BBMB FINANCE (HONG KONG) LTD. and Others v. LORRAIN ESME OSMAN and Others

1993, No.87
(Civil)

IN THE COURT OF APPEAL

(On appeal from the order made on the

23 day of Marcy 1993 by the Honourable

Mr Justice Mortimer in Chambers)

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J U D G M E N T

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Liu, J.:

1. This is the judgment of the court.

2. In 1983 (HC Action No.A15519 of 1983), the plaintiffs sued George Tan on some alleged fraudulent conspiracy, alternatively on a contractual claim based on a guarantee for a US$40m loan. In 1986 (HC Action No.A5875 of 1986), the same three plaintiffs commenced an action against three former directors with respect to eight loans. The nature of the plaintiffs' claims was that of negligence, breach of fiduciary duty and fraudulent conspiracy. In August 1988 (HC Action Nos.A5808-A5813 of 1988), the last-named plaintiff instituted proceedings against George Tan on a guarantee for a US$100m loan. Later in December 1988 (HC Action No.A7981 of 1988), the same three plaintiffs commenced proceedings against George Tan, the Woo sisters and George Tan's mother-in-law. The Woo sisters are Carrie Woo, Cecilia Woo and Lily Leung. The mother-in-Law of George Tan is Madam Leong Lai Peng. Madam Leong is not a resident of Hong Kong and she is now over 74. This later 1988 action was founded on alleged constructive trust and fraudulent conspiracy. In it, as alleged victims of fraud, the three plaintiffs sought to exercise their right to follow and recover their funds. By virtue of the alleged special relationship of the women, they were all alleged to be constructive trustees. In these appeals, this second 1988 action was called "the tracing action". In 1991 (HC Action No.A8717 of 1991), the same three plaintiffs claimed against George Tan in respect of the same eight loans on allegations similar to those made in the 1986 action against the former directors on, inter alia, the ground of fraudulent misapplication of funds in conjunction with these directors, thus making George Tan himself accountable as constructive trustee.

3. In 1989, the 1983 action and the later 1988 action were consolidated by an order of Mortimer, J. The claims in these two actions arose from the US$40m loan. In 1993, Mortimer, J. consolidated all these ten actions. The three Woo sisters appealed; so did the mother-in-law of George Tan, Madam Leong. Their appeals from the 1993 order were heard together.

4. The Grounds of Appeal were almost identical. In the appeal of the Woo sisters, it was further complained that the judge failed to have regard to the fact that two of the Woo sisters were "not alleged to have conspired to injure the plaintiff in the 'second conspiracy". In the mother-in-law's appeal, an additional ground was that the judge failed to place any "reliance" on her foreign residence. In his decision, Mortimer, J. did made reference to her advanced age and her non-Hong Kong residence. On behalf of the Woo sisters and the mother-in-law Mr McNamara advanced no or no substantive submissions in support of these separate further grounds, and we were told that neither of these two grounds was itself determinative of these appeals or would otherwise materially sway the decision of this court.

5. These appellants were not seeking to disturb the consolidation ordered by the judge in 1989. It was against the 1993 consolidation of these ten actions that these appeals lay.

6. Counsel for these appellants argued that there was a lack of commonality, particularly when the indebtedness itself prior to the US$40m loan was or might be relevant to the tracing action against, inter alia, these appellants, the manner in which such indebtedness had been incurred had clearly no bearing on the tracing claim. Further, the evidence for proving the alleged wrongs in obtaining these prior loans was said to have to be disproportionately protracted.

7. Mr McNamara put the material facts on which these ten actions were sought to be maintained into two rather water-tight compartments, i.e. (1) the US$40m said to have been fraudulently procured for the purported Carrian rescue bid in between November 1982 to October 1983 and (2) a series of mammoth lendings to Carrian between 1980 to November 1982, with which the appellants were unconnected and in respect to which no allegations had been made against them. The lack of commonality, so counsel submitted, led to a Marathon statement of claim filed in these 1993 consolidated actions. It ran to some 180 pages of which only abount 25 directly concerned the appellants. These 25 pages had since been enlarged by amendments. Counsel relied on the principle in Payne v. British Recorder Co., [1921] 2 KB 1 as applied in Daws v. Daily Sketch, [1960] 1 WR 126 and Lewis v. Daily Telegraph, [1964] 2 QB 601. Mr McNamara contended that in these prior loans there was no common question of law or fact of such sufficient importance in proportion to the rest as would justify the 1993 consolidation.

