The Estate of Yang Sen Hui and Others v. Pao Yuen Tung Hsing Yieh Co Ltd

CACV000077/1981

Applications to dismiss action pursuant to R. S. C. O.18 r,19 and to the inherent jurisdiction on the ground that it was bound to fail as regards legal claims by reason of S's 4(1) and 26 of the Limitation Ordinance (Cap. 347) and as regards equitable claims by reason of the Respondents' laches. Approach of Courts to such applications, matters to be taken into account and the judgment of Megaw LJ in Merlyn Alerty-Speyer & anor v. BP Oil Ltd & anor (CA) 2nd May 1980 (unreported) considered.

By writ issued on 3rd February 1981 the Respondents, alleged to be a corporation situate in and entirely owned by the Peoples' Republic of China, claimed against the Appellants, named as the Estates of three men who had died in 1963, 1966 and 1977 respectively, a declaration that the shares in a Hong Kong company comprised in such estates had fraudulently and in bread of trust been appropriated by the three deceased between 1948 and 1953 and were beneficially owned by the Respondents. The Respondents also claimed consequential and other relief. The Appellants' applications to dismiss which were based (inter alia) on the lapse of time since 1953 and the resulting difficulty of ensuring a fair trial were refused by the Judge on June 16, 1981. On appeal

Held: per Leonard V-P and Kempster, J

(i)	That the Respondents' claims at law were barred because, with reasonable diligence, they could have discovered the alleged frauds more than six years before the date of writ.
(2)	That the Respondents' claims in equity were barred because, since 1953, they had been aware of facts indicating that any beneficial rights they had might be in jeopardy and had stood by until the principal witnesses for the Appellants, namely the three deceased, had long been dead.
(3)	That this was a plain and obvious case in which the Court of Appeal was entitled to interfere with the decision of the Judge who had heard the applications at first instance.
(4)	Per Rhind, J (dissenting). That the facts relevant to the potential. defences were not clear or obvious and warranted examination at trial.

Appeal allowed. Action dismissed

BETWEEN

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Coram: Leonard V-P, Rhind and Kempster JJ.

Date: 12 March 1982

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JUDGMENT

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Leonard, V-P:

1. This is an appeal by the estates of Yang Sen Hui (decd), Chang Jye An (decd) and Tung Teh Mei (decd) which were the 2nd, 3rd and 4th defendants, so named without objection in the writ, and the applicant in the Court below from a judgment of Power, J. when he refused to strike out under 0.18 r.19 of the Rules of the Supreme Court and the inherent jurisdiction of the Court the respondents' Statement of Claim, as disclosing no cause of action and as being frivolous, vexatious and an abuse of the process. Since, so the appellants maintain, the respondents' claims face inevitable defeat because of protracted and inexcusable delay. I will refer to the three deceased persons as "Yang", "Chang" and "Tung" respectively and the respondent as the "China Company".

2. The Statement of Claim details a sequence of events which at first sight indicates a marked reluctance on the part of the China Company to approach the Courts of the Colony. It is set out in full in the judgment of Power, J. and what follows below is a precis of the facts as alleged in it and in the affidavits filed, with indications of some omissions which seem to me to call for mention. These facts I accept for the purposes of this appeal.

3. The China Company is a corporation incorporated in the People's Republic of China. It was so incorporated some time before 1948. At an undisclosed date it became and still is entirely owned by the People's Republic of China. There is no information available as to the businesses it carries or has carried on nor where, save. that it carried on a textile business in Hankow, Wuhan in Pupei up to 18th May 1948, nor where its head of office is or was. Mr. Fan Tao Tsai who appears to reside at either 1A Des Voeux Central, Hong Kong or at Unit 6, No. 3, Block 20, San Li Ho, District 2, Beijung and also to have some connection with both Shanghai and ChungKing avers that he is its "principal representative". He is also the Deputy Director of Commerce in the People's Republic of China. It would appear that he is not an employee of the China Company nor one of its directors. The China Company is described in the writ as "having a place of business at 1A Des Voeux Road, Central, Prince's Building, Ground floor, Hong Kong," but precisely what business it carries on there is undisclosed. It began to use that premises as its office after 23rd October 1980. It would also appear that on the 13th October 1956 it was carrying on business in Chungking.

