CHINA EVERBRIGHT - IHD PACIFIC LTD. v. CH'NG POH

HCA 12837/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12837 OF 1995

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R U L I N G

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1. This is an application by the Plaintiff to amend the Re-re-amended Statement of Claim.

2. This application has been made at the end of the Plaintiff's opening but before any evidence has been called. I should say that it appears to me unfortunate that time allocated for trial (a trial which has been put back twice) has to be spent now on points such as have been argued for the past two days, but I do accept that it is important in a hard fought war, such as this is going to be, that clear battle lines have to be drawn, and they should be drawn as early as possible and as clearly as possible so that the parties and the court are ad idem on what the issues are that have to be determined at trial. And in my view, a clarification of the pleadings before evidence is called is far preferable to a trial hastily commenced, but where there would be bound to be disputes from time to time as to what is or what is not in issue on pleadings which may be subject to some controversy.

3. The first proposed amendment is to paragraph 10 of the Re-re-amended Statement of Claim. Paragraph 10 reads as follows: -

"Further or in the alternative, the 1st Defendant converted the HK$127m. to his own use and the Plaintiff has suffered loss and damage.

Particulars

The Plaintiff will rely on the particulars given in the report of Mr John Lees dated 3 August 1998."

4. So the property which was alleged to be converted in paragraph 10 was a sum of money said to be "the HK$127m". This reference to "the HK$127m." has been defined in paragraph 5(2) of the same pleading as HK$127,617,747.88.

5. Now clearly, money in the abstract cannot be converted. What can be converted are cashier orders and cheques. But before the proposal to amend the Statement of Claim, there has been no claim that the property converted were cashier orders and cheques, and if cheques, which set of cheques.

6. The claim of conversion had also been referred to in paragraph 6(1) and paragraph 6(2). However, that adds very little, save to say that the conversion is of "the HK$127m. as pleaded herein".

7. The question is whether paragraph 7 could be incorporated as part of the conversion claim. Mr Griffiths, for the Plaintiff, said that paragraph 7 had been incorporated because conversion had been pleaded as a means of the conspiracy, and paragraph 7 pleads the acts in furtherance of the conspiracy.

8. However, in my view, paragraph 7 pleads the acts in furtherance of the conspiracy but not the property which was converted, so I would agree with Mr Strachan's submission that, as pleaded prior to the proposed amendment, the conversion plea was bad and there is a need to amend it.

9. Mr Griffiths has put forward a proposed amendment but Mr Strachan says that that is deficient and I shall consider that submission now.

10. The proposed amendment reads as follows: -

"Further or in the alternative, the 1st Defendant converted (a) 3 cashier orders and/or (b) subsequently 8 cheques to a total value of the HK$127m. to his own use in the manner described in paragraph 7(1)(a)-(d) by causing them to be applied for a purpose not for the Plaintiff's benefit and the Plaintiff has suffered loss and damage."

11. Mr Strachan has said that this pleading is deficient for two reasons. He has referred me to Bullen & Leake & Jacob's Precedents of Pleadings 13th Ed. and at page 955, it is said by the editors that a pleading of conversion should state whether the Plaintiff's claim is based on actual possession or the right to possess and the facts giving rise to the latter set out; and that the act of conversion must be pleaded.

12. Dealing with the first requirement, in my view, there is a sufficient pleading that IHD, the Plaintiff, had possession of the cashier orders and the cheques in question.

13. One sees in paragraph 7(1)(a)-(d) (which further incorporates by reason of the words "in furtherance of the conspiracy" the facts alleged in paragraph 6) that the payment of HK$127m. was repaid to the Plaintiff in the form of 3 cashier orders which cashier orders were paid into an account of the Plaintiff at the Ka Wah Bank; and at sub-paragraph (d) that the Plaintiff wrote 8 cheques totalling HK$127m. which were paid into an account at the Ka Wah Bank of one of the Plaintiff's wholly owned subsidiaries, Dixon Limited, and Mr Griffith adds to that "by causing them to be applied for a purpose not for the Plaintiff's benefit" which words appear in the proposed amendment.

14. In my view, that is sufficiently clear that the Plaintiff - IHD had in its possession the 3 cashier orders which the Plaintiff caused to be paid into an account at the Ka Wah Bank and obviously, the 8 cheques being the Plaintiff's own cheques, the Plaintiff also had possession of those 8 cheques.

