INTERCONTINENTAL HOUSING DEVELOPMENT LIMITED v. QUEK TECK HUAT AND OTHERS

IN THE COURT OF APPEAL

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JUDGMENT

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Fuad, J.A.:

Background

1. On 17 March 1986, Rhind J. refused an application by the 4th Defendant in this action, Mr. Low Chang Hian, for the Points of Claim to be struck out and the action dismissed as against him on the ground that the Points of Claim did not disclose a reasonable cause of action under R.S.C. O.18, r.19(1)(a). The judge ordered Mr. Low to pay the Plaintiff's costs on an indemnity basis. Mr. Low now appeals.

The Points of Claim

2. The Points of Claim set out the parties involved and their capacities.

3. The Plaintiff, Intercontinental Housing Development Corporation ("IHL") is a public company incorporated in Hong Kong.

4. Among their directors at the material time was the 1st Defendant, Mr. Quek Teck Huat and the 2nd Defendant, Mr. Chew Kam Meng. Mr. Chew ceased to be a director on 19 September 1985.

5. The 3rd Defendant, Madam Yong Poh Cnoo, was a director, until 23 September 1985, of Dixon Limited ("Dixon"), the 7th Defendant, one of IHL's subsidiary companies.

6. The 4th Defendant (the Appellant), Mr. Low, is a director and executive Vice-President of the Ka Wah Bank, the 5th Defendant.

7. The 6th Defendant is Wanfong Nominees Limited.

8. By their points of Claim, IHL aver that until 17 August 1985 they were controlled by Territorial Development Limited ("Territorial") who were in turn controlled by Mr. Quek (D1), and that on 18 July 1985, an agreement was entered into under which Territorial agreed to sell a controlling interest in IHL to the Join Park Limited Group of companies ("Join Park") for $232,540,000. This Group of companies is controlled by a Mr. Ch'ng Poh.

9. The sale and purchase of Territorial's shares in IHL was completed on 17 August 1985 and Mr. Ch'ng was appointed a director and the Chief Executive of IHL on 28 August 1985.

10. It is said that, at the date of the execution of the agreement, IHL were owed $89,158,071 by one of their associated companies, and that they were the owners of certain quoted securities then managed by a Malaysian firm of stockbrokers owned by Mr. Low (the Appellant).

11. One of the terms of the July 1985 agreement was that, upon completion, Territorial was required to deliver to IHL a bankers' draft for $89,158,071 (plus interest) as well the proceeds of the sale of their quoted securities.

12. The pleading continues by stating that when the sale of Territorial's shares in IHL was completed on 17 August 1985, IHL received three cashier orders adding up to $127,617,747.88 (representing the debt owed to IHL and the proceeds of the sale of their quoted securities). These cashier orders had been issued by the Ka Wah Bank (D5) in favour of IHL and on the same day were paid into the account they maintained with that Bank.

13. It is then pleaded that the following occurred, also on 17 August 1985:

I would mention here that the particulars given of the two sets of eight cheques show that in each set, six are for the same sums, while two are for different amounts.

14. It is averred that the sum represented by these cheques was the property of IHL, and that it was paid over to Wanfong.

15. The Points of Claim go on to say that neither Mr. Quek (D1) nor Mr. Chew (D2) had authority to draw IHL's cheques, and if they did, they had drawn them not bona fide and in IHL's best interest. In consequence of their wrongful acts, IHL had suffered loss and damage in that since 17 August 1985 they had been deprived of the use of the $127,617,747.88 (from now on I will refer to that sum as "the missing money").

Specific allegations against the Appellant

16. The first averment that can be said directly to concern the Appellant is to be found in paragraph 14 where it is said that he had combined and conspired with Mr. Quek (D1), Mr. Chew (D2) and Madam Yong (D3) to deprive IHL of the missing money, but how it is alleged that the Appellant was a party to the conspiracy is left to the next paragraph (15).

17. The particulars given in paragraph 14 repeat the averments about the lack of authority or bona fides of Mr. Quek (D1) and Mr. Chew (D2), and add that Madam Yong (D3) did not have the authority of Dixon (D7) to draw their cheques, or that she drew them not bona fide and in Dixon's best interest; it was unusual and out of the ordinary course of business to make such cheques payable to "cash or bearer"; Dixon's cheque stubs had on them the word "Investment", and Dixon had not used, or authorised the use of, the missing money for this purpose; when Mr. Ch'ng had discovered the withdrawal of the missing money, Mr. Quek and Madam Yong had been uncooperative and evasive in responding to his enquiries; and that neither Mr. Quek, Mr. Chew or Madam Yong had been able to explain why each set of eight cheques was drawn or to account for the missing money.

