XCHRX QUEENSTON LLC v. SERLEN LTD. AND OTHERS

HCA 7585/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. 7585 OF 2000

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REASONS FOR DECISION

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The applications

1. There were 3 applications before me. The first was an application by the 6th Defendant. By his amended summons of 6 March 2001 the 6th Defendant in effect applied to set aside an order for leave to serve him out of jurisdiction. The second was an application by the 3rd Defendant who by its summons of 5 December 2000 sought an order to set aside the ex parte Order of Cheung J of 13 October 2000 whereby Cheung J granted the Plaintiff leave to join the 5th and 6th Defendants and to re-amend the Statement of Claim. Plainly of course, the 3rd Defendant only sought to set aside the Order of Cheung J insofar as it affected it. The third was an application which was taken out on 15 March 2001 during the course of the hearing. It was an application by the Plaintiff for leave to further re-amend the writ and to re-amend the Statement of Claim. Insofar as the Statement of Claim was concerned the re-amendment sought was just to bring the Statement of Claim to the same form as that granted by Cheung J on 13 October 2000 as against the 5th and 6th Defendants when Cheung J also granted leave to serve the 6th Defendant out of the jurisdiction. Insofar as the writ was concerned, the further re-amendment only related to the address of the 5th Defendant. Otherwise the further re-amended writ would again be in exactly the same form as the re-amendment granted by Cheung J on 13 October 2000 when he gave leave to join the 5th and 6th Defendants. There was also an application for abridgement of time for the service of this summons which I granted readily.

History of the litigation

2. On 20 July 2000 the Plaintiff commenced this action against the 1st to 4th Defendants in a specially endorsed writ. By this original Statement of Claim, the Plaintiff claimed against all 4 Defendants for damages for fraudulent misrepresentation and also for a declaration that the sum of US$13 million paid by the Plaintiff for some debentures issued by the 1st Defendant remains the property of the Plaintiff and is held on constructive trust for the Plaintiff. There are other consequential relieves associated with the claim for the declaration that the money remains to be the Plaintiff's.

3. In fact a petition for the winding of the 2nd Defendant was presented on 14 January 2000. On 23 August 2000 an order for the winding up of the 2nd Defendant was granted. Because of the winding up order, the action against the 2nd Defendant was automatically stayed.

4. The writ was amended without leave on 2 September 2000. The amendment only related to the Statement of Claim endorsed on the writ. By this amendment, the Plaintiff expressly made a constructive trust claim against the 4 Defendants. Apart from an amendment to claim damages for breach of trust, there was no substantive amendments to any of the relieves claimed.

5. On 13 October 2000, the Plaintiff made an ex parte application before Cheung J to re-amend the writ and the Statement of Claim. By this amendment the Plaintiff sought to join the 5th and 6th Defendants as parties to the action. As part of the exercise, the Statement of Claim was also re-amended in green. As the 6th Defendant was not resident within the jurisdiction, an application for leave to serve him out of jurisdiction was also made. Cheung J granted all the applications. By his Order of 13 October 2000, Cheung J granted the Plaintiff leave to add the 5th and 6th Defendants as parties. The Order also gave the Plaintiff "leave to re-amend the Writ of Summons and the Statement of Claim as against the proposed 5th and 6th Defendant in the manner as shown and underlined in green per the copy attached herein". The Order also gave the Plaintiff leave to serve the concurrent re-amended Writ of Summons and re-amended Statement of Claim on the 6th Defendant in Singapore. In fact on the same occasion, a Mareva injunction was also obtained against all the 6 Defendants except the 2nd. Although I was not concerned with the Mareva injunction, I note that there was an inter parte hearing for the continuation of the injunction before Suffiad J on 20 October 2000 attended by the Plaintiff, the 3rd and 4th Defendants whereby Suffiad J decided to continue the injunction. It is important to note that the 6th Defendant did not attend that hearing. Apparently by then the writ and the Orders had not yet been served on the 6th Defendant.

6. It is important to realise that the application before Cheung J on 13 October 2000 was made ex parte. This must necessarily be the case as the Plaintiff was asking for Mareva relief and also for leave to serve the 6th Defendant out of jurisdiction based on the re-amended Statement of Claim. One necessary consequence is that insofar as the amendment to the Statement of Claim is concerned, the 1st to 4th Defendants were not given any notice of the application. I think it is for this reason that Cheung J extracted and incorporated as part of his Order of 13 October 2000 an undertaking by the Plaintiff through its counsel "to issue an inter-parte summons herein applying for leave to issue and serve the re-amended Writ and re-amended Statement of Claim against the 1st, 3rd and 4th Defendants (the action against the 2nd Defendant being stayed)".

7. In pursuance of the undertaking, the Plaintiff issued a summons before the Master on 16 October 2000 asking for an Order for leave to add the 5th and 6th Defendants, and also for leave to re-amend the Writ of Summons and the Statement of Claim in the same manner as the one put before Cheung J on 13 October 2000. The summons was heard by Master C B Chan on 19 October 2000. The 3rd Defendant opposed the application. It is not at all clear as to what exactly had happened in this hearing. What is clear was that the Master did not grant any leave to amend. The only order she made was to adjourn the summons sine die with liberty to restore. I was told that the Master had however indicated that the Order of Cheung J would continue to have force until the same was set aside. Apparently she took the view that she had no jurisdiction to set aside or vary the Order of Cheung J of 13 October 2000 and she conceived that she was being asked to do so. Hence the 3rd Defendant took out the summons of 5 December 2000 which was brought before me.

The 3rd Defendant's summons

8. The basis of the application was that as against the 1st to 4th Defendants there was in fact no leave granted by Cheung J on 13 October 2000 to re-amend the Statement of Claim and to join the 5th and 6th Defendants in this action. This turned out to be common ground between the parties although in the course of the exchange of correspondence, the 3rd Defendant thought that it was the stance of the Plaintiff that there was already leave granted for the re-amendment of the Statement of Claim and the joinder of additional parties by reason of the Order of Suffiad J when he ordered that the Order made by Cheung J was to continue against the 3rd Defendant. Reading the exchange of the correspondence as a whole, I am satisfied that the Plaintiff's solicitors and the 3rd Defendant were at cross purposes. What the Plaintiff's solicitors intended to say was that the Mareva injunction Order made by Cheung J on 13 October 2000 was to continue against the 3rd Defendant. It was also clear to me that when the Plaintiff's solicitors made reference to the continuation of the Order by Suffiad J, the Plaintiff had completely misunderstood the 3rd Defendant's solicitors' letter of 28 November 2000 when the 3rd Defendant's solicitors asked when would the Plaintiff re-list the inter parte summons adjourned on 19 October 2000 before a Judge. Apparently what the 3rd Defendant's solicitors were referring to was the summons before Master C B Chan which was adjourned by the Master on 19 October 2000 sine die with liberty to restore. What the Plaintiff's solicitors thought was that the 3rd Defendant's solicitors were referring to the inter parte summons for the continuation of the injunction which issued on 16 October and heard by Suffiad J on 20 October 2000. It is difficult to understand that how there could be such misunderstanding.

9. The main complaint of the 3rd Defendant was that since as perceived by it the Plaintiff had taken the stance that the writ and Statement of Claim had been re-amended and yet in fact they were not, it would be very embarrassing for the 3rd Defendant because it was not in a position to know which pleading should it plead to and which case should it prepare to meet. The matter is certainly not made easier by the fact that so far as the 4th Defendant is concerned, the 4th Defendant was prepared to assume that the writ and the Statement of Claim had been re-amended and on that basis, had filed pleading in response to the re-amended Statement of Claim.

10. As I have mentioned earlier, in the course of the hearing before me, the Plaintiff's counsel had made it clear that the Plaintiff was not maintaining that the writ and the Statement of Claim had been re-amended as against the 3rd Defendant. The Plaintiff conceded that it was obliged by the undertaking incorporated in Cheung J's Order to make an application for leave to amend the Statement of Claim and the writ to bring them in line with the concurrent writ and the re-amended Statement of Claim endorsed thereon. In any event, it would appear that the relief asked for by the 3rd Defendant in its summons was not the right relief as there was nothing in Cheung J's Order of 13 October 2000 which had the effect of granting leave to amend the writ and the Statement of Claim as against the 3rd Defendant. Hence in this respect, it may be said that the application by the 3rd Defendant was misconceived.

11. In the circumstances, I am of the view that the summons of the 3rd Defendant should be dismissed. The Order of Cheung J of 13 October granting leave to amend the Statement of Claim and the writ did not affect the 3rd Defendant. However, in view of the fact that this matter arose out of the misunderstanding of the solicitors, and the Plaintiff's solicitors were very much to be blamed for the cause of the misunderstanding, in exercise of my discretion, I would make an order nisi that there shall be no order as to costs for this application.