15. It is clear from the Re-amended Defence that the Defendant knew what was the factual basis of the conversion claimed, because at paragraph 7 at (iv), the Defendant first pleads that the Ka Wah Bank permitted certain persons to take away the said 3 cashier orders to be symbolically delivered to the Plaintiff on 17 August 1985 to give the false appearance of repaying the Plaintiff and at sub-paragraph (v), immediately after the symbolic delivery, Yong, who at the time was the Plaintiff's company secretary and manager in charge of, inter alia, their accounts, took the said 3 cashier orders back to the Ka Wah Bank some time after 12:30 p.m. of 17 August 1985. So it is clear, in my view, that the possession of the cashier orders and of the 8 cheques had been with IHD, the Plaintiff.

16. Evidence had been called in the criminal trial regarding these cashier orders and cheques, and it is clear in the present case that the Plaintiff will be relying upon the same evidence that was called in the criminal trial. So there ought not to be any lack of understanding of what is alleged against the 1st Defendant.

17. In relation to the other aspect of conversion, it is clear, of course, that the act of conversion must be pleaded. The manner of conversion had been set out in the proposed amendment by reference to paragraphs 7(1)(a)-(d) and as I have said, by virtue of the opening words of paragraph 7(a), paragraph 6 is incorporated and as I have said, also by virtue of adding the words "by causing them to be applied for a purpose not for the Plaintiff's benefit", the act of conversion has been, in my view, sufficiently pleaded. It is important to note that it is only the act of conversion, not evidence, which needs to be pleaded.

18. Pausing here, I have been referred to the general principles governing the exercise of the court's discretion in relation to applications for amendment. It is clear that amendments ought to be allowed for the purpose of clarifying the issues to be determined at trial, and so long as there is no injustice caused to the other party in the exercise of the court's discretion, amendments ought to be allowed.

19. I have been referred to the passages set out against marginal note 20/8/11 of the Supreme Court Practice 1999 Vol. 1 and I am mindful that at trial, the court ought to be more careful before it grants leave to amend, but no evidence has yet been called. And I am, of course, prepared to allow the 1st Defendant such time as may reasonably be required to consider the amendments and to effect any consequential amendments which he may wish to make in answer to these amendments. So in the exercise of my discretion, I would allow the proposed amendment to paragraph 10 of the Re-re-amended Statement of Claim.

20. The second matter which has been debated before me is whether fraud as one of the unlawful means for a cause of action in conspiracy has been pleaded. Mr Griffiths said that it has already been pleaded in paragraph 6(1) of the Re-re-amended Statement of Claim which reads as follows: -

"The 1st Defendant fraudulently conspired with C H Low, Quek Teck Huat, Doreen Yong and Victor Tan in that in or about August 1985 they combined and agreed to injure the Plaintiff and/or to carry out an unlawful act by unlawful means, namely the contravention and concealment of the contravention of Section 48 of the Companies Ordinance Cap. 32 and/or the conversion of the HK$127m. as pleaded herein."

21. I must say that on reading paragraph 6(1), it would appear to me that as far as the unlawful means are concerned, it is clear from paragraph 6(1) that the unlawful means were the contravention of Section 48 of the Companies Ordinance, the concealment of the contravention of Section 48 of the Companies Ordinance and/or conversion. The word "fraudulently" describes, in my view, the conspiracy and I do not read the word "fraudulently" as describing the contravention of Section 48, the concealment of the contravention of Section 48, and the conversion.

22. I have been referred to the case of Beaman v. Arts Limited [1949] 1 KB 550 which at page 558 said that where one makes a claim for "fraudulent conversion", that does not make it a claim based on fraud, because fraud is not a necessary allegation to constitute the cause of action of conversion.

23. Similarly, fraud is not a necessary allegation to constitute a conspiracy, in the sense that one can have a conspiracy to do lawful acts which is still actionable because of a pre-dominant intention to injure.

24. However, if one says that there has been a conspiracy to do unlawful acts by unlawful means, one looks to see what are the unlawful means alleged, and in my view, as I have indicated, the way I would read paragraph 6(1) is that the unlawful means have been confined to the contravention of Section 48, concealment of the contravention of Section 48 and conversion.

25. Therefore in my view of the pleading of paragraph 6(1), I would agree with Mr Strachan that fraud is not one of the unlawful means constituting the cause of action of conspiracy as pleaded under 6(1). Mr Griffiths has not made any application to amend and so I say no more on that debate.

26. In relation to the third aspect, Mr Griffiths has also applied to amend the Re-re-amended Statement of Claim by adding paragraph 2(5) as follows: -

"Further and alternatively on 17 August 1985 the 1st Defendant and his co-conspirators received the 3 cashier orders referred to in paragraph 7(1) as agent and fiduciary of the Plaintiff with the duties alleged in paragraph 2(4) above."

