Kowloon Stock Exchange Ltd and Others v. So Kan Nane and Others

CACV000054/1975

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Coram: Briggs, C.J., Huggins & Pickering, JJ.A.

Date of Judgment: 18 May 1976

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JUDGMENT

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Huggins, J.A.:

1. This was an application to strike out the Plaintiffs' Statement of Claim, and the Defendants appeal against the judge's refusal to make the order sought. The Statement of Claim contained two alleged causes of action and it is now conceded that there was ground upon which the judge could properly refuse to strike out the paragraphs relating to one of them. The appeal has proceeded in respect of the other cause of action.

2. The case for the Plaintiffs is that the Defendants have used moneys of the first Defendants (the Kowloon Stock Exchange) to purchase shares in circumstances which put the purchase ultra vires the powers of the Exchange. It is the basis of that allegation that the purchase was (as it is said) "for and on behalf of person or persons unknown to the Plaintiffs" and that subsequently, when those persons defaulted in payment of the purchase price, the Exchange "treated the said .... shares as an investment. The case as argued before us was not entirely consistent with that pleaded, but a simple amendment of the number of shares alleged to have been purchased for and on behalf of others would overcome that difficulty and nothing turns upon this at the present stage. The Defendants deny that the shares were purchased for and on behalf of others and, if they are right when they say that the shares were purchased by the Exchange for itself, it is difficult to see how they could have been purchased otherwise than as an investment, which would lave been intra vires.

3. Clearly the Statement of Claim discloses a cause of action and equally clearly there is a dispute as to a material fact. What the Defendants contend is that that dispute must so obviously be decided in their favour that it is an abuse of the process of the court to ask that the matter go to trial. They rely upon Lawrence v. Lord Norreys (1890) 15 App. Cas. 210 for the proposition that it was not enough for the Plaintiffs merely to allege that the purchase was ultra vires without also making precise and full allegations of facts and circumstances leading to the reasonable inference that the purchase was ultra vires. In my view the case does not support that proposition. What was held to be wanting in that case was not an allegation of a concealed fraud or allegations of facts and circumstances from which such fraud could be inferred but facts and circumstances from which it could properly be inferred that the fraud alleged was what had deprived the plaintiff of the land sought to be recovered. That was a special kind of case where a question arose under the Statute

4. What then was the reason for the purchase of these shares? The affidavit evidence before the learned judge in chambers contains the two contradictory versions to which I have referred and, as it seems to me, either could be true. Neither consists of, nor is supported by, much more than mere assertion and there is a great deal, indeed, everything, to be said for testing the validity of those assertions in the affidavit evidence. That is a matter for the trial judge. In my view the learned judge in chambers was entirely right in saying that the Statement of Claim discloses a cause of action and right in declining to strike out the whole of that Statement of Claim as a result of trying the issues of facts himself on the basis of the affidavits before him. Such action, on the authority of Wenlock v. Moloney and others ⁽²⁾, would have been a usurpation of the functions of the trial judge. I find my self unable to agree with counsel for the appellants that the case of Wenlock is distinguishable from the present case nor can I agree that the plea of ultra vires by the respondents in the Statement of Claim has been shown to be nothing more than a device to circumvent the rule in Foss v. Harbottle ⁽¹⁾.

5. I would dismiss the appeal with costs to the respondents and dismiss the cross-appeal with costs to the appellants.

Representation:

Swaine, Q.C. (Yu, Tsang & Loong) for 1st & 2nd appellants except the 3rd named 2nd appellant.

Swaine, Q.C. (Peter Mo & Co.) for 3rd named 2nd appellant.

Patrick Woo (Bernard Wong & Co.) for respondent.

(1) (1843) 2 Hare 461

(2) 1965 1 W.L.R. 1238.

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Coram: Briggs, C.J., Huggins & Pickering, JJ.A.

Date of Judgment: 18th May, 1976.

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JUDGMENT

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Pickering, J.A.:

6. The first appellant is the Kowloon Stock Exchange Limited and the second appellants are the directors of that company, the first-named second defendant being the Chairman thereof. The thirteen respondents are members of the first defendant Exchange which, at the date of the action, had 175 members. The appeal is brought against the decision of Trainor, J. in chambers refusing the application of the appellants to strike out the whole of the Statement of Claim in this action and to dismiss the action. In fact the learned judge made an order for the striking out of certain portions only of the Statement of Claim and originally there was a respondents' cross-notice of appeal in respect of that part of his order. This cross-notice has, however, been abandoned.

7. The Statement of Claim alleged two ultra vires transactions on the part of the appellants, the first relating to a loan to a member of $250,000, and the second to the purchase, for $1,769,600, of 158 lots of two thousand shares each, in a company known as the Cheong Sun Company made allegedly as an investment on the part of the Exchange. That part of the appeal relating to the loan of $250,000 has been abandoned, counsel for the appellants conceding that there is no express power to rend money.

8. The whole issue turns upon vires because if the purchase of the shares complained of by the respondents was intra vires they, as a minority group, would be unable upon the principle of Foss v. Harbottle ⁽¹⁾ to bring an action in respect of a matter which is capable of confirmation by the majority of members. If, on the other hand the purchase was ultra vires then the rule in Foss v. Harbottle would not inhibit the respondents from bringing their action.

9. In turn the question of vires depends upon the purpose underlying the purchase of the shares. If that purchase was, as the appellants claimed, for investment on behalf of the Exchange the transaction was intra vires by virtue of the Memorandum of Association of the Exchange which in Clause 3(h) authorises the investment of the moneys of the Exchange upon such securities as may from time to time be determined. If, however, the purchase was ultra vires as the respondents claimed, by virtue of having been made for the purpose of absorbing the liabilities of members who had failed to take up the shares by way of placement, the rule in Foss v. Harbottle could have no application.

Limitations and must be read in that context. Moreover, to use the words of Dankwerts, L.J. at 1965 1 W.L.R. 1243 the "courts concluded that the story told in the pleadings was a myth .... It was a plain and obvious case".

10. That quotation comes from Wenlock v. Moloney 1965 1 W.L.R. 1238, on which the plaintiffs rely. Although there is a distinction which can be drawn between that case and the present I do not think it is material and I respectfully adopt a further passage from the judgment of Dankwerts, L.J., at p.1244:

"But this summary jurisdiction of the court was never intended to be exercised by a minute and protracted examination of the documents and facts of the case, in order to see whether the plaintiff really has a cause of action. To do that is to usurp the position of the trial judge, and to produce a trial of the case in chambers, on affidavits only, without discovery and without oral evidence tested by cross- examination in the ordinary way."

While I appreciate that the Plaintiffs here may be seeking to avoid the Rule in Foss v. Harbottle, as submitted by Mr. Swaine, that cannot entitle us "to usurp the position of the trial judge". However much I may, as at present advised, doubt the ability of the Plaintiffs to prove that the purchase was ultra vires (a doubt, be it noted, which arises to a large extent from the Defendants' apparent inability to adduce clear evidence that it was intra vires) I think it would be wrong for us to assume that they will not be able to do so after discovery and, possibly, interrogatories. Only then will it be possible to ascertain whether the allegation in the Statement of Claim was "without any solid basis".

11. The Defendants have, in my judgment, failed to discharge the heavy burden which is upon them and I would dismiss the appeal.

18th May 1976.

Representation:

(1) 1843 2 Hare 461.