The 6th Defendant's summons

12. In the ex parte application before Cheung J on 13 October 2000 the Plaintiff relied on Order 11 Rules 1(1)(b), (c), (f) and (p). The application was made on the basis of 2 affirmations of the Plaintiff's solicitor Philip Clarke and also the re-amended Statement of Claim. The first affirmation baldly asserted that "save where otherwise indicated, the facts to which I dispose, are deposed to from knowledge and the contents of this my affidavit are true". The affirmation did refer to a number of exhibits which to some extent backed up what was deposed to in the affirmation. The affirmation further referred to certain information given by the special manager to the liquidation of the 2nd Defendant. Apart from these matters which were matters "otherwise indicated", I wonder whether there is anything which the solicitor could depose to out of his personal knowledge. This is an aspect which I feel I must bear in mind in considering whether a good arguable case had been shown.

13. The 2nd affirmation also contained the statement that "save where otherwise indicated, the facts and matters to which I depose are from my own personal knowledge and the contents of this my affirmation are true." The main thrust of this affirmation was to identify the various provisions in Order 11 based upon which leave to serve out of the jurisdiction was sought. The deponent also "confirmed that the facts pleaded in the re-amended Statement of Claim are true". In relation to the Plaintiff's causes of action, the deponent further said :

"4. The Plaintiff's cause of action herein is for breach of trust committed in Hong Kong in respect of a Hong Kong trustee in Hong Kong and funds misapplied by the Defendants in Hong Kong.

6. In short, as seen from the Plaintiff's amended pleading and in my 1st affirmation, in particular, paragraphs 13 to 16, the Plaintiff alleges Ho committed acts in collusion with Ting and knowingly participated in the fraud perpetrated by Ting on the Plaintiff. From the material disclosed in my 1st Affirmation I verily believe Ho was involved and benefitted from the actions complained of in the Re-amended Statement of Claim and consequently, the Plaintiff has a cause of action against him".

14. It is thus plain that there were 2 causes of action relied upon by the Plaintiff in seeking leave to serve the 6th Defendant out of jurisdiction and they were : breach of trust, and tort of knowingly participating in the fraud by Ting (4th Defendant) on the Plaintiff. It is however still necessary to see what is pleaded in the Statement of Claim to ascertain what exactly were the causes of action and in particular how each of the 2 causes of action was formulated.

The causes of action as pleaded

15. A specific amendment to the Statement of Claim was sought in order to plead the causes of action against inter alia the 6th Defendant. For brevity reason, in my judgment below, I will refer to the re-amended Statement of Claim as the Statement of Claim. The Plaintiff alleged in paragraph 5B of the Statement of Claim that the 6th Defendant was a director, the chief executive officer and also the controlling shareholder of Grande Holdings Limited ("Grande"), which was a listed company in Hong Kong and that since at least 1998 the 4th and 6th Defendants have collaborated in numerous financial dealings concerning the companies controlled by them. In paragraph 5D, it was alleged that the 4th Defendant with the assistance of the 6th Defendant engaged in a scheme of stripping the assets of the 2nd Defendant and placed them into wholly owned subsidiaries of Grande where it was alleged that the 4th Defendant with the assistance of the 6th Defendant could control them. However, I note that there was no particulars let alone evidence to support the suggestion that the 4th Defendant would have control of either the subsidiaries of Grande or the assets once they were in the hands of those subsidiaries. In paragraph 5F, the Plaintiff pleaded :

"5F In August and September 1999 Ting sought to obtain borrowings using the controlling shareholding in Akai then held by Holdings. In particular Ting sought from the Plaintiff US dollar loans for working capital for Holdings which would be structured as exchangeable bond debentures securing loans to the Holdings group which would be exchangeable at the borrowers' option, into shares of Holdings in Akai. At the time that he negotiated with the Plaintiff, Ting knew that Holdings was actually or nearly insolvent and he intended after the loans were made to reduce, sell, pledge, or charge Holdings' shareholdings in Akai - so that the security being offered to the Plaintiff was illusory. Ting intended that, after the loans were made, he would divert the borrowed funds from the Holdings group thereby deeming the insolvency of the Holdings group inevitable and leaving the Plaintiff's loans probably irrecoverable."

It is important to note that no allegation was made against the 6th Defendant in paragraph 5F, and it was not even alleged that the 6th Defendant was aware of the 4th Defendant's plans and intention as pleaded in paragraph 5F. Paragraph 6 of the Statement of Claim then pleaded the agreement between the Plaintiff and the 1st Defendant (the Company), the 2nd Defendant (Holdings) and the 3rd Defendant (Akai) ("the subscription agreement") whereby the Plaintiff agreed to subscribe for and the 1st Defendant to issue debentures up to the total value of US$60 million maturing in 2002 with an option on the part of the Plaintiff to exchange the debenture for shares in the 3rd Defendant. The arrangement would appear to be somewhat at variance with that pleaded in paragraph 5F in that the option to exchange the debenture for shares was that of the Plaintiff being the lender rather than that of the borrower, as pleaded in paragraph 5F. I am prepared to assume that the word "borrower" in paragraph 5F was a mistake for the word "lender".

16. As pleaded in the Statement of Claim, the debentures were to be subscribed in 3 parts. The Plaintiff subscribed the 1st Part and no problem arose out of that. In paragraph 10 it was pleaded that the Plaintiff subscribed Part II of the debentures in 2 tranches. The first tranche in the sum of US$8 million was subscribed on 17 December 1999 and the 2nd tranche in the sum of US$5 million was subscribed on 28 December 1999. The debentures were subscribed in response to 2 Call Notices dated 29 November 1999 and 13 December 1999 respectively and it was the 4th Defendant who caused these notices to be issued (see paragraphs 12A and 12C of the Statement of Claim). It was a term of the subscription agreement that a certificate saying that the representations and warranties contained in Part I of Schedule 2 of the subscription agreement were true and correct would have to be tendered as a condition for the subscription. On each occasion when the subscription was requested, a set of certificates signed by the 4th Defendant as director for the 1st, 2nd and 3rd Defendants were tendered (see paragraph 13 of the Statement of Claim). These certificates were dated 17 December 1999 and 24 December 1999. The Plaintiff pleaded that the representations contained in the said certificates were false (paragraph 14 of the Statement of Claim). The reason for saying that they were false was that the representations and warranties contained in Part I of Schedule 2 would include the representations that (a) there is no default and no event which with the giving of notice or the passage of time or both, would become a default, has occurred; (b) there is no fact known to the 1st, 2nd and 3rd Defendants that could reasonably be expected to materially and adversely affect the ability of these Defendants to perform their respective obligations under the subscription agreement; (c) save for claims arising out of the ordinary course of business there is no litigation or other suits, actions, claims or proceedings pending or threatened against, relating or involving the 1st, 2nd or 3rd Defendant, nor are there any facts likely to give rise to such proceedings known or should have been known to these Defendants or their directors; and (d) there is no petition presented or resolution passed or analogous proceedings instituted for the winding up of any of the 1st, 2nd or 3rd Defendant (paragraph 9 of the Statement of Claim). These representations or warranties were false because on 14 December 1999 a statutory demand pursuant to section 327 of the Companies Ordinance was served by some creditor banks in respect of a claim of US$19 million against the 2nd Defendant and the Plaintiff said that this statutory demand would show that the representations and warranties had become false and yet the certificates given to obtain the 2 tranches of the debenture loans certified that the representations and warranties were true.

17. By way of amendment, in order to join the 6th Defendant, the Plaintiff in effect also said the representations and warranties certified by the certificates as true were in fact false because the 4th Defendant was aware that the 2nd Defendant was insolvent and that its liquidation was inevitable (paragraph 11(3)). In support of this the Plaintiff relied on the particulars set out in paragraphs 11(3)(a) to (h) of the Statement of Claim. These particulars formed an important part of the formulation of the cause of action against the 6th Defendant, and I set them out herein below (with emphasis added) :

"(a) On 1 November 1999 Ting [the 4th Defendant], purportedly acting on behalf of Holdings [2nd Defendant], and Ho [6th Defendant], purportedly acting on behalf of a wholly-owned subsidiary of Grande, namely Alpha Capital Group Limited ("Alpha"), purported to bind their respective companies to a sham "Financial Advisers Agreement" whereby Alpha purported to be appointed as financial adviser to Holdings in exchange for an "advisory fee of US$5 million ... payable upon the signing of this agreement.

(b) On 12 November 1999 Ting, purportedly acting on behalf of Holdings, and Ho, purportedly acting on behalf of a wholly-owned subsidiary of Grande, namely The Grande Group Limited (a Singapore private company), purported to bind their respective companies to a sham "Management Agreement" which purported to transfer the entire management responsibility of Holdings (including the role of its board of directors) to the Grande Group Limited to operate "in such manner as Grande shall consider appropriate" for unspecified consideration "to be billed on a monthly basis".

(c) By mid-November Ting, with the assistance of Ho had transferred Holdings' remaining staff onto the payroll of Grande group companies.

(d) From early November Ting caused the Company to sell shares in Akai [the 3rd Defendant] - in order to dilute the Holdings' group shareholding below 31 per cent (which signified a controlling interest in Japan).

