CARRIAN INVESTMENT LTD. v. WONG CHONG PO AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

1985 No. A7804

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JUDGMENT

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1. This is a motion by eight defendants in an action brought by Carrian Investment Ltd. (in liquidation) seeking to strike out the statement of claim that has been served or part of it. The matter has been argued before me for a day and a half and numerous authorities have been referred to; I have listened to succinct and clear submissions and been provided with a large number of copies of authorities and also helpful schematic diagrams showing what transpired, or was said to have transpired, in the allegations contained within this statement of claim.

2. I have already given judgment in a related motion yesterday where some of the same defendants were concerned. As my mind has been made up and I have come to clear conclusions, I do not consider it appropriate in this sort of case to reserve judgment and as I have said before, if therefore I do not deal with all of the submissions, nor perhaps this judgment is not as grammatically perfect or concise as it should be, I apologize.

3. The starting point for this sort of matter should indeed be the words of Buckley, J. in Carl Zeiss Stiftung v. Rayner & Keeler Ltd.⁽¹⁾; at page 1009, that learned judge said when dealing with this sort of application:

"It appears to me that, if a party adopts the course taken by the plaintiff here, it is for him as applciant to show that to allow the offending plea to stand in the pleading will in fact give rise to one of the vices mentioned in R.S.C., Ord. 18, r. 19, of such a quality and in such circumstances that the ocurt ought, in the exercise of its discretion, to strike out the offending matter. Every case must depend on its own facts.

 

        When a party to an action seeks to obtain an order striking out some part of his opponent's pleading, it is, in my judgment, incumbent on him to indicate clearly  what he wants to be struck out. "

In this instance, on the last day before delivery of the defence, a notice of motion was presented to this court (one notice of motion for six of the defendants, one for D2, one D8), seeking to strike out the statement of claim, which had been served, in very general terms. It occurred to me when this matter started that it would be difficult for the court and exceptionally different for the plaintiff to know with any precision what was being suggested. I therefore gave leave to amend the notices of motion and to re-serve these so that there could be set out particular features of the statement of claim which, it is said, should be attacked. Now again, in my judgment, the starting point of this sort of matter should be remembered, because I gratefully and respectfully adopt the words of Lord Justice Diplock in Letang v. Cooper ⁽²⁾ when he said-

"A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person. "

And has been explained, the factual situation in this statement of claim, embraces not one cause of action but four causes of actions. It appears to me that there is a common factual matrix that runs throughout those four causes of action. Therefore what is the role of the court when it comes to consider this sort of notice of motion? In my judgment, the approach of this court is not to pick out words or portions of paragraphs unless clearly they offend one of the vices contained within Ord. 18, r. 19, nor is it my function to be used really as a judge deciding a preliminary issue of law. My role is simply to decide, firstly whether or not there is any reasonable cause of action; secondly, to determine whether anything is contained within the statement of claim which is scandalous, frivolous or vexatious; thirdly, to decide whether or not there is anything there which prejudices, embarrasses or delays the fair trial of the action and fourthly to exercise my overall discretion to prevent abuses of the process of the court. The basic objects of this sort of motion are to prevent litigation, where there is no reasonable chance of success, being brought to the court and for the court to examine whether there is anything contained, in what appears to be a perfectly pleaded statement of claim, which is frivolous or vexatious and which may cause problems to persons, for example, not before the court. And my role, as I do emphasize, is to examine the matter from that point of view and that point of view only. I do not assess the evidentiary weight to be attached to certain facts nor do I examine in any depth, as it were, the differing views of legal positions which arise. In the course of argument in this case, I did interrupt one of the counsel to say that there was so much discussion about one aspect of the case, how can one say it is unarguable? It is indeed for these defendants, if they seek to obtain a remedy which this court has of either debarring a plaintiff in coming to the judgment seat, or interfering with his pleading in any substantial way, to satisfy me that there has been some breach of Ord. 18 r. 19 in that one of those matters contained in that Order has indeed been infringed. Let me say at the outset that I am in no way satisfied about any of the matters apart from one very small peripheral matter and in my judgment these notices of motion are wholly misconceived. The main complaint which is made is to the form of the statement of claim and in my judgment, although it is a matter essentially for the trial judge, it is a carefully drafted statement of claim spelling out in the clearest terms what the causes of action are. As I said, it appears to me that there are four causes of action contained within this claim, fraud, negligence, breach of trust and conspiracy, but all of those causes of action have indeed a similar factual matrix, because what has happened in this case, as is demonstrated by the diagrams that have been put before me, is this that the first, second, third, fourth, fifth and sixth defendants were all directors of the plaintiff (which used to be named Mai Hon Enterprise Ltd.); the first, third, fourth, fifth and sixth were also directors of Stelux and the first, third, fifth and sixth were shareholders of Stelux.

