TEO BEE HIONG AND ANOTHER v. SOUTH CHINA FINANCE CO. LTD. AND ANOTHER

--------------------------------------------------------------

-------------------------

J U D G M E N T

-------------------------

Litton, J.A.:

1. This is the judgment of the court.

Application to Amend Statement of Claim

2. This is an interlocutory appeal in an action which commenced before Mortimer J. three days ago. What we have before us is a pure pleading point : Was Mortimer J. Right to allow certain amendments to be made to the Amended Statement of Claim by his order dated 26 November this year? We are told that the action will resume today, the hearing having been adjourned for this appeal to be heard. There is accordingly considerable urgency in our reaching a conclusion on this matter.

Background

3. The defendants acted as brokers for the plaintiffs in relation to dealings in shares in Malaysia and Singapore. The plaintiffs had for such purpose accounts with the defendants. Shares belonging to the plaintiffs were pledged with the defendants. This appeal is concerned with the sale by the defendants in April and May 1990 of shares to the value of approximately HK$27 million made in the course of liquidating the plaintiffs' account. The plaintiffs say the sales or purported sales to certain individuals Tam, Ko and Wong were made in highly suspicious circumstances. This came to light when the defendants' director, Christina Cheung, answered interrogatories and made an affirmation dated 19 November 1992 disclosing for the first time a large number of "off-market" sales to the three individuals. These represent, we are told, over 80 per cent of the sales in dispute. As the pleadings stood, without the amendments, there were allegations that in liquidating the plaintiffs' accounts and in selling the shares the defendants had (a) sold at an under-value, (b) sold when the accounts were not in debit and (c) sold when the defendants had no authority to sell : See para. 23 of the Amended Statement of Claim. It is also alleged that the defendants had breached their fiduciary duties as brokers. In the Amended Statement of Claim the plaintiffs seek an accounting of all dealings in relation to Malaysian and Singapore shares, and in particular, they seek an account "of all shares and securities allegedly sold on behalf of the plaintiffs" on the relevant dates in April and May 1990: this is a summary of the reliefs in para. (iii) to the prayers for relief by the 1st and 2nd plaintiffs.

4. The defendants had previously disclosed some of the details of the shares sold, but when the plaintiffs discovered the identity of the purchasers as particularised in Christina Cheung's affirmation they sought leave to re-amend their pleading by the addition of the following paragraphs.

"23A. Further or in the alternative, wrongfully and/or in breach of duty, on 30th April and 2nd May 1990, the 1st and/or 2nd Defendants sold certain of the 1st and 2nd Plaintiffs' securities to nominees of the 1st and/or 2nd Defendants, alternatively to nominees of Robert Ng and/or Christina Cheung being directors of the said Defendants, with a view to making a profit for the said Defendants and/or for Robert Ng and/or Christina Cheung.

PARTICULARS

The nominees were Tam Lai Wah, Ko Mui Sheung and Wong Sim Chee. The securities so sold are those referred to on page 3 of the Affidavit of Christina Cheung filed herein on behalf of the Defendants on 19th November 1992.

24A.    Further, and by reason of the matters pleaded in Paragraph 23A above, the 1st and/or 2nd Plaintiffs are entitled to have the sales referred to in that paragraph set aside.

Under the prayer for relief

(i)(a)    Under Paragraph 23A, a declaration that the Plaintiffs are the owners of, or are entitled to, the securities referred to in the particulars under that paragraph:"

The judge allowed the amendments except for the deletion of the words at the end of para. 23A "with a view to making a profit for the said defendants and/or Robert Ng and/or Christina Cheung", taking the view that it was not a necessary averment for the cause of action pleaded.

Para. 23A of Statement of Claim

The arguments before us have quite rightly focussed on para. 23A.

The averment in 24A is consequential on para. 23A being allowed; it pleads a matter of law, that is to say, the entitlement in law to have "the sales set aside", if the factual averments in para. 23A were made out. As far as the new prayer for relief is concerned, it is perhaps not very elegantly worded, since the claim plainly cannot be in specie as regards the shares. The declaration sought would have read better if words such as "or their equivalent" had been added to the end of that paragraph, but nothing turns these fine points of pleading in this appeal.