4. In May 1948 the China Company decided to transfer its textile business from Wuhan to Hong Kong and to that end sent Yang here from Shanghai in June 1948. At that time Mr. Fan was apparently the manager of Pao Yuen Tung Trading Co. Ltd. which is referred to in the writ as "the plaintiffs' Hong Kong branch". Of this organisation we know little. Thus we do not know where it had its registered office. It cannot have had its head office at Prince's Building at 1A Des Voeux Road. Central since Prince's Building was not then built. We do not know the nature of the business it carried on, nor whether it was ever "entirely owned by the People's Republic of China". It may, indeed, well be that the People's Republic of China did not acquire its interest in the plaintiff until after the winding up of the “Hong Kong branch" which was contemplated on the 7th April 1950 but did not occur until 1957.  We do not know. Apparently the Hong Kong branch had in 1950 "residual funds" premises at 153, Wing Lok Street, a staff dormitory at Gloucester Road, Wanchai and land at Tsuen Wan. In paragraph 3(d) of the Statement of Claim Mr. Fan is described as its manager as at June 1948 but in paragraph 6 Mr. Chow Shu Yuen is so described as at 28th May 1948.

5. On Yang's arrival here he took steps to establish the 1st defendant ("the Hong Kong Company") in conjunction with one Hwang Liang Chen who is described as "the general manager of plaintiffs' head office in the People's Republic of China” (we have no more precise address) and Mr. Fan. The name of the Hong Kong Company was decided upon, its authorised capital of $5,000,000, that there should be 21 shareholders-representatives of the China Company and 7 directors. In 1948 and 1949 Chang and Tung and 8 others were sent here from China to work with Yang and on 14th August 1948 the Hong Kong Company was incorporated here with a paid up capital of $3,500,000 entirely contributed by the China Company part (the Tsuen Wan land and $100,000) which came from the Hong Kong branch. The Hong Kong branch also resolved (in 1950) that the Wing Lok Street property and the staff dormitory be made available to the Hong Kong Company.

6. Yang, Chang and Tung had been employees of the China company since the early 1940s and on the Hong Kong Company's incorporation in 1948 they became shareholders in it with Mr. Hwang Liang Chen, Mr. Fan Tao Tsai and 16 others, Hwang being allotted 4,000 shares; Fan 2,000 shares; Yang 2,000 shares and Tung and Chang 1,500 shares each. The other shareholders held parcels varying, between 4,000 and 1,000 each. The shares had a nominal value of $100 each of which $70 was regarded as paid up but none of the shareholders had personally paid any sum for them all having been contributed by the China Company. All 21 shareholders held the shares vested in them as nominees and trustees of the China Company which was the beneficial owner of the entirety of the shareholding. When the Hong Kong Company was incorporated Hwang, Fan and Yang were together with four others, appointed its directors with Hwang as president of the Board, Yang as its manager, Chang as submanager and Tung assistant manger. Most, if not all, of the other 21 persons were at all material times resident in China apparently in Chungking, Yang, Chang and Tung were left in defacto control here. It is implicit in the Statement of Claim that Hwang (the President of the Board of. Directors), and Fan (a director) did not concern themselves. with the affairs of the China Company except in minor capacities with which I will deal later although it would appear that both were managers of the Hong Kong branch.

7. In the two years following its incorporation the Hong Kong Company failed to prosper. At the end of 1950 it had an accumulated loss of over $900,000 and in 1951 a loss of over $125,000. By the 31st December 1951 Yang was the only director in the Colony and while the affairs of the Hong Kong Company had, improved they were still critical. Although its affairs looked up in 1952 and thereafter it appears in the minutes of the ordinary general meeting held on the 31st December 1951 that a call had been made on shares during that year but no payment had been made. Apparently the call was irregularly made. The meeting of the 31st December 1951 concerned. itself with the election of new directors the old directors being deemed to have retired by virtue of Article 36 of its Articles of Association; it was thought that 2 directors should be elected from the shareholders in Hong Kong and "the other three from the retiring directors in Chungking so as to give them a chance to come to Hong Kong and look after their interest" (sic). In the result Yang and Chang were elected directors with three others, Sung (who held 4,000 of the shares originally allotted), Cheng  (who held 3,000) and Hsiao Yun Chang (who held 2,000). It would appear that these three gentlemen were then in Chungking.