(e) On 15 November 1999 Ting and Ho caused Toyo and Ting caused Holdings to enter into a purported Underwriting Agreement whereby Toyo would underwrite convertible bonds issued by Holdings (up to an aggregate principal sum of HK$335,000,000) and a purported Loan Agreement whereby Toyo would "advance" to Holdings a revolving loan facility of up to HK$630,000,000.

(f) On 17 November 1999 Ting, with the assistance of Ho, caused Holdings' wholly-owned subsidiary, Kong Wah Electronic Enterprises Limited to transfer its 9999 shares in Kawa to a wholly-owned subsidiary of Grande, namely The Grande (Nominees) Company Limited - purportedly in exchange for alleged (undocumented) "debts" allegedly owed by Holdings to Grande and Toyo.

(g) On 18 November 1999 Ting caused Holdings purportedly to confer on Toyo pursuant to the "Underwriting Agreement" a purported general charge over assets, including Holdings' shares in Akai, for up to HK$335,000,000.

(h) On 18 November 1999 Ting and Ho caused Holdings, Toyo and Grande to agree to enter into various purported agreements purportedly pursuant to the 15 November 1999 "Loan Agreement" for HK$630,000,000 whereby Holdings would issue to Toyo or other Grande subsidiaries purported share mortgages over Holdings' shares in Akai and to enter into a purported Assignment of Account Receivables and charge over Holdings' bank accounts. The formal documentation for these purported agreements was as later dated 6 December 1999."

It was further pleaded as particulars of the falsity of the representations in the certificates or as material breach of the warranties and representations in the subscription agreement that by 18 November 1999, the 4th Defendant with the assistance of the 6th Defendant, had caused the 2nd Defendant to be stripped of all or virtually all its assets (see paragraph 11(4) of the Statement of Claim).

18. As pleaded the money for the subscription of Part II of the debentures was deposited by the Plaintiff with the Citibank who acted as the escrow agent under the subscription agreement and it was the duty of the escrow agent to release the money upon certain conditions, one of which was the receipt of the certificates.

19. The Plaintiff's case was that in view of the fact that the representations and warranties were rendered untrue, the Plaintiff was under no obligation to subscribe Part II of the debenture (see paragraph 11of the Statement of Claim). Furthermore, it was pleaded that as a result the fraudulent misrepresentation on the part of the 1st, 2nd 3rd and 4th Defendants who tendered the certificates to the escrow agent in order to obtain the money from the agent well knowing that the representations and warranties were not true the escrow agent paid over the money to the 1st Defendant (paragraphs 13, 14, 15 & 16(2) of the Statement of Claim).

20. Thus it is clear that the cause of action pleaded against the 1st, 2nd, 3rd and 4th Defendants in tort was the cause of action of fraudulent misrepresentation, and the false representation was made in the certificates signed by the 4th Defendant as directors for the 1st, 2nd and 3rd Defendants. The representations and warranties were untrue because, putting it broadly, there was a threat of winding up of the 2nd Defendant and the 2nd Defendant had been stripped of its assets and was unable to perform its obligations under the subscription agreement on completion. This latter state of affairs of the 2nd Defendant was brought about by the 4th and 6th Defendants.

21. The Plaintiff further made a claim against the Defendants in constructive trust. It was pleaded that the US$8 million and US$5 million were held by the escrow agent as trustee in accordance with the terms of trust contained in the escrow instructions annexed to the subscription agreement. The terms of the trust were pleaded in paragraphs 7A and 7B of the Statement of Claim :

"7A. ... The Escrow Agent was appointed by the parties to act as trustee for monies or other property of the parties which was in transit between or amongst the parties with the power and duty to apply such trust monies or other trust property towards the fulfillment of the terms of the Subscription Agreement.

7B. In respect of monies placed with the Escrow Agent by the Plaintiff for the purpose of subscribing for Debentures in the manner provided for in the Subscription Agreement from the time that the Escrow Agent received those funds until the time that the Escrow Agent was required (that is validly and legitimately required) by the Subscription Agreement to deliver those monies to the company- those monies were held by the Escrow Agent as trustee and agent of the Plaintiff solely."

22. The claim on constructive trust was pleaded in paragraphs 16 and 17 of the Statement of Claim :

"16(1) Each of the Company [1st Defendant], Holdings [2nd Defendant], Akai [3rd Defendant] and Ting [4th Defendant] delivered the 2 false certificates and made the untrue representations as part of a dishonest or fraudulent scheme to cause the Escrow Agent to pay over the sum of US$13 million in breach of the Escrow Agent's trust and agency duties to the Plaintiff.

(2) After receiving the 2 certificates the Escrow Agent paid over the US$8 million on 17 December 1999 and the US$5 million on 28 December 1999 to the Company or to Holdings in breach of the Escrow Agent's trust and agency duties to the Plaintiff and in misapplication of trust property which at the time was being held on trust solely for the Plaintiff.

(3) The Escrow Agent's misapplication of the US$13 million held on trust for the Plaintiff was either induced by the dishonest conduct of the Defendants (pleaded in sub-paragraph 1 hereof) or it was committed with the dishonest assistance of the 1st to 4th Defendants, who are accountable to the Plaintiff as constructive trustee for that sum.

(3A) Shortly after the Company and/or Holdings received the misapplied US$5 million and the misapplied US$8 million, Ting, with the assistance of Ho, caused the Company and/or Holdings to transfer those monies to Kawa [the 5th Defendant]. This further misapplication of the US$13 million trust monies was committed with the dishonest assistance of Ho and Kawa (to whom Ho's knowledge of the circumstances is to be imputed).

(4) Additionally and alternatively, the Defendant or some of them received the misapplied US$13 million, or part or parts of that sum either directly from the Escrow Agent (who has yet to provide the Plaintiff's with the relevant information despite the Escrow Agent's trust obligation to the Plaintiff) or indirectly via the Company and/or Holdings, with knowledge that the sums received were misapplied trust funds which had been paid over to the 1st or 2nd Defendants by the Escrow Agent in breach of the Escrow Agent's trust and agency obligations to the Plaintiff - so that to the extent that each Defendant so received part or all of the misapplied US$13 million that Defendant is accountable to the Plaintiff as a constructive trustee for the funds so received.

(5) Further and alternatively, the Defendant and each of them are/is liable to the Plaintiff for damage for breach of trust in the amount of US$13 million.

17. In the premises the sum of US$13 million which the Plaintiff provided for the Part II Debentures referred to in Paragraph 10 above remains the property for the Plaintiff and that sum is held by Kawa and/or the Company and /or Holdings and/or Akai and/or Ting and/or Ho on constructive trust for the Plaintiff."

23. It is also important to note that in the prayer, the relieves sought by the Plaintiff were solely directed at the cause of action of breach of trust and fraudulent misrepresentation. The Plaintiff sought the following relieves in the prayer :

"(1) A declaration that the sum of US$13 million disbursed by the Plaintiff in purported payment of Part II Debentures issued by the 1st Defendant remains the property of the Plaintiff and is held on constructive trust by the Defendants or some of them for the Plaintiff;

(2) An account of all money received by the Defendants and each of them representing the aforesaid sum of US$13 million;

(3) An order for payment over of all moneys received by the Defendants and each of them representing the aforesaid sum of US$13 million;

(4) Damages for breach of trust and/or for fraudulent misrepresentation;

(5) Interest as aforesaid;

(6) Further or other relief;

(h) Costs."

The relevant law

24. The law is well established that the Plaintiff may rely on any number of sub-paragraphs (a) to (p) of Order 11 rule 1(1). He must show a good arguable case that his case falls within any one of the sub-paragraphs. This standard of proof would require the Plaintiff to show something better than a mere prima facie case, and it had been suggested that this would mean that at least the Plaintiff must show a strong argument or a strong case for argument that the claim was within one of those sub-paragraphs (see Vitkovice Horni a Hutni Tezirstvo v Korner [1951] AC 869 at 883, 885 & 890). The reason for the threshold to be set at the level of good arguable case is because under Order 11 rule 4(2) it is provided that "no such leave shall be granted unless it shall be made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction under this Order". Under this rule 4(2), the minimum requirement was thus merely that it was "made sufficient to appear" to the Court that the claim falls within the rule and for this reason, it is not appropriate to set the standard of proof any higher than merely a good arguable case. However, under rule 4(2) the Court obviously has a discretion in deciding whether to grant leave even though the Court has been satisfied that there is a good arguable case that the claim is within the Rule 1(1). In this respect, the Court is entitled and should also take into account the merits of the claim. The issue of merits is also relevant, because under rule 4(1)(b), the affidavit of the applicant in support of the application would have to state that in the deponent's belief the Plaintiff has a good cause of action. In relation to the merits, it is now well established that the Plaintiff needs only to show that there is serious issue to be tried (see Seaconsar Far East Ltd. v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438, at 457A). Of course the Court must also consider other factors before exercising the discretion in favour of granting leave. One of the most important factors to consider is the question of forum conveniens.

25. I should mention that in this case, no issue on forum conveniens would arise as it is conceded and in my view rightly conceded that Hong Kong would be a convenient forum for the determination of this matter.

