XCHRX AKTIESELSKABET DANSK SKIBSFINANSIERING v. WHEELOCK MARDEN & CO. LTD. and Others

1988, No.MP2625
1989, No.A1670

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

___________

___________

______________

J U D G M E N T

______________

1. By consolidated statement of claim (CSOC), the Plaintiff claims in excess of US$70,000,000.00 from the Defendants. The Plaintiff asserts causes of action for fraudulent trading, fraudulent misrepresentation, negligent misrepresentation, misrepresentation under the Misrepresentation Ordinance and conspiracy.

2. The 1st Defendant (D1) was general manager and secretary of Wheelock Maritime International Limited (WMI). The 5th Defendant (D5) was a director of WMI and of D1. Both these Defendants apply to strike out the claims in relation to conspiracy and fraudulent trading insofar as it is based on "any fraudulent purpose" as provided in section 275 of Companies Ordinance 1975.

3. Of the other Defendants, the 8th Defendant is dead while the claim against the 11th Defendant has been dismissed. I shall refer to the remaining Defendants as the "individual Defendants". All of the individual Defendants except the 7th Defendant were directors of WMI. The 2nd to 7th Defendants were also directors of D1. The individual Defendants make application to strike out similar to that of D1 and D5. In addition, they seek to strike out the claims based on misrepresentation.

4. The Plaintiff also seeks discovery against the Defendants, while the Defendants have applications for Further and Better Particulars against the Plaintiff.

Striking out

5. By letter dated 2nd August 1993, D1's solicitors set out the grounds for striking out:

"1. Conspiracy

(I) that the CSOC and the recent particulars fail to identify any overt acts capable of constituting a conspiracy in law; and

(ii) that no adequately pleaded agreement or intention to injure the interests of the Plaintiff is relied upon. Accordingly, no reasonable cause of action is disclosed.

Other Fraudulent Purposes

In so far as paragraphs 28 and 30 seek to assert a cause of action founded upon s.275(1) Companies Ordinance Cap. 32 based on fraudulent purposes other than an intention to defraud creditors of W.M.I., the particulars supplied are embarrassing, and an abuse of the Court's process (in that they are incomprehensible and/or incoherent) and do not disclose a reasonable cause of action."

6. By letter dated 31st July 1993, the solicitors for D5 and the individual Defendants gave their grounds. In relation to misrepresentation they were:

"1. Misrepresentation (Fraudulent, Negligent
and under the Misrepresentation Ordinance)-
application by all our clients except the
5th Defendant

(1) The pleadings, as particularised in the particulars recently served, do not contain the requisite averments that any of the alleged misrepresentations were made on behalf of our said clients. We consider that in the absence of such averments, the misrepresentation claims against our said clients are incontestably bad.

(2) Further, in the absence of such averments, questions of authority and ratification become irrelevant as a matter of law. In any event, it does not appear that your client has sufficiently averred that our said clients in fact authorised or ratified any of the alleged misrepresentations relied upon."

7. In relation to conspiracy and fraudulent trading, the grounds were similar to those of D1 save that in respect of conspiracy they added:

"Further, in the case of our clients apart from the 5th Defendant, given that these claims are premised upon our said clients have made the misrepresentations alleged, it follows from the fact that the misrepresentation claims should be struck out that these claims must also fail."

8. The tort of conspiracy has been the subject of much jurisprudential debate. I venture to suggest that it is now tolerably well understood. A useful statement was made by Buckley L.J. in Belmont Finance Corporation v. Williams Furniture Limited and Others (2) (1980) 1 All E.R. 393 at page 404:

"To obtain in civil proceedings a remedy for conspiracy, the plaintiff must establish (a) a combination of the defendants, (b) to effect an unlawful purpose, (c) resulting in damage to the plaintiff (Crofter Hand Woven Harris Tweed Co. Ltd. v Veitch [1942] 1 All ER 142 at 147, [1942] AC 435 at 440 per Lord Simon LC). The classic definition of conspiracy is that in Mulcahy v R (1868) LR 3 HL 306 at 317:

A conspiracy consists not merely of the intention of two or more, but in the agreement of two or more to do an unlawful act, or to do a lawful act by unlawful means.'

I have used the word 'combination' rather than the word 'agreement' used in that definition and by Lord Simon LC, because the word 'agreement' in this context does not mean an agreement in any contractual sense but a combination and common intention to do the act which is the object of the alleged conspiracy."

9. To that must be added the clarification given by the House of Lords in Lonrho Plc v. Fayed and Others (1992) 1 A.C. 448 that, whether the means used were lawful or unlawful, it is only necessary for a plaintiff to establish an intention to injure, not that such intention was the predominant purpose.

10. What a plaintiff has to plead in relation to conspiracy is set out in Bullen and Leake and Jacob's, Precedents of Pleadings 13th edition page 221:

"The gist of the tort of conspiracy is not the conspiratorial agreement to injure alone, but that agreement plus the overt acts causing damage (Marrinan v. Vibart [1963] 1 Q.B. 234, affirmed [1963] 1 Q.B. 528). The statement of claim should describe who the several parties to the conspiracy are and their relationship with each other. It should allege the conspiracy between the defendants giving the best particulars it can of the dates when or dates between which the unlawful conspiracy was entered into or continued, and the intent to injure (see "Right of action" above): there is no call for a general plea of "acting wrongly and maliciously" (Sorrell v. Smith [1925] A.C. 700, at 714) nor is that sufficient. It should state precisely the objects and means of the alleged conspiracy to injure and the overt acts which are alleged to have been done by each of the alleged conspirators in pursuance of the conspiracy, and lastly, the injury and damage occasioned to the plaintiff thereby."

11. The function and purpose of pleadings and Further and Better Particulars has been exhaustively canvassed by the Court of Appeal (of which I was a member) in its judgment given in this action on 15th March 1993. In brief, it is to ensure that a party knows the case it has to meet and will not be taken by surprise at trial. The issue is whether the bulky CSOC and voluminous particulars meet this criterion.

