AKTIESELSKABET DANSK SKIBSFINANSIERING v. WHEELOCK MARDEN & CO. LTD. and Others

1994, Nos 24, 25, 36, 37 & 104
(Civil)

H E A D N O T E

Pleas of misrepresentation and conspiracy to injure by making or procuring the making of misrepresentations - Striking out as embarrassing and an abuse of process - What pleadings must do generally and especially where fraud is alleged: never before as much as now - Pleading overt acts - Failure to correct misrepresentations : dictum of Fry J in Cargill v. Bowers (1878) 10 Ch.D. 502 at p.516 considered.

1994, Nos 24, 25, 36, 37 & 104
(Civil)

IN THE COURT OF APPEAL

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J U D G M E N T

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Bokhary, J.A.:

INTRODUCTION

1. A number of interlocutory appeals and cross-appeals were called on before us. All arise in a consolidated action due to be tried in about a year from now. The background is complicated. Reduced to its barest essentials, however, it can be outlined fairly simply.

2. The plaintiff corporation is a Danish financial institution. It will be convenient to refer to it as "ADS".

3. What happened was that ADS made loans to two Hong Kong companies. That was to enable them each to purchase a bulk carrier - the Sealock for one and the Annalock for the other - both vessels to be built at the same Danish shipyard.

4. The arrangements were complex. A vital feature thereof was that the loans were guaranteed by the borrowers' common parent, Wheelock Maritime International Ltd, a Hong Kong listed company which, through its many subsidiaries, owned and operated a sizeable merchant fleet.

As things turned out, the vessels were delivered, but the borrowers defaulted. Wheelock Maritime became insolvent. It went into liquidation. And its guarantees have not been honoured.

5. Including interest to date, ADS has been left out of pocket to the tune of about $542 million.

6. With a view to recouping that loss, ADS has started two actions: one by originating summons in 1988 and the other by writ in 1989. Those actions have been consolidated. ADS has delivered a consolidated statement of claim. That pleading has been amended.

7. As one sees from the Amended Consolidated Statement of Claim, the persons sued by ADS are a company and a number of individuals. The company is Wheelock Marden & Co. Ltd, a Hong Kong listed company and conglomerate, which had been Wheelock Maritime's general manager, secretary and parent. Additionally, as we shall see, there is an issue, on the pleadings as they presently stand, of whether Wheelock Marden had also been a de facto director of Wheelock Maritime.

8. Eleven individuals were sued. But only nine remain. That is because: Mr Hussey who had been the 8th defendant has died; and the consolidated action has been discontinued as against Mr Ying who had been the 11th defendant.

9. All the individual defendants were directors of Wheelock Maritime at the material time. The 2nd to 7th defendants were also directors of Wheelock Marden at the same time.

ADS claims against the defendants on the bases of: fraudulent trading; misrepresentation; and conspiracy.

10. As to fraudulent trading, ADS pleads that the guaranteed indebtedness was incurred and allowed to continue when, as it did not know but the defendants knew or ought to have known, Wheelock Maritime was insolvent, or at least had no reasonable prospect of honouring its guarantees. All the remaining defendants face the claim in fraudulent trading.

11. As to misrepresentation, ADS pleads as follows. The defendants induced it to enter into the arrangements under which the loans were made and the vessels were delivered. They so induced it by misrepresenting, both expressly and by omission, that Wheelock Maritime's financial position was far stronger than it really was: doing so fraudulently; failing that, recklessly; or, at the very least, without reasonable grounds. All the remaining defendants save the 12th defendant face the claim in misrepresentation.

12. And as to conspiracy, two conspiracies are alleged: one in relation to each vessel. ADS pleads that in each instance the defendants conspired together to injure it by making or procuring the making of those misrepresentations. Again, all the remaining defendants save the 12th defendant face the claim in conspiracy.

THE VARIOUS APPEALS AND CROSS-APPEALS

13. It will be convenient now to identify the various appeals and cross-appeals called on before us. Roughly sketched, the position is as follows.

Civil Appeals Nos 24 and 25 of 1994 are, to a certain extent, paired. Both arise out of orders made by Barnett J on January 19, 1994. No. 24 is brought by Wheelock Marden. No. 25 is brought by the individual defendants. In each, ADS cross-appeals.