8. On the 27th October 1952 a resolution to make a call on shares was passed. This read -

"Requests having been made both verbally and in writing to the members since September 1950 to pay the $30 not yet paid up on each share held by them which requests have met with no response and Messrs. Lo & Lo Solicitors having advised that such requests were not calls validly made it is resolved that a call of $25.00 per share be hereby made on the members and that such call be made payable on the 15th Day of November 1952 to the Company at its registered office Room 119, China Building, Queen's Road Central, Hong Kong."

9. It was followed on the 15th November 1952 by a resolution that notices requiring payment on the call by the 2nd December 1952 be sent to the shareholders alleged to be in default.

10. It has been suggested firstly that this call realised only $150,000 and secondly that having regard to the fact that by 1952 the Hong Kong Company was prosperous it was unnecessary. How necessary it may have been is now unlikely ever to be ascertained because of the deaths before action brought of Yang, Chang and Tung who alone could speak of the needs of the Hong Kong Company in 1952.

11. Notices of the call and of the letters requiring payment under it must for the purposes of this application be regarded as having been received by the shareholders in China, and through them by the China Company. By a resolution dated 22nd December 1952 the 1st defendant forfeited the shares registered in the names of the shareholders who were in China relying on their failure to pay up these calls. The Hong Kong Company advertised the defaults in the Hong Kong press.

12. No objection to this course of action was made by the Hong Kong branch of the China Company. Notification of it was sent to the shareholders in China and must be regarded as having been received by them in the ordinary course of post. Certainly there is no suggestion to the contrary in the Statement of Claim or the evidence. Therefore the 18 shareholders, among whom was Mr. Fan must have had notice that they had been "wrongfully deprived" of the shares which they held as nominees and trustees of the China Company by the end of 1952. A further fact allege, which again must be accepted for the purposes of this application since the China Company pleads it, is that Yang attempted "wrongfully to deprive the China Company of its control over the 1st defendant by unilaterally and wrongfully removing the plaintiffs' nominees from the 1st defendant's Board of Directors". [It may perhaps not be inappropriate to note, that to say that Yang was acting wrongfully and unilaterally is inconsistent with saying that he took that course for the benefit of the Hong Kong Company and indirectly for the benefit of the China Company.  If the act was, as is pleaded, wrongful and unilateral, it amounted to a breach of the trust imposed on Yang by the China Company i.e. the duty of safeguarding the interests of the Hong Kong Company for the benefit of the China Company. Safeguarding the interests of the Hong Kong Company, for the benefit of the China Company by pretending that the Hong Kong Company wa independent of the China Company while in fact the connection was preserved would not have been "wrongful" or "unilateral".] He wrongfully, the pleading alleges and I must accept, asked them to resign in 1950 because they were working for the People's Republics He, in 1950, wrongfully removed three of them, Mr. Fan included, without the consent of the China Company. He wrongfully removed three on the 22nd. December 1952 and on 15th July 1953 replaced them with Tung Y. C. Hu and Ku Han San.  All these acts were both wrongful and fraudulent and Chang and Tung participated with Yang in a conspiracy to accomplish them. Only Tung, Chang and Yang paid up on the calls. As a result the Hong Kong Company became in effect a family concern of Yang, Chang and Tung and the China Company was wrongfully deprived of all its assets.

