REFCO, INC. v. TROIKA BULLION LTD AND OTHERS

[Where a plaintiff mistakenly sues the wrong defendant; the court will allow the substitution of a different defendant by amendment only if the relevant period of limitation, if any, has not yet expired or, if it has, the plaintiff's mistake was not as to the identity, but merely as to the name, of the defendant]

1988 No. A6903

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. When the creditors of an unsuccessful business find the company operating the business has transferred its assets to someone else, leaving the debtor company unable to meet its liabilities, those creditors have a justifiable grievance. The legislature provided some degree of protection for such creditors by the Fraudulent Transfers of Businesses Ordinance, Chapter 49; and it enlarged that protection by the Transfer of Businesses (Protection of Creditors) Ordinance (which repealed and replaced the original ordinance). Provision is now made to protect creditors on the transfer of a business by imposing a limited liability for debts upon the transferee. The liability of a transferee who has given published notice of the transfer will cease after the notice of transfer has become complete, normally one month after the date of publication: see Section 4. And, in any case, the Ordinance provides a limitation of time for the institution of proceedings. No action may be instituted against the transferee more than one year after the date of the transfer: see Section 9.

2. It is against this background that the action with which the court is now concerned was instituted.

3. The plaintiff in the action ("REFCO") instituted the action by writ issued on 20th October 1988. "Points of Claim" were attached to the writ. From these "Points of Claim" REFCO's case appeared. Its case was this.

4. REFCO had had dealings with a company called Troika Investment Limited ("TIL"). As a result, TIL owed REFCO some US$7,165,815.66. At or about the end of October 1987, TIL had transferred its business, or businesses, to each of the following:-

(1) Tai Fook Bullion Limited, formerly known as Troika Bullion Limited:

(2) Tai Fook Securities Company Limited, formerly known as Troika Securities Company Limited; and

(3) Tai Fook Futures (Hong Kong) Limited, formerly known as Troika Futures (Hong Kong) Limited.

The businesses the subject of these transfers were respectively a gold bullion business; a securities business; and a futures contracts and commodities business. No Section 5 notices had been given. So these three companies, claimed REFCO, were liable to REFCO for whatever TIL owed REFCO. (In fact, the present problem arises out of the transfer of the gold bullion busines; no point arises on the others.)

5. The "Points of Claim" are liberally sprinkled with the bastard conjunction "and/or" (for this description of it, see the speech of Lord Simon L.C. in Bonnitto v. Fuerst Brothers & Co. Ltd. [1944] A.C. 75 at p.82: "Paragraph 18 stated the alternative claim in a variety of phrases, separated from one another by the repeated use of the bastard conjunction 'and/or' which has, I fear, become the commercial court's contribution to basic English"). In In-Re Lewis [1942] Ch. 424 at p. 425, Farwell J., in my view understating the matter, described the expression "and/or" as "unfortunate". He added "I hope I shall never meet it again". To repeat this hope all these years later would be totally unrealistic; but I would urge anybody tempted to use the expression "and/or" to appreciate that such use is an encouragement to sloppy thinking; the expression should find no place in the armoury of those for whom clarity of thought and expression are necessary professional weapons. Usually, the consequences of using the expression are not fatal, for the obscurities to which it gives rise can in most cases, be clarified. But (as will be seen) sometimes those consequences may be more serious.

6. In due course, service of the writ, with the "Points of Claim" attached, was acknowledged. In particular, service of the writ was acknowledged by Johnson, Stokes & Master, solicitors ("JSM"), on behalf of "the 1st Defendant, Troika Bullion Limited wrongly sued as Tai Fook Bullion Limited, and on behalf of the 2nd Defendant, Tai Fook Securities Company Limited."

7. On 10th June 1989; JSM wrote a letter to Denton Hall Burgin & Warrens ("DHBW"), REFCO's solicitors, in the following terms :

"As you know we act for Troika Bullion Limited upon whose behalf we have filed notice of intention to defend.