4. There occurred on the 28th of December, a series of transactions concerning Stelux, the plaintiff company, and Filomena, whereby certain events transpired resulting in the sale of assets in Mai Hon, that is the plaintiff company, of a property called the Stelux Building and shares in a company called Hongtex which represented land, the sale of those assets, or properties as I think they as described in the statement of claim, to Stelux; and at the same time, a sale by Stelux of 52% of the shareholding in the plaintiff company. Those series of transaction occurred at the same time with, in certain circumstances, common directors and it would be quite wrong for this court not to recognize that on occasions the veil behind company transactions has to be lifted and what goes on beneath that veil examined. The plaintiff, in this case, says that these transactions which occurred were deliberately done and dishonestly done to bring benefit of some financial factor, either to Stelux or to Filomena or in some way to infringe the provisions of Section 48 of the Company Ordinance. It is not necessary, in my judgment, for me to examine in depth the conflicting points of view expressed by counsel as to whether or not there have been dishonest or fraudulent devices which have occurred which brought about this situation, save insofar, in my judgment, on the pleadings as they stand, there was a combination to effect an unlawful purpose which caused loss to the company. There is a clear cause of action and I can see no argument against it. The elements of that are pleaded in the statement of claim and they are set out in paragraph 9 of the statement of claim, the combination, paragraphs 9 and 12, the unlawful purpose which infringes Section 48, and loss to the company which is pleaded in paragraphs 13 and 20. Again, arguments were addressed to the court, really on a factual basis, whether weight should be given to certain matters or not, and that in my judgment is a wholly inappropriate approach; whether indeed the trial judge will find, when he comes to consider all the evidence, that that tort has been proved will be essentially a matter for him based on the evidence he hears and the submissions made to him. There is no doubt, however, in my judgment, that there is ample evidence before the court that are factors capable of amounting to loss to the company. Whether they do is a matter for the trial judge to decide, but there is no doubt at all, according to the matters pleaded in the allegations of the plaintiff this is what they assert. The properties were disposed of at under-value; that deferred terms were given; there was an interest rate which they say was low, half a percent over prime - Mr. Ching said it was not low. (That is a matter for later decision. ) There was a period of deferment given and indeed one month's interest was free; the ingredients of that tortious cause of action are not disputed by Mr. Ching but what he submits and what other counsel submit is that, as they describe it, this is not a Section 48 position at all. I totally disagree with that point of view. Section 48 is drafted and deliberately drafted in the widest terms. It reads as follows:

The widest words one can see the draftsman deliberately using to catch a situation, where parliament and here the Ordinance quite deliberately wish to avoid; so one has words such as "directly" or "indirectly"; one has the word "otherwise", "any financial assistance", "for the purpose of or in connection with" and "any person". The multitude of occasions which that section will catch is dependent upon the precise facts led in any particular case. I am asked by these defendants to say, on the pleadings as they stand, there is no reasonable chance of success insofar as what is called the Section 48 position. I totally reject those submissions; it is not necessary for me to pass any view on the likely outcome of this litigation brought by the liquidators of Carrian against these directors, save for me to say that I consider that the pleading is carefully drafted and sets out on the face of it a strong case against these defendants, lifting as I say, the veil which has been placed over these contemporaneous transactions between those parties. It is not necessary for me to refer in detail to matters of law insofar as this is concerned; I have been referred to Belmont (No. 2)⁽³⁾ that directors may be liable even if innocent and also that financial assistance is given even if shares are purchased at full value. I have been referred to the Wallersteiner case (4) and Armour's case(5), at page 1525, Mervyn Davies, J. when dealing with Section 54 said as follows:

"I must apply the words of section 54(1) to the facts. I do so reading the word's neither widely nor restrictively, but in their plain ordinary meaning. I see that it was not lawful for the first plaintiff, a subsidiary of the third plaintiff, to give any financial assistance 'for the purpose of or in connection with' a purchase by any person of any shares int he third plaintiff. The section does not say that the assistance is not to be given to the purchaser. It simply says that assistance is not to be given. In fact, no financial assistance, at any rate no direct financial assistance, was given to the purchasers because the £93,000 was paid to the vendors, and the purchasers themselves paid the £7,000 for the shares.