5. The point we bear in mind in entertaining this appeal is this. The defendants are sued as brokers owing fiduciary duties to the plaintiffs. The plainitffs' case is that the defendants as brokers carry the onus of showing that they acted fairly towards the plainitffs who were their clients, and in exercising their power of sale of the plaintiffs' shares that they used their endeavours to obtain the best price. Now, there are existing averments in the Amended Statement of Claim that the defendants failed in their fiduciary duties in certain respects. What the plaintiffs seek by para. 23A is in effect to add to those averments by alleging that the shares referred to in Christina Cheung's affirmation were not sold in any real sense of the word at all. They allege that the purchasers, Tam, Ko and Wong, were mere nominees, meaning obviously that either the names were used for the purposes of the transactions or that these individuals had lent their names to disguise the reality of the transactions. Now, "self-dealing" by a broker, as referred to in the text books, can take many forms. It is not always possible for a client, looking from the outside, to say precisely what the relationship is between the broker and the alleged purchaser. That is something peculiarly within the knowledge of the broker.

6. Mr. Thomas in the course of argument has cited to us a passage in Pettit: Equity and the Law of Trust (6th edition) p.379 which made reference to a passage in Ex-parte James [1803] Ves 337 at 345 to this effect: "No court is equal to the examination and ascertainment of the truth in much the greater number of [such] cases."

7. Mr. Ching attacks para. 23A on the basis that it does not plead facts or sufficiently plead facts; he says it pleads merely a conclusion.

8. In our judgment, Mr. Ching would have been on firmer ground if the plaintiffs' cause of action were based purely on a common law tort, or an allegation of conspiracy between the defendants and the nominees, with or without the involvement of Christina Cheung or Robert Ng as referred to in para. 23A. But this is not the case. Essentially, the cause of action relies upon the equitable duty owed by a fiduciary in the position of the defendants to a beneficiary such as the plaintiffs, to account for dealings in relations to shares belonging to the plaintiffs : shares subject, of course, to a charge in favour of the defendants.

9. In this context we have reached the conclusion that para. 23A is a sufficient pleading. Whether it might have been formulated with greater elegance is not really the issue before us. In our view the judge was right when he said "The allegation itself that these named people were nominees is undoubtedly one which, on the face of it, it is difficult to prove and perhaps will be in this particular case, I cannot say. What I can say is that the allegation once made, if it arises at trial, will be relatively easy to refute."

10. The averment in para. 23A would clearly have been more precise if the word "sale" or "sold" were in inverted commas, or the word "purported" had been added. But it is plain from the submissions we heard from Mr. Ching that this is how in fact the averment has always been understood. The averment plainly goes beyond what is alleged in para. 23. Para. 23 as it exists is based on the supposition that a sale did take place, and property in the shares passed  Para. 23A pleads the alternative case that property might never have passed and the transactions were disguised to hide an attempt to appropriate the plaintiffs' interest in the shares at an under-value.

Exercise of Discretion

11. The judge examined the material closely as to whether such an averment should be allowed at a very late stage in the litigation. The exercise of discretion was based upon the material before him. As to that, there is in fact no appeal and the judge was right in our view to have exercised his discretion in the plaintiffs' favour.

12. As regards para. 24A, from the submissions put to us it is plain that it is not a necessary averment at all since it pleads merely be matter of entitlement following from the averments in para. 23A. That is a pure matter of law But nothing turns upon this point. It will cause no injustice if it remains part of the pleadings.

13. With these observations the appeal against the order dated 26 November 1992, granting leave to amend in the terms allowed by the Judge, is dismissed.

Discovery

14. We now turn to the appeal in relation to discovery.

15. As regards the discovery ordered by the judge in terms of para. 8(a)-(e) inclusive, Mr. Ching quite rightly concedes that if we should uphold the judge in relation to the amended pleading then plainly the discovery ordered in terms of 8(a) to 8(e) is correct, so as regards that the appeal must fail. That effectively disposes of the appeal against the order for discovery made by the judge on the same day.

Respondent's Notice

16. We now turn to the respondent's notice where the plaintiffs say that certain paragraphs in the summons for discovery should have been allowed by the judge. We will deal with them sequentially.

Paragraph 8(f)

17. This relates to "documentary evidence showing payments by the 2nd defendant to each of the purchasers on sale of the shares purchased by them". It is now accepted by Mr. Thomas on behalf of the plaintiffs that the "shares" referred to are confined to the shares particularised in para. 23A. The judge thought that these documents were too remote from the issues as pleaded. What the plaintiffs through their counsel say is this : If it be the case, as they allege, that the purchasers were acting purely as nominees, and they then sold the shares after the purchases made in April and May 1990, then the sale of the shares by them will reflect their capacity as nominees; such documentary evidence will therefore go to prove the averment in para. 23A. In our view this submission is plainly correct. Once the issue of "nomineeship" becomes an issue between the parties, documents tending to prove or disprove that issue are plainly relevant. So the cross-appeal as regards para. 8(f) must be allowed.