That company is not nor was it known as 'Tai Fook Bullion Limited'.

It is correct as you have pleaded in para. 4 (c) of the Statement of Claim, that Tai Fook Finance Co. Ltd, ('Tai Fook') was and is the parent company of [Troika Bullion Limited] holding 4998 shares of and in [Troika Bullion Limited] out of 5000 issued shares of $100 each, the other two shares being held by Edmund Cheung and Samuel Ha respectively.

Moreover, you have in para. 4 (d) of the Statement of Claim set out the names of 4 directors, two of whom, namely K.S. Cheng and Y.P. Cheng, are indeed directors of Troika Bullion Limited.

Please confirm that the plaintiff does indeed intend to sue our clients Troika Bullion Limited."

8. On 15th June 1989, more than a year after the end of October 1987, REFCO issued a summons, returnable on 20th June 1989, for leave to amend the writ and the Statement of Claim (sic). REFCO sought among other things leave to amend the title to the action by deleting the words "Tai Fook Bullion Limited formerly known as" from the name of the 1st defecdant, so that if the amendment were allowed, the 1st defendant would be named simply as "Troika Bullion Limited". And REFCO sought to add another company, Tai Fook Bullion (International) Limited, as a (new) 4th defendant.

9. The proposed amendments to the "Points of Claim" (now to be called "Statement of Claim" involved a new, or at any rate extended, allegation, that at or about the end of October 1987, TIL had transferred its business to each of what was now to become the four defendants; and, in the case of the gold bullion business, that TIL had transferred it to "the 1st and/or the 4th defendants". The strictures set out above now become material. I cannot speculate on what the person responsible for penning this phrase might have had in mind, but I must do the best I can to translate it into something sensible of meaning. I construe the new allegation to mean this.

10. TIL had transferred its gold bullion business either to the company named Troika Bullion Limited (not, as originally alleged, to Tai Fook Bullion Limited) or to the company named Tai Fook Bullion (International) Limitied. Alternatively, TIL had transferred its gold bullion business to both the company named Troika Bullion Limited and the company named Tai Fook Bullion (International) Limited.

11. So construed, it becomes plain that REFCO was then, and at all earlier material times, unable to identify any one company as the transferee of TIL's gold bullion business. There is no doubt that REFCO intended to sue the transferee of that business, whoever that was; but there is equally no doubt, as it seems to me, that REFCO was not only mistaken as to the transferee's name, but also uncertain as to the transferee's identity.

12. However, on 20th June 1989, REFCO obtained the order for which it had asked there was no opposition.

13. On 1st July 1989, JSM wrote a letter to DHBW in the following terms:

"We have instructions from the 1st and 4th defendants herein to apply to strike out the claims against them and the necessary papers are before counsel to be settled. The around of the application in respect of the 1st defendant is that the claim is an abuse of the process of the court because there are no facts known to the plaintiff on which it could possibly succeed, the 1st defendant not having carried on business during the relevant period. In respect to the 4th defendant, it was joined after the limitation period imposed by Chapter 49 had expired, and the application will be based on that ground."

I need not read further from that letter.

14. On 11th July 1989, DHBW replied to JSM in the following terms:

"We refer to your letter dated 1st July in which you informed us that you would be making an application to strike out the claim against the 1st and 4th defendants in this action. This letter is to give you notice that unless we receive your summons making this application by the end of this week, we will apply to court to file a judgment against each of the 1st and 4th defendants."

15. In response to that invitation, JSM on 14th July 1989 took out summonses on behalf of the 1st defendant and the 4th defendant applying for the relief adumbrated in JSM's letter of 1st July 1989. It is these applications which were in due course listed to come on and did come on before me on 8th September 1989.

16. On 22nd August 1989, DHBW wrote a letter to JSM in the following terms :

"With reference to the summonses listed for 8th September, we have considered both applications and the affidavits in support.