8. Of the allegations in the statement of claim in the 1993 consolidation, Mr MaNamara conceded that the allegations in the introductory at pp. 1-16 of Document 2 in the Appeal Bundle were common to all. However, counsel drew attention to the paragraphs commencing from para.41 at pp. 16-104, as paragraphs irrelevant to and sharing no commonality with the tracing action against these appellants. Illustrations were given by reference to the alleged breach of fiduciary duty in para.41(iii) at p.17, the alleged recklessness and fraudulent misrepresentation in para.42(ii) at p.20, the alleged conspiracy and bribery in para.52(i) at p.24 and the alleged fraudulent conspiracy in para.52(ii) at p.24. Mr McNamara further led us through the guarantees and the bribes and conspiracies involved, which, so counsel argued, implicated only George Tan and the other defendants but not these appellants.

9. The right to trace in equity is founded on breaches of some fiduciary relationship. It is a right exercisable by victims of fraud to trace their lost assets, property or money, with the view to recovering them from the fraudsters or their confederates, including the ultimate recipients. Knowledge and intent of an alleged fraudster such as George Tan in these proceedings must be a critical feature in the perpetrated frauds. The indebtedness prior to the US$40m loan and the related alleged bribes and conspiracies as well as the inability to repay must be closely-knit allegations with those of construstive trustee and fraudulent conspiracy which form the basis of the tracing action against the appellants in the US$40m loan.

10. That was precisely what was made the essence of his decision by Mortimer, J. for the 1993 consolidation. The judge was emphatic that the whole history of the dealings was pertinent to the tracing action, particularly in the questions of bribe, earlier indebtedness and failure to repay. The judge recognised that some evidence must necessarily be unassociated with the tracing action or the appellants but that a great proportion of the material would be common to all. The judge was also alive to the reality that the final saga culminating in the US$40 million loan might not be readily appreciated in full by an adjudicator without the earlier background information. The age and the overseas residence of Madam Leong were noted as was the necessity for a number of witnesses to attend the Hong Kong hearing from aboard. The residual discretion of the trial judge in his conduct of the proceedings was taken into consideration in the exercise of the judge's own discretion to consolidate. See O.15 r.5 and O.33 r.3 RSC at p.194 and 586 of vol.1 1993 White book. Alternative modes for the disposal of these huge claims were not overlooked. The appellants' submitted predicaments in paragraphs 4-12 of Mr Bridge's affidavit sworn on 18th March 1993 were also examined. The judge considered the justice of the whole case in terms of difficulties or otherwise, time and costs.

11. We do not accept that the manner in which the earlier loans were said to have been procured would not be material to the tracing action. Counsel for these appellants conceded as relevant the questions of alleged bribe and fraudulent conspiracy. On that concession, it would be difficult to appreciate how the modi operandi of securing these earlier loans could be said to be immaterial to the legal ingredients of the tracing action.

12. We are unable to find any misdirection, in principle, with regard to the exercise of the judge's discretion; nor was it successfully demonstrated to us that the judge had taken into account matter which he ought not to have done or failed to take into account matter which he ought to have done. We are satisfied that the judge's decision is correct. See Louvet v. Louvet and another, [1990] 1 HKLR 670.

13. We do not find it necessary to deal separately with the grounds in the Notices of Appeal. Counsel for the appellants did not expressly canvass any specific ground. The criticisms set out in the Notices of Appeal were, however, all cogently resolved by Mr Bleach, counsel for the respondent, in his reply.

14. We dismiss both appeals with an order nisi for costs against the appellants.