18. In paragraph 15, we find no less than 21 sub-paragraphs setting out the conduct alleged against the Appellant to show his participation in the conspiracy. To do justice to the arguments addressed to us by Mr. Ching, for the Appellant, and by Mr. Bokhary, for IHL, it is necessary to read the whole of this paragraph:

19. The next paragraph of the Points of Claim (16) avers that in consequence of the wrongful acts of Mr. Quek (D1), Mr. Chew (D2) and Madam Yong (D3) and the Appellant, IHL had suffered loss and damage, in that they had been deprived of the use and enjoyment of the missing money since 17 August 1985.

20. The final paragraph contains allegations against the Ka Wah Bank (D5) of breach of their mandate and negligence.

The reliefs claimed

21. The prayer for relief contains the following claims against the Appellant:

The judgment in Chambers

22. The learned judge found it a very clear case. The important part of his judgment, it seems to me, is the passage which begins on page 12 of the Appeal record:

"No one could pretend that the points of claim are a model pleading. They are loaded down with immaterial averments (e.g. para. 14(g) and 15(g)), recite reams of evidence (para.15(n) - (u)), and are beset by confusing passages (e.g. para.15(n) and (r) where the pleader has got mixed up about who could set off what against whom). That said, however, it is difficult to see how there can be any real doubt on the part of the 4th defendant and his advisers as to the cause of action pleaded against him. How the 4th defendant could be in the slightest doubt that at least a conspiracy to defraud the plaintiff of $127,617,747.88 has been pleaded against him, I cannot imagine. I feel I am labouring the obvious, but in case the 4th defendant really cannot discern the conspiracy to defraud pleaded against him I will spell it out for him. It is alleged that he was acting in cahoots with his three friends, the 1st, 2nd and 3rd defendants, when he lured Join Park Limited, represented by Mr. Ch'ng Poh, into buying the plaintiff rather than a different company. Once Mr. Ch'ng Poh had fallen into the trap set for him by the 4th defendant of Join Park Limited buying the plaintiff, the 1st, 2nd and 3rd defendants then proceeded to 'milk' the plaintiff of its assets to the extent of $127,617,747.88. Mr. Ch'ng Poh was first of all 'set up' by the 4th defendant, and then the 2nd, 3rd and 4th defendants proceeded to strip the company he had just purchased. Instead of getting shares in a company which had its assets intact, Join Park Limited finished up after completion with shares in a company relieved of $127,617,747.88 of its assets. The allegation is that the 1st, 2nd, 3rd and 4th defendants together carried out that enterprise which resulted in the plaintiff losing $127,617,747.88 of its assets."

23. The judge discussed the authorities cited to him and was satisfied that a sufficient plea of fraud had been stated in the Points of Claim. He stressed that it was essential to look at the "whole tableau" and said that if the whole tableau of facts was consistent with a fraudulent conspiracy, and provided the Plaintiff, by his pleading, explicitly asserted it to be a fraudulent conspiracy, then a reasonable cause of action had been disclosed.

24. There is no complaint about the judge's general approach to the task which faced him in deciding the application. After a hearing, lasting two days in February this year, he gave a reserved judgment on 17 March and it is apparent that he dealt with the matter with anxious care. If the appeal is to succeed, it can only do so if this Court is compelled to hold, on its own analysis of the Points of Claim, that they are incontestably bad so that no reasonable cause of action has been disclosed against the Appellant.

25. We have been reminded (and it is, perhaps, as well that we should be so reminded from time to time) of a number of authorities that emphasize that it is only in plain and obvious cases that it is proper for the Court to exercise this salutary jurisdiction. It has been said in many cases that it is otherwise wrong to drive a plaintiff from the judgment seat without giving him the opportunity of having his case tried on its merits. On the other hand, justice also demands that a defendant is not put to trouble, anxiety and expense by the necessity of defending litigation that is bound to fail.

The competing submissions

26. Mr. Ching took us through every paragraph of the Points of Claim and Mr. Bokhary did the same, and so we are all very familiar with the contents of the pleading. Mr. Ching made the point at the outset that, where fraud is involved, the Rules of Court makes special provision for pleadings, and the duty to satisfy the provisions of 0.18, r. 12(1)(a) is not satisfied by simply alleging conspiracy to defraud and conversion.

27. Mr. Ching contended that there was nothing in the pleading which particularized any cause of action against the Appellant - all that there was, was a series of assertions which, in his words, "masqueraded as particulars" which, even if proved, did not show a cause of action against him.

28. The first group of particulars specifically directed against the Appellant (sub-paragraphs (a) to (k) of paragraph 15), as we have seen, covered the negotiations stage of the agreement under which Territorial's interest in IHL was to be bought. About these, Mr. Ching suggested that one would have to read the averments with a determination to find something sinister in them to maintain that they could possibly lay a foundation for an allegation of fraud. He emphasised that the material facts alleged were capable of an innocent interpretation. I will return to this point presently because, in my judgment, this is, perhaps, the most crucial point in the appeal that is before us.