We are of the opinion that 0.20, r. 5 (3) of the Rules of the Supreme Court is applicable and that by reason of this order, the 4th defendant can be substituted in place of the 1st defendant.

In the circumstances, we are prepared to consent to your summons that the action against the 1st defendant be dismissed, provided that you abandon your application o strike out the action against the 4th defendant.

In the event that you do not agree, we enclose a proposed draft re-amended statement of claim where the 4th defendant has been substituted for the 1st defendant. We shall, if necessary, apply for leave to substitute the 4th defendant in place of the 1st defendant as per the draft re-amended statement of claim enclosed herewith.

We reserve the right to place this letter before the learned judge on 8th September concerning the issue of costs."

    0.20, r.5(3), and the preceding two paragraphs, read so far as material as follows:

"5(1) Subject to order 15, rr. 6, 7 and 8 and the following provisions of this rule, the Court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleading, on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.

    (2) Where an application to the Court for leave to make the amendment mentioned in paragraph (3)... is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.

    (3) An amendment to correct the name of a party may be allowed under paragraph (2) notwithstanding that it is alleged that the effect of the amendment will be to sustitute a new party if the Court is satisfied that the mistake sought to be corrected was a genuine mistake and was not misleading or such as to cause any reasonable doubt as to the identity of the person intending to sue or, as the case may be, intended to be sued."

It will have been noticed that 0.20, r.5(1) refers to 0.15, r.6. This is concerned with misjoinder and non-joinder of parties, and confers on the Court power to add or substitute a defendant. But paragraph (5) of rule 6 provides (with certain immaterial exceptions) that no person shall be added or substituted as a party after the expiry of any relevant period of limitation (which is defined as meaning a time limit under the Limitation Ordinance, Chapter 347).

17. REFCO accepted before me that its claim against the 1st defendant had to be dismissed. Its case now is that it should be given (to quote from DHBW'S letter of 22nd August 1989) "leave to substitute the 4th defendant in place of the 1st defendant"; that is to say, that it should be given leave to substitute Tai Fook Bullion (International) Limited for Troika bullion Limited as the 1st defendant.

18. It is now said by REFCO (but not admitted by any defendant) that the transferee of TIL's gold bullion business was in fact Tai Fook Bullion (International) Limited, and not Troika Bullion Limited. But t is common ground as I understand it that any fresh action brought against the transferee of TIL's gold bullion business more than one year after the end of October 1987 (by which time REFCO itself alleges that the transfer had been effected) would be bound to fail; because the transferee would have a plea in bar to it under the provisions of Section 9 of Chapter 49. The question is whether REFCO can escape from this, on the facts I have stated, by invoking 0.20_, r. 5 (3) to procure the substitution of Tai Fook Bullion (International) Limited for Troika Bullion Limited as the relevant defendant in this present action, which was instituted before the end of October 1988.

19. I have not found this an easy question; and I propose to examine it as a matter of first principle.

20. I start as follows.

21. If a man (let us call him Tom) is wronged by another man (let us call him Dick), Tom can institute an action against Dick for redressing the wrong done to Tom by Dick. But Tom may make a mistake. He may believe (quite correctly) that he has been wronged, but (quite incorrectly) that the author of his wrongs was not Dick, but Harry. Tom now faces a potential forensic disaster. If he sues Harry, he will lose; for at the end of the litigation it will have emerged that the wrong-doer was not Harry at all, but Dick. This disaster need not be total. If he is able to do so before the expiry of any relevant period of limitation, he may still sue Dick. And, if Tom discovers his mistake in time, he may be able to cut his losses in his action against Harry by discontinuing his action against Harry and starting another one against Dick; or by applying to the court for leave to substitute Harry for Dick as the defendant to his original action. But, if Tom does not discover his mistake in time, the relevant period of limitation may expire before Tom does either of these things. The disaster then does become a total disaster. Tom cannot rectify his mistake by bringing afresh action against Dick; it is now too late for that. Nor can he reconstitute his original action by having Dick substituted for Harry as the defendant; it is too late for that, too. If Tom had not made any mistake, but had merely let time go by without suing Dick, Dick would have been entitled to plead his limitation defence. Why should Dick be in any worse position, because, instead of doing nothing, Tom has in fact mistakenly sued Harry? There can be no sensible answer to this question. It was for Tom correctly to identify the wrong-doer and it must be Tom who suffers the consequences if Tom fails to do so.