13. Notwithstanding hat the fact of the commission of these acts was communicated by post to the "principal representative" of the China Company, Mr. Fan, and the other China shareholders, no protest was, made. to Yang, Chang and Tung. In July 1953, 1,000 shares were transferred to Hu Ying Choi and 1,000 to Ku Han Sun in consideration of HK$7,000 each. The shares transferred to Hu were stated to have been held by him in trust for Yang. Mr Hu Ying Choi explains the reason behind this. transaction in, his affidavit of the 26th May 1981 -

"7 (a) In the early 1950's I was told by Yang that by reason of U. S. A.'s hostile measures towards China including its embargo imposed on China during and after the Korean War, factries in HOng Kong which were thought to be related to and/or had dealings with the People's Republic of China encountered difficulties. in buy raw materials from, and in exporting their finished products to the U. S A.

(b) I remember that in about July 1953 Yang came to see me. He told me that the 1st defendant experienced difficulties arising out of the said hostile measures imposed on China including the embargo. He discussed with me the possible solutions to those difficulties. He told me that he had earlier in December the previous year reorganised the lst defendant and had advertised in newspapers about the forfeiture of the shareholdings of the plaintiff's shareholders then residing in China.

(c) Yang requested me to subscribe, in my name but at Yang's expense, for 1,000 shares of the 1st defendant. He further requested me to become director of the 1st defendant so that they might better deal with the then difficult situation. He thought that I, being educated in the U. S. A., a long resident in Hong Kong and purely a merchant, would be in a very goad position to help.

(d) Believing that Yang was acting in the interest of the 1st defendant, I agreed to his proposals."

Otherwise the shareholdings remained constant thereafter for 15 years during which period the Hong Kong Company was run by Yang, Chang, Tung for the benefit of themselves and their families.

14. I consider that I must take judicial notice of the fact that in the year 1951 and subsequent years certainly up to the year 1969 the Bank of China was closely connected and concerned with affairs in Hong Kong in which the interests of the Government of the People's Republic of China were involved. This was a fact of notoriety. In December 1951 the Hong Kong Company was a customer of the Bank of China from which it had obtained a substantial overdraft and was in correspondence with it concerning this overdraft. In October 1953 it repaid its overdraft and the Bank of Chin reassigned to it property subject to the mortgage. The validity of Madam Yang's comment on affidavit that "Had the People's Republic of China been interested in any way in the 1st defendant one would have expected that its State Bank in Hong Kong would have taken steps to protect its rights and to refuse reassignment ........" may be lessened by an explanation given by the Bank of China to Mr. Fan to the effect that because of the embargo imposed on the People's Republic of China by the United States (of which embargo I must also take judicial notice) textile factories here were anxious to avoid the appearance of connection with companies on the mainland. To this end Yang "could only draw a clear dividing line between" the China Company and the Hong Kong Company. He therefore changed his account to the Hong Kong and Shanghai Banking Corporation. Other factories did the same thing. It was "an unavoidable method". (As I trust I have already made clear this explanation does not strengthen the plaintiffs' case. For that case is that throughout Yang, Chang and Tung were conspiring from 1952 onwards to get control of the Hong Kong Company for themselves rather than to overcome the U. s. embargo). No mention is made on the papers of any communication from the China Company to the Hong Kong Company or to Yang Chang and Tung between 1953 and on the 13th October 1956 a telegram was sent from Chungking reading-

"To Tsuen Wan Pao Hsing Cotton Mi11's Manager Yang Son Hui and through him to all staff members and workers. Have learned from newspaper that our factory is in difficulties. How are things now? We are extremely concerned. This is a special telegram to send you our consolations.

Pao yuen Tung"

[It is to be noted that while in this telegram Yang is described as "Manager" simpliciter, and the factory is referred to as "our factory", no indication of indignation or protest at'the removal of 6 directors and the forfeiture of the shares of 18 shareholders is made nor apparently is the China Company averse to acknowledging a connection with the Hong Kong Company.]No other assertion of interest in the Hong Kong Company by the China Company or its Hong Kong branch up to the time the latter was wound up is mentioned. The winding up was finally effected by a special resolution of 7th October 1957. A similar resolution had been passed on 7th April 1950 at a meeting at which Yang was present. This does not appear to have been implemented. The failure to implement the resolution of the 7th April 1950 may have been an oversight as proprties bought before the Hong Kong Company was incorporated and apparently intended for its use which were vested initially in the Hong Kong branch were transferred to the Hong Kong Company on or about 7th April 1950. However the Hong Kong branch: was sufficiently alive in 1957 to resolve upon its own voluntary winding up. Up to 7th October 1957 therefore the Hong Kong branch must have been in a position to know of the activities of the Hong Kong Company and of Tung, Chang and Yang in its management. The representatives of the China Company including Mr. Fan who were in China knew of their removal because they had been informed by letter. They knew or must be regarded as having known of the forfeiture of their shares. That was advertised in the Hong Kong press so that the Hong Kong branch must also have known of it.