Para. 8(g)

18. Again the request for discovery is now confined to the shares particularised in para. 23A. What is sought is as follows. "The monthly statements in respect of each of the purchasers (for both Hong Kong and. Malaysian/Singaporean shares) since the opening of their respective accounts up to now". As regards the Malaysian and Singapore shares, limited in the way we have just described, we see that these monthly statements must be relevant to the issues between the parties. We find difficulty in seeing how the Hong Kong shares, if there be such shares, are relevant. So subject to the deletion of the words "both Hong Kong and" thereby limiting the monthly statements to Malaysian and Singapore shares as referred to in para. 23A, the cross-appeal in relation to 8(g) is allowed.

Paras. 9(a), 9(b) and 9(d)

19. These three paragraphs relate to the underlying documentation which forms the basis of entries in certain journals for 30 April 1990 and 11 May 1990, relevant dates for the para. 23A transactions. The defendants have already made disclosure in relation to these journals. What is submitted on the plaintiffs' behalf in relation to the underlying documentation is this : taking para. 9(a) as an example, when we look at the entries in the journal closely, we see that in a sequence of numbers there are two missing numbers, that is, two transactions were not recorded in the journal for 30 April at all. This is transaction No. 0001 and 0002. The same point is made in relation to similar transactions in 9(b) and 9(d).

20. On the material before us at the moment there is nothing to indicate that these "missing" transactions have anything to do with the issues as pleaded. Upon the somewhat hazy view we form of the matter at this stage we cannot see how the judge can be said to have erred when he refused to make orders in terms of 9(a), 9(b) and 9(d).

Para. 9(e)

Here the plaintiffs seek discovery of "daily bought and sold journals" in respect of Malaysian/Singaporean securities transactions for the month of May, June, July, August and September 1990. Again Mr. Thomas, on behalf of the plaintiffs, has limited the discovery sought to the securities particularised in para. 23A. The judge said that this was far too wide but in this regard, we feel that he has fallen into error. If we look at what has actually been ordered in para. 8(d) we see that the class of documentary evidence ordered to be disclosed by the defendants is very wide. 8(d) reads : "documentary evidence in the form of sold slips and notes, brokers' confirmations and contract notes, showing the sale by each of the Purchasers of the shares purchased by them". If there is such documentary evidence it is likely that it would include daily bought and sold journals, and if the sales were effective in the months of May, June, July, August and September 1990 then this should be included in the discovery ordered under para. 8(d). Para. 9(e) merely seeks greater particularity. In this regard we feel that the refusal of the judge to order specific discovery in relation to the bought and sold journals referred to in para. 9(e) is wrong. The cross-appeal in relation to para. 9(e) is allowed.

Paragraph 10

21. This refers to monthly reports in respect of Malaysian/Singapore securities transactions for the month of May, June, July, August and September 1990. Again it is confined to the shares particularised in para. 23A, and for the reasons which we have just given in relation to the cross-appeal for para. 9(e) the discovery in terms of para. 10 should be ordered. The judge was wrong to have refused that.

Paragraph 11

22. In relation to para. 11 the plaintiffs seek discovery of the daily worksheets in terms similar to para. 10. These are handwritten worksheets as opposed to computerised documents. It would be consistent with the ' order we make in relation to para. 10 that the cross-appeal in relation to para. 11 be allowed as well.

Conclusion

23. This then deals with the specific paragraphs covered by the Respondent's Notice. We would like to make two general observations. Firstly, the judgment we have just given is not intended to be fully comprehensive as regards all the points that have arisen from the interesting arguments that counsel have advanced. As this is an interlocutory appeal we feel that we should not say too much for fear of prejudicing the trial of issues which will have to take place before Mortimer J.

24. Secondly, as regards the further discovery that we have ordered, and in relation to some of the requests which we have refused, we would emphasize that we have reached our conclusion in the light of the circumstances as they appear to us today. It could well be that as the trial resumes before the judge the issues will become clearer. Some of the documents, the further discovery of which we have refused, may in fact turn out to be relevant. Our order today therefore should not be taken as in any way limiting the exercise of the judge's discretion in conducting the trial in the way he considers best.

25. Subject to what we have said above the cross-appeal is allowed to the extent as indicated.