THE KA WAH BANK LTD v. LOW CHUN SONG AND OTHERS

Civil Appeal Nos 68, 69 and 70

Headnote

                Bank - Reconstruction - Agency - Ratification - Maintenance and Champerty. Conspiracy - Striking out allegation of - Exercise of Judge's discretion where point of law under consideration by the House of Lords considered.

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JUDGMENT

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Kempster, JA:

1. The real question at issue in these three appeals is whether on 14 July 1987 a firm of solicitors, Messrs Deacons, had, or are now deemed to have had, authority to issue a writ in the name of the Ka wah Bank Limited ("the Bank") claiming from 19 defendants damages for conspiracy, fraud, breach of trust and negligence. Four of those defendants, Low Chun Song, Low Chun Seng, C.S. Low Investment Ltd and Ratonite Inc., claim that the solicitors had no such authority because their principal, mediately or immediately, was the Hong Kong Government ("the Government") which had no mandate to sue in the name of the named plaintiff. Since the existence of a valid retainer is not a question which can be raised on the pleadings or at trial the four defendants properly, though somewhat tardily, issued summonses to dismiss, stay or strike out the proceedings or the name of the Bank as plaintiff or, alternatively, to add the Attorney General as co-plaintiff. Low Chun Seng sought and seeks an order in the alternative striking out the paragraphs claiming damages for conspiracy which appeared in the Re-Re-Amended Statement of Claim. All summonses were dismissed by Deputy High Court Judge Jerome Chan on l May last and the four defendants now appeal against such dismissals.

2. The genesis of this dispute is to be found in an operation mounted by the Government to rescue the Bank, which was on the verge of liquidation, with the cooperation of China International Trust & Investment Corporation (CITIC) and by use of the Exchange Fund. By an agreement dated 21 April 1986 CITIC agreed with the Bank to subscribe and pay for 200 million new $1 ordinary and 150 million new $1 preference shares to be issued by the Bank and to make certain further payments as part of a scheme of reconstruction which involved the reduction of the nominal value of the existing shares from $1 to 05 cents. That agreement was followed by a deed between the same parties dated 23 June whereby, after the expiry of three years running from 23 June 1986 and subject to deductions including recoveries and provisions for bad debts, CITIC were to pay to the Bank the amount of certain outstanding loans categorised as "non-performing". Both agreement and deed reflected the obligation of the Government, as set out in a deed dated 22 March, to pay like sums on like terms to CITIC. Further, CITIC, as by far the majority shareholder in the Bank, accepted full responsibility for its management. The payments were duly made. The Government has also purchased and become the equitable assignee of the Bank's rights in relation to the loans allegedly procured as described in the Re-Re-Amended Statement of Claim. Such rights are worthless. The debtor, Compact Investment & Finance Ltd ("Compact"), is hopelessly insolvent and in liquidation.

3. The deed of 22 March 1986 also recited the responsibility of the Government, at its own expense, to seek the repayment of the monies owed to the Bank for which purpose it was to establish "a team of persons to work in Ka wah and its subsidiaries". CITIC accepted responsibility to procure the necessary documentation and authority for legal proceedings from the Bank. The three leading members of the team, Messrs Banner, Lim and Suen, were made officers of the Bank as its memorandum of 7 August 1986 "supplement to No 1/86 to our authorised signatures book ... " and the annexed signatures of Mr Banner and Mr Lim made plain. No provision is to be found in any of the documents for the Government to initiate, in the name of the Bank, any such proceedings as those with which we are now concerned. Nonetheless the three leaders of the team incorporated under the style "Cambridge Financial Services Ltd", "launched" this action, and others, ostensibly on behalf of the Bank. The verb "launched" was used on behalf of the Secretary for Monetary Affairs in a letter to the Vice-chairman of CITIC, also Chairman of the Board of the Bank, dated 3 August 1987. The letter continued:

"As it can never be the intention of CITIC and the Government that the Bank should be entitled to recover from former directors and other parties through actions funded by Government an amount in respect of loans by way of damages and at the same time claim principal and interest in respect of the same loan under the deed with Government, clause 3.1.1.1(b)(i) should be interpreted to include recoveries from the actions referred to above and any similar action launched in future."