15. We know of no reply to the telegram of the 13th October 1956. We know of no complaint having been made by the China Company before or after that date as to n on-receipt of information regarding the financial standing or affairs of the Hong Hong Kong Company.   We know of no enquiries made by it or any of its representatives as to these matters and although those representatives must have known of the forfeiture of shares and removal of the directors there is to be found in the Statement of Claim or the affidavits filed on behalf of the China Company no indication of any claim prior to late 1980. It is contended in paragraph 22 of the Statement of Claim read together with paragraph 20 that as a result of Yang, Chang and Tung's wrongful and fraudulent acts the Hong Kong Company became in effect a Family concern of Yang, Chang and Tung as from at the latest 15th July 1953.

16. It is claimed in paragraph 26 of the Statement of Claim that the China Company discovered the matters complained of when the Hong Kong Company suddenly ceased business in September 1980 and the People's Republic of China despatched its "Deputy Director of Commerce" (Mr. Fan) to Hong Kong. This paragraph Mr. Alexander challenges as utterly untenable. The Court he suggests is driven to the irresistible conclusion that "the matters complained of" must necessarily have been known to the China Company at or about the time they occurred so that a claim of limitation as regards the claims at Common law and of laches as regards the equitable claims must necessarily succeed.

17. From affidavits filed by the widows of Chang, Tung and Yang, it appears that Chang died on 13th February 1963 intestate and on 13th Febraury 1966 letters of administration were granted to Chou Hui Sun his widow and to the attorney og his son Chang Pei Yee. Estate duty was assessed and paid on the basis that he was beneficially entitled to 7,500 shares in the Hong Kong Company valued at $30.00 per share or $225,000. The net total value of his estate for estate duty purposes was $292,370.33. These shares do not appear to have been registered in the names of his administrators but were registered in the name of his widow in 1972. Tung died on the 15th November 1966 intestate and on 25th November 1971, letters of administration to his estate were granted to his widow Tung Yu Cheng Tong. No estate duty was payable on his estate but exemption from estate duty was granted on the basis that at the time of his death he was beneficially entitled to 7,500 shares in the Hong Kong Company valued at $28.13 per share or $210,975.00. His assets were valued at $251,668.74 from which $214,259.21 was deducted leaving a net principal value of $37,409.53. His shares were transferred to Tung Yu Cheng Tong in 1974. Yang died in Hong Kong on 25th September 1977. We do not know if he died testate or intestate nor the number of shares in the Hong Kong Company he held as at the date of his death.

18. The trial judge appears (see page 16 of his judgment) to have accepted all the Facts I have recited although he expresses them with greater brevity. There has been no appeal against that acceptance and I must proceed on the basis that these facts are uncontested although Mr. Wilmers Q. C. would have me regard the continued immobility of Mr. Fan and the other Chinese directors in a more favourable light than the trial judge was prepared to do even making "every possible, sensible allowance in favour of the plaintiff as to the possibilities as to what might emerge on issues of fact." The only explanations for that immobility that I can find in the papers is in paragraphs 24,26, 27 and 28 of Mr. Fan's affidavit of the 26th May 1981.