26. For cases of service out of jurisdiction, it is very important to see what cause of action was relied on in the writ and where appropriate, the statement of claim, when ex parte leave was sought. It is well established that the Court must decide the application on the basis of the cause of action pleaded in the writ or the statement of claim and the plaintiff is not allowed to rely on a cause of action which is not pleaded. Even for a cause of action pleaded, the plaintiff is not allowed to rely on a different basis for formulating his cause of action than the one that has been pleaded and relied on at the ex parte application.

27. In Parker v Schuller (1901) 17 TLR 299, the plaintiff obtained leave for service out of jurisdiction in an action for breach of contract within the jurisdiction. The contract was a contract of sale of goods on c.i.f. terms and there was neither delivery of the goods nor tender of the documents. In the ex parte application, the plaintiff relied on the breach of failure to deliver the goods within the jurisdiction and obtained leave to serve the defendant out of jurisdiction. Leave was set aside on the ground that this was a c.i.f. contract and the defendant's obligation was to deliver the documents. The cause of action endorsed on the writ was the defendant's failure to deliver the goods within the jurisdiction and the plaintiff was not allowed to change to another cause of action of the breach of the same contract but on the basis of the failure to tender the documents within the jurisdiction. In setting aside leave, Romer LJ said :

"... an application for leave to issue a writ for service out of the jurisdiction ought to be made with great care and looked at strictly. If a material representation upon which the leave was obtained in the first instance turned out to be unfounded, the plaintiff ought not to be allowed, when an application was made by the defendant to discharge the order for the issue of the writ and the service, to set up another and a distinct cause of action which was not before the Judge upon the original application ... "

28. Parker v Schuller was considered by the Court of Appeal in The Artemis [1983] HKLR 364. Although there was a difference of opinion on whether the principle in Parker v Schuller was applicable to the facts of the case before the Court, both members of the Court of Appeal did not query the correctness of the decision. Huggins VP considered that the decision was applicable and he held that the plaintiff could not be allowed to depart from its case at the ex parte stage that the 2nd defendant was the beneficial owner of the vessel in question and sought to justify leave to serve the 2nd defendant on the basis that the master of the vessel was its servant so that it would be liable both in contract under the bill of lading and in tort (see pages 378I to 379C). Barker JA felt that the causes of actions were sufficiently clearly endorsed on the generally endorsed writ and there was no departure so that the decision of Parker v Schuller had no application (see page 374F-I). Since in the present case, the re-amended Statement of Claim was endorsed on the writ to be served out of jurisdiction, there is no difficulty in ascertaining how the cause of action was formulated for the purpose of the ex parte application.

29. The strictness of the approach was taken a step further in Metall & Rohstoff v Donaldson Inc. [1990] 1 QB 391 where the Court of Appeal in England held that the ordinary approach to pleading that one was only required to state the material facts and should not be restricted to any legal results stated on the pleading, would not apply to situations when the Court was considering leave to serve out of jurisdiction. Slade LJ said (at page 436A-F) :

"Mr. Mark Walker, on behalf of M & B has, by way of amplification, explained to us the alternative ways in which they would seek to put their case, particularly in so far as it arises under the broad heads of "Abuse of process of the court" and "Account as constructive trustees." In answer, it has been contended that some of these points are not open to M & B on their pleading, and furthermore, have not been foreshadowed in affidavit evidence sworn on their behalf. One of Mr. Walker's responses to this contention has been to refer us to the general observations made by Lord Denning M. R. in In re Vandervell's Trusts (No.2) [1974] Ch. 269, 321 as to the modern practice concerning pleadings :

"It is sufficient for the pleader to state the material facts. He need not state the legal result. If, for convenience, he does so, he is not bound by, or limited to, what he has stated."

We respectfully agree with this statement as a general proposition. However, it was not made in the context of a pleading intended to be served out of the jurisdiction, to which we think rather different consideration apply. In our judgment, if the draftsman of a pleading intended to be served out of the jurisdiction under Order 11 r 1(1)(f) (or indeed under any other sub-paragraph) can be reasonably understood as presenting a particular head of claim on one specific legal basis only, the plaintiff cannot thereafter, for the purpose of justifying his application under Order 11 r 1(1)(f), be permitted to contend that that head of claim can also be justified on another legal basis (unless, perhaps, the alternative basis has been specifically referred to in his affidavit evidence, which it was not in the present case). With this possible exception, if he specifically states in his pleading the legal result of what he has pleaded, he is in our judgment limited to what he has pleaded, for the purpose of an Order 11 application. To permit him to take a different course would be to encourage circumvention of the Order 11 procedure, which is designed to ensure that both the court is fully and clearly apprised as to the nature of the legal claim with which it is invited to deal on the ex parte application, and the defendant is likewise apprised as to the nature of the claim which he has to meet if and when he seeks to discharge an order for service out of the jurisdiction ... "

30. Although Slade LJ in the passage quoted above appeared to have made reservation for the possibility of the cause of action pleaded in the statement of claim being qualified or widened by the contents of the affidavit in support of the leave application, it is now fairly well established that the function of the affidavit is merely to explain the grounds on which the application for leave had been made. If there should be any difficulty or ambiguity arising in identifying or characterising a cause of action asserted, it is to the writ and/or the statement of claim that one must look. This view was expressly endorsed by Neil LJ in Excess Insurance Co. Ltd. v Astra S A Insurance and Reinsurance Co. [1997] CLC 160. Neil LJ went on to summarise the relevant legal principles as follows (at page 166C-H) :

"(1) The courts must always be cautious before allowing a writ to be served out of the jurisdiction.

(2) Before leave is given the court must be satisfied that the claim alleged falls under one of the heads in O. 11.

(3) Furthermore, it is not only the court which must be apprised of the cause of action alleged. The defendant must know the basis of the claim which he has to meet so that, if so advised, he can challenge the order which asserts the court's jurisdiction over him.

(4) The cause or causes of action to which the court and the defendant are to have regard are those set out in the writ. It is the writ for which leave to serve is sought and granted. The affidavit in support and any exhibits may have to be looked at to see the foundation of the claim but the relevant cause of action is in the writ. Moreover, it is the writ and not the affidavit which is served on the defendant.

(5) The primacy of the writ is supported by other provision in O. 11, including r. 5 which contains general provisions as to the service of a writ abroad, and by r.6(5) which provides that every copy of a writ lodged in accordance with r.6(4) 'must be accompanied by a translation of the writ in the official language of the country in which service is to be effected'.

(6) In some cases the affidavit in support of the application may be quite long and may refer to exhibits. In DSQ Property Ltd. v Lotus Cars Ltd. (unreported, 28 June 1990) Dillion LJ emphasised that it is 'not enough to put a miscellany of alleged facts before the master or judge on an application for leave to serve out in a complicated case, without indicting what they are said to add up to which justifies a claim against a person outside the jurisdiction under the chosen head of O. 11'. This passage in his judgment was adopted and repeated by Nourse LJ in the Walton case. In the present case the liability, if any, of Astra has to be deduced from an examination of a number of assertions in the affidavit and its exhibits. Furthermore, these assertions have to be looked at in the light of the plain statement in the writ that the policies were made between Excess and Astra.

(7) Where, as in the present case, a defendant is sued who was not a party to the original contract the steps by which his liability is said to exist form essential ingredients of the cause of action. The liability may arise by an assignment or by operation of law or perhaps in some other manner. In each case the links in the chain are part of the cause of action and in my judgment must be set out in the writ."

31. Proposition (7) would mean that the cause of action relied on must be properly set out in the writ and the failure to make a material averment in the Statement of Claim is fatal.

32. Counsel for the Plaintiff submitted that in applying for leave to serve out of jurisdiction, there was no obligation on the part of the Plaintiff to come up with a fully articulated Statement of Claim. It would be perfectly proper for the Plaintiff simply to come with a generally endorsed writ and set out his various causes of action based upon which leave was being sought in the affirmation in support of the application. Thus far I agree with such submission.

33. Plaintiff's counsel however went on to submit that since it was permissible simply to come up with a generally endorsed writ and have the other essential matters set out in the affidavit, it would be wrong to penalise a plaintiff to tie him to his statement of claim if he has gratuitously served the statement of claim. Hence the submission was that so long as a case within any one of the sub-paragraphs under Order 11 rule 1(1) could be established from the materials before the Court, subject to the requirements under rule 4, leave to serve out of jurisdiction should be given. I do not agree with this submission. In my judgment if the Plaintiff has opted to apply for leave to serve out of jurisdiction on the basis of a generally endorsed writ, he must in his affidavit in support give all the necessary details as to how his cause of action arises. He would likewise be bound by the way he formulates his cause of action in the general endorsement on the writ, if he so chooses to state his cause of action in the general endorsement. Of course, if he merely elects to set out the relieves prayed for in the general endorsement (which is permissible under Order 6 rule 2(1)(a)), then of course, he must state clearly his cause of action and the way he formulates it in the affidavit in support of the application for ex parte leave. In either case, he could not subsequently change the way of the formulation of the cause of action by filing new affidavits in the proceedings to set aside the ex parte leave. Indeed the well known case of Parker v Schuller (supra) was a case where the plaintiff obtained ex parte leave to serve out of jurisdiction on the basis of a writ endorsed with a claim for non-delivery of certain chemicals agreed to be sold by the defendant to the plaintiff, but the affidavit evidence showed that the contracts for the sale of the chemicals were c.i.f. contracts. The Court of Appeal set aside leave holding that the plaintiff was tied to his cause of action endorsed on the writ and could not seek to support the grant of leave by substituting a cause of action for failure to deliver the documents within the jurisdiction.