14. In No. 24, Wheelock Marden appeals against two things. The first is the judge's refusal to strike out: so much of the Amended Consolidated Statement of Claim as alleges conspiracy against it; the particulars of that allegation separately delivered; and the prayer for damages against it in conspiracy.

15. The second is the judge's refusal to order certain discovery in its favour.

16. In No. 25, three things are appealed against. One is appealed against by the individual defendants other than the 5th and 12th defendants. It is the judge's refusal to strike out: so much of the Amended Consolidated Statement of Claim as alleges misrepresentation against them; the particulars of that allegation separately delivered; and the prayer for damages against them in misrepresentation.

17. The second thing appealed against is something against which all the individual defendants other than the 12th defendant appeal. It is the judge's refusal to strike out: so much of the Amended Consolidated Statement of Claim as alleges conspiracy against them; the particulars of that allegation separately delivered; and the prayer for damages against them in conspiracy.

The third thing appealed against is also something against which all the individual defendants appeal. It is the judge's refusal to order certain discovery in their favour.

18. In both Nos 24 and 25, ADS cross-appeals against the judge's order that paragraph 30 of the Amended Consolidated Statement of Claim, which paragraph alleges "improper purpose within the Companies Ordinance (1975 and 1984)", be struck out.

19. Turning to Civil Appeals Nos 36 and 37 of 1994, they are also paired. In the former, ADS seeks to appeal out of time against Barnett J's refusal, on October 20, 1993, to order certain further and better particulars of Wheelock Marden's Defence. While in the latter, ADS seeks to appeal out of time against Barnett J's refusal, on the same day, to order certain further and better particulars of the individual defendants' Defence.

20. Finally, there is Civil Appeal No. 104 of 1994, in which Wheelock Marden appeals against Barnett J's grant, on March 31, 1994, of leave to amend the Consolidated Statement of Claim to include an averment (in paragraph 1.4) that Wheelock Marden was a de facto director of Wheelock Maritime at the material time.

21. In the result, we have only heard so much of Nos 24 and 25 as pertain to striking out. We now give judgment on that. The remainder of Nos 24 and 25 and the whole of Nos 36, 37 and 104 are adjourned (not part heard) to fresh dates to be fixed in consultation with counsel's diaries.

CONSPIRACY

22. Now, as to the plea of conspiracy, Mr Heslop for Wheelock Marden submits that there are six bases on which that plea is defective and liable to be struck out. His submissions in that regard are adopted by Mr Kotewall for the individual defendants.

23. Shortly stated, those six bases are as follows:

(1) There is no sufficient plea of the combination itself or the steps taken to form the conspiracy.

(2) No acts of participation are pleaded against any individual except perhaps the 5th defendant.

(3) It is not clear from ADS's pleadings whether it alleges one conspiracy in relation to each vessel, or whether it alleges a series of conspiracies in relation to each vessel.

(4) Even on the footing that only one conspiracy in relation to each vessel is alleged, ADS has not pleaded when each of those conspiracies was hatched, between whom each conspiracy was hatched, and when each individual joined each conspiracy.

(5) No overt act has been pleaded.

(6) There is no plea in the body of the Amended Consolidated Statement of Claim that the alleged conspirators intended to injure.

What pleadings must do - generally...

24. Those complaints go to pleadings. So does the bulk of the other complaints ventilated before us. That being so, it is important to remember this. Our procedure aims to ensure that litigation, particularly the trial itself, is conducted fairly, openly, free from surprise, and without unnecessary delay or expense. In the attainment of that objective, pleadings have a fundamental role to play. Accordingly, there are a number of things which pleadings should do. Ideally, they would do them from the outset. In any event, they must do them by the time they have been properly particularised - whether particularised on the pleader's own initiative, upon the other side's request, or pursuant to the court's order.