That clause reads:

"During the period of three years after(23 June 1986) any amount of principal received or recovered from the borrowers or obligors of the loans (either by payment by such borrowers or obligors or by realising securities held in respect of the loans) shall be for the account of Ka Wah or its relevant subsidiary ... "

On 8 August the Vice-chairman of CITIC, wrote back to the Secretary for Monetary Affairs to say:

"We would like to confirm that any amount recovered from legal actions taken by the Government against any person who has fraudulently induced the Bank to enter into a loan or who has caused the Bank to suffer losses from a loan as a result of a breach of fiduciary duty, duty of care, negligence etc should be for the account of Ka wah or its relevant subsidiary to be used to reduce the outstanding amount of the related non-performing loan..."

4. The related non-performing loans in the instant case are those that had been made by the Bank to Compact.

5. In the light of these exchanges it seems to me that the Attorney General, by Mr Feenstra, was right to concede at the hearing below that the Government, inferentially by Mr Banner and the team, had brought the action in the name of the Bank for its own benefit. But the Government had done so ostensibly and professedly as agents for the Bank which alone had causes of action against the defendants. I cannot accept that Mr Banner and the team embarked upon a frolic of their own.

6. The Bank has concerted with the Government in the prosecution of the action, as by paying the solicitors' bills, subsequently being reimbursed by the Government, and by authorising an attorney to inspect and copy documents in Taiwan. Having regard also to the terms of the letters just quoted, to that from the Bank to Deacons dated 26 March 1991 referring to the action begun "on our behalf" and to the resolution of the Bank's Board of Directors dated 20 April 1991 I find it impossible, subject to one outstanding consideration, to resist the conclusion that the Bank accepted and ratified the Government's initiative in commencing this litigation. Ratification is retrospective in its effect. Alexander Ward & Co Ltd v. Samyang Navigation Ltd [1975] 1 WLR 673. No question of assignment arises on the evidence nor could the rights of action pleaded have validly been assigned. The Attorney General could not be thought to have a cause of action against the defendants on any other footing. The application to have him joined as a plaintiff was properly refused.

7. The outstanding consideration is the validity of the agreement between the Bank and the Government to be inferred from the correspondence between the Government and CITIC during August 1987. It is submitted that such agreement is void on grounds of maintenance and champerty and, therefore, not susceptible of ratification. By "maintenance" may be understood the provision of assistance to a party to litigation given by another with no legitimate interest in it. If the maintenance is to be rewarded from the proceeds of the litigation then it is deemed champertous. Both concepts have reflected changing approaches to public policy and are directed against

"wanton and officious intermeddling with the disputes of others in which the defendant has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse."

per Fletcher Moulton LJ in British Cash and Parcel Conveyers Ltd v. Lamson Store Service Co Ltd [1908] 1 KB 1006 at p 1014. In Hong Kong the law in this field is unaffected by any such statutory modification as the Criminal Law Act 1967 whereby, without affecting the law of contract, maintenance, including champerty, ceased to constitute a crime or a tort in England. The general law in the two jurisdictions is, nonetheless, identical.

8. We have been taken through the relevant authorities in some detail; particularly Martell v. Consett Iron Co Ltd [1955] Ch 363 and Trendtex Trading v. Credit Suisse [1980] QB 629 and [1982] AC 679. Perhaps I may be forgiven if, gratefully, I adopt the summary of the latter decision appearing in the judgment of Lloyd LJ in Brownton Ltd v. Moore Inbucon [1985] 3 All ER 499 at p 509:

9. In the context of the rescue scheme as a whole I am quite satisfied that while the Government could, theoretically, profit from the outcome of the litigation it had and has a genuine "commercial" interest in supporting it. Both factors legitimately run together. If brought to a successful conclusion with a judgment satisfied at least in part the Government's liability to CITIC under the deed of 22 March 1986 as well as its call on the Exchange Fund will proportionately be reduced. Even if I were wrong I would long hesitate to conclude that the Bank could not ratify the act of the Government in issuing a writ in its name.

10. It remains only to consider the submission made only by the third defendant that the learned Deputy Judge should have struck out that part of the Re-Re-Amended Statement of Claim, together with the related prayer, alleging conspiracy against the first to fifth defendants inclusive. All save the fourth are alleged to have been directors of the Bank at the material times. The force of the submission derives from the presently binding authority of a division of this Court in The wing On Bank Ltd v. wai Man Estates [1990] 1 HKLR 377 where it was held that such part of the Statement of Claim as related to a claim for damages for conspiracy should be struck out because the overt acts relied upon were not apt to establish the predominant intention to injure the plaintiffs specifically alleged. As this Court recognised the relevant law was, as today it remains, a matter of controversy. No appeal to the House of Lords or to the Privy Council bearing on the matter was then pending.