12. WMI was part of the Wheelock Marden Group of Companies. Between 1979 and 1984, it purchased through subsidiaries a number of vessels from a Danish shipyard. There was a complicated system of financing. In part, it was that finance was by way of loans provided by the Plaintiff. Security for the loans was supplied, inter alia, by guarantees from a Danish export credit guarantee institution (EKR) and from WMI. It is the shortfall guarantees from WMI given in relation to two vessels, Sealock delivered in April 1983 and Annalock delivered in March 1984, that are the foundation of this action. The loans not having been repaid, WMI defaulted on its guarantees and went into liquidation in August 1985. The Plaintiff's complaints are essentially twofold. First, although WMI initially had the backing of D1, that is to say, that the Plaintiff was dealing with the Wheelock Marden Group, by 1982, D1, the parent company, was no longer prepared to support WMI. This change of heart and intention was not brought to the attention of the Plaintiff by the Defendants. Second, the Defendants failed to disclose the true financial position of WMI, namely, that it was in solvent by the time the loans were drawn down and the guarantees given and, in particular, failed to disclose a cashflow projection which would have revealed WMI's real cashflow and liquidity problems.

13. Para. 2.6 of CSOC reads:

"Further, each loan was made by the Plaintiff following and in reliance on a series of misrepresentations, both express and implied, including misrepresentations by omission, made by and on behalf of the Defendants. Further and/or alternatively, the Defendants aided and or counselled and/or procured the making of such misrepresentations. Further and/or alternatively, they conspired together to make and procure the making of such misrepresentations. Full details of the Plaintiff's claims appear below."

14. As Mr. Heslop for D1 said, on its own that plea is deficient. It is plain, however, that that paragraph is merely by way of introduction or, as Mr. Cullen for the Plaintiff put it, an umbrella. The CSOC goes on to plead the representations, and to give particulars of WMI's insolvency, of the falsity of the representations and of knowledge. Paragraphs 10 and 11 then read:

"10. Further and/or alternatively, given the true position of W.M.I. and the fact that none of the Defendants made the Plaintiff aware of the same despite their knowledge of the same, the Defendants, from at least February 1983, must have conspired and did conspire together to make the said misrepresentation and they are, thereby, each liable for the making of such misrepresentations.

11. To support the allegations in paragraphs 10 and 11 above the Plaintiff will rely on all the facts and matters pleaded above and, in particular, on the facts and matters set out in Paragraphs 4,5 and 6 above. Until after Discovery and/or Interrogatories herein the Plaintiff is unable to give further particulars."

15. The reference to paragraph 11 in paragraph 11 is an error resulting from consolidation and will be corrected. Mr. Heslop criticized paragraph 10 as simply being "the wish father to the thought" and said it is deficient in material averments of ingredients of conspiracy. Paragraph 11, he said, does not cure the deficiency, the reference to earlier paragraphs being too referential and vague. Accordingly, Further and Better Particulars were sought of paragraph 2.6. Request 13 asked the Plaintiff, in relation to each Defendant, to identify each overt act relied on in support of the allegation that each Defendant conspired with his co-defendants. The answer was:

"Paragraph 2.6 contains the primary allegations of conspiracy against the Defendants which are subsequently sufficiently particularized in the Statement of Claim. See, in particular, paragraphs 4, 10, 11, 14, 21 and 22 of the Statement of Claim.

Further particulars are given herein and in the Schedule of Insolvency."

16. Of that answer, the Court of Appeal said in its judgment at page 23:

"Again the answer to this request is wholly unacceptable for similar reasons to those given in relation to Requests 11 and 12. In this request there is the added factor that the Plaintiff seeks to avoid giving further particulars until after discovery. This is not proper in an allegation of this nature.

Proper particulars must now be given or the allegation must go."

17. In relation to Request 11, the Court of Appeal had said:

"The 1st Defendant submits that this allegation is at the centre of the Plaintiff's case. It is. It is mandatory that misrepresentations are fully pleaded. However they do not have to be pleaded twice. They may be pleaded by reference to other paragraphs but if so the references must concise and specific.

The present answer incorporates lengthy pleading and is unspecific. The reference to 22 Paragraphs of the Statement of Claim, the lengthy particulars already provided and the Schedule of Insolvency is wholly unacceptable, improper and embarrassing. The Plaintiffs must provide proper particulars or risk the consequences."

18. Remarks to similar effect were made in relation to Request 12.

19. In compliance with the order of the Court of Appeal, the Plaintiff provided further Further and Better Particulars. To Request 13, it replied:

"The overt acts relied upon are:-

(1) The express misrepresentations were made

(I) as alleged in Paragraph 4.1 of the C.S.O.C. and the particulars given thereunder by the Fifth Defendant and by representatives of the First Defendant and W.M.I. and the Wheelock Marden Group (see the answers to Requests 46 and 47 as to the latter);

(ii) as alleged in Paragraphs 13.5 and 14.1 of the C.S.O.C., and the particulars given thereunder, by the Fifth Defendant;

(2) They were so made to the knowledge of all the Defendants (see answer to Requests 57 and 163) and as to the representations by omission the representations were not corrected by any of the Defendants (see answers to Requests 54 and 160);

(3) The Defendants (other than the First Defendant) as the members of the Board of Directors of W.M.I. and the First Defendant as the General Manager of W.M.I. had the common purpose of obtaining the loans from the Plaintiff specified in Paragraph 2.3 of the C.S.O.C.;

(4) The said misrepresentations were made with the intention of inducing the Plaintiff to make the relevant loan as alleged in Paragraphs 4.4 and 14.5 of the C.S.O.C. and the Plaintiff in reliance on the said misrepresentations entered into the relevant loans as alleged in Paragraph 12.1 and 23."