34. In the present case, the Plaintiff had opted to ask for leave on the basis of a specially endorsed writ. The re-amended Statement of Claim was endorsed on the writ for the purpose of the application before Cheung J for leave to serve out of jurisdiction. It is on the basis of this specially endorsed writ that leave was obtained for service of this specially endorsed writ out of the jurisdiction. The Plaintiff was thus bound by the cause of action set out in the Statement of Claim endorsed on the writ and must take the consequences of any inadequacy in the pleading.

Order 11 rule 1(1)(f) - the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction

35. Although in the Statement of Claim, there were various allegations suggestive of a cause of action in fraudulent trading or in conspiracy, in my judgment, the only cause of action in tort pleaded in the Statement of Claim against the 6th Defendant could only be the tort of fraudulent misrepresentation. One needs only to refer to the prayer of the Statement of Claim to see that the only damages in tort prayed for were damages for fraudulent misrepresentation. Indeed, counsel for the Plaintiff also conceded that the Plaintiff's case in tort was fraudulent misrepresentation and fraudulent misrepresentation alone. The essential ingredients for this cause of action were (a) the making of a representation to the Plaintiff; (b) the representation was untrue in a material respect; (c) the Defendants knew that the representation was untrue; (d) the Plaintiff was induced to act on the untrue representation; and (e) the Plaintiff suffered loss and damage as a result.

36. There can be no doubt that the representation pleaded in the present case was the statements contained in the certificates of 17 December 1999 and 24 December 1999 signed by the 4th Defendant on behalf of the 1st, 2nd and 3rd Defendants (see paragraphs 13 and 14 of the Statement of Claim). Furthermore, paragraph 15 only alleged that the representation was made by the 1st to 4th Defendants and the same paragraph only alleged that the 1st to 4th Defendants made the representation knowing that the same was false. It is important to note that there was no allegation that the 6th Defendant made any representation contained in the certificates nor was there any allegation that the representation contained in the certificates was made on the 6th Defendant's behalf. Furthermore, there was no allegation that the 6th Defendant was aware or ought to be aware of the falsity of the representation contained in the certificates. With all these essential ingredients in the cause of action missing from the Statement of Claim, it is difficult to see how it could be said that the Plaintiff had made out a good arguable case against the 6th Defendant that this was a claim falling within Order 11 rule 1(1)(f), and in my judgment the claim against the 6th Defendant based on fraudulent misrepresentation could be struck out and there was no serious question to be tried on this claim.

37. Counsel for the Plaintiff sought to argue that on the pleaded case, the 6th Defendant could be made liable for fraudulent misrepresentation in 3 ways :

(1) Parties conspiring or agreeing to commit a tort were all liable for that tort. Likewise, when one person induced another to commit a tort, he was likewise guilty of that tort committed. It was contended that the 6th Defendant and the 4th Defendant had acted in concert and in combination to commit the tort of fraudulent misrepresentation.

(2) It was contended that when one authorised another to commit a tort, he would be liable vicariously for the same tort. It was contended that this would also extend to cases when one authorised his servant or agent to do an act so that if in the course of doing that act, the servant or agent committed a tort, then the principal would also be liable vicariously for the tort committed by his servant or agent. It was contended that the 4th Defendant committed the fraudulent misrepresentation in the course of doing something authorized by the 6th Defendant.

(3) It was contended that by analogy with the principles in equity, (presumably by analogy with constructive trust), if one assisted another to commit a tort, he was likewise guilty of the same tort.

38. I have no difficulty in accepting the legal proposition in submission (1). However, that is not the pleaded case of the Plaintiff in the Statement of Claim. There was no allegation of any combination to make the false representation anywhere in the Statement of Claim. No doubt there were various allegations of improper acts on the part of the 4th Defendant and the 6th Defendant assisting in these acts, but none of the improper acts alleged related to the making of the false representation in the certificates. As I have pointed out, in my judgment, the Statement of Claim did not plead any cause of action of fraudulent trading or conspiracy to defraud or to injure the Plaintiff and counsel for the Plaintiff very properly did not rely on any cause of action on conspiracy or fraudulent trading.

39. It was also argued that there were acts pleaded which showed that the 4th and 6th Defendants had acted in concert in making the fraudulent misrepresentation. It was said that the part played by the 6th Defendant was to assist in the stripping of the assets of the 2nd Defendant so to make the representation contained in the certificates signed by the 4th Defendant to be untrue and in this way the 6th Defendant would be liable also for the tort of fraudulent misrepresentation committed by the 4th Defendant. I reject this contention. In my view the mere fact that the 6th Defendant assisted or even was responsible for causing a state of affairs which would make the representation contained in the certificates signed by the 4th Defendant to be untrue could not per se make the 6th Defendant liable for any misrepresentation contained in the certificates. The position may well be otherwise if there was an agreement between the 4th and 6th Defendants whereby it was agreed that the 4th Defendant would make the false representation by issuing the false certificates. However, that was not the pleaded case here. There was simply no allegation in the pleading that the 6th Defendant was aware of the issuance of the certificates by the 4th Defendant let alone any agreement between them whereby the 4th Defendant was to issue any false certificate.

40. As to submission (2), again I have no difficulty in accepting that a principal may be vicariously liable for the tort committed by his agent in the course of the discharge of his duty to the principal. However, there is simply no pleading to say that the 4th Defendant was the agent of the 6th Defendant in any respect. Counsel for the Plaintiff sought to argue that since it was pleaded that there was a management agreement of 12 November 1999 whereby the whole of the affairs of the 2nd Defendant was to be managed by a member of the Grande group which was under the control of the 6th Defendant, in fact everything done after that day by the 4th Defendant purportedly on behalf of the 2nd Defendant and any of its subsidiaries (including the 1st and 3rd Defendants) would be done in the course of discharging his duties towards the 6th Defendant or could be said to be done under the direction of the 6th Defendant. Accordingly it was submitted that the 6th Defendant could be liable to the Plaintiff for the fraudulent misrepresentation

41. I reject such submission. It is important to note that in paragraph 11(3)(b) of the Statement of Claim where the management agreement was pleaded, it was alleged that the management agreement was a "sham". The word "sham" has a well defined legal meaning. In Snook v London and West Riding Investments Ltd. [1967] 2 QB 786, Diplock LJ said (at page 802) :

" As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a "sham", it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co. v Maclure (1882) 21 Ch. D. 309 and Stoneleigh Finance Ltd. V Phillips [1965] 2 Q.b. 537) that for acts or documents to be a "sham" with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a "Shammer" affect the rights of a party whom he deceived ... "

On the pleading, the management agreement being a "sham" could obviously not give rise to any effect of vesting the management and control of the 2nd Defendant in Grande Group Limited. There is therefore no basis for saying that in fact in issuing the certificates, the 4th Defendant was acting in discharge of any duties authorized by the Grande Group Limited or any of its subsidiaries of Grande let alone the 6th Defendant.

42. Counsel for the Plaintiff submitted that the word "sham" in paragraph 11(3)(b) of the Statement of Claim should not be read and understood in its ordinary and popular meaning. It was contended that the word "sham" here should really be read and understood as meaning that the agreement was not bona fide made and should not be understood as saying that the parties to the agreement did not intend to create the rights and obligations shown on the face of the agreement. I do not think I can accept this submission. I do not see any reason for not giving the word "sham" its ordinary meaning. I note that throughout the Statement of Claims, the Plaintiff had made many allegations of impropriety against transactions entered into between companies of the 2nd Defendant's group allegedly under the control of the 4th Defendant and those of the Grande group allegedly under the control of the 6th Defendant. Only the management agreement of 12 November 1999 and the financial adviser's agreement of 1 November 1999 were alleged to be "sham". Furthermore, I must also bear in mind that the Statement of Claim was specifically amended for the purpose of applying for a Mareva injunction against inter alia the 4th and 6th Defendants and also for applying for leave to join the 5th and 6th Defendants and to serve the 6th Defendant out of the jurisdiction. The allegations that the financial adviser's agreement and the management agreement were both sham tallied well with the allegation in paragraph 5D(a) of the Statement of Claim whereby it was alleged that the 4th Defendant with the assistance of the 6th Defendant "stripped the [2nd Defendant] of its most valuable assets which the [4th Defendant] with the assistance of the [6th Defendant], caused to be transferred at undervalue or for contrived or illusory or no consideration to wholly owned subsidiaries of Grande where the [4th Defendant] with the [6th Defendant's] assistance could control them." If it was intended to allege that the management agreement was a "real" agreement in the sense that the parties thereto intended to create the rights and obligations stated in it so that as a result of the agreement the 2nd Defendant and all its subsidiaries would be managed by Grande Group Limited, it is difficult to see how it could still be alleged that the 4th Defendant could still control the assets transferred to the subsidiaries of Grande. The word "sham" in the context of paragraph 11(3)(b) could not bear one meaning in the context of the claim for Mareva relief against the 4th and 6th Defendants and another meaning in the context of application for leave to serve the 6th Defendant out of jurisdiction.