25. What those things are is to be gathered from the decided cases. That exercise has been performed by the learned editors of the 1993 Supreme Court Practice. And, as one sees from note 18/12/2 at pp 307-308 of volume 1 thereof, the things which properly particularised pleadings must do are to:

(1) inform the other side of the nature of the case they have to meet as distinguished from the mode in which that case is to be proved;

(2) prevent the other side from being taken by surprise at the trial;

(3) enable the other side to know what evidence they ought to be prepared with and to prepare for trial;

(4) limit the generality of the pleadings, the claim and the evidence;

(5) limit and define the issues to be tried, and as to which discovery is required; and

(6) tie the hands of the party so that he cannot without leave go into any matters not included (although if the opponent omits to ask for particulars, evidence may be given which supports any material allegation in the pleadings).

...and especially where fraud is alleged

26. To the generality of the foregoing, must be added the special rule that allegations of fraud must be pleaded distinctly and with the utmost particularity. The word "distinctly" is the one used by Thesiger LJ in his well-known statement in Davy v. Garrett (1878) 7 Ch.D. 473 at p.489 as to how fraud is to be pleaded. And the expression "utmost particularity", as one sees from note 18/8/8 at p.297 of volume 1 of the 1993 Supreme Court Practice, is the one chosen by its learned editors and has the authority of their combined experience. That special rule arises in this case.

Never before as much as now

27. None of the basic rules of pleading have anything to do with technicality. All of them have everything to do with practical justice. They have always been of importance. Never before as much as now. For these days, there are more and more cases so vast and so complex that they push practically to its limit our system's capacity effectively to cope with them. Any laxity in their proper management, whether in regard to pleadings or anything else, can all too easily result in such cases spinning into confusion if not chaos - even before trial but especially at trial. The present case, for the trial of which half a year has been reserved, is such a case.

The six bases

28. Reverting to Mr Heslop's six bases of complaint, the sixth one can be disposed of quite simply. Intention to injure is alleged in particulars separately delivered by ADS. Those particulars form part of the pleadings. Accordingly, the inclusion in those particulars of such intention satisfies the requirement that the same be pleaded.

29. Of the other five bases, the central one is the fifth, which goes to overt acts. If the complaint in regard to overt acts is made good, then conspiracy must go even if only for that reason alone.

Overt Acts

30. It is in particulars ordered by another division of this Court on March 15, 1993, in an earlier interlocutory appeal that ADS pleads the overt acts upon which it relies. The request was: -

"13. Of 'they conspired together to make and procure the making of such misrepresentations'

In relation to each Defendant, identify each overt act relied upon in support of the allegation that he or it so conspired with his or its co-Defendants."

This Court ordered ADS to give those particulars.

Thus ordered, this is the answer which ADS made:

"The overt acts relied upon are:-

(1) The express misrepresentations were made

(i) as alleged in Paragraph 4.1 of the C.S.O.C. and the particulars given thereunder by the Fifth Defendant and by representatives of the First Defendant and W.M.I. and the Wheelock Marden Group (see the answers to Requests 46 and 47 as to the latter);

(ii) as alleged in Paragraphs 13.5 and 14.1 of the C.S.O.C., and the particulars given thereunder, by the Fifth Defendant;

(2) They were so made to the knowledge of all the Defendants (see answers to Requests 57 and 163) and as to the representations by omission the representations were not corrected by any of the Defendants (see answers to Requests 54 and 160);

(3) The Defendants (other than the First Defendant) as the members of the Board of Directors of WMI and the First Defendant as the General Manager of WMI had the common purpose of obtaining the loans from the Plaintiff specified in Paragraph 2.3 of the C.S.O.C.;

(4) The said misrepresentations were made with the intention of inducing the Plaintiff to make the relevant loan as alleged in Paragraphs 4.4 and 14.5 of the C.S.O.C. and the Plaintiff in reliance on the said misrepresentations entered into the relevant loans as alleged in Paragraph 12.1 and 23."

31. As to the full meaning of the term "overt act", three statements are of particular value.

32. The earliest is Salmon J's statement in Marrinan v. Vibart [1963] 1 QB 234 at p.238 that "the gist of the tort of conspiracy is not the conspiratorial agreement alone, but that agreement plus the overt act causing damage."