20. Of that answer, Mr. Heslop complained that paragraph (1) relies on the misrepresentations themselves. He said that if there is an allegation of an agreement to make fraudulent misrepresentations, overt acts relied on to support the allegation of an agreement cannot be the misrepresentations themselves as they are the product of the conspiracy not overt acts. He described this, with my connivance, I am afraid, as the "boot strap argument".

21. As to paragraph (2), he said it simply shows knowledge of misrepresentations but, if the misrepresentations themselves are insufficient, knowledge is equally insufficient.

22. Mr. Heslop argued that paragraph (3) does not disclose any intention or purpose to injure because there is nothing wrong in obtaining a loan. Paragraph (4), he said, is again a "boot strap" plea.

23. A similar request, Request 114 (1)(2) was made in relation to paragraph 10 of CSOC. The Court of Appeal ordered that proper particulars should be given. The answer supplied pursuant to that order simply referred back to the answer to Request 13.

24. The pleading in relation to the Annalock is a mirror image of the Sealock. By Request 244, the Defendants sought the same particulars. The answer given after the Court of Appeal had so ordered again referred to the answer to Request 13.

25. Mr. Heslop asked whether, by engrafting the latest answer to Request 13 onto the CSOC, the criticisms of the Court of Appeal in relation to the original Particulars and the omission of ingredients of a conspiracy have been met. In his submission, the answer is "no". He argued that properly pleaded, there should be allegations of a particular date and place at which the Defendants agreed to make fraudulent misrepresentations for the purpose of injuring the Plaintiff. Overt acts would be further discussions culminating in such misrepresentations.

26. With some diffidence, I disagree. I say with diffidence because I am conscious of my peculiar position in having been a member of the Court of Appeal which directed considerable criticism at the Plaintiff. I am conscious that the Defendants might have the impression that I have, as it were, turned my coat. It is true that both parties agreed that I should hear this application, and because I was to some degree conversant with the case the hearing may have been curtailed. I do not, however, feel comfortable. Before sitting down to consider this judgment, I gave directions at the end of the hearing that, inter alia, I should deal with all further applications and inevitably the trial. I now wonder whether that is appropriate and would like to hear counsel on this when convenient. In the meantime, I strongly suggest that a judge who has sat in an appellate capacity should thereafter deal with the same case at first instance only in the most exceptional circumstances.

27. So I disagree with Mr. Heslop. I disagree in relation to the ingredients because the only one about which there might, at first sight, be any doubt is the intent to injure. Request 114(3), however, asked whether it is alleged that the Defendants conspired together with intent to injure the Plaintiff. The answer was "yes". The Court of Appeal did not order further particulars to be given.

28. Mr. Cullen argued that intention to injure is to be inferred from the overt acts, that is, that they were aimed at a plaintiff and that injury and loss were reasonably foreseeable. He relied on the judgment of Lord Denning M.R. in Lonrho v. Shell (1982) A.C.173 which was quoted with approval in Lonrho v. Fayed. Lord Denning said:

"The intent to injure may not be the predominant motive. It may be mixed with other motives. In this context, when the agreement is to do an unlawful act, we do not get into the quagmire of mixed motives as Lord Simon L.C. described them in the Crofters case at p.445. It is sufficient if the conspiracy is aimed or directed at the plaintiff and it can reasonably be foreseen that it may injure him and does in fact injure him."

29. I think that misses the point. At trial, a plaintiff will no doubt rely on Lord Denning to establish his case. As a matter of pleading, however, it remains necessary to aver that there was an intent to injure.

30. As to overt acts, there was extended argument because of differing uses of the term by the parties. In answer to Request 13, the Plaintiff provided details of overt acts in the accepted sense, i.e. acts carried out in furtherance of the combination and its purpose. Mr. Cullen conceded before the Court of Appeal that at least one overt act must be pleaded. He argued that this has now been done. In Request 13, however, the Defendants were using "overt acts" in the sense of facts and matters relied on to support the averment that the Defendants combined. Such particulars, as Mr. Heslop said, are missing. Provided, however, the Defendants know who are alleged to be parties, in this case all of them, and when the agreement was concluded, in this case by February 1983, I do not think it can be said that they do not know the case against them. By definition, conspirators do not usually make public their combination. It is only as events unfold that an injured party is able to deduce that two or more persons have ganged up on him. It is a matter of inference or deduction that those persons combined before carrying out the overt acts of which in his pleading the injured party will complain.

31. I do not see the failure to do more than assert who were the parties to a conspiracy, or to give more than an approximate date, constitutes some exception to the rule that fraud and conspiracy must be pleaded with the utmost clarity and particularity. I do not need to rely on the somewhat dubious authority of Lord Denning M.R. in Astrovlanis v. Linard (1972) 2 Q.B. 611. Nor do I derive any assistance from scuttling cases such as The Dias (1972) 2 Q.B. 625. What is plain is that, in the same way as it is now impermissible to plead scuttling without more, it is impermissible to plead conspiracy without giving particulars of who are parties thereto and, at least approximately, when the combination was formed. The pleader must then go on to aver and particularize the other ingredients.

32. In this case, I am satisfied that all the necessary ingredients of conspiracy have been pleaded and sufficiently particularized so that the Defendants can be in no doubt of the case they have to meet. If the matter rested there, I would dismiss the application. The essence of the conspiracy, however, lies in the alleged misrepresentations which are under attack by the individual Defendants.

33. Paragraph 4.21 of the CSC reads:

"The above representations, including the representations by omission, were made on behalf of the Second to Twelfth Defendants as Directors of WMI, and on behalf of the First Defendant. Further or alternatively, the Defendants and each of them authorised the Fifth Defendant to make such representations and/or ratified the same."

34. That paragraph relates to the Sealock. Paragraph 14.3 is in the same terms in relation to the Annalock. The Plaintiff no longer relies upon ratification. By Request 55, particulars were sought of facts and matters which the Plaintiff relies on in support of the allegation that representations were made on their behalf. In answer, the Plaintiff said:

"This is a request for evidence. The capacities in which the Defendants are sued are clear from the Statement of Claim. For the avoidance of doubt and in so far as is necessary, the Plaintiff will say that the First Defendant is vicariously liable and/or liable as principal for the acts and omissions of the Fifth Defendant."

