XCHRX BILLION SILVER DEVELOPMENT LTD. v. ALL WIDE INVESTMENTS LTD.

HCA5046/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5046 OF 1999

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REASONS FOR DECISION

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Application to strike out Amended Statement of Claim

1. The Defendant applied to strike out the Amended Statement of Claim on the ground that it disclosed no reasonable cause of action. I dismissed the application at the conclusion of the arguments. I now give the reasons for my decision.

The background

2. The Plaintiff is a Hong Kong company and was set up on the direction of the Bank of China, Foshan ("BOC Foshan"). The Plaintiff was set up for the purpose of , inter alia, servicing the customer of BOC Foshan in Hong Kong. Wu Zili ("Wu") was an employee and the managing director of the Plaintiff. He was also the legal representative and general manager of BOC Foshan between 1989 and June 1994. BOC Foshan is a branch of Bank of China, Guangdong ("BOC Guangdong"). Wong Yam Chor ("Wong") was the legal representative and general manager of BOC Guangdong between February 1995 to June 1992. The Plaintiff's case is that BOC Guangdong was the de facto head of its branches and its legal representative and general manager, was the de facto direct superior of the legal representatives of the branches of BOC in the Guangdong Province.

3. The Plaintiff had US$20,000,000 ("the Designated Fund") which was designated for a hotel project in Foshan ("the Hotel Project"). The Designated Fund was obtained by the Plaintiff from the Bank of China at the request of BOC Guangzhou. The request was made on 24th June 1992 and the money was remitted to the Plaintiff on 5th August 1992.

The pleading

4. Paragraph 17 of the Amended Statement of Claim pleads that:

"Knowing that the Hotel Project had been put on temporary halt, Wong caused the Plaintiff to pay over the Defendant in September 1992 a sum of US$8,000,000.00 out of the Designated Funds out of which an amount of US$5,000,000.00 was paid over to the Defendant.

Particulars

On or about 28th September 1992, Wu authorized and caused the payment to the Defendant, a company incorporated in Hong Kong, the sum of HK$38,625,000.00 (being the Hong Kong dollar equivalent of US$5,000,000.00) by means of a cashier order issued by the Hong Kong Branch of The Kwangtung Provincial Bank in favour of Messrs Pang, Wan & Choi, acting as the Defendant's solicitors."

5. Paragraph 18 pleads that Wong caused such payment by instigating and procuring Wu to act in breach of contract of employment with the Plaintiff, his duty of fidelity, fiduciary duties and duty of care towards the Plaintiff. The particulars of breach are :

"(1) Entering into a purported loan agreement, as evidenced by a document dated 28th September 1992 in Chinese characters headed 'Loan Document' ('the Loan Document'), whereby the Plaintiff would pay over the said sum of US$5,000,000.00 to the Defendant by way of loan in the following circumstances, namely :-

(a) The said US$5,000,000.00 amounted to a diversion of the Designated Funds which had been approved by BOC Head Office and made available by BOC Guangzhou for the Hotel Project.

(b) The diversion of such Funds had never been authorized by the BOC Head Office, which had authorized such funding for the Hotel Project.

(c) It was not the normal business of the Plaintiff to lend money, let alone money in the order of US$5,000,000.00 in one single transaction.

(d) There was no good commercial reason for causing the payment of such sum to the Defendant, the same being made for the sole purposes of Wong and the Defendant.

(e) No approval had been given by the Plaintiff's board of directors and no approval procedure had been followed prior to the authorization by Wu of such payment to the Defendant.

(f) Such amount was wholly unsecured with no protection being offered or put in place to ensure that such sum would be repaid.

(g) No interest was provided for, notwithstanding that interest was payable by BOC Foshan to BOC Guangzhou as stipulated by BOC Head Office.

(h) The terms of the 'Loan Document', which was signed by Wong, and someone else on behalf the Defendant, were highly ambiguous and loosely worded, including a declaration that the said sum of US$5,000,000.00 was temporarily lent to the Defendant for its use on 'moral grounds and did not involve the meaning of a loan'.

(i) No guarantee document was executed by anyone else, other than that the said 'Loan Document' was signed by both Wong and another signatory of the Defendant.

(j) No purpose was stated on such 'Loan Document' or any document for which the said US$5,000,000.00 was paid over to the Defendant.