43. Submission (3) is a very broad proposition. Assistance in the committing of a tort may take the form of an agreement or acting in concert to commit a tort. In that event, it would be within the ambit of the proposition in submission (1). However, under this submission the Plaintiff in fact contended that the 6th Defendant could have committed the tort of fraudulent misrepresentation by aiding, abetting or facilitating the 4th Defendant to commit such tort in 2 ways. The first is to assist in stripping the assets of the 2nd Defendant so as to render the representation in the certificates signed and issued by the 4th Defendant false. The second way is to deal with the proceeds of the fraudulent misrepresentation by receiving them through the 5th Defendant. In my judgment these acts may well be acts of assistance of the tort of conspiracy to defraud but I do not think that they could amount to acts of assistance in the commission of the tort of fraudulent misrepresentation on the part of the 4th Defendant. It must be remembered that the main ingredient of the tort of fraudulent misrepresentation in this case is the making of the representation to the Plaintiff which the 4th Defendant knew was false. It is the falsity of the representation and the knowledge of the falsity which are the important ingredients. I could not see how it could be said that the 6th Defendant had assisted in the making of a false representation about the financial position of the 2nd Defendant in the certificates by impoverishing the 2nd Defendant or its subsidiaries. Nor could I see how it could be said that the 6th Defendant have assisted the commission of the tort of fraudulent misrepresentation by causing the 5th Defendant to receive money from the 1st Defendant, to whom the Plaintiff had made the payment as a result of the fraudulent misrepresentation. The tort of the fraudulent misrepresentation was already completed when the Plaintiff made the payment as a result of the fraudulent misrepresentation.

44. In any event, as a matter of law, I am not persuaded that in Hong Kong there was any tort of knowing assistance and I would respectfully adopt the words of Hobhouse LJ in Credit Lyonnais Bank Nederland N.V. v Export Credit Guarantee Department [1998] 1 Lloyd's Rep 19 at 41 & 46 :

"There is no tort of knowing assistance. ... the liability in tort of a defendant for the act of another depends, in this context, upon the defendant's participation in or authorization of that act. It is essentially an agency principle which makes the defendant liable for the relevant act. The analogy drawn ... with the criminal liability of aiders and abettors was not correct."

"Accordingly, in my judgment there is no second category in the law of tort. Mere assistance, even knowing assistance, does not suffice to make the "secondary" party jointly liable as a joint tortfeasor with the primary party. What he does must go further. He must have conspired with the primary party or procured or induced his commission of the tort (my first category); or he must have joined in the common design pursuant to which the tort was committed (my third category)."

45. Thus in my view the Plaintiff has failed to show a good arguable case that there was a claim against the 6th Defendant founded on the tort of fraudulent misrepresentation alleged in the writ. It also follows that there is no serious issue to be tried for such tort of fraudulent of misrepresentation against the 6th Defendant either. In my view no leave should be granted to serve out of the jurisdiction on this ground.

46. If however, I am wrong in my last conclusion, then I am of the view that plainly the Plaintiff suffered the damage from the tort within the jurisdiction because the document was presented to the escrow agent in Hong Kong and the Plaintiff and the escrow agent made the payment in Hong Kong. Further, I am of the view that Hong Kong would have been the convenient forum to try this issue.

Order 11 rule 1(1)(p) - the claim is brought for money had & received or for an account or other relief against the defendant as constructive trustee, and the defendant's alleged liability arises out of acts committed, whether by him or otherwise, within the jurisdiction.

47. As the very basis for this claim, the Plaintiff's case was that under the escrow agreement Citibank was to hold the money received by it from the Plaintiff as trustee and Citibank's duty as trustee was to hold the money for the Plaintiff until such time when it was required by the terms of the escrow agreement to deliver the monies over to the 1st Defendant. The 6th Defendant's contention was that whole arrangement contained in the escrow agreement was just an arrangement whereby Citibank was to hold the money as stakeholder. Citibank was bound by the terms of the escrow agreement as a matter of contract to apply the money in the manner set out in that agreement and did not hold the money as trustee. In this respect, counsel for the 6th Defendant referred me to a number of passages in well known text books and in particular to the decision of Farquaharson LJ in Rockeagle Ltd. v Alsop Wilkinson [1991] 3 WLR 573 at 577H where the learned LJ held that it was clear from authorities and in particular Potters v Loppert [1973] Ch 399, that the duties and authority of a stakeholder lie in contract or quasi-contract and not as trustee.

48. Counsel for the Plaintiff however submitted that whether Citibank held the money as trustee or as a mere stakeholder must depend on the actual terms of the escrow agreement. In my judgment this contention is right. Counsel for both sides had referred me to the provisions in the escrow agreement. In my judgment, particularly in the light of clause 1, which required Citibank to open a special account to deal with the money, and clause 7 which made Citibank accountable to the Plaintiff for any interest earned on sums standing in the special account opened, the Plaintiff has shown a good arguable case that Citibank held the US$13 million received from the Plaintiff for the subscription of the debenture under the subscription agreement as trustee on the terms set out in the escrow agreement.

49. However, the existence of the trust is only one of the basic ingredients in the Plaintiff's cause of action. The Plaintiff's case is that the 6th Defendant was liable to the Plaintiff as a constructive trustee for knowingly or dishonestly assisting in Citibank's breach of trust or for knowingly receiving trust money paid out by Citibank in breach of trust. In either case, it is an essential ingredient to show that the payment of the money by Citibank to the 1st Defendant was in breach of trust. The 6th Defendant contended that while breach of trust on the part of Citibank had been asserted in the Statement of Claim, when one examined the obligation of Citibank under the escrow agreement, it could be conclusively shown that there was no case for saying that it had acted in breach of trust. If the contention is right, then plainly the Plaintiff has not shown a good arguable case on any claim against the 6th Defendant as constructive trustee and there is no serious issue to be tried on this alleged cause of action.

50. It is thus necessary to look at the provisions of the escrow agreement relating to the duties of Citibank.

51. Clause 8 of the escrow agreement provided that not later than 11.00 a.m. on the business day prior to each completion date, the 1st and 2nd Defendants were to deliver to the Citibank 7 documents listed under that clause. One of them is the certificate in the form specified in Schedule 6 of the agreement and to be dated the completion date. This is the certificate which contained the statement that the representation and warranties of the 1st, 2nd and 3rd Defendants set forth in Part I of Schedule 2 to the subscription agreement are true and correct in all material respect on and as of the "date hereof" with the same force and effect as though expressly made at and as of this date. This is also the certificate which the Plaintiff allegedly contained a misrepresentation because the representation and warranties set forth in Part I of Schedule 2 to the subscription agreement were no longer true by the date of the certificate. Insofar as it is material for the present application, clause 8 went on to provide that following the receipt of the documents in the prescribed form, Citibank "shall on the business day prior to each Completion Day give instructions to transfer the funds held by it in the Cash Escrow Account for value each of the relevant Completion Day to the Subscription Account" of the 1st Defendant.

52. Further it is important to note that clause 17 of the escrow agreement has made considerable qualifications to the duties and liabilities of Citibank. The relevant part of the clause provided :

"17. To induce the Escrow Agent to act hereunder, it is further agreed by the company and the Subscriber [the Plaintiff] and Holdings that

(a) The Escrow Agent shall not be under any duty to give the cash, Shares or documents that are to held (sic) by the Escrow Agent pursuant to the terms of this letter ("Escrow Property") held by it hereunder any greater degree of care than it gives its own similar property and shall not be required to invest any funds held hereunder.

(b) This letter expressly sets forth all the duties of the Escrow Agent with respect to any and all matters pertinent hereto. The Escrow Agent shall not be liable for any other duties or responsibilities whatsoever and no implied duties or obligations shall be read into this letter against the Escrow Agent. The Escrow Agent shall not be bound by the provisions of any agreement among the other parties hereto except this Escrow Agreement.

(c) The Escrow Agent shall not be liable, for any loss, liability, claim, action damages or expense arising out of or in connection with its performance of or failure to perform any of its obligations under this Escrow Agreement other than willful default on the part of the Escrow Agent.

(e) The Escrow Agent shall be entitled to rely upon any order, judgement, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity or the service thereof ...

(h) The Escrow Agent makes no representation as to the validity, value, genuineness or the collectability of any security or other document or instrument held by or delivered to it.

(t) The Escrow Agent shall be entitled to act upon any written instruction in accordance with the terms of this letter without any reference to or further authority form the relevant party, without inquiry into the justification for or the validity, genuineness or accuracy of the same."