35. By Request 56(1), particulars were sought of the overt acts and documents whereby each Defendant authorised D5 to make such representations. The Plaintiff answered:

"The Plaintiff's case is adequately pleaded. In any event, this is a request for evidence. Once Discovery is complete and/or Interrogatories are supplied the Plaintiff may serve further voluntary particulars."

36. The Court of Appeal ordered particulars to be given so that the Defendants should know precisely how the case is put. The Plaintiff then further answered Request 55:

"The Fifth Defendant acted on behalf of the First Defendant in that the First Defendant is vicariously liable and/or liable as principal for the acts and omissions of the Fifth Defendant falling within his authority as a director of the First Defendant. These are the best particulars that can be given."

37. In answer to Request 56, the Plaintiff said:

"(1)and(2) The Fifth Defendant was an employee and a director of the First Defendant. As such he was authorised to negotiate in relation to the loans, specified in Paragraph 2.3 of the C.S.O.C., on behalf of WMI and on behalf of the First Defendant. The Plaintiff relies on the participation throughout of the Fifth Defendant set out in Paragraphs 3.4-3.10 and 13.1-13.5 of the C.S.O.C. and to the letter from the First Defendant referred to in Paragraph 3.4(1),4.1.1(3) and 4.1.4 of the C.S.O.C. which was signed by the Fifth Defendant. If and so far as he was not so authorised each Defendant ratified the representations when it or he became aware of the representations (see answer to Requests 57 and 163) and failed to withdraw or correct the same. These are the best particulars that can be given."

38. For the individual Defendants, Mr. Kotewall said that there are no particulars in relation to them. Either the Plaintiff is not saying or is unable to say that the representations were made on behalf of any of them or authorized by them. The particulars furnished in relation to other allied paragraphs in CSOC do not take matters further because, when necessary, they refer back to Requests 55 and 56. Consequently, none of D5's acts can be attributed to the individual Defendants. The Plaintiff, therefore, has no case and must be struck out. A similar argument applied to the Annalock.

39. Mr. Cullen made three points. First, that paragraph 2.6 of CSOC asserts express agency which the Plaintiff will try and prove. Unless agency or authority is in writing, particulars can rarely if ever be given. Like conspiracy, the matter is secret and it is for evidence to establish its existence. He said the Plaintiff is entitled to cross-examine the individual Defendants as to whether they expressly authorized D5 to act on their behalf in negotiations with the Plaintiff.

40. Of course, the Plaintiff will be entitled to cross-examine the individual Defendants, if they ever go into the witness box. Whether they go into the witness box depends upon whether the particular cause of action itself should go to trial.

41. The question, it seems to me, is whether express agency can be inferred from the mass of particulars that has been given. In my view it can not. The particulars certainly suggest that the individual Defendants knew or should have known D1's position as to support of WMI, WMI's financial position and D5's negotiations with the Plaintiff. But that is a very long way from supporting a claim that they authorized D5 to make representations or omissions on their behalf. I do not think that the individual Defendants should be expected to defend on this basis.

42. Second, Mr. Cullen argued that because of their guilty knowledge, concurrence and intent, liability has been brought home to them as parties without any question of agency arising. He accepted, however, that it is necessary to demonstrate active or intentional participation, that mere knowledge is not enough.

43. In Culzean Inventions Limited v. Midwestern Broom Company Limited and Others (1984) 3 W.W.R. 11, Grotsky J. said at page 40:

"I have also further considered Star Cabs Ltd. v. Cosawn Enterprises Inc., Sask. Q.B. No. 100, 1980, J.C.S.C. (unreported), wherein I held that mere knowledge, acquiescence, or approval of the act, without co-operation or agreement to co-operate, is not enough to constitute one a party to a conspiracy. These must be intentional participation with a view to the furtherance of the common design and purpose: vide 12 C.J. 544; also Sask. Farm & Land Co. v. Smith, [1923] 1 W.W.R. 1179 (Sask. K.B.)"

44. Both Mr. Cullen and Mr. Heslop relied on this passage but diverged on whether "intentional participation" is demonstrated in the instant case.

45. In re Lands Allotment Company (1984) 1 Ch. 616 is more helpful. The question was whether directors were liable for an ultra vires investment in shares of another company, an investment which the Court found to be an honest misapplication of money. In dealing with one director, Lindley L.J. said at page 36:

"I have come to the conclusion from his own statement, that Mr. Block was so mixed up in this, and took so active a part in it, that he is liable."

46. The Court had, however, to deal with the investment in terms of fraud. At a meeting, one of the directors made an untrue statement to shareholders. At page 640 Kay L.J. said:

"The persons who are before us are persons who were present at that meeting, and it is sought to make them liable because they, being present at that meeting, must be taken to have heard Mr. Balfour's statement, and therefore to have concurred in that statement, and thus to have joined in misleading the shareholders. I am not prepared to say that the evidence is sufficient. All the evidence we have got is that they were at the meeting. I have no doubt that the directors at the time - all those directors, at any rate, who are sought to be charged - believed, as they say they believed, that this was a perfectly valid and proper transaction, and they had no ground whatever for concealing it, and in order to bind them by a false statement of this kind made by Mr. Balfour, speaking for myself, I should require it to be proved very clearly that they thoroughly apprehended the falseness of the statement that was made, and concurred in it for the purpose of deceiving the shareholders who were present. I do not think the evidence comes up to that. The mere fact that they were present at the meeting does not seem to me enough to enable the Court to treat them as having committed a fraud for the purpose of concealing the actual facts from the shareholders in reference to this investment in the shares. Therefore, I think the learned Judge was quite right in treating them as absolved from liability for this investment by the lapse of time that has taken place."

