XCHRX DARYL MARK O'SHAUGHNESSY v. DAVID WILLIAM GUNSON

HCA 9218/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9218 OF 1999

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J U D G M E N T

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1. The Plaintiff took out 2 summonses against the 1st Defendant. One is a summons under O. 14 r. 1 for final judgment to be entered against the 1st Defendant in the sum claimed in this action, that is, A$238,803.50. The other is a summons under O. 18 r. 19 for the striking out of the 1st Defendant's Defence filed on 23 September 1999. The 1st Defendant took out an application dated 9 October 2000 asking for leave to amend his Defence.

2. I shall deal with the O. 14 application first before turning to the O. 18 r. 19 application.

3. The Plaintiff brings this action against the 2 Defendants claiming for damages for breach of fiduciary duty and/or breach of trust in the sum of A$238,803.50, alternatively, for damages for conversion and/or theft by the 1st Defendant. The alleged wrongful act giving rise to such a claim is set out in para. 14 of the Statement of Claim. It reads:-

"... the 1st Defendant has wrongfully in breach of fiduciary duty paid away and/or converted the Plaintiff's cash deposit of A$238,803.50, and caused the same to be paid out of the 2nd Defendant's bank account .... together with unknown person's monies ... instead of paying the sum .... to the Plaintiff's account."

4. It is undisputed in evidence (at least for the purpose of the O. 14 application) that the 2nd Defendant is a company registered in New Zealand and operates a fund called "Pacific Superannuation Fund". It is also undisputed in evidence that a sum not less than A$238,803.50 has been deposited with the fund operated by the 2nd Defendant. The 1st Defendant disputes whether the Plaintiff has a valid claim against him personally for the return of this sum in accordance with the terms of the trust deed which are binding on the Plaintiff (and the 2nd Defendant). It is to be noted that the Plaintiff has not relied on any of the contractual documents signed by him, or indeed on any of the contemporaneous documents, as creating personal liability on the 1st Defendant's part to repay the sum claimed. This is obviously correct because all these documents bore the 2nd Defendant's letterhead. Whenever the 1st Defendant signed these documents, he did so as a director of the 2nd Defendant. The tenure of these documents shows that they might have been written on behalf of the 2nd Defendant. There is, therefore, at least a triable issue as to whether these documents could create personal liability on the 1st Defendant's part.

5. In inviting me to conclude in the Plaintiff's favour, Mr Pirie for the Plaintiff asks me to draw an inference that the 1st Defendant must have committed the wrongful act complained of in the Statement of Claim because:-

(1) it is undisputed that the said deposit was received as trust money;

(2) by a letter dated 22 September 1998 bearing the 1st Defendant's letterhead and signed by the 2nd Defendant as the 1st Defendant's director, it was confirmed that

"all current standing instructions to ... credit ANZ bank [the 2nd Defendant's banker] at the end of each month should cease as from October 1998 and that we shall in turn cancel existing standing instructions to ANZ bank to transfer ...

We will also pay out all relevant overfunded contributions by transfer to the respective members' own bankers; if you will kindly provide a schedule of their bank co-ordinates. ... We plan to carry out these transfers to members effective mid-October ...."

This letter is (so the Plaintiff says) evidence that the trust deposit would be terminated in October 1998 and the deposit would be returned to the Plaintiff by that time;

(3) despite (2) above, the deposit has not been repaid and no account has been given by the 1st Defendant (up to now) as to where the money went;

(4) the only inference is that the 1st Defendant committed (or was a party to the) theft of the Plaintiff's money: see paras 1 to 9 of the Plaintiff's skeleton submissions dated 10 October 2000.

6. The 1st Defendant has in his skeleton submissions argued that the letter dated 22 September 1998 was written under a mistake of law: see para. 3.9 of the 1st Defendant's skeleton submissions. Despite this argument, I am prepared to proceed to determine the O. 14 application on the basis that this document has the effect contended for by the Plaintiff, that is, the trust arrangement was terminated as from October 1998 pursuant to Cl. 34(g) of the Trust Deed and the deposit therefore became liable to be repaid to the Plaintiff since then. I am also prepared to proceed on the basis that the 1st Defendant was the director in control of the 2nd Defendant's business and/or affairs.

7. It has been stated in a number of Court of Appeal decisions that if leave to defend is given, it is usually undesirable for the court to go into the details as to why leave to defend is justified. With this in mind, I shall only say a few words as to why I consider leave to defend ought to be given to the 1st Defendant. Further, these comments are made purely for the purpose of the O. 14 application and are not intended to fetter the determination of this action at the time of trial.

8. The Plaintiff's case against the 1st Defendant is not premised on his lack of care and/or negligence. A case of alleged criminal acts on the 1st Defendant's part has been put forward. There is no direct evidence of the commission of the criminal acts and the court is asked to infer that these acts were committed.