53. In my judgment, it is plain and obvious that Citibank was not just entitled to but was also bound to pay/transfer the funds received from the Plaintiff to the 1st Defendant upon the receipts of certificates signed by the 4th Defendant together with the other requisite documents in accordance with clause 8 of the escrow agreement. It is also plain and obvious that it has no duty to see to that the statements on the certificates are true. Insofar as there was any assertion whether in the Statement of Claim or otherwise that the duties of Citibank was to send the money only upon the receipt of valid documents containing statements which are all true, such assertion could not stand. There was no allegation anywhere that Citibank had any actual or constructive knowledge of any falsity of any representation contained in any of the documents received by it nor was there even an allegation of negligence on the part of Citibank for acting on inter alia the certificates received by it from the 1st to 4th Defendants. In my judgment, there is simply no case to say that Citibank has acted in breach of any trust. It follows that since the Plaintiff's case against the 6th Defendant on constructive trust was based on the allegation that the 6th Defendant had assisted Citibank in the breach of trust, or knowingly receiving trust fund transferred by Citibank in breach of trust, there is no case on the constructive trust claim against the 6th Defendant.

54. In any event, I am of the view that on the Statement of Claim it is not open to the Plaintiff to justify the grant of leave under this head on the basis that the claim against the 6th Defendant was for dishonest assistance of the misapplication of the trust fund. In this respect it is to be noted that in paragraph 16(3) of the Statement of Claim, a case of dishonest assistance in the misapplication of trust fund on the part of Citibank was pleaded only against the 1st to 4th Defendants and not against the 6th Defendant. It is not open to the Plaintiff to add a new head of constructive trust claim now.

55. Furthermore, whether the claim was on the basis of dishonest assistance in the breach of trust or dishonest receipt of the trust fund, it is an essential ingredient of the claim to show that the 6th Defendant was aware of the breach of trust. On the Statement of Claim there was simply no such averment. There was nothing pleaded to allege that the 6th Defendant was aware of the tendering of the certificates or that the certificates contained any untrue statements. Nor was there any allegation in the supporting affidavits of Mr Clarke to the effect that the 6th Defendant was aware of the requirements of the tendering of the certificates and of the falsity in the statements contained in the certificates. Counsel for the Plaintiff drew my attention to the contents of the only affirmation filed by the 6th Defendant and pointed out that all that the 6th Defendant had said in his affirmation was that all the acts of the various companies of the Grande group were in effect corporate acts and was not a decision of his personally. My attention was also drawn to an affirmation of Koichi Enomoto, a director of the 3rd Defendant filed on 6 March 2001 in support of the 3rd Defendant's summons of 5 December 2000 to set aside the ex parte leave to amend the Statement of Claim, which I have dealt with above. Mr Enomoto deposed to the effect that the 1st Defendant needed US$25 million by 17 December 1999 to acquire 40 million shares to be allotted by the 3rd Defendant. It was originally the plan that US$20 million was to be raised from the Plaintiff's subscription to the Part II debenture. Since by 17 December 1999 the Plaintiff had merely subscribed $US$8 million Part II debenture, the 1st Defendant had to borrow US$12 million from a company called Tremendous Spring Ltd. which was also another subsidiary of the 2nd Defendant. The 1st Defendant subsequently received another US$5 million from the Plaintiff after 21 December 1999 and the 1st Defendant caused this amount to be remitted to Kawa Industrial Limited on behalf of Tremendous as part repayment of the loan from Tremendous. It is important to note that the Kawa Industrial Limited spoken of by Mr Enomoto was a British Virgin Islands company and not the 5th Defendant. As to the first US$8 million paid by the Plaintiff, in an earlier affirmation filed in pursuance of the ex parte Mareva injunction granted by Cheung J, Mr Enomoto deposed to the effect that this sum was used by the 1st Defendant to subscribe shares in the 3rd Defendant and the shares had been duly issued to the 1st Defendant and the US$8 million was duly received by the 3rd Defendant, and was used by the 3rd Defendant in its ordinary course of business.

56. Counsel for the Plaintiff invited me to draw inference from the affirmations of Mr Clarke and Mr Enomoto that the 6th Defendant must have knowledge of the whole arrangement of the subscription agreement of 13 September 1999 between the Plaintiff on the one hand and the 1st, 2nd and 3rd Defendants on the other. I was also asked to draw the inference that the 6th Defendant must be aware of the requirement of the tender of the certificates under clause 8 of the escrow agreement with Citibank and also the contents of the certificate and the falsity of the contents of the certificate. It was submitted that I ought to draw such inference because by reason of the "sham" management agreement Grande Group Limited and hence the 6th Defendant was in complete management of all the affairs within the Akai Holdings Limited group and Tremendous would not have lent the money to the 1st Defendant unless it was in full knowledge of the arrangement between the 1st Defendant and the Plaintiff. At any rate, it was contended that the 6th Defendant had not come up with any denial of knowledge or denial of any improper behaviour.

57. In my judgment, I cannot draw the inference that the 6th Defendant would have the necessary guilty knowledge simply on the basis that he had made no denial of such guilty knowledge. This is particularly so when the Plaintiff has not made any specific allegation whether in the Statement of Claim or in Mr Clarke's affidavit that the 6th Defendant was aware of the escrow agent arrangement in the subscription agreement, the tender of the certificates, the contents of the certificates tendered and also the falsity of the contents. Just on the basis of the "sham" management agreement, I am unable to draw any inference that the 6th Defendant would have the knowledge of everything within the 2nd Defendant's group. I do not think that the fact that the management agreement was signed by the 6th Defendant would make any difference. The officer who signs an agreement for a company needs not be the person who implements it. At any rate, as I have pointed out earlier, it is essential in the context of service out of jurisdiction that the necessary and essential ingredients of the cause of action are properly set out in the Statement of Claim where one is endorsed on the writ or filed. If on the face of the Statement of Claim, there is no good cause of action pleaded against the foreign defendant, it is not the task of the Court to try to extract a cause of action from the massive affidavits or other documents filed in support of the application, let alone from other evidence filed in connection with other interlocutory proceedings by other parties.

58. In relation to the claim based on the allegation of knowing receipt of misapplied trust money, the Plaintiff has not alleged that the 6th Defendant was himself in receipt of any of the money from Citibank. The Plaintiff merely alleged that the money had been eventually paid to the 5th Defendant which was also a subsidiary of Grande. I do not think that it could be alleged that money held by the 5th Defendant could be said to be money received by the 6th Defendant even though the 6th Defendant was a director, the chief executive officer and also a controlling shareholder of Grande. As Grande was a listed company, plainly the 6th Defendant could not be holding all its shares.

59. Furthermore in my judgment, the Plaintiff had not shown a case of proprietary claim for the US$13 million paid by the Plaintiff for the debenture under the subscription agreement. Even if the money was paid as a result of some fraudulent misrepresentation, the property in the money nevertheless passed to the 1st Defendant until the Plaintiff had made an election to rescind the transaction. The money was paid in order to acquire the debenture. The Plaintiff obtained the debenture. As pleaded in paragraph 18(2) of the Statement of Claim, in fact the Plaintiff attempted to exercise its rights under the debenture to exchange the debenture for shares in the 3rd Defendant. On the evidence this took place sometime in July 2000. Of course at this stage it could not be said that since the Plaintiff had attempted to exercise its right to exchange the debenture for shares in the 3rd Defendant, it had affirmed the subscription of the Part II debentures because the Plaintiff's case was that it did not have any knowledge of the falsity of the representation even up to that time. However, even if the Plaintiff has not yet lost its right to rescind the transaction on account of the misrepresentation, the Plaintiff must elect to rescind before it could claim back the money it had paid out for the debenture. No where in the evidence or in the Statement of Claim had it been alleged that the Plaintiff had elected to rescind the Part II debenture. In my view the prayer in the Statement of Claim for an account or for the payment over of money received by the Defendants certainly could not amount to an election to rescind which must be clear and unequivocal. It follows that in my judgment there is no proprietary claim for the money and from any point of view, up to the present moment, there is no case to say that the US$13 million now said to be with the 5th Defendant was money belonging to the Plaintiff legally or beneficially.

60. In my judgment the Plaintiff's case based on Order 11 rule 1(1)(p) also fails. But again if I am wrong in holding that the Plaintiff has failed to show a good arguable case under this paragraph, or a serious issue to be tried on constructive trust, I am satisfied that Hong Kong would be the convenient forum for this claim.

Order 11 rule 1(1)(b) - an injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of a failure to do or the doing of that thing.

61. Although the Plaintiff has succeeded in obtaining an ex parte Mareva injunction against the 6th Defendant, it is now well established that a claim for an interlocutory injunction such as a Mareva injunction is not itself sufficient to found jurisdiction under this head (see The Siskina [1979] AC 210). The Plaintiff however contended that since in paragraphs (2) & (3) of the prayer, the Plaintiff prayed for an account of moneys received by the Defendants (including the 6th Defendant) and an order for the payment over of all moneys received by the Defendants representing the US$13 million, this was a claim for an injunction ordering inter alia the 6th Defendant to do something within the jurisdiction and therefore, this case was within Order 11 rule 1(1)(b).