47. For the purpose of this application, I have to accept all the facts and matters alleged by the Plaintiff as being true. The facts and matters come to this. By virtue of their position as directors of WMI, except for D7, who was only a director of D1, the individual Defendants were aware, through board and other meetings, minutes and circulars, of the circumstances of WMI and of the negotiations for the purchase of the two vessels. I note Mr. Heslop's arguments that access to documents is one thing but whether they were received or understood is another, and that in relation to Sealock, at least, there was a very small window of time in which the combination could have been effected. At this stage, however, it must be open to argument that the directors of a public limited company, which was indisputably encountering some problems, did have knowledge of D1's change of attitude, of WMI's problems and of the state of negotiations, and did endorse the approach adopted by D5. The possibility that D5 and through him D1 were on some frolic of their own is a matter which very plainly ought to be investigated at trial. Complex and difficult though this cause of action is, I do not think it should be struck out.

48. I do not need to deal in detail with Mr. Cullen's third point, namely that in paragraph 100 of their defence the individual Defendants make an assertion of agency on the part of D5. Although recognizing that this is an alternative plea following a denial, he said that the Defendants cannot blow hot and cold. I reject that. I do not consider that the Plaintiff can rely upon an alternative plea as a positive case of agency that somehow completes the Plaintiff's case.

49. I come to the alternative plea of fraudulent trading. For the purpose of this cause of action, Mr. Heslop was prepared to accept that "any fraudulent purpose" in section 275 of the Companies Ordinance envisages something other than the more usual defrauding of creditors. He suggested, however, that it is difficult to imagine any such purpose and that no such purpose has emerged in this case.

50. Mr. Cullen said that paragraphs 28 and 30 of CSC were pleaded so that if the Court will not otherwise infer fraud and it is necessary to show personal benefit on the part of the Defendants, the Plaintiff will be able to pursue this at trial. Paragraph 28 reads:

"Further and/or alternatively, for their own purposes or purposes unknown the Defendants in late 1983/early 1984 misrepresented the position of the Plaintiff thus inducing the said releases and deferments of interest installments at a time when they knew or ought to have known or were reckless as aforesaid."

PARTICULARS

(1) The Plaintiff repeats Paragraph 2.5 above and the particulars thereunder;

(2) The Plaintiff will also refer to and rely on all the facts and matters pleaded in paragraphs 3 to 11 and 13 to 22 above;

(3) It was the Fifth Defendant who negotiated the said releases and deferments and he expressly misrepresented the position and did not make plain the true state of WMI as particularised above."

51. Paragraph 30 reads:

"Further and/or alternatively, to the extent that it was the case or can be inferred from all the aforesaid that the Defendants were acting contrary to the interests of the Plaintiff and/or the Creditors generally and/or were acting in their own interests and not those of WMI (Whether to try and protect their position on a charge of fraudulent trading, or to protect their position financially or otherwise) such were improper purposes within the Companies Ordinance (1975 and 1984)."

52. Further and Better Particulars of paragraph 28 were sought and answered thus:

"Of "for their own purposes or purposes unknown the Defendants in late 1983 early 1984 misrepresented the position of the Plaintiff"

(1) State the nature of the Plaintiff's case as to the facts and matters referred to by the expression "their own purposes", identifying each such purpose relied upon.

(2) In relation to each Defendant, state all material facts and matters in respect of each such purpose identified as being relied upon in support of the allegation that such purpose was their own.

(3) Identify to whom the purposes were unknown and if and insofar as such purposes were known to any person or body, identify each such person or body.

(4) State the position of the Plaintiff which it is alleged the Defendants misrepresented.

(5) Give full particulars of the said position identifying all facts and matters upon which it is intended to rely.

Answer

(1), (2) Purposes of their own as opposed to the interest of WMI and its creditors, such as saving face and/or retaining business credibility and/or retaining or obtaining personal pecuniary advantages and/or avoiding pecuniary disadvantages and/or avoiding the potential liability of the First Defendant as General Manager of WMI. The Plaintiff may give more particulars after the completion of Discovery and/or the provision of Interrogatories.

(3) They were unknown to the Plaintiff and WMI's creditors. The purposes were known to the relevant Defendants.

(4) "The Plaintiff" is an error for "WMI". (5) The true financial position of WMI is adequately pleaded."

53. And of paragraph 30 thus:

"279. Of" the Defendants were acting contrary to the interests of the Plaintiff and/or the Creditors generally and/or were acting in their own interests and not those of WMI"

(1) In relation to each Defendant, state each and every interest of the Plaintiff it is alleged the Defendant acted contrary to.

(2) In relation to each creditor, give full particulars mutatis mutandis as in Request (1) above.

(3) In relation to each Defendant, state each and every interest of the Defendant's own it is alleged the Defendant acted in and how the same conflicted with that of the Plaintiff.

(4) In relation to each Defendant, state each and every interest of WMI it is alleged the Defendant was not acting in.

Answer

(1) (2) The Plaintiff's case is adequately pleaded.

(3) Already asked and answered. See the answer to Request 275.

(4) The Plaintiff's case is adequately pleaded."

54. Of request 275, the Court of Appeal said:

"The bald assertion of bad motive alleged must be particularised if the Plaintiff seeks to rely on it. Speculative particulars are not proper. The Plaintiff must give the particulars, or state the full nature of its case and may not reserve its position."

55. In relation to Request 279, the Court of Appeal ordered the particulars requested to be given. To Request 275, the Plaintiff answered:

"(1) and (2) The nature of the Plaintiff's case is that the Defendants did not act in the best interests of WMI and its creditors, but acted for purposes of their own. The Plaintiff avers that their own purposes were as follows:

(i) The Second to Seventh Defendants were seeking to protect their status and position as directors of a publicly owned conglomerate company, carrying on business in the shipping, real estate and trading sectors. The Second to Twelfth Defendants were seeking to protect their status and position as directors of a major Hong Kong publicly owned shipping company;

(ii) Those Defendants who were shareholders, or members whose family were shareholders of the First Defendant, were seeking to protect the value of those shareholdings. The best particulars that the Plaintiff can give are that the Second and Sixth Defendants had beneficial shareholdings in the First Defendant, as had the wives of the Sixth and Seventh Defendants.