19. In paragraph 24(a) and (b) he complains that a letter to Mr. Hwang was wrongly addressed. The answer to this complaint is that similar. letters were addressed to the other shareholders. He does not say that those sent to him were not received. He says that Yang was present at the meeting in 1950 when it was decided that the Hong Kong branch should be wound up but in fact the Hong Kong branch was not wound up until 1957. In paragraph 26 he refers to the letter of the 23rd May 1981 from the Bank of China but does not claim that he or any other representative of the China Company was cognisant in the 1950s or 1960s of the explanation that Yang had been acting in the interests of the Hong Kong Company much less of the China Company when sundering connection with China. In paragraph. 27 he suggests that there was no reason for the China Company "to believe that there was anything wrong with such management until September 1980". On the facts recited in the Statement of Claim there was every such reason. He and the other nominees of the China Company had been wrongfully deprived of their shares, of their directorships, of dividends, balance sheets and other accounts. He denies actual knowledge of any acts of breach of trust or fiduciary duties but this denial is one which I find it impossible to regard as consistent with the facts I have recited. He seeks to find comfort in the wording of the telegram of October 1956 but omits all reference to any reply to it. Nor does he seek to explain the inactivity of himself, his fellow ex-directors and ex-shareholders in China and the China Company between 1956 and 1980. He suggests that the "political situation in China at the material times did not permit of any effective intervention by the plaintiff" and gives examples of political movements since the early 1950s without deigning to indicate why these movements, cataclysmic as each may have been while it lasted, should have prevented intervention for a period of almost 30 years. The gratitude of this territory over the years for the supply to it by the People's Republic of China of water and our constant importation of goodsnot to mention the continuous arrival daily of legal immigrants and visitors in the late 50s and early 60s and the continued maintenance here of large shops are all matters of history and render this contention completely unsustainable. All this the trial judge fully realised. He clearly examined the possibilities closely. He found one possible explanation for the protracted delay in that it might not have been apparent to the China Company that the behaviour of Yang, Chang and Tung was wrongful until 1980.

20. This was not the case put forward in the Statement of Claim. The only places in which I can find a vestige of such a case is in the telegram, the Bank of China letter of 23rd May 1981 and the affidavit of Mr. Hu Ying Choi. The telegram and the absence of any further reference to it I have already mentioned; there is no suggestion anywhere that the China Company was given the explanation the Bank was given and the absence of any such suggestion from Mr. Fu Ying Choi's affidavit is conspicuous as is any suggestion that he (Hu) asked Yang if he had explained to the China Company's shareholders that the forfeiture of their shareholdings was a fiction. Indeed the contrary is suggested by his execution of the deed of trust in favour of Yang rather than in favour of the China Company.

21. On the objective facts, as distinct from the claim put forward by the Statement of Claim and the bald suggestion by Mr. Fan that due to political movements the China Company was held incommunicado there are a number of possible explanations for the inactivity of the China Company in face of behaviour now claimed to have amounted to breaches of trust and torts of fraud and conspiracy. The first is that which found favour with the trial judge as a viable possible defence. A second arises from the failure of the Hong Kong Company to succeed during its early years which may well have caused the China Company to lose interest in it and to be anxious itself to sever connection since the shares were not fully paid up. A third arises from the fact that the China Company is now entirely owned by the People's Republic of China. The Statement of Claim does not say that it was so owned at all material times.

22. All of these explanations are in the nature of speculation and in view of the deaths of Yang, Chang and Tung now most unlikely of satisfactory resolution. None is put forward in the Statement of Claim or the affidavits filed.

23. It is with the Statement of Claim that the application is concerned. The ultimate question for decision is whether it can succeed as framed, for no application for its amendment was ever made. I would hold that it cannot and would do so having in mind the factors which the trial judge adumbrated-

24. Striking out is a matter of discretion and this Court will only strike out in plain and obvious cases but while I have found the facts complicated I have concluded that once they are unravelled the case is plain and obvious. Clearly, the delay of 30 years was on the fact of it unreasonable. It is not explained. To refuse to halt these proceedings now and thereby to involve the estates of Yang, Chang and Tung in litigation that would be both protracted and exceedingly expensive when on the Statement of Claim as it stands and having regard to its reticence and that of Mr. Fan on the question of delay they would inevitably succeed would I consider be a denial of justice. I would allow this appeal.

25. I mean no discourtesy to counsel for omitting to deal with the legal arguments so ably advanced by them and with the cases cited but I have had the advantage of reading in draft the judgment of Kempster J. with which I entirely agree. It presents the legal issues and their resolution so much more felicitously than I could hope to do that any attempt on my part to emulate it would be both repetitious and boring.