(k) No proper or any inquiry had been made by Wu concerning the Defendant's financial background or its ability to repay the said US$5,000,000.00.

(l) The payment of such sum to the Defendant put the Plaintiff at risk of not being able to repay the same to BOC Guangdong or to comply with any requirement for repayment by BOC Head Office which had approved the Designated Funds.

(2) Further, Wu authorized the payment of such sum of US$5,000,000.00 to the Defendant notwithstanding the above-mentioned circumstances."

6. Paragraph 19 pleads that Wong was an agent and directing mind of the Defendant in instigating and procuring the breaches of duty by Wu. Paragraph 20 pleads that the Defendant and Wu had unlawfully interfered with the economic interest of the Plaintiff.

7. Paragraph 22 pleads that the Defendant was a constructive trustee of all monies it had received from the Defendant and was liable to account to the Plaintiff. Alternatively the Plaintiff asked the Defendant to repay the money pursuant to the terms of a loan agreement. Of the US$5,000,000, only US$2,560,236.12 had been repaid by the Defendant leaving a balance of US$2,439,763.88.

Plaintiff's causes of action

8. The causes of action of the Plaintiff against the Defendant are as follows:

(1) procuring breach of duty by an employee of the Plaintiff;

(2) unlawful interference with the economic interest of the Plaintiff;

(3) constructive trust; and

(4) receipt of money under the loan agreement.

The Defendant's complaint

9. The Defendant's complaint about the Amended Statement of Claim are these:

(1) under paragraph 17, it is not clear whether the Plaintiff paid the Defendant US$8,000,000 or US$5,000,000;

(2) no material facts were pleaded in respect of the instigation and procurement by Wong;

(3) no material facts were pleaded in support of the Plaintiff's claim that Wong was an agent and directing mind of the Defendant; and

(4) the claim for the repayment pursuing to the term of the loan agreement is inconsistent with the previous allegation of a purported loan.

Unlawful interference

10. On the unlawful interference with the interest of the Plaintiff, it is sufficient to say that the cause of action exists when one person used unlawful means with the object and effect of causing damage to another (paragraph 23-56 Clerk and Lindsell on Tort, 17th Ed.). The purpose or intention of inflicting injury on the Plaintiff is an essential criterion of the tort. But as pointed out by Woolf LJ in Lonrho Plc v. Fayed and Others [1990] 1 QB 479:

"... This tort is not based upon any agreement, but interference, and frequently it will be fully appreciated by a defendant that a course of conduct that he is embarking upon will have a particular consequence to a plaintiff, and the defendant will have decided to pursue that course of conduct knowing what the consequence will be. Albeit that he may have no desire to bring about that consequence in order to achieve what he regards as his ultimate ends, from the point of view of the plaintiff, whatever the motive of the defendant, the damage which he suffers will be the same. If a defendant has deliberately embarked upon a course of conduct, the probable consequences of which to the plaintiff he appreciated, I do not see why the plaintiff should not be compensated."

11. The decision of the Court of Appeal was affirmed by the House of Lords on other grounds.

Constructive Trust

12. To enforce a constructive trust on the basis of knowing receipt, the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff and thirdly, knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty: per Hoffmann L.J. (as he then was) in El Ajou v. Dollars Land Holdings plc and another [1994] 2 All ER 685.

Agent and directing mind

13. It is not disputed that the Defendant received US$5,000,000 from the Plaintiff. The Amended Statement of Claim pleads the breach of duty on the part of Wu in transferring the money to the Defendant. The Plaintiff's causes of action hinge on whether the Defendant had knowledge of how the designated fund came to be transferred to it. This will depend on whether the activities and knowledge of Wong were attributed to the Defendant. The Plaintiff said it did because Wong was the agent and the directing mind of the Defendant. In El Ajou, Nourse LJ stated that:

"...Because a company's directing mind and will are often the mind and will of one or more of its directors and because a director is for many purposes an agent of the company, there is a danger of confusion between the two grounds on which the plaintiff relies. But they are, as the judge made clear, quite separate. The plaintiff can succeed on either. The convenient course is to deal with the law and the facts in regard to each of them in turn."