(iii) the Defendants were seeking to prevent the First Defendant suffering financial loss.

As to (ii) and (iii), the possibility of cancelling the Dalian newbuildings was under active consideration (as particularised in the answer under Request 216). However, the Defendants were aware that the Dalian yard considered that it was dealing with the First Defendant itself, and in view of the possible adverse consequences to the First Defendant, the possibility of cancelling the Dalian newbuildings was abandoned even though this was necessary for the survival of WMI as advised by S&C at the Board Meeting of WMI on 9th February 1993. In a Memorandum to Directors of the First Defendant from the Fifth Defendant dated 8th February 1983 the Fifth Defendant reported on meetings that had taken place between himself, the Fourth Defendant and officials of CSSC during the previous week concerning the Dalian newbuildings. The Fifth Defendant stated in the said Memorandum that failure to perform under the Dalian contracts would have far reaching consequences for the First Defendant as he had no doubt that it was with the First Defendant that CSSC considered they were dealing. At the Shipping Committee Meeting on 6th July 1983 the Fifth Defendant again advised that cancelling the Dalian newbuildings would have far reaching effects and the Twelfth Defendant said that the Chinese did not differentiate between WMI and the First Defendant. It was thereupon agreed that no more money should be spent on the Dalian newbuildings unless and until the Board of WMI gave their specific direction to the contrary. These are the best particulars the Plaintiff can give.

(3) These purposes were unknown to the Plaintiff and WMI's creditors. The purposes were known to the Defendants.

(4) "The Plaintiff" is an error for WMI.

(5) The true financial position of WMI is set out in items 1 to 257 in Schedule A and the Balance Sheets in Schedule B(3), (4), (6) and (7)."

56. To request 279, the Plaintiff answered:

"(1) & (2) The financial interests of the Plaintiff and the other creditors of WMI as creditors.

(3) As to the First Defendant, its own financial interests. As to those Defendants who were shareholders in the First Defendant, their own and their families' financial interests and that of the First Defendant. As to the other personal interests of the Defendants, see the answer to Request 275.

(4) As to each Defendant, each and every interest."

57. Under Request 275, the amplification of sub-paragraphs (ii) and (iii), like the Defendants, I found difficult to fathom. It hints at fraudulent preference. Mr. Cullen explained, however, that fraudulent preference does not arise. The cancellation of vessels being built in Dalian was essential to WMI but would damage D1 with whom the Chinese thought they were dealing. No further attempts were made to cancel the vessels. WMI was sacrified in the interests of D1.

58. I make no apology for saying that the mind boggles at the attempts the Plaintiff has made to fix the Defendants with some form of ulterior personal motive. I have no hesitation in saying they are wholly untenable. On perhaps understandable suspicion, the Plaintiff has built speculation and supposition. The edifice, in my judgment, lacks any substance. No sufficient or satisfactory particulars have been provided. The plea must go.

59. Accordingly, I order that paragraph 28 and so much of paragraph 30 as relates to this cause of action be struck out. The balance of the two summonses to strike out I dismiss.

Discovery

60. A measure of agreement having been reached, the Defendants restricted their application to 22 documents for the existence of which the Plaintiff accepts a prima facie case has been made out. The Defendants' applications involve Order 24 rules 3, 7, 8, 10, 11, 13, that is, both discovery and production.

61. Discovery should be made or ordered of any document which may put a party on a train of enquiry that may have the effect of advancing his own case or damaging that of his opponent. See rule 2 and Compagnie Financiere Du Pacifique v. Peruvian Guano Company (1882) 11 Q.B.D.55. Discovery will not be ordered if it is not necessary, and refused if it is not necessary either for disposing fairly of the cause or matter or for saving costs. It is for the party objecting to discovery to satisfy the court it is not necessary. See rule 8 and Dolling-Baker v. Merrett (1991) 2 All E.R. 890.

62. Production for inspection will not be ordered unless it is similarly necessary. It is for the party applying to satisfy the court that it is necessary. See rule 13 and Dolling-Baker.

63. Rule 10(1) entitles a party to serve notice seeking production of any document to which reference is made in the other party's pleading or affidavits. The meaning of 'reference' was recently clarified in Dubai Bank v. Galadari and Others (2) (1990) 1 W.L.R. 731. A distinction is to be drawn between a transaction and a document. At page 739, Slade L.J. giving the judgment of the Court said:

"In our judgment, a mere opinion that on the balance of probabilities, a transaction referred to in a pleading or affidavit must have been effected by a document, does not give the court jurisdiction to make an order under R.S.C., Ord. 24, r.10, unless the pleading or affidavit makes direct allusion to the document or class of documents in question."

64. At page 740, he continued:

"Before examining those items individually, we would make one further comment. A number of words or phrases, such as "guarantee," "mandate" or "discretionary trust," will be capable of being read as a reference to a transaction in some contexts and as a reference to a document in others. In applying R.S.C., Ord. 24, r. 10 in such cases, the task of the court must always be to extract the fair meaning of the words used in their context."

65. The first issue is whether the documents or any of them are referred to in the CSOC or Further and Better Particulars. At first sight, the answer is "yes". In relation to the initial Sealock loan agreement made on 5th June 1981, the Plaintiff pleads in paragraph 3.2 of CSOC that the principal security on which its parent relied was an agreement to assign certain deposits. The Defendants sought Further and Better Particulars of every other item of security "which was to be provided" by WMI's subsidiary. In answer, the Plaintiff said "the other items of security provided" under the terms of the loan agreement were, inter alia, a counter guarantee from EKR. That, argued Mr. Heslop, is a clear reference to a document.