22. But Tom may make a different sort of mistake. He may correctly identify the person who has wronged him, but incorrectly state his name in the originating process by which he begins his action. He may believe (incorrectly) that Dick in fact calls himself "Richard". It is unlikely, of course, that any harm would be caused by that. Or he may believe (incorrectly) that "Dick" in fact calls himself "Harry". No harm will be caused by that either, unless, when the originating process is served, there happens to be a "Harry" as well as a "Dick" at the same address and no certain way of knowing (for example, from the writ or any statement of claim endorsed on or served with it) whether it is Dick or Harry whom Tom is intending to sue. If, in these circumstances, Harry (who is named) accepts service and Dick (who is not named) does not, difficulties are going to arise as a result of Tom's failure correctly to state the name of the party he intended to sue. So, there may be no doubt that Tom has, all along, intended to sue Dick but, mistakenly, believing that Dick calls himself Harry, had sued Dick in the name of Harry instead of in the name of Dick.

23. But, in this case, when Tom discovers his mistake, the consequences will be totally different. Tom's action had been instituted against the right defendant, Dick, even though Tom had mistakenly named or described Dick as "Harry" in his originating process. Tom, at some expense to himself, is entitled, as a matter of simple justice, to have his mistake corrected. He is entitled to ask the Court to amend the proceedings so that Dick is thereafter correctly named and described as Dicks; and to an order substituting Dick for Harry as the defendant to the action. As I have said, this will be at some expense to Toms; for both Harry and Dick will be entitled in these circumstances to an order that the costs of this exercise, brought about by Tom's mistake, should be paid by Tom. Even if Tom does not discover that he has misnamed or misdescribed "Dick" as "Harry" until after the expiry of the relevant period of limitation, Tom must still, as a matter of simple justice, be entitled to have his mistake corrected. All along, Tom has intended to sue Dick and indeed has in fact sued Dick, although, as a result of Tom's mistake, it is Harry, not Dick, who has acknowledged service of the proceedings. Why should Dick be in any better position because, although correctly identified (albeit incorrectly named) in Tom's proceedings; Tom does not discover that he has made a mistake in naming or describing Dick until after the expiry of any relevant period of limitation? There is no sensible answer to this question either.

24. So, in all such cases where a plaintiff has made a mistake about the defendant when instituting his action, and any relevant period of limitation has expired before he discovers the mistake, it is essential carefully to analyse the nature of the plaintiff's mistake. Was it a mistake as to the defendant's identity? If it was, the plaintiff will have lost his chance to sue the person who in fact was the author of the plaintiff's wrongs. Or was it merely a mistake as to the correct name or description of the defendant? If it was, the matter is capable of remedy.

25. This is the approach which, as it seems to me, the court has to adopt when considering the problem raised in the present case. On this approach, how does the matter stand?

26. I recapitulate. REFCO had had dealings in gold bullion with TIL. It claimed (originally) that in or about the end of October 1987. TIL transferred its business to three other companies. It identified or named (and the issue now is which of the two it did) the company to which the gold bullion business was transferred as "Tai Fook Bullion Limited. formerly known as Troika Bullion Limited". In fact. this was mistaken. Troika Bullion Limited had not changed its name to Tai Fook Bullion Limited; and, anyway, the gold bullion business had been transferred not to Troika Bullion Limited (at all material times a dormant company) but (at any rate as REFCO now alleges) to Tai Fook Bullion (International) Limited, a company with (in fact) the same registered office as Troika Bullion Limited. One of these mistakes was noticed in the acknowledgement of service. JSM, the solicitors for Troika Bullion Limited, acknowledged service of the same on behalf of Troika Bullion Limited "wrongly sued" (as they put it) as "Tai Fook Bullion Limited".