33. Next, there is Lord Wilberforce's statement in R. v. Doot [1973] AC 807 at p.818 where he said: "Often in conspiracy cases the implementing action is itself the only evidence of conspiracy - this is the doctrine of overt acts." As to the context in which that was said, it is clear from the speeches in that case, particularly Lord Pearson's at p.85, that there were overt acts of actual importation of dangerous drugs on the part of each of the accused men, the conspiracy charged against them being one to import such drugs. And what was left to inference was, as one sees from in particular Viscount Dilhorne's speech at p.822, that in doing as each of them did the accused men were "acting in concert and in pursuance of an agreement."

34. Finally, there is the well-known statement in Belmont Finance v. Williams Furniture [1979] 1 Ch 250 at p.263 of Buckley LJ, with whom the other two members of the Court of Appeal agreed, that "an overt act establishing the existence of a conspiracy is an overt act which shows that the agreement which is alleged to be conspiratorial has already been made."

35. Mr Cullen for ADS (while saying that it may be possible to have a viable claim in conspiracy without any overt act which can be pleaded e.g. where some harm has been done to the plaintiff and he has an audio or video tape of the defendants plotting such harm to him) concedes that, the present case not being such a case, ADS must plead at least one overt act.

36. Now, leaving aside any case such as the one in that example, the position is as follows. When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act or overt acts is this. He has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt acts pleaded must be such as to show: (i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (ii) that the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of.

If the pleader fails to do that, then, depending on whether the failure is in respect of all the defendants or only some or one of them, then either the plea is liable to be struck out altogether or it is liable to be struck out as against some or one of the defendants.

37. Reverting to what ADS pleads as overt acts, one sees that the only acts pleaded are the alleged express misrepresentations and, if such a thing is an act, the fact that none of them were corrected. The other things alleged, being knowledge, common purpose and intention, are not acts.

38. Only one defendant, the fifth, is alleged to have uttered the statements said to be misrepresentations. The making of misrepresentations by one person does not require any agreement; and it does not show that any agreement has been made. That being so, failure to correct them does not require any agreement; and it does not show that any agreement has been made.

39. There is no act save on the part of one alleged conspirator. And one person alone cannot conspire. It is not suggested that the 5th defendant could have conspired with Wheelock Marden if he did not conspire with the other individual defendants. If none of them conspired, then Wheelock Marden could not have conspired with him. Its only mind would be his. That would mean one mind only. And it takes at least two minds to conspire.

40. In the result, not a single overt act has been pleaded. The allegations of knowledge, common purpose and intention cannot alter that or render it harmless. They are not acts. Also, it might be added, they have, in any event, to be viewed with some caution: because, when the mass of particulars pertaining to them are examined, it can be seen that they involve piling one layer of inferences upon another in order to obtain the end product. Nor, unfortunately, is that difficulty the only one. Another example is this. In those particulars there are many allegations of knowledge which the reader would quite naturally take to be allegations of constructive knowledge but which Mr Cullen said, in the course of the argument, are meant to be allegations of actual knowledge.

41. In that connection, it is to be observed that the allegations which look like ones of constructive knowledge but are in fact meant to be of actual knowledge seem, at least in certain instances, to be of extremely wide ambit. For example, the duty of the individual defendants, as directors of Wheelock Maritime, fully to inform themselves of its affairs is relied upon to establish knowledge on their part of an impression, said to have been created by what passed between the Danish shipyard and ADS, presumably in Denmark, back in 1979, that Wheelock Marden intended to support Wheelock Maritime. And such knowledge is relied upon to fix the defendants with a duty to correct that impression when, in 1983, it ceased to hold good.

42. The defect here is one of substance and not mere form. And that defect is total.

43. To maintain its plea that all the defendants conspired together - in other words to maintain its conspiracy plea in its entirety - ADS has to plead at least one overt act of all the defendants or, failing that, a number of overt acts which include at least one on the part of each defendant. And the overt act or overt acts must show that each and every defendant had conspired together.

44. To maintain its plea that any of the defendants conspired together - in other words, to maintain any conspiracy plea at all - ADS has to plead an overt act or overt acts on the part of at least two individual defendants showing that they had conspired together.

45. All of that is so for these reasons. Each defendant denies what ADS alleges, namely, that they had all conspired together. And such overt act or acts would go to that issue, and support that allegation.