9. It is not unknown that the business of trust companies sometimes failed and beneficiaries' claim became unsatisfied as a result. However, not every such business failure resulted from criminal acts on the part of the directors of the trust companies. The failure could have been the result of unwise investment decisions or other legitimate reasons related to business failures not involving any impropriety. In the present case, Cl. 15 of the Trust Deed (relating to the powers of the trustee, that is, the 2nd Defendant, to invest) shows that the parties intended the funds were to be invested.

10. The lack of an explanation by the 1st Defendant as to what exactly happened to the Plaintiff's deposit (or other sums in the fund) makes the situation suspicious (but not such as to make the 1st Defendant's case "practically moonshine"). Indeed, since I approach this matter on the basis the Plaintiff's deposit became repayable since mid-October 1998, its non-payment is strong evidence that the Defendants are unable to make repayment. The non-payment further shows that the 1st Defendant might not have entirely been truthful when he made various "promises" (for the 2nd Defendant) to repay since at least October 1998. However, people may lie, withhold or mis-state facts for other less "culpable" reasons, such as, the desire to keep a business afloat or for personal pride. I therefore do not accept the Plaintiff's contention that a lack of explanation or evidence of lies must give rise to an inference that the 1st Defendant must have committed the alleged wrongful acts. This is a matter more appropriate for trial. For the above reasons, I do not consider it appropriate to draw the inference contended for by the Plaintiff at this stage.

11. In view of the above, it is strictly unnecessary to consider the other arguments raised by the parties but I shall do so for completeness.

12. The 1st Defendant argues that parts of the Plaintiff's deposit were contributed by the Plaintiff's employer. The 1st Defendant contends that the Plaintiff has no valid claim to these sums. The validity of this argument depends (among other things) on whether the trust has been effectually terminated. If it has been, there is no reason why the Plaintiff cannot make a claim against the 1st Defendant for the whole amount (assuming that the Plaintiff can establish personal liability against the 1st Defendant): see Target Holdings Ltd v. Redferns [1996] 1 AC 421, 434G to 435A and 435B to C.

13. The 1st Defendant also raised the issue of New Zealand trust law. However, no evidence has been adduced in this regard. I therefore do not find that sufficient basis has been laid for this to be raised in this application.

14. The Plaintiff contends that the undertaking given by the 1st Defendant to court on 7 January 2000 amounts to an admission of his personal liability. I disagree and rather agree with the 1st Defendant's submission that his undertaking was in effect to pay over the amount to a new trustee and hence can be regarded as an act consistent with his defence that the Plaintiff is not entitled to the repayment of the sum in question.

15. The 1st Defendant argues that even if the 2nd Defendant has exercised its discretion under Cl. 34(g) of the Trust Deed to terminate the trust, it could subsequently retract from this stance. By reason of my earlier findings that leave to defend should be given, I do not consider it appropriate to comment on this argument.

16. There will be unconditional leave for the 1st Defendant to defend this action.

17. As regards the O. 18 r. 19 application, it is conceded by the 1st Defendant that the Defence has to be amended: see para. 4.2 to 4.3 of the 1st Defendant's skeleton submissions. The Plaintiff argues that particulars are lacking for some of the matters pleaded in the draft. I agree with the 1st Defendant's submissions that the draft pleading is sufficiently clear for leave to amend to be given. As to whether request(s) for further and better particulars should be made, this can be dealt with (if necessary) at a later stage. The Plaintiff also argues that if leave to amend is given, the 1st Defendant ought to be ordered to pay the wasted costs forthwith. Having considered the whole circumstance, including the matters set out above in relation to the O. 14 application, I do not consider it appropriate to make such a cost order. There will, therefore, be an order in terms of para. 1 of the 1st Defendant's summons dated 9 October 2000 "on the usual terms as to costs": see The Supreme Court Practice 1999, para. 20/8/52.

18. Further to the above, the parties agree that a costs order nisi should be included in this judgment.

19. In relation to the Plaintiff's O. 18 r. 19 application, since the 1st Defendant concedes that the Defence as it now stands is inadequate, the proper order is that costs of this application should be paid by the 1st Defendant to the Plaintiff in any event.

20. In addition to the 2 summonses referred to above, the 1st Defendant has taken out an application to strike out the Statement of Claim. No argument was advanced in support of this application and it is dismissed with costs to the Plaintiff in any event.

21. As it turned out at the hearing on 12 October 2000, there was no need to deal with paras 1 and 2 of the Plaintiff's application dated 4 October 2000 relating to further evidence. Para. 3(2) of this application is unnecessary. No order was made on paras 1, 2 or 3(2) of this application. There will be no order as to costs of these parts of this application. Para. 3(1) of this application was adjourned sine die with liberty to restore. Costs of that part of the application are reserved.

22. The costs of the O. 14 application should be in the cause of the action.