out, the Plaintiff's principal case is that at all material times the Plaintiff was the legal and beneficial owner of the tin stock, the subject of the claim, and that Mainland, and later the 1^st Defendant, were liable to account, as bailees for such stock, to the Plaintiff as owner and bailor thereof; this matrix of facts also gave rise to a plea in conversion, and in addition the assertion that the Plaintiff was entitled to trace the proceeds of the unauthorised sale into the hands of the 4^th and 5^th Defendants.

20. However, as the proposed re-amended para.17(ii) makes clear, (and as, for example, is echoed in para.37(iii) of the draft), the Plaintiff now wishes, as an alternative to its principal case, to run the argument that if, which is denied, by transferring the tin stock to Mainland and the 1^st Defendant, the Plaintiff lost (or may be regarded by the Court as having lost) the legal title in such stock, the Plaintiff clearly retained the beneficial interest therein, and as such the 1^st Defendant would have held the relevant stock on trust for the Plaintiff. In turn, the 2^nd, 3^rd 4^th and 5^th Defendants would have had notice of the trust, and in authorising the sale, selling, or in receiving the proceeds thereof, the 2^nd, 3^rd, 4^th and 5^th Defendants thereby would have intermeddled with the trust and would themselves have become trustees of the tin stock or the proceeds thereof.

21. For my part, I am unable to understand how the presence of this clear alternative plea causes the degree of alarm and despondency in the Defendants' camp which it evidently has, and why a fall back position, not propounded as part of the Plaintiff's primary case ---- which is that legal title all along remained vested in the Plaintiff --- should have been perceived as sufficient to merit a strike out application involving forensic surgery to delete a whole raft of paragraphs and subparagraphs, all said in some wise to be consequent or dependent upon the deficient trust claim, which is based on the premise that Mainland or the 1^st Defendant is regarded as having acquired legal title to such tin.

22. It seems clear, as Mr Reyes submitted, that the cases of the respective Defendants depend upon the Plaintiff having had no legal title or beneficial interest in the relevant tin stock at the material times, and that the Plaintiff is merely asserting that if in some way the Court should arrive at the (uncontended-for) conclusion that legal title no longer vested in the Plaintiff at the time of the sale by the 2^nd and 3^rd Defendants of the 1^st Defendant's tin stock, then the Plaintiff was entitled to plead in the alternative to counter that possibility.

23. I agree. In my view the Plaintiff is entitled to proceed in this manner and should not be precluded from so doing, and I am unable to see how the presence of such an alternative contingent plea could be regarded as throwing a sufficiently large spanner into the pleading and/or procedural works to merit an application as draconian as a strike out. As I recall, this was the firm view I expressed to Counsel at the outset of the hearing, and nothing that I heard in argument was sufficient to dissuade me, nor was I impressed with the submissions variously set out in the helpful skeleton arguments sent in advance of this application. The presence of the alternative plea seems to me to be solely a matter of legal argument upon the facts to be found by the trial Court which, other things being equal, is likely to be the present tribunal. And whilst Mr Barma did advert at one stage in his submissions to potential discovery problems arising from this alternative plea, I think it fair to say that these were neither particularised nor seriously pursued; certainly such difficulties did not find their way into the skeleton arguments, nor was any application made to adjourn the present application to the hearing of what I am told is a forthcoming specific discovery dispute.

24. In short, I can see no good reason, in the exercise of my discretion, to accede to this application under any of the heads of Order 18 rule 19 relied upon, by the Defendants, and I do not consider the requirements of any of these rules to be satisfied in this case. The progress of this litigation will not be materially affected by the presence of an alternative plea of this nature, which at bottom is, as Mr Reyes submitted, in substance little more than a response to the Defendants' respective cases, and I had no hesitation in dismissing the applications and in permitting the re-amendments to the Amended Points of Claim be made in the terms proposed. I understand, also, that Mr Reyes will move to amend the relevant further and better particular which was the origin of this argument, and which arguably requires clarification in light of the re-amended pleading.

25. This is the Commercial Court, the essence of the operation of which, within necessary constraints, is to enable the parties to put up their cases and for the Court to determine the matters in dispute untrammelled by narrow procedural arguments or by any but the most essential interlocutory debate. In my view this application does not fall within the latter category, and it is hard to resist the conclusion that for all practical purposes this application constituted a waste of time and resources (together with considerable amounts of paper). During the course of argument Mr Fok was good enough to draw my attention to a passage in the Supreme Court Practice 1999 at MN 72/A3 dealing with the work of the English Commercial Court, whereat the learned editors say (at page 1369):-

"...A high percentage of Commercial Court actions are settled before trial. The procedures of the Court must assist this process, particularly by assisting each party to be informed of the real strength of the other's case well in advance of the trial date. However, a balance has to be struck between this objective and the avoidance of disproportionate expenditure at the pre-trial stage..."

26. With respect, this present interlocutory aggression seems to me to fall neatly within the category of the 'disproportionate expenditure', be it of money or of time. Given its present slow progress to-date, I hope that this case may now be brought to trial as quickly and as efficiently as possible. In this connection, I cannot help but note that shortly before the passage cited to me with regard to the workings of the Commercial Court, the learned editors of the White Book also observed (at p.1368) that "At its best, litigation before the Court is notable for the co-operation, and realism, of the parties' representatives ...", and I hope that it is not too much to expect that all involved in this case will take that sentiment to heart.

27. As to costs, I have had the advantage of Counsel's submissions on the matter. On reflection, I think that the appropriate Order is as follows:-

28. I hope that this formulation does not occasion the Taxing Master undue difficulty.

29. I thank all Counsel for their assistance.