27. I should add a little bit of the history in relation to paragraphs 2(1)-(4). It is correct as Mr Griffiths has pointed out that paragraph 2(4) pleads that:

"During the time he (the 1st Defendant) held the said positions and/or in any event since on or about 9 August 1985, the 1st Defendant owed the Plaintiff fiduciary duties, etc."

28. The "said positions" there refer to what has been pleaded at paragraph 2(1) and (2), i.e. that the 1st Defendant was at all material times since 9 August 1985 the Chief Executive Officer of the Plaintiff, and on 28 August 1985, the Defendant was appointed a director of the Plaintiff and, with effect from 19 September 1985, as Deputy Chairman, and on 11 January 1986 he became Chairman. So paragraph 2(4) in effect meant that during the time that the 1st Defendant was Chief Executive Officer, Director, Deputy Chairman and Chairman, he owed various fiduciary duties.

29. It is correct that the words "and/or in any event since on or about 9 August 1985" are wide enough to include some other reason why the 1st Defendant owed the Plaintiff fiduciary duties. However, it appears to be common ground that when the Plaintiff's counsel applied in January 1999 to make the purple amendments, it was said specifically that the Plaintiff was not adding any additional case for an allegation of fiduciary duty. Given that submission, if the Plaintiff were now to wish to add another basis for an allegation of fiduciary duty, I think it is only right and fair for that to be made clear. And that is what the Plaintiff seeks to do by the proposal to add paragraph 2(5).

30. Mr Strachan said that paragraph 2(5) as proposed is deficient. He said, first of all, it refers to the 1st Defendant and his co-conspirators doing certain things on 17 August 1985, presumably at the completion meeting, and Mr Strachan said that it is common ground that some of the co-conspirators were not present at that completion meeting. In my view, that is irrelevant. It is up to the Plaintiff to prove which of the co-conspirators were there at the completion meeting on 17 August 1985, and it is, in my view, open to Mr Griffiths to argue that when one co-conspirator received the 3 cashier orders, the effect is that all co-conspirators received the cashier orders because that was one of the acts done in furtherance of the conspiracy. So I see nothing in that criticism on the part of Mr Strachan.

31. The second criticism is that it was not sufficiently pleaded why or how Mr Ch'ng became an agent of the Plaintiff. Mr Griffiths has explained that it was by way of the receipt of the 3 cashier orders, in other words, paragraph 2(5) is to read that:

"Further and alternatively on 17 August 1985, the 1st Defendant and his co-conspirators by receiving the 3 cashier orders referred to in paragraph 7(1) were agents and fiduciaries of the Plaintiff with the duties alleged in paragraph 2(4) above."

32. If that were the amendment, in my view, it is open to the Plaintiff to plead it. Whether, in the absence of any finding of conspiracy, and assuming that the 1st Defendant was not Chief Executive at the time, that would be made out is really a matter for submissions of law, and that should not stop the Plaintiff from making the proposed amendment.

33. Finally, I deal with the proposed amendment to paragraph 11(1) which is as follows: -

"Further and in respect of each of the causes of action set out hereinabove, the Plaintiff is entitled to rely upon the provisions of Sections 4(7), 20 and 26 of the Limitation Ordinance insofar as it may be necessary."

34. Section 4(7) disapplies the limitation provision to applications for equitable relief. Section 20 disapplies the limitation provisions to an action by a beneficiary under a trust being an action

(a)	in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy or;
(b)	to recover from the trustee trust property or the proceeds thereof in the possession of the trustee or previously received by the trustee and converted to his use."

35. These are pleadings of law which are required because if one wishes to refer to any statutory provisions, one has to plead those provisions, but it is not apposite, in my view, for there to be argument now as to whether the Plaintiff can make good his reliance upon those provisions. There is in the pleadings a sufficient pleading of breach of fiduciary duty and there is also a provision of constructive trust. Therefore, in my view, Section 4(7) and Section 20 are clearly applicable.

36. I am however concerned in relation to the other causes of action which are referred to in paragraph 11(1) namely, the conspiracy which is a common law claim and conversion which is also a common law claim. In my view, it is for the Plaintiff to say why he is "entitled to rely upon" the provisions of Section 4(7) and Section 20 to those common law claims and therefore, in relation to the proposed amendment at paragraph 11(1), I would only grant leave to amend in respect of the cause of action of breach of fiduciary duty but not the causes of action in relation to conspiracy and conversion. I will now hear the parties as to costs.