46. That allegation is the one in respect of which Request 13 referred to earlier was made.

47. As we have seen, the request set out ADS's allegation that the defendants had "conspired together to make and procure the making of such misrepresentations." And it then continued thus. It asked for particulars in relation to "each Defendant"; it asked ADS to "identify each overt act relied upon"; and it spelled out the reliance to which it is directed as reliance "in support of the allegation that he or it so conspired with his or its co-Defendants." (Emphasis supplied).

48. This Court ordered those particulars - naturally not for the sake of form but rather for the proper preparation for trial, and the trial itself, of a crucial issue. That is why the matter is one of substance and not mere form.

49. Further, not only has ADS failed to plead any overt act or overt acts on the part of all the defendants, but it has failed to plead any overt act or overt acts on the part of any two individual defendants. That is why the defect is total.

50. Against each and every alleged conspirator, the conspiracy plea must go. That plea must go altogether.

MISREPRESENTATION

51. Turning to the claim in misrepresentation, as indicated earlier, two kinds of misrepresentation are alleged: express misrepresentation and misrepresentation by omission.

52. As to the express misrepresentations, only one person, the 5th defendant, is alleged to be the author. He does not seek the striking out of the claim against him in misrepresentation. Nor does Wheelock Marden, who is said to be vicariously liable for the tortuous conduct alleged against the 5th defendant, seek the striking out of the misrepresentation claim against it. As earlier indicated, the 12th defendant does not face a claim in misrepresentation.

53. The other remaining defendants do. And in support of their appeal against the judge's refusal to strike out that claim as against them, Mr Kotewall takes a number of points.

Express misrepresentation

54. As to express misrepresentation, he draws attention to paragraph 4.2 of the Amended Consolidated Statement of Claim. It is there that ADS indicates why it says that the others are liable in respect of the 5th defendant's express misrepresentations. And, now that ADS no longer seeks to rely on ratification, only one basis for such liability remains. It is, quite simply, that they authorised the express misrepresentations made by the 5th defendant.

55. Particulars were sought:

"56. Of 'the Defendants and each of them authorised the Fifth Defendant to make such representations...'

(1) In relation to each Defendant, identify every overt act and document whereby it is alleged that the said Defendant authorised the Fifth Defendant to make such representations."

56. By the Order of March 15, 1993, referred to earlier, this Court ordered ADS to give those particulars. ADS has given such particulars in relation to Wheelock Marden but not any other defendant. Mr Cullen says that ADS cannot give any such particulars.

57. To know the case which they have to meet in regard to such authorisation and in order to prepare to meet it, the individual defendants need such particulars. And in light of this Court's order, the giving of particulars of authorisation in relation to the individual defendants is, in effect, a condition of maintaining the allegation that they authorised the express misrepresentations made by the 5th defendant. On any view, that allegation against them must go.

Failure to correct

58. That leaves two things, one of which is the averment that they are responsible for all the misrepresentations because they knew that they were being made or had been made but did not correct them. Paragraph 4.4 of the Amended Consolidated Statement of Claim in respect of the Sealock misrepresentations and paragraph 14.4 thereof in respect of the Annalock misrepresentations are identically worded, and read:

"Further or alternatively, all the Defendants knew that the representations were being made or had been made and did not correct the same. In the circumstances, they were responsible for such representations."

59. That, Mr Cullen submits, makes the defendants liable for the misrepresentations as joint tortfeasors. And as to how the individual defendants other than the 5th and 12th defendants could be liable as joint tortfeasors (and as conspirators, too) Mr Cullen assisted us by handing up a written summary of his submission, saying that they could be so liable.

"... as a matter of inference from the pleaded knowledge of the misrepresentations coupled with the pleaded intention, to lead to the pleaded result, to which it did lead, namely, to the pleaded loans, which allowed the pleaded delivery of the vessels, and, a fortion, if coupled with the fact that the defendants, other than the first defendant, entered into the relevant loan documents and took the relevant loans as directors of WMI."

60. There is a dispute as to whether the contents of that summary could constitute a viable plea. We have been taken to a number of decisions, including that of Fry J in Cargill v. Bowers (1878) 10 Ch.D. 502. There was considerable discussion before us of Fry J's obiter observation (at p.516):

"... if upon the whole view of the facts I had come to the conclusion that the Defendant directors had willfully abstained from inquiry in order that Feigin might commit frauds, then I need not say that I should have held them liable for those frauds."