 

        But is it the position that financial assistance is not to be given to the vendor? In E. H. Dey Pty. Ltd. v. Dey (1966) V.R. 464, McInerney J. had to deal with the Victorian equivalent of section 54. He said, at p. 470:

I agree with those remarks. "

Again, it is not necessary for the purpose of my role here today to express any conclusion with regard to the correctness of the decision of Mervyn Davies, J. following as he did the Australian decision. My preliminary view based merely on the submissions that have been put to me is that they appear correct decisions. Mr. Ching submits, however, that they are incorrect decisions. No doubt that is a matter which will take a considerable time before the learned trial judge. Whether these are correct decisions or not is by the way. What they do point out, however, is the difficulty which faces the defendants in seeking to assert before me that there is no reasonable cause of action based on an unlawful purpose which is contained within the provisions of Section 48 of the Ordinance. In my judgment, there is nothing at all in the point that is raised by the defendants. They raised other incidental matters. I hope I will not be considered discourteous to counsel if I do not examine in depth all the particular factors that were pointed out that I should examine. As I said my role really is not to go through individual sentences or words contained in a pleading and to give some view on it. My role is essentially that contained within the provisions of Ord. 18 r.19. I cannot find anything in these pleadings which prejudices, embarrasses or delays a fair trial of the action and certainly nothing which is an abuse of the process of the court. Miss Eu suggests that certain paragraphs bring about a contradictory situation as she described it. That is a matter no doubt she will submit in due course at the trial, and her submissions are also on matters such as the coexisting duties which exists between directors of the company and the legal advisors. Whether those duties are exact and precise, whether indeed they conflict on occasions, whether indeed they are different on occasions is by the way. There is no doubt at all in my judgment that there have been set out in this pleading all of the elements of all of the causes of actions that are sought to be brought against these defendants. Whether they succeed is a matter to be considered at the trial, but there is no doubt in my judgment that all the factual or the basic elements of those causes of actions are sufficiently pleaded. One complaint was made that an alleged conspirator, Filomena, who was the purchaser of these shares, purchased as I said on an under-valued sale of the shares from the plaintiff company to Stelux, was not a defendant. It was suggested that, as that company is not one of the defendants, I should do something about it, but I am not quite sure what I am supposed to do about it. The plaintiff deliberately has chosen not to sue that company. It is not for me to enquire why he has taken that course of action. He is perfectly entitled so to do. I am reminded at page 323 of Atkin, paragraph 82:

"The parties to an actionable conspiracy, like other tortfeasors, are liable jointly and severally. The plaintiff need not, therefore, sue all of them in one action, but all should be referred to by name if their names are known. "

Indeed, that has happened. Filomena is named because indeed they are one of the parties to this series of transactions occurring at the same time which, as I have said, the plaintiffs allege that you examine in detail and discover what they say happened here were fraudulent transactions occurring.

5. As I said, I do not wish to be discourteous to counsel for not taking other of their isolated points and looking at particular paragraphs, but I can find no substance at all in any of the submissions which are made other than one matter which is right I should deal with. There is contained within the statement of claim general allegations which are contained in paragraph 10(b) and 11(b) which say as follows:

And a similar assertion with regard to the mortgage deed at paragraph 11(b). Mr. Ching has kindly brought to my attention a decision of the Court of Appeal of Hong Kong in Citibank ⁽⁶⁾ where the learned judge of Appeal, Huggins, J.A., said at page 122 with regard to similar phraseology, that that formula was inconsistent with Ord. 18, r. 7 that if the precise words of the document are material they must be stated, otherwise the effect of the document must be briefly stated. And he says, at the bottom of that paragraph -

"The plaintiff should be compelled to limit himself to the effect of the document specifically pleaded. "

I, with the greatest respect, accept that the learned judge, who has great experience of these matters, correctly states this procedural point. I therefore do consider that, with regard to those two paragraphs, the plaintiff should provide particulars of any matters on which he wishes to rely not so specifically pleaded in the statement of claim. With regard to the precise form of the order which I should make insofar as those two paragraphs are concerned, I am prepared to listen to counsel. Save for that small matter, I reject the submissions made by the defendants on these amended notices of motion. I hold that their applications are in reality misconceived. The causes of action are clear on the pleadings and I can find nothing in those pleadings which offend the provisions of Ord. 18, r. 19. I therefore, save for that one matter with regard to those two paragraphs, dismiss the notices of motion.

(1) (1969) 3 W.L.R. 991

(2) (1964) 3 W.L.R. 573

(3) (1980) 1 All E.R. 392

(4) (1974) 1 W.L.R. 991

(5) (1980) 1 W.L.R. 1520

(6) (1983) H.K.L.R. 121