27. After acknowledging service of REFCO'S writ, JSM, by their letter dated 10th June 1989, drew the attention of DHBW to the fact that they had done so on behalf of Troika Bullion Limited. They pointed out that Troika Bullion Limited was not known as Tai Fook Bullion Limited and they asked for confirmation that REFCO did indeed intend to sue Troika Bullion Limited.

28. DHBW responded by taking out the summons dated 15th June 1989. They asked for leave to amend so as to describe the 1st defendant, whom they had originally described as "Tai Fook Bullion Limited formerly known as troika Bullion Limited" simply as "Troika Bullion Limited". They asked for leave to add another defendant, Tai Fook Bullion (International) Limited. They asked for leave to amend so as to allege that the gold bullion business had been transferred to Troika Bullion Limited and/or to Tai Fook Bullion (International) Limited. REFCO is at this stage not merely alleging that it had made a mistake by naming the transferee of the gold bullion business as" Tai Fook Bullion Limited formerly known as Troika Bullion Limited" whereas it should have named it simply as "Troika Bullion Limited". It is alleging much more. It is alleging that it is unsure as to the identity of the transferee of the gold bullion business which, for all it knew, might have been Troika Bullion Limited, or Tai Fook Bullion (International) Limited, or even both of them. This is no mere technicality. It is a difficulty at the heart of REFCO's case.

29. On 20th June 1989, the Master (it appears. though the order was not drawn up and I can find no note of it in the court file) made the order for which the plaintiff asked.

30. That order was followed up by the summonses taken out on 14th July 1989. One was a summons by the 1st defendant asking to be struck out of the action; and the other was a summons by the 4th defendant asking to be struck out of the action. This approach has a certain elegance. If it was correct, the defendants collectively would succeed both in knocking out Troika Bullion Limited (whom REFCO had wrongly identified, not merely wrongly named as the transferee of TIL's gold bullion business) and in knocking out Tai Fook Bullion (International) Limited (because it was too late to bring it in to the action, the claim against it being barred by limitation).

31. Alerted to the danger, REFCO informally (it has taken out no summons for the purpose) now proposes to rename the 1st defendant to the action as "Tai Fook Bullion (International) Limited formerly known as Troika Bullion (International) Limited" and to strike out Tai Fook Bullion (International) Limited as the 4th defendant.

32. And so issue is joined.

33. If REFCO did not, before the expiry of the relevant period of limitation, correctly identify the defendant, the two summonses must both be decided in a sense adverse to REFCO. Impaled on the horns of its dilemma as between Troika Bullion Limited and Tai Fook Bullion (International) Limited, REFCO will descend into the nether regions, so far as its claim against the transferee of TIL's gold bullion business is concerned. If, however. REFCO correctly identified in its writ the right defendant, Troika Bullion (International) Limited, but misnamed or misdescribed it, both summonses should be decided in REFCO's favour, and it should be allowed to reconstitute the action so as to clarify the position, the expiry of any relevant period of limitation being neither here nor there.

34. In my judgment, this is a case in which the plaintiff has not simply misnamed or misdescribed the correct defendant but one in which it has identified the wrong defendant. Originally, it sued "Tai Fook Bullion Limited formerly known as Troika Bullion Limited". It amended its proceedings (with leave) to sue, simply, Troika Bullion Limited (which, incidentally, it further identified in the statement of claim by correctly naming its directors).