66. It must be noted, however, that that loan agreement was varied and never put into effect. Thus, as Mr. Cullen argued, it was a transaction. I agree. The loan agreement was plainly a document but it constituted only part of a larger transaction which might ultimately have been consummated by the preparation and provision of other documents such as the EKR counter guarantee.

67. In any event, I am satisfied that these applications raise nothing more than a red herring. To accede to them would be to embark on a wholly sterile line of enquiry. The combined justification offered by the Defendants is that the documents are relevant, first, to the question of reliance by the Plaintiff on the representations and, second, to quantum.

68. As to reliance, Mr. Heslop and Mr. Barma said that the two transactions cannot be looked at in isolation. They were part of a series of transactions going back to 1979. An examination of the conduct of the parties may show that because of the success of earlier transactions, the Plaintiff may have entered willy-nilly on these two transactions regardless of any difficulties being experienced by WMI. Further, everyone involved was trying to find a way to solve the problem arising from WMI's difficulties in a deteriorating shipping market, where the value of the two vessels would be much less than the delivery price. Cancellation would be severe on everyone particularly the Danish shipyard at the time when European shipyards generally were being undercut by Asian competition. Therefore, it is not fanciful that the Plaintiff may have been influenced by such extraneous factors as well as the line of security which had been and was being furnished.

69. In my judgment, it is wholly idle to pretend that, whatever view the Plaintiff may have taken of earlier transactions and the security available or to be made available to it, it would have been wholly uninfluenced by accurate knowledge of what is alleged to have been WMI's true financial position. As Mr. Cullen submitted, it is only necessary for the Plaintiff to show that the representations were an inducing cause not the inducing cause. See Spencer Bower and Turner, The Law of Actionable Misrepresentation, 3rd edition page 139, paragraph 120. It is beside the point to argue at this stage that the representations, in the light of developments in the law, may or may not be actionable. If they are not, the Plaintiff will fail; if they are, the Plaintiff has a chance of success.

70. As to quantum, it was argued that these documents will be relevant to the trial judge's discretion, in making an order under section 275 of the Companies Ordinance, as to the amount the Defendants as directors of WMI should be made to pay. The provisions of section 275 are punitive as well as compensatory. It is material to know, it was argued, what recovery if any has been made from other sources. Further, unless the Court has a complete view of the financing, the Plaintiff could affect double recovery. There may also be some relevance as to mitigation of damage.

71. I accept that the Plaintiff is not entitled to double recovery. Doubtless, the Plaintiff will clarify its position on this. I do not accept, however, that it is necessary to have discovery and production of documents for this purpose. Nor do I accept that they will in any way assist the trial judge, if liability is established, in determining how much the directors should be ordered to pay by way of compensation or possibly punishment.

72. Bearing in mind both the principles I set out earlier and where the burden lies, I am satisfied that discovery and production of these documents is not necessary. I dismiss these applications.

Further and Better Particulars

73. By separate summonses, the Plaintiff made 106 requests for Further and Better Particulars of the defence against D1, and 102 requests of the other Defendants which are identical to D1's equivalent requests. Some have been satisfactorily answered or are not pursued. I will deal with each of the outstanding requests separately by reference to those made of D1. Where the numbering of the other Defendants' request does not correspond, I will include it in brackets.

74. I do not need to add anything to what was said about Further and Better Particulars by the Court of Appeal, except to say that I recognize the existence of the pregnant negative. A denial may be no more than a mere denial. It may, however, carry within it the assertion of a positive case so that particulars will be ordered. It may leave its nature in doubt so that the court must ascertain the true position. See Pinson v. Lloyds and National Provincial Foreign Bank Limited (1941) 2 K.B. 72.

75. I also note that Order 18 rule 7(2) provides that the effect of any document or purport of any conversation must if material be briefly stated. The provision is mandatory. That the party seeking Further and Better Particulars already has or has access to a document and does not indicate he cannot understand it, does not exempt the pleader from these provisions.

Request 5 (2) - (4)

76. Mr. Cullen accepted Mr. Heslop's confirmation that this relates to Clause 10 of D1's management contract and did not pursue this request.

Request 6

77. It is the fact that legal and financial advice was available and received that is material. The request has been sufficiently answered by identifying the documents and whether they relate to legal and/or financial advice.

Request 8 (1) (2)

78. The Defendants must specify the meetings and telephone conversations. I order these particulars to be given.

Request 9

79. The cashflow projection graph is sufficiently identified. The balance of this request is for evidence, not effect or gist.

Request 11

80. A positive case is being set up and must be particularized. If, as asserted on behalf of the Defendants, that case is contained in other paragraphs of the defence, particulars can be given by reference. It is not for the Plaintiff to have to try and discern, perhaps wrongly, the Defendants' approach.

Request 20

81. A non-admission is not a denial. It will be for the Plaintiff to prove the document and its contents. Conversely, the Defendants will not be able to assert some other case. The request is for matters which can more properly be sought by interrogatories or notice to admit.

Request 21 (2)

82. It is impermissible to refer to expert evidence. The Defendants should state briefly what they intend to establish so that the Plaintiff's expert will know with what he will have to grapple.

Request 24

83. I do not think any ambiguity or question of a pregnant negative arises. The denial is of knowledge. If the Defendants seek to assert some other case at trial, they will be unable to do so.

Request 28

84. It being accepted that the reference to expert evidence should not have been made and that the Defendant's case has been properly referenced, this request was not pursued.

Request 29

85. The pleading sufficiently sets out the case the Plaintiff will have to meet.

Request 30

86. Foresight is a condition of mind. The Plaintiff is entitled to know what the Defendants did foresee that fell short of what in fact occurred. I so order.

Request 31

87. The pleading refers to the WMI Group. Paragraph (1) must be answered to clarify whether the projections related to WMI's own vessels, vessels owned by its various subsidiaries or all vessels in the Group.

Request 33 (2) (5) and (6)

88. The Plaintiff is entitled to know if anything other than cashflow forecasts are relied on. Paragraph (2) must be answered. Paragraphs (5) and (6) are matters of evidence and need no further particulars.