Rhind J:

26. This is an appeal against so much of a decision of Power, J. as dismissed applications made by the appellants under 0.18 r.19 and the inrerent jurisdiction of the Court to strike out the respondent's Statement of Claim against them on the ground that, being doomed to fail because of manifest delay in commencing the proceedings, it therefore failed to disclose a reasonable cause of action and was frivolous, vexatious or an abuse of the process of the Court.

27. By its Statement of Claim, the respondent alleges conspiracy, fraud, fraudulent breach of trust and breach of other fiduciary duties against the appellants. Other than on the very important question of when the respondent first became aware of the fraudulent nature of the conduct of which it complains, there is no dispute as to the factual basis on which the Court should proceed for the purpose of the present appeal. Apart from the one exception of the respondent's knowledge already referred to, it is common ground that facts, as pleaded in the Statement of Claim, are to be presumed correct at this stage, but they can also be supplemented by the common-sense inferences of further fact set out in the judgment of the Court below. An outline of the facts which I regard as relevant can briefly be stated as follows.

28. The respondent was and is a corporation situated in and owned by the People's Republic of China, its business being textile manufacturing. Yang Sen Hui (hereafter referred to as "Mr. Yang"), Chant Jye An ("Mr. Chant") and Tung Teh Mei ("Mr. Tung") all became employees of the respondent in the People's Republic of China in the early 1940s. It is the estates of those three men which are the appellants in the present proceedings, Mr. Yang having died in 1977, Mr. Chang in 1963 and Mr. Tung in 1966.

29. In May 1948 the respondent decided to transfer its textile business from a cottom mill in Hankow to Hong Kong. To help implement that decision, Mr. Yang was sent by the respondent to Hong Kong in June 1948.

30. Mr. Yang was instrumental in incorporating Pao Hsing Cotton Mill Ltd. (hereafter referred to as "Pao Hsing") as a private company in Hong Kong on 14th August 1948 with an authorised capital of $50,000,000 divided into 50,000 shares of a nominal value of $100 each, but at first paid up as to only $70 each. All the capital was provided by the respondent. The shares were to be held by twenty-one representatives of the respondent and there were to be seven directors.

31. Between 1948 and 1949 the respondent including Mr. Chang and Mr. Tung from China to Hong Kong to help with the running of Pao Hsing.

32. Upon incorporation of Pao Hsing in 1948, Mr. Yang, Mr. Chang and Mr. Tung were amongst the twenty-one representatives 6f the respondent who became its nominee shareholders in Pao Hsing. The number of shares in Mr. Yang's name was two thousand and Mr. Chang and Mr. Tung had fifteen hundred each.

33. At the time of Pao Hsing's incorporation, Mr. Yang was appointed one of its seven directors.

34. The respondent appointed Mr. Yang as manager of Pao Hsing, Mr. Chang as submanager and Mr. Tung as assistant manager.

35. In 1952, Mr. Yang, Mr. Chang and Mr. Tung, who were by then in de facto control of Pao Hsing, wrongfully and fraudulently took steps which resulted in the other eighteen shareholders suffering forfeiture of the whole forty-five thousand shares they held. This was brought about by Mr, Yang, Mr. Chang and Mr. Tung causing a call of $25 to be made on each share. Proper notices of the call including a warning of forfeiture were sent to and received by those eighteen shareholders who were all residing in the People's Republic of China at the time.

36. There was no protest from any of those eighteen shareholders who simply failed to pay the call. As warned, their shares were forfeited at the end of 1952 and they were all duly sent notice of the forfeiture.

37. By contrast, Mr. Yang, Mr. Chang and Mr. Tung paid their calls, so that after the forfeitures they became the sole shareholders in Pao Hsing. In time, the capital of Pao Hsing was increased to 100,000 shares of $100 each. By the end of 1978, which is the latest date pleaded, well over 90% of the shares were still in the names of the families of Mr. Yang, Mr. Chang or Mr. Tung or their family companies.