35. I conclude, therefore, that REFCO's mistake here was a mistake as to the identity of the defendant it was suing, not merely a mistake as to the name of that defendant. If I have had reached the opposite conclusion, I would have held that although the effect of the amendment to correct the defendant's name would have been to substitute a new party, the mistake was a genuine mistake. . But I would not have been satisfied that the mistake was not misleading; nor would I have been satisfied that the mistake was not such as to cause a reasonable doubt as to the identity of the person intended to be sued. It is plain that JSM did harbour such a doubt, and it was not an unreasonable one. In their letter to DHBW dated 10th June 1989 they asked specifically :"Please confirm that the plaintiff does indeed intend to sue Troika Bullion Limited". REFCO's response did not resolve this doubt; it excerbated it; for it sought leave to amend, not by substituting Tai Fook Bullion (International) Limited for Troika Bullion Limited but by adding Tai Fook Bullion (International) Limited as a co-defendant with Troika Bullion Limited and claiming that TIL's gold bullion business had been transferred to one or other or both of them. All this makes it obvious, as it seems to me, that the case does not fall within the provisions of 0.20, r.5(3). This permits an amendment only to correct a genuine mistake as to the name of a defendant. It allows this to be done even after the expiry of a relevant period of limitation. But, at the same time, it requires the Court to be satisfied that the mistake was not misleading and not such as to create any reasonable doubt as to the identity of the person intended to be sued. The plaintiff's mistake here was misleading, and did cause such a reasonable doubt. So 0.20, r.5(3), if it' had applied at all, would not in my judgment have availed REFCO anyway.

    0.15. r.6 does not avail REFCO either. It would be wrong to substitute one defendant for another when the claim againt the original defendant is statute-barred, unless the case is one which falls within 0.20. r.5(3).

36. A number of authorities were cited to me, some more helpful than others. I will refer only to Evans Constructions Co Ltd. v. Charrington & Co. Ltd. [1983] 1QB 810 (CA) from which the principles on which the court proceeds sufficiently appear. In that case_, Donaldson L_.J. said this (at p. 821):

"In applying Ord. 20 r.5(3) it is, in my judgment, important to bear in mind that there is a real distinction between suing A in the mistaken belief that A is the party who is responsible for the matter complained of and seeking to sue B. but mistakenly describing or naming him as A and thereby ending up suing A instead or B. The rule is designed to correct the latter and not the former category of mistake. Which category is involved in any particular case depends on the intentions of the person making the mistake and they have to be determined on the evidence in the light of all the surrounding circumstances"

He, concluded (at p.824,) that successful applications under 20,r,5(3) would be something of a rarity:

Griffiths L.J. said this (of Order 20. r.5(3)): "I see no reason why it should not include a case where entirely the wrong name has been used, provided it was not misleading, or such as to cause any reasonable doubt as to the identity of the person intended to be sued. The identity of the person intended to be sued is of course vital….. The wording of the rule makes it clear that it is not the identity of the person sued that is crucial but the identity of the person intended to be sued, which is a very different matter."

Waller L.J. ( at p.816) said this :

"In my opinion the words 'correct the name of a party' do not cover a case such as the present when there was no mistake as to name but the mistake was to identity. The words 'correct the name' are not apt to cover the case of changing the party."

(Waller L. J. differed from Donaldson L. J. and Griffiths L.J. as to the application of these principles to the facts of the case before the Court of Appeal; but then are all, as I understand it, agreed as to the principles themselves.) The case supports the view 1 have expressed above as to the scope and intendment of 0.20, r.5(3). Nothing in it as it seems to me, gives any comfort to REFCO here. On the contrary, the case tells against REFCO's contentions.'

37. I have not overlooked the evidence filed on behalf of REFCO nor have I overlooked the fact that it is the intentions of REFCO which fall to be considered. But the facts here speak for themselves and I have already set them out above. The position cannot be retrieved by the gloss sought to be put on those facts by their presentation in the affidavit evidence.

38. The difference between a mistake as to the name, and a mistake as to the identity, of a defendant may at times be difficult to discern. But in the present case I have no doubt that REFCO's mistakes were, or included, mistakes as to the identity, not merely as to the name, of the transferee of TIL's gold bullion business. Accordingly, though not without some regret, I conclude that the summonses before me must be decided in a sense adverse to REFCO. REFCO must pay the applicants' costs.