Request 35 (3) - (5)

89. The Plaintiff wants to know the powers of the committee. Such a request would be irresistible. The request as couched in these paragraphs seeks evidence of how it exercised such powers. I agree that the Plaintiff is not entitled to this.

Request 38

90. The Plaintiff is entitled to clarification of the vague assertion "effectively obtained" on a vital issue. I order the request to be answered apart from "their exact terms" and "their legal or other effect" in paragraph (2).

Request 39

91. The Defendants must answer by reference if that is appropriate.

Request 41

92. The Defendants accept that there is a positive case to be found in various paragraphs of the defences. They must particularize their case, by reference if appropriate.

Request 42

93. D1 against whom this request is pursued must answer in order to clarify whether the Plaintiff has a general or particular case to meet.

Request 43 (Request 42)

94. The Plaintiff is entitled to the gist of the speeches which are plainly material. These requests are to be answered.

Request 45 (Request 44)

95. The Plaintiff is entitled to the valuation of the vessels at the date chosen. To that extent, I order these particulars to be given.

Request 46 (Request 45)

96. This was not pursued.

Request 48 (2) - (4) (Request 47)

97. I agree that the Plaintiff is not entitled to such particulars.

Requests 49 (Request 48) and 51 (50)

98. These were not pursued.

Request 53 (Request 52)

99. In the context of paragraph 58 of the defence as a whole, the Defendants' case is plain. The Plaintiff is not entitled to further particulars.

Request 54 (Request 53)

100. The Plaintiff is entitled to the gist of the 4 documents specified in the answer to this request. Otherwise, given the form of the request, it has been sufficiently answered.

Request 55 (Request 54)

101. The Defendant should specify whether paragraph 58 alone of the defence is relied on. If not, particulars should be given.

Request 57 (1) (Request 56)

102. Mr. Heslop described this as frivolous. I agree.

Request 59 (Request 58)

103. In context, the answer is self-evident. There is no ambiguity. I make no order.

Request 60 (Request 59)

104. "Applicable relevant financial considerations" is a horrible expression. I am satisfied, however, that the answer given does clarify and provide the necessary particulars.

Request 61 (Request 60)

105. The request is sufficiently and clearly answered.

Request 64 (Request 63)

106. The Defendants should state, if it be the case, whether any particular parts of the Report, as opposed to the whole Report, are relied on for the directors' anticipation. The reasonableness or otherwise of such anticipation will be a matter for trial.

Request 65 (Request 64)

107. The Defendants accept there is an affirmative case which is pleaded in various paragraphs of the defences. They should answer by reference to these paragraphs so that the Plaintiff can see the case it has to answer without trawling through the whole pleading.

Requests 66 (Request 65) and 67

108. The Defendants' position was accepted by Mr. Cullen. I make no order.

Request 70 (Request 67)

109. In the context of an introduction to a paragraph dealing with an attempt to realize tax benefits, this request has been sufficiently answered.

Request 72 (Request 69)

110. The Defendants should clarify by reference, if that is appropriate, what meetings and the gist thereof that they rely on.

Requests 83, 84 and 85

111. Mr. Heslop clarified that paragraph 98 (iii) of D1's defence should refer to provision of further information and (not "in") documents. Insofar as that was done at three meetings, D1 must supply the gist of the information so provided.

(Request 80 and 81)

112. The individual Defendants plead they provided further information in documents. Mr. Kotewell said there is no plea that any information was supplied at the meetings, that is, the minutes themselves constituted the information. It may be that the Plaintiff will seek further particulars in the light of that explanation which I found not readily apparent. In the meantime, I make no order.

Request 88 (Request 84)

113. As in Request 38, a comparable vague phrase "effective agreement" is unsatisfactory. These particulars must be supplied.

Request 89 (Request 85)

114. This is a request for evidence and not permissible.

Request 90 (Request 86)

115. Particulars have been given. They may not be acceptable to the Plaintiff but that is a matter to be resolved at trial.

Request 91 (Request 87)

116. Again, this is a request for evidence.

Request 92(5) (Request 88)

117. The particulars given in Parts A and B are strongly suggestive that only part of the picture has been provided. If these substantial reductions in price were without strings or any quid pro quo, the Defendants should confirm this. Otherwise they must provide particulars. As to Part C, the request as put is sufficiently answered.

Request 93 (Request 89)

118. Again, this is a request for evidence.

Request 94 (Request 90)

119. This is similar to Request 93. I make no order.

Request 95 (Request 91)

120. The Plaintiff is entitled to know the case against it. Unlike Request 53, where the case is plain from reading paragraph 58 as a whole, here paragraph 104 has to be read at least in conjunction with paragraph 102. The Defendants should give particulars, if only referentially.

Request 96 (Request 92)

121. As in Request 35, the Plaintiff is seeking evidence of how the committee exercised the powers available to it. I make no order.

Request 97 (Request 93)

122. What is an accurate summary of the advice given may be a matter for trial. The Defendants rely on minutes of a meeting as containing what they say is an accurate summary. They should, however, identify which part or parts of the minutes constitute that summary. I so order.

Request 98 (Request 94)

123. The admission that parent company's support would have facilitated rescheduling and the averment that such support was forthcoming are not susceptible of particulars other than those sought in paragraph (1) which the Defendants must answer.

Request 101 (5) (Request 97)

124. The averment, which is not admitted, contains two allegations. The Defendants must particularize whether each allegation is not admitted.

Request 103 (Request 99)

125. The Defendants' case is sufficiently clear when paragraph 120 is read with paragraph 121.

Request 106 (Request 102)

126. The Defendants pleaded that until Further and Better Particulars were provided, paragraph 27 of CSOC was denied. Further and Better Particulars having been provided, the Plaintiff asked the Defendants to particularize, to which the Defendants replied "not entitled". I do not think that answer either apt or helpful. The effect is, however, that there is a complete denial, not a conditional one as suggested by the Plaintiff. I make no order.