COMMERZBANK AKTIENGESELLSCHAFT (HONG KONG) v. PEREGRINE FIXED INCOME LTD. (IN LIQUIDATION)

CACV 296/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 296 OF 2002

(ON APPEAL FROM HCA NO. 8033 OF 1998)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from an order of Deputy Judge Woolley made on 4 June 2002 whereby he dismissed the defendant's application for leave to file and serve a supplemental witness statement of John Eng Lee dated 5 March 2002 and a hearsay notice in relation thereto. At the conclusion of the hearing of this appeal we dismissed the appeal with costs and indicated that the reasons would be given in writing later, which we now do.

The action

2. This action was commenced more than four years ago. The plaintiff's claim arises out of a currency swap transaction whereby the plaintiff was to pay slightly more than DM73 million in exchange for slightly more than US$40 million. The plaintiff claims that the contract was made between itself and Peregrine Foreign Exchange Limited but that that company was acting as agent or otherwise on behalf of the defendant. There is no dispute that the DM sum was transferred into the defendant's bank account at 6:37 pm, Hong Kong time, on 9 January 1998. Likewise it is admitted that the US$ sum was not transferred to the plaintiff's account on the same day, or indeed at all. It is the plaintiff's case that the defendant received the DM sum as constructive trustee. Crucial to that case is the plea that the defendant knew no later than 3 pm, Hong Kong time, on 9 January 1998 that it would not be able to meet its financial obligations and in particular would not be able to pay the US$ sum into the plaintiff's account. It is alleged that the defendant had that knowledge because various directors, including one John Eng Lee, knew it. One of the issues in this case is whether the defendant's directors did have that knowledge at the relevant time namely between 3 pm and 6:37 pm, Hong Kong time, on 9 January 1998.

3. These proceedings were commenced pursuant to leave which was given under section 186 of the Companies Ordinance. With a view to defending the application to commence the proceedings an affidavit was filed by Sayedur Rahat Khan to which was exhibited a signed statement by Mr John Eng Lee as well as a draft statement by another director of the defendant. Mr Lee's statement dealt with the allegations which were made in the draft statement of claim which had been exhibited to the affidavit founding the plaintiff's application for leave. That draft statement of claim, we are told, corresponds to the present statement of claim.

4. Mr Lee's statement refers to negotiations which had taken place with a view to attracting other companies to invest in the Peregrine Group. Those negotiations were said to have broken down at 6 am on the morning of 9 January 1998. That statement then goes on to explain how attempts were made to obtain a loan from the Monetary Exchange Fund but again that proved fruitless. With reference to that matter the statement continues:

"7. ... About 3 pm I was informed that it had been a close decision but they had decided not to make a loan. This was the first time at which it became clear that the Peregrine Group was going to fail.

8. Even so, I would not at that stage have been able to say whether PFIL would default on its obligations on 9 January. I was principally aware the position of the Group's parent company PIHL, which I now knew was inevitably going to default because it had payment obligations including commercial paper obligations maturing that day which it would be unable to meet."

5. That statement was served on 16 March 2000 in response to an unless order which had been made by Deputy Judge Woolley for the service of witness statements. A hearsay notice was given in respect thereof.

6. The application before Deputy Judge Woolley on 4 June 2002 was for leave to serve a further witness statement of Mr John Eng Lee together with a hearsay notice in relation thereto. That witness statement is divided into two parts. Part A deals with the events from about 6 January to 11 January 1998. The second part, Part B, is directed to answering criticisms made in the Inspector's Report in respect of the collapse of the Peregrine Group. For completeness it might be mentioned that the judge below dealt with that matter separately and there is no appeal against his decision in relation to Part B of this statement.

7. The crucial part of Part A of the statement is contained in paragraph 13 which reads:

"In the early afternoon, I went to Alan Mercer's office, where I heard the news that the HKMA had declined to help. I say at the end of paragraph 7 of my first witness statement that this 'was the first time at which it became clear that the Peregrine Group was going to fail'. I want to make it clear that by 'fail' I mean fail to make some of the payments it owed that day. I did not mean (as I understand has been suggested) that it was clear the Group was going to go into liquidation. At that stage there were still active attempts being made by the Board to find alternative sources of finance, so that was not clear at the time."

The judge below was clear in his view that this supplementary statement was not a clarification of the earlier statement nor was it filling any gaps left by the earlier statement. It was simply the witness changing his evidence. In my view he was correct in this.

8. The judge gave his decision on the spot and was succinct in his reasoning. I do not consider that it has been shown that there are grounds upon which the exercise of the judge's discretion can be challenged. Indeed, I would go further and say that I would agree with the decision to which the judge came.

9. Dealing first with the question of the hearsay notice it would seem from the evidence which has been filed that despite the fact that Mr John Eng Lee was retained by the provisional liquidators for a considerable time after the commencement of the liquidation of the Peregrine Companies, Mr Lee may be a reluctant witness who may not come to court to give evidence. He is at present in the United States and is therefore not compellable. If a hearsay notice in respect of the second statement were permitted and if Mr Lee were not to attend the trial it seems to me that it would put the trial judge in an almost impossible position. The trial judge would be faced with two conflicting statements from the same witness which would be wholly undesirable.

10. The other aspect of the defendant's application is that the defendant should be permitted to file Mr Lee's second statement as a witness statement. Again, because of the clear change of the defendant's evidence the introduction of the second statement would produce a conflict of evidence on paper which would be unacceptable. As is stated in paragraph 38/2A/9 of the Hong Kong Civil Procedure 2002:

"The written statement of a witness served pursuant to the direction of the Court under para. (2) constitutes 'a document' in the proceedings, and falls within the amending power of the court under Order 20, Rule 8(1). The amending power is likely to be exercised only in exceptional circumstances. The time for the witness to alter or withdraw part of his statement may best be left to when he comes to be asked about it in the witness box."

11. This matter is essentially a matter of case management. The judge below has had considerable involvement with these proceedings. The papers contained in the court bundles for this hearing show that the judge has made orders on no less than four separate occasions and there may be others. The judge rightly appreciated that this was not a question of clarifying the previous statement or filling any gaps. A change in a witness's evidence of the nature which is apparent in the present circumstances is something which should be left to the trial. Even if the original witness statement were to be treated as the relevant witness's evidence in chief there would be no danger of false evidence being given because any witness who considers that there is an inaccuracy in his witness statement is bound to bring it to the attention of the court at the inception of his evidence.

12. For these reasons I consider that it would be wrong for this court to interfere with the case management.

Hon Le Pichon JA:

13. I agree.