62. In my judgment paragraphs (2) & (3) of the Prayers were merely relieves consequential on the constructive trust claim and should not be treated as a claim for injunction under Order 11 rule 1(1)(b). In any event, even if an order for the payment of the money could be said to be an injunction, there was plainly no good cause of action pleaded in the Statement of Claim against the 6th Defendant to justify the order prayed for in the prayer. In any case, I am not prepared to exercise my discretion to grant leave under this head in view of the views I hold on the merits of Plaintiff's case on other heads.

Order 11 rule 1(1)(c) - the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto.

63. For the purpose of this head, the persons who were properly served within the jurisdiction could be any or more of the 1st to 4th Defendants. The Plaintiff sought to join the 5th Defendant and the 6th Defendant parties at the same time and thus the 5th Defendant could not have been served at the time of the application for leave to serve the 6th Defendant out of jurisdiction. The 5th Defendant did not appear before me, and there was no information put before me as to whether it has been served.

64. When a plaintiff relied on this ground to apply for leave to serve out of the jurisdiction, the supporting affidavit would have to state the grounds for the deponent's belief that there is between the plaintiff and the person on whom a writ has been served a real issue which the plaintiff may ask the Court to try (see Order 11 rule 4(1)(d)). This would normally mean that the deponent would have to identify the particular existing defendants who have been served and the issues between the plaintiff and these particular defendants, which the plaintiff would want the Court to try in conjunction with the plaintiff's claim against the foreign defendant. Mr Clarke's affidavits did not give any such information although it is fair to say that Mr Clarke's affidavits did contain matters which showed that the Plaintiff had some claims against the existing defendants and in particular the 4th Defendant. However, no point was taken by the 6th Defendant on whether the Plaintiff had complied with Order 11 rule 4(1)(d), and accordingly, I am prepared to deal with the application on the basis that the Plaintiff could rely on its claims against any one of the existing defendants to justify service out of jurisdiction under this ground.

65. In Inchcape JDH Limited v Baltrans Exhibition & Removal Ltd. [1997] 3 HKC 314, Stone J reaffirmed the view that leave may be granted under this head even though the foreign defendant was just a proper party without being a necessary party. The learned Judge further held that whether a person out of the jurisdiction was a proper party to an action against a person who had been served within the jurisdiction depended on whether, supposing both parties were within the jurisdiction, they would have been proper parties to the same action. I agree with the views of Stone J.

66. In the present case, the Plaintiff's counsel submitted that the Plaintiff could have very properly joined the 6th Defendant in this action if he were within the jurisdiction. He drew my attention to Order 15 rule 6(2)(b)(i) and submitted that the 6th Defendant's presence before the Court would be necessary to ensure that all matters in dispute may be effectually and completely determined and adjudicated upon. I take it that in this respect, he would refer particularly to the many allegations in the Statement of Claim about the assistance given by the 6th Defendant to the 4th Defendant on the stripping of the assets of the 2nd Defendant and to the subsequent disposal of the US$13 million after the same was "misapplied" by Citibank.

67. However in my judgment, no matter how intimately the foreign defendant is involved in the subject matters of the Plaintiff's claim against some existing and properly served defendants, it could hardly be said that the foreign defendant is a necessary or proper party unless the Plaintiff is able to show that he has a proper cause of action against the foreign defendant. In the context of an application for service of a specially endorsed writ out of jurisdiction, this would mean that if the Plaintiff could not show a good arguable case on his causes of action endorsed in the Statement of Claim, there should not be any leave to serve out of jurisdiction on this ground. Further, rule 4(2) expressly provides that no leave shall be granted unless it shall be made sufficiently to appear to the Court that the case is a proper one for service out of jurisdiction. It could hardly be proper to serve a defendant with a writ which disclosed no reasonable cause of action against him. In The Electric Furnace Co. v Selas Corporation of America [1987] RPC 23 at 32, Slade LJ said :

"It does seem to me that if the court takes the view that service out of the jurisdiction in a particular case is likely in practice to achieve no potential advantage whatsoever for the plaintiff, this would ordinarily not be a proper case for service out of the jurisdiction within the meaning of Order 11 rule 4(2)".

68. In the present case, the 2 causes of action which the Plaintiff would rely on against the 6th Defendant are : (a) fraudulent misrepresentation; and (b) breach of constructive trust in (i) dishonestly assisting the breach of trust; or (ii) knowingly or dishonestly receiving trust money paid out in breach of trust. For reasons I have given above when I consider the Plaintiff's case under rules 1(1)(f) & (p), I do not think that on the Statement of Claim, the Plaintiff had made out a good arguable case on either of these claims and there was no serious issue to be tried on these claims either. In the circumstances, I see no point in granting leave to the Plaintiff to serve this specially endorsed writ out of jurisdiction against the 6th Defendant. In my view, the Statement of Claim against the 6th Defendant could be struck out on the ground that there was no reasonable cause of action against it.

69. Thus in my judgment the Plaintiff has likewise failed to show that the 6th Defendant is a necessary or proper party to the claim against the 1st to 4th Defendants. In fact my view would be the same even if it is permissible to take the claim against the 5th Defendant into account. Under rule 4(2), I would exercise my discretion against granting leave to serve under this rule 1(1)(c).

Conclusion

70. In my judgment the leave granted ex parte by Cheung J on 13 October 2000 to serve the re-amended writ endorsed with the re-amended Statement of Claim on the 6th Defendant out of the jurisdiction ought to be set aside. I would also set aside the leave to join the 6th Defendant as a party to this action. I make an order nisi that the Plaintiff is to pay all the costs of the 6th Defendant in this application.

The Plaintiff's application of 15 March 200

71. This is an application to amend re-amend the writ and the Statement of Claim as against the 1st, 3rd and 4th Defendants. The 4th Defendant had already pleaded to this re-amended Statement of Claim and had taken no part in this application. The 1st Defendant did not appear before me at all.

72. The 3rd Defendant opposed the application on 2 grounds. The first was that amendment ought only to be allowed for the purpose of determining the real question in controversy between the parties but this re-amended Statement of Claim obfuscated rather than clarified the issues in this case. The second ground for opposing the amendment was that the re-amended Statement of Claim did not disclose a reasonable cause of action against the 3rd Defendant.

73. On the first ground I agree that the re-amended Statement of Claim is unclear and unsatisfactory in many respects and is far from being a model pleading. I note however that none of the amendments actually changed the case against the 3rd Defendant. Even if the 3rd Defendant is right in saying that the re-amended Statement of Claim obfuscated rather than clarified the issues in this case, the 3rd Defendant is not prejudiced by these new amendments.

74. On the point of the re-amended Statement of Claim not disclosing a reasonable cause of action against the 3rd Defendant, I am of the view that in view of the clear provisions in clause 5.09 of the subscription agreement the claim against the 3rd Defendant on the ground of misrepresentation would look rather shaky. However, this claim was already there in the original Statement of Claim and was not introduced by this amendment. Furthermore, I also note that there was an inter parte hearing on the Mareva injunction before Suffiad J on 20 October 2000 when Suffiad J ordered that the Mareva injunction was to continue on slightly varied terms. The ruling of Suffiad J may or may not have the effect of giving rise to an issue estoppel on the point of the existence of a cause of action against the 3rd Defendant. In the circumstances, I do not think that I ought to make any decision on the point as to whether the re-amended Statement of Claim does nor does not disclose a reasonable cause of action against the 3rd Defendant.

75. In all the circumstances, I will grant the Plaintiff leave to re-amend the writ and the Statement of Claim in terms of paragraph 1 of the Plaintiff's summons of 15 March 2001. My grant of leave is without prejudice to the 3rd Defendant's application (if so advised) to have the re-amended Statement of Claim struck out on the ground that there was no reasonable cause of action against the 3rd Defendant or on any other ground.

76. On the question of costs, the orders I make below are order nisi. I take into account the 3rd Defendant has not been successful in resisting the amendment although I feel that there was considerable force in the submission that there was no reasonable cause of action against the 3rd Defendant. In the circumstances I do not take the view that the 3rd Defendant has acted totally unreasonably in resisting the application. In all the circumstances, having regard to the practice as set out in paragraph 20/8/51 of Hong Kong Civil Procedure 2001, I will order that costs of and occasioned by the re-amendment to be to the 1st, 3rd and 4th Defendants in any event. As between the Plaintiff and the 3rd Defendant the costs of the hearing before me for leave to amend shall be the Plaintiff's costs in the cause. As between the Plaintiff and also the 1st and 4th Defendants, the costs, if any, of the hearing before me for leave to amend shall be to the 1st and 4th Defendants in any event.

77. It remains for me to thank counsel for the Plaintiff, 3rd and 6th Defendants for their able assistance in this matter.

78. I must add that Mr Wright who has presented the Plaintiff's case with great skill and ability before me, is not in any way responsible for the Plaintiff's Statement of Claim or any amendment thereto.