29. As regards sub-paragraph (m) (where it is alleged that the Appellant held a senior position in the Ka Wah Bank and was in charge of the take-over, and therefore "knew or must have known" that the cheques drawn by Mr. Chew (D2) and Madam Yong (D3) had been paid out by the Bank) Mr. Ching contended that even if this could be proved, it did not show that he was a party to any conspiracy, because there was no allegation that he knew (a) that the cheques had been wrongly drawn, (b) that the persons who drew them were not authorised to do so, or (c) that his Bank had no mandate to honour the cheques. There was no suggestion, Mr. Ching submitted, that the Appellant had anything whatever to do with the removal of the money or that it was fraudulent in anyway. Mr. Ching made the point that this was the only sub-paragraph which linked up with the averments made against Mr. Quek (D1), Mr. Chew (D2) and Madam Yong (D3) in paragraph 14.

30. As to what happened after the money was found to be missing (sub-paragraphs (n) to (u) - which the judge regarded as containing mere evidence, implying that they should not have been pleaded at all) Mr. Ching suggested that the actions of the Appellant might have been perfectly innocent if he were trying to find a way out of the problems that had arisen when the loss was discovered, and that they could not be regarded as acts done in furtherance of a conspiracy which had already been completed.

31. Mr. Bokhary, in his forceful arguments, while acknowledging that the Points of Claim could, perhaps, have been improved upon, argued that a perfectly adequate cause of action had been pleaded. He asked us to have in mind the following stark facts averred: that the Appellant was a director and executive Vice-President of the Ka Wah Bank; that this was the bank (a) in charge of the take-over by Join Park of Territorial's interest in IHL, (b) which issued the three cashier orders making up the total sum later found missing and (c) through which the $127m. passed, in and out of the respective accounts of Dixon and IHL, all on the same day.

32. Mr. Bokhary also asked us to note that the Appellant was said to be a business associate and close friend of Mr. Quek (D1), Mr. Chew (D2) and Madam Yong (D3) and (Mr. Bokhary will forgive me for the difficulty I have in understanding the next point made) that the Appellant was the proprietor of the Malaysian stock-broking firm which had managed IHL's quoted securities sold for the sum of $36m. which made up part of the total sum missing.

33. Mr. Bokhary went on to contend that the averments clearly indicated that the Appellant had steered Join Park away from the deal they were contemplating towards another which eventually led to the $127m. being paid over to IHL, a sum which later disappeared. The active part he took in the negotiations was also stressed, in urging that it was more favourable to buy the IHL shares rather than those of the company originally proposed. Mr. Bokhary also submitted that the pleading showed that after the negotiations had started, the Appellant had not faded into the background; on the contrary he had played a very active role by producing accounts to allay Mr. Ch'ng's concern about the financial state of IHL.

34. Mr. Bokhary also drew attention to the pleaded conduct of the Appellant after the $127m. had disappeared. Mr. Bokhary suggested that the allegations indicated that the Appellant had made a number of improper and dishonest suggestions tantamount to offering bribes and, on one occasion, that he had uttered a threat to Mr. Ch'ng.

35. Mr. Bokhary submitted that there was ample material upon which it could be averred that the Appellant had taken part in a fraudulent conspiracy. The material was all set out in the Plaintiff's pleading and the Appellant could not possibly doubt what case he had to meet.

Conclusions

36. I have read and re-read the Points of Claim and, with very great respect to the judge, who took a different view, in my judgment, Mr. Ching's submissions are well founded. I will only refer to two of the authorities that were cited to us because I do not think that there is any controversy between Counsel as to the law and practice when a Court is considering whether an action based on fraud should be struck out under 0.18, r.19(1)(a).

37. The first case is Davy v. Garrett (1878) 7 Ch. D. 473. I will read a passage from page 489 of the judgment of Thesiger L.J.:

38. I will also cite a short passage from the judgment of Lord Watson in Lawrance v. Norreys (1898) 15 App. Cas. 210, at page 221:

"In my opinion, a plaintiff who desires to avail himself of the provisions of sect. 26 is not released from the ordinary rule of pleading applicable to cases of fraud, which was thus expressed by Earl Selborne in Wallingford v. Mutual Society, 5 App. Cas.697: 'General allegations, however strong may be the words in which they are stated, are insufficient to amount to an averment of fraud of which any Court ought to take notice.'  It is not a sufficient compliance with the rule to state facts and circumstances which merely imply that the defendant, or some one for whose action he is responsible, did commit a fraud of some kind. There must be a probable, if not necessary, connection between the fraud averred and the injurious consequences which the plaintiff attributes to it; and if that connection is not sufficiently apparent from the particulars stated, it cannot be supplied by general averments. Facts and circumstances must in that case be set forth, and in every genuine claim are capable of being stated, leading to a reasonable inference that the fraud and the injuries complained of stood to each other in the relation of cause and effect."