14. Mr Poon, S.C., Counsel for the Defendant, submitted that agency and directing mind were conclusions of law and no material facts were pleaded in support of such conclusion of law. While whether someone is an agent or the directing mind of another may well be a conclusion of law, it is at the same time a matter of fact that someone is an agent or the directing mind of another. The rule of pleadings requires the pleading of material facts. Material facts are those which are required to formulate a complete cause of action. In my view the Plaintiff has clearly pleaded the material facts to complete the causes of action. If you allege Wong to be an agent or the directing mind of the Defendant, this clearly is an averment of a material fact. The Defendant became liable by reason of the activities and knowledge of Wong. The causes of action are completely formulated.

15. Mr Poon argued that it has not been shown how Wong became an agent or the directing mind of the Defendant. In my view these are not material averments that need to be pleaded. All facts which tend to prove the fact in issue would be relevant at the trial, but they are not material facts for pleading purposes. "It is an elementary rule in pleading that, where a statement of fact is relied on, it is enough to allege it simply without setting out the subordinate facts which are the means of proving it or the evidence sustaining the allegation" (per Lord Denman C.J. in Williams v. Wilcox (1838) 8 A. & E. 314 at 331; and see Stuart v. Gladstone (1879) 10 Ch D644): Paragraph 18/7/8 of the Supreme Court Practice 1999.

Voluntary Particulars

16. In any event, the Plaintiff has served Voluntary Particulars on the averment that Wong was an agent and directing mind of the Defendant. They are as follows :

"Of the allegation that, at the material times, Wong was an agent and directing mind of the Defendant in instigating and procuring the said breaches of duties on the part of Wu, the Plaintiff relies on, inter alia, the following facts and matters in support thereof:-

(1) Wong and another authorised signatory of the Defendant signed the said Loan Document next to the Defendant's company chop appearing on such Document on behalf of the Defendant.

(2) Wong and another authorised signatory of the Defendant signed a letter of instruction, next to the Defendant's company chop appearing on such letter, dated 28 September 1992 instructing the Plaintiff on the behalf of the Defendant to exchange the sum of US$5,000,000 into Hong Kong currency and to buy a cashier order made payable to Messrs Pang, Wan & Choi, solicitors for the Defendant.

(3) Wong and another authorised signatory of the Defendant signed a photocopy of the cashier order in the sum of HK$38,625,000 (being the equivalent of US$5,000,000) acknowledging receipt of such sum on behalf of the Defendant on 28 September 1992.

(4) The discussions concerning the request for the sum of US$8,000,000 (including the said US$5,000,000) and the terms for such payment took place between Wu and Wong, as a result of which the Defendant took the benefit of the transaction, namely, the said sum of US$5,000,000.

(5) The circumstances in which and the terms upon which the said payment of US$5,000,000 were made were extraordinary such that they would put the Defendant on inquiry as to the propriety of the same.

(6) The Defendant caused various documents to be sent from time to time to the Plaintiff purportedly in connection with the said payment of US$5,000,000 including, inter alia, the following:-

(a) A document headed 'Century Liaison Limited: Long Term Loan, Outstanding & Monthly Operation Expenditure as at 31 May 1995'; and

(b) A fax addressed to Wu dated 11 September 1997.

(7) The Defendant caused repayment to the Plaintiff of the sum of US$2,560,236.12 referred to in paragraph 21(1) of the Amended Statement of Claim."

Objections to the Voluntary Particulars

17. The Voluntary Particulars must be considered as part of the Amended Statement of Claim. The only objections that were taken to the particulars were that:

(1) the particulars were not material facts; and

(2) there were inconsistencies between the particulars and the affirmation of the Plaintiff filed in support of its application for Mareva injunction.

18. In support of the first objection, Mr Poon relied on the case of Bruce v. Odhams Press Ltd [1936] 1 All ER 287 in which a distinction was drawn between "a material fact" and "a particular piece of information" which it is reasonable to give the defendant in order to tell him the case he has to meet. Even if, which is not the case here, the Amended Statement of claim does not contain the material fact to formulate the complete causes of action, the matters contain in the Voluntary Particulars must surely have fulfilled this function.

19. As to the second objection, this is a striking out on the lack of reasonable cause of action. Matters extraneous to the pleadings, namely the affidavit evidence, should not be considered and I had so ruled.