61. Feigin, as well as being a director of the company, was (as one sees from p.503 of the report) its "manager and general superintendent".

62. Possibly, what Fry J had in mind was not mere inactivity permitting fraud, or even such inactivity coupled with a desire that fraud be committed, but studied inactivity which was meant to and calculated to encourage the fraudsman to go ahead and commit the fraud and which, in the result, did so encourage him.

63. Of course, a striking out application like the present is no occasion for resolving difficult points of law. So the question arises: what would the position be on the assumption that the contents of Mr Cullen's summary did constitute a viable plea on its face and ADS were able to point to particulars supporting the same.

64. Even then, the summary cannot help paragraph 14.4 of the Amended Consolidated Statement of Claim. That is because paragraph 14.4 says no more than that the defendants are responsible for all the misrepresentations because they knew that they were being made or had been made but did not correct them. Unlike the summary, paragraph 14.4 does not say anything about intention, result, loans, delivery, entering into loan documents or taking loans.

65. If anything, the summary highlights paragraph 14.4's inadequacy. We are here concerned with what ADS has actually pleaded. That paragraph must also go.

Alleged admission

66. By means of a respondent's notice, ADS seeks to support the judge's result on an alternative ground which he had rejected. Under that ground, ADS contends that the individual defendants other than the 5th defendant have admitted and averred that he was their agent, doing so in paragraph 100(2) of their Defence, which reads:

"Further or in the alternative, if which is denied, the Defendants owed any duty to inform the Plaintiff of the true financial position of WMI, the Defendants, through the 5th Defendant passed on to DSKF all such information as was available to them in the form of cash flow projections, balance sheets, schedules of loan and guarantee obligations and cash requirements for the period covered by such documents more particularly pleaded in paragraph 23 hereof."

67. ADS's argument here is plainly bad. The individual defendants other than the 5th defendant plainly denied in their Defence that he was their agent as far as the matters alleged by ADS are concerned. That they admit and aver elsewhere in that Defence that they did something else "through" him is no departure from that denial. It cannot constitute an admission that the 5th defendant was their agent for the purposes alleged by ADS.

68. Quite apart from all that, paragraph 100(2) of the Defence, having denied that the defendants had a duty to give ADS certain information, really says no more, as a matter of substance, than that, in any event, ADS had received such information. The formula "through the 5th Defendant" is unnecessary - and perhaps unfortunate since it has led to time being spent on this point, not to mention very possibly to giving the pleader of that Defence a few sleepless nights upon the point being taken. But, at the end of the day, it does not really matter.

CONCLUSION

69. For the reasons given, the following portions of ADS's pleadings are defective and therefore embarrassing and an abuse of process:

(i) as to all the defendants sued in conspiracy, so much of the Amended Consolidated Statement of Claim as alleges conspiracy, so much of the particulars separately delivered as pertain to conspiracy, and the prayer for damages in conspiracy; and

(ii) as to the 2nd to 4th, 7th, 9th and 10th defendants, so much of the Amended Consolidated Statement of Claim as alleges misrepresentation against them, so much of the particulars separately delivered as pertain to misrepresentation on their part, and the prayer for damages in misrepresentation against them.

70. The appeals heard, being the ones pertaining to conspiracy and misrepresentation, must be allowed so as: to set aside the relevant parts of the judge's Order; and to strike out those portions of ADS's pleadings.

Liu, J.:

71. I agree that the appeals heard should be allowed.

Bokhary, J.A.:

72. Accordingly, the appeals heard are allowed as indicated.

73. If any difficulty or dispute arises in relation to the drawing up of the Order embodying our decision, the parties are at liberty to apply or restore, whichever is more convenient, so that we may remove such difficulty or resolve such dispute.

74. It only remains to thank all counsel for their assistance, and to hear them on costs and anything else which may now arise.

[Submissions as to costs]

75. The costs of those parts of Civil Appeals Nos 24 and 25 of 1994 which have been disposed of will be dealt with after the rest of those two appeals have been disposed of.