39. I will venture to state the essence of the matter, as I see it, in one sentence: if the facts indicate fraud, it is not necessary to allege a fraudulent intention, but the use of the word "fraud" cannot be said to aver fraud if the material facts pleaded would not themselves establish it.

40. I illustrate what I mean by a brief reference to some of the sub-paragraphs in paragraph 15. Sub-paragraph (a) does not suggest why there was anything sinister in the Appellant accepting that he was "the boss" of the Ka Wah Bank. Sub-paragraph (b) (where it is said that he encouraged Mr. Ch'ng to buy the Plaintiff's shares) does not suggest in any way that the encouragement was motivated by some ulterior purpose. Sub-paragraph (c) does not suggest that it was not true that IHL was being pressed the Bank. Sub-paragraph (d) cannot be said to be an averment that suggests participation in a conspiracy, because it must be an every day occurrence that a banker tells his customer that, given certain circumstances, more favourable terms might be offered by his bank. The matter of the Appellant showing IHL's accounts to Mr. Ch'ng (sub-paragraphs (e) and (f)) takes the case no further unless it is suggested, that by doing what he did, the Appellant was trying to mislead Mr. Ch'ng. It cannot, surely, be taken against a person (sub-paragraph (h)) that he speaks with confidence and assurance about a deal he is helping to negotiate.

41. I will go no further into the particulars, except to say about sub-paragraphs(a) to (k), that advice and assistance given bona fide to Mr. Ch'ng could hardly be regarded as overt acts in furtherance of conspiracy. That all this was done in furtherance of the conspiracy, it seems to me, is left to innuendo which can have no place in a pleading that alleges fraud.

42. In respect of the conduct alleged against the Appellant after the loss of the money had been discovered, this might be evidence that would assist a plaintiff in establishing participation in a conspiracy at a trial, but I do not think that allegations of that kind can save a pleading which does not sufficiently plead overt acts which would justify a Court (if they were proved) in finding that the Appellant had taken part in a conspiracy to defraud IHL of their money.

43. In my judgment, the pleading was wholly deficient in satisfying the applicable rules and practice. If the facts as averred were proved, the action as against the Appellant would be bound to fail.

Proposed order on appeal

44. I would allow the appeal for I do not think that this is a pleading which can be saved by a reasonable amendment. I would strike out the Points of Claim as against the Appellant and would dismiss the action against him.

45. Since we have heard argument on costs, I propose that the Appellant should have his costs in the court below, as well as the costs of this appeal, both to be taxed on the ordinary party and party basis. I see no justification for a different basis for the award of costs in the High Court or in this Court.

Roberts, C.J.:

46. I agree. I think, with respect to him, that the judge was over-influenced by the fact that fraud was specifically alleged against the 4th Defendant in paragraph 14 of the Points of Claim and also in the prayer at the end. The authorities make it quite clear that a bare allegation of fraud is totally insufficient and that it is necessary for a plaintiff to plead, by way of particulars, sufficient facts as would lead to a reasonable inference of fraud.

47. I see no difficulty myself in reading together paragraphs 14 and 15 of the Points of Claim, although the wording of those two paragraphs can, perhaps, be criticized. I have no doubt that, on a sensible reading of them together, the allegations in paragraph 15 can be properly said to be the particulars alleged against the 4th Defendant in relation to his participation in the alleged conspiracy.

48. I agree with the judge's criticisms so far as they relate to paragraph 15, which is the crucial paragraph. This contained evidence which must be discounted in deciding whether or not there are sufficient particulars of fraud. And the rest of this paragraph either alleges actions which, on any reading, are innocent or acts which are consistent with innocence. In judging whether or not a sufficient case has been pleaded, I think some weight has to be given to the absence of references to the facts set out there, as being in furtherance of the conspiracy or as having been done with a fraudulent intent.

49. I do not think that the Points of Claim allege against the 4th Defendant acts which, if established, would amount to a prima facie case against that Defendant of participation in the general conspiracy which is alleged in the pleadings. As I think it has been conceded, if the allegation of conspiracy falls, so must the claims against this Defendant in conversion, and in damages for the fraud alleged to have been committed by him as the servant or agent of the 5th Defendant.

50. I also, therefore, would allow the appeal, strike out those parts of the Points of Claim which referred to the 4th Defendant and dismiss the action against him. I would award costs on the same basis as that suggested by my brother Fuad J.A..