11. In his speech in Lonrho Ltd v. Shell Petroleum (No. 2) [1982] AC 173 at pp 188 and 189, accepted by the other members of the Judicial Committee, Lord Diplock said:

"Why should an act which causes economic loss to A but is not actionable at his suit if done by B alone become actionable because B did it pursuant to an agreement between B and C? ... The civil tort of conspiracy to injure the plaintiff's commercial interests where that is the predominant purpose of the agreement between the defendants and of the acts done in execution of it which caused damage to the plaintiff, must I think be accepted by this House as too well-established to be discarded ... "

This passage was referred to by Goulding J in Faccenda Chicken Ltd v. Fowler [1984] ICR 589 at p 602:

However, in Metall und Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc. [1990] 1 QB 391 the English Court of Appeal, after reviewing conflicting authorities, held that whether or not the acts done pursuant to the combination would be actionable if done by one person alone a predominant purpose to injure the plaintiff must be shown. The propriety of that conclusion has been canvassed in an appeal to the House of Lords from another decision of the English Court of Appeal (Lonrho Plc v. Fayed [1990] 2 QB 479) and argument completed. The decision may be given at any time.

12. In the premises Deputy Judge Chan found himself in a like situation to that which faced Vinelott J at a time when it was expected that an appeal from Metall und Rohstoff v. Donaldson Lufkin itself would be considered by the House of Lords. Derby & Co v. Weldon (No. 5) [1985] 1 WLR 1244. In that case, referred to by this court without disapproval in Wing On Bank Ltd v. Wai Man Estates, the judge dismissed a motion to strike out a claim for damages for conspiracy for absence of any averment of predominant purpose on the basis that, having regard to the uncertainty of the law, the House of Lords might reverse the decision of the Court of Appeal; particularly as the deletion of the claim in conspiracy would not significantly have altered the course of the trial or resulted in any substantial saving of time or costs. The same considerations now apply here. By paragraph 17 of the Re-Re-Amended Statement of Claim

"... the conspiracy and each of the overt acts pleaded in the three preceding paragraphs constituted breaches of trust and/or breaches of one or more of the fiduciary duties referred to in paragraph 4 hereof on the part of the defendant directors or one or more of them."

No grounds warranting interference with the Deputy Judge's exercise of discretion have been demonstrated in the circumstances.

13. I would dismiss each of these appeals and make an order nisi that the appellants do pay the costs of the Bank and of the Attorney General.

Nazareth, J:

14. I agree.

Barnett, J:

15. For the reasons already given by My Lord Kempster JA I too agree that these appeals should be dismissed.

16. I would just add this. As part of his ratification argument, Mr Hatton for the appellants, contended that this action was started by Mr Banner; that on an objective view he was agent of the Government; and that on proper principles of agency the Bank could not ratify Mr Banner's activities.

17. Mr Hatton said the correct statement of principle appears in the speech of Lord Morris of Borth-y-Gest in the Alexander Ward case where, at p 676, his Lordship said:

"If something which at the time when it is done is done without authority but is done in the name of and in the purported capacity as an agent for a principal ... " (my emphasis)

Bowstead on Agency, 15th Ed, is therefore wrong, argued Mr Hatton, where at Article 13 it states the general principle of ratification as:

"where an act is done professedly in the name or on behalf of another by a person who has no authority so to do that act ... " (my emphasis)

18. The "or" in that passage, said Mr Hatton, must be read conjunctively as otherwise it would admit of ratification by a mere nominee. Although Mr Banner professedly acted in the name of the Bank, he did not on an objective view also act on its behalf. Thus, said Mr Hatton, the action is not capable of ratification by the Bank.

19. That is an interesting argument with which this court may at some time have to grapple. In my judgment, it is not necessary for the purpose of this appeal. The argument was focussed too narrowly upon Mr Banner when the wider picture needed appreciation. It is, in my view, unrealistic to assert that Mr Banner and his team embarked upon a frolic of their own, as My Lord has put it. Quite clearly Mr Banner did not give instructions for an action of this size and complexity of his own volition but only after consultation with and the agreement of Government. He was simply an instrument by which Government caused the action to be commenced. I find difficulty in putting any other construction on the first sentence of the letter dated 3rd August 1987 to which My Lord has referred.

20. It follows that it was Government that started the action and in so doing professed to act in the name of and on behalf of the Bank. No other construction can sensibly be placed upon the material marshalled before us.