Instigation and procurement

20. Likewise, by pleading that Wong instigated and procured Wu to act in breach of his duty, the Plaintiff has clearly pleaded the material facts that are relevant for the causes of action relating to unlawful interference of business and constructive trust. How Wong procured or instigated Wu, is a matter that goes towards proving these allegations. They are not material facts and are not required to be pleaded.

21. In any event, on the issue of instigation and procurement, paragraph 17 pleads that Wong caused the Plaintiff to pay over the money to the Defendant. Wu was then the managing director of the Plaintiff. Paragraph 18 further pleads that Wu entered into the loan document which was signed by Wong and another signatory of the Defendant. The material facts have obviously been pleaded. In my view the Defendant has no difficulty whatsoever in understanding the Plaintiff's case. Again the Voluntary Particulars give particulars of this averment. Whether there was an independent exercise of authority by Wu or not is clearly not an issue to be dealt with at a striking out application.

Confusion over the amount of money

22. This is some confusion under paragraph 17 when it is pleaded that Wong caused the Plaintiff to pay over to the Defendant US$8,000,000 out of the designated fund, out of which an amount of US$5,000,000 was paid over to the Defendant. This however, cannot be the basis of a striking out application. In any event, there is no real confusion caused because the Plaintiff is merely seeking remedies in relation to the payment of US$5,000,000.

Loan agreement

23. As to the inconsistent plea of the purported loan agreement and the demand for repayment under the terms of the loan agreement, there is nothing in the rules to prevent a plaintiff from setting up two or more inconsistent sets or material facts and claiming relief thereunder in the alternative: Paragraph 18/15/6 of Supreme Court Practice 1999.

24. Mr Poon referred to paragraph 18/7/18 which states that:

"... in C.H. Pearce and Sons Ltd v. Storechester Ltd (1983) The Times, November 17, CA, in an action for rectification, the plaintiffs were not allowed to allege two claims in the alternative based on inconsistent assertions of the parties' common continuing intention since such allegations demonstrated at the outset that there was no certain intention which would found such a claim."

25. It is apparent from the passage itself that in the case cited the relief was for rectification of an agreement where the question of inconsistent intention of the parties was relevant. This is not the relief sought by the Plaintiff in this case. The principle is that a party may plead two or more inconsistent sets of material facts and claim relief thereunder in the alternative, so long as the facts belonging to them respectively are not mixed up and are stated separately. That is what have happened in this case.

Conclusion

26. The Defendant simply fails to show that the Amended Statement of Claim discloses no reasonable cause of action. Accordingly, the application is dismissed. It has been said that in applying to strike out a Statement of Claim and dismiss the action, the defendant is in effect attempting to drive the plaintiff from its judgment seat. This is a drastic action and the defendant can only succeed in the most plain and obvious case. On no account can it be said that the Amended Statement of Claim is so plainly and obviously defective that it ought to be struck out.

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DECISION ON COSTS

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Striking out

27. There are three set of costs involved. First, the cost of the striking out application. As the Plaintiff is successful in opposing the Defendant's application, it is entitled to the costs relating to the striking out. For taxation purpose, the time taken with this matter was in the morning of the hearing.

Variation of the Injunction

28. In relation to the Defendant's summons to vary the order of Mr Justice Findlay who granted an injunction to the Plaintiff to restrain the Defendant from disposing of assets up to US$2,439,763.88, the party agreed on the terms of the variation and also that the costs be costs in the cause of the injunction. I will so order.

Continuation of the Injunction

29. In relation to the costs of the Plaintiff's summons to continue with the order of Mr Justice Findlay, the order was obtained on 19th April 1999 and on 22nd April 1999, the Defendant's solicitors disclosed the assets of the Defendant pursuant to the terms of the order. The Defendant, however, did not file any affirmation in opposition to the Plaintiff's application for continuation of the order. Instead, on the return day of the summons it applied for an adjournment and sought directions for the filing of affirmations. The Plaintiff is entitled to have the costs of the hearing in relation to this summons.

30. For the purpose of taxation, the two summonses were dealt with in the afternoon of the hearing. I would apportion ( of the costs to the Defendant's summons and the remaining ( to the Plaintiff's summons. I would grant certificate for two Counsel in respect of the applications before me.