38. During 1951 and 1952 Mr. Yang, who was in de facto control of Pao Hsing, wrongfully and fraudulently removed the other six directors which the respondent had appointed, although those directors never agreed to resign and the respondent never consented to their removal. By 1953 Mr. Yang had appointed his own nominees to the Board including Mr. Chang and Mr. Tung.

39. From that time onwards, apart from an isolated instance of a moral( boosting telegram to Pao Hsing on the occasion of some industrial unrest in 1956, the respondent did not communicate with Pao Hsing or the appellants until November 1980 when a solicitor's letter before action was sent. That letter contended that the respondent was still the beneficial owner of all the shares in Pao Hsing.

40. Pao Hsing had suddenly ceased business in September 1980. Upon hearing of this, the People's Republic of China sent Mr. Fan Tao Tsai ("Mr. Fan"), its Deputy Director of Commerce, to Hong Kong to investigate. This was by no means the beginning of Mr. Fan's association with Pao Hsing for way back in 1948, when he was the manager of a branch the respondent then had in Hong Kong, he had co-operated with Mr. Yang in incorporating Pao. Hsing, and had been one of its original shareholders and directors. After Mr. Fan's investigation, the solicitor's letter just referred to was sent to the appellants.

41. Further facts illustrative of the lack of contact between the respondent and Pao Hsing over a great number of years are the following -

(a)	after 1952 none of the ex-directors or ex-shareholders received any notices or information from Pao Hsing.
(b)	neither the ex-shareholders nor the respondent have ever received any dividends.
(c)	from 1948 till November 1980 the respondent made no claim to any beneficial interest in Pao Hsing. or its shares.
(d)	Mr. Yang, Mr. Chang and Mr. Tung acted after 1952 consistently with being beneficial owners of the shares.

42. Another fact found by the learned judge was that each of the three deceased made Pao Hsing his life-work and died while still working for it. Although there was no explicit finding, on this in the Court below, I am prepared to accept as factually correct on a common-sense basis that the three deceased made provision for their families after their deaths on the basis of having been beneficially entitled to their shars in Pao Hsing, and, in their turn, the deceaseds' families (including what Mr. Alexander described as "the second generation") have arranged their affairs on the basis that the interests in Pao Hsing transmitted to them through the deceased were ones to which the deceased had been, beneficially entitled.

43. The effect of the pleadings was to my mind correctly summarised by the learned judge below when he stated at page 23 of his judgment, "that the allegations set out that in 1950, 1951 and 1952, Yang, Chang and Tung were acting wrongfully and fraudulently when they forfeited the 45,000 shares and removed the 6 directors from the Board."

44. In his next sentence he summarises - again correctly in my opinion - a further effect of the pleadings which is that by their paragraph 26 they allege that the respondent "only discovered those matters, that is the wrongful and fraudulent actions of Yang, Chang and Tung, in September 1980 when Mr. Fan came to Hong Kong."

45. According to the submissions made on behalf of the respondent, the state of its knowledge is a fact like any other, and if it pleads as a fact that it did not know something, the Court has to accept that assertion for interlocutory purposes. I agree with that contention. With nothing but affidavits to go on, the Court is in no position to resolve a dispute about the state of a party's knowledge.

46. While swallowing the camel of the rest of the respondent's pleaded facts, the appellants baulk at the gnat of its claim to absence of knowledge. As the appellants would have the Court read the pleadings, the respondent must be taken to have been fixed with knowledge of the wrongfulness and fraudulence of the forfeiture of shares and the removal of directors at the time of such forfeiture and removal between 1950 and 1952. 1 consider that the learned judge adopted the correct, common-sense approach to interpreting the pleadings when he proceeded on the basis that nowhere do they pinpoint 1951/1952 as the time when the respondent became aware of the quality of wrongfulness or fraud in the deceaseds' acts. Certainly, there is no explicit reference to the respondent having known of the wrongfulness or fraud at that time; nor do I think an implicit reference is reasonably justified. To male sense of the pleadings one has to say "Yes, the respondent knew of the forfeiture and the removal when they were done way back in 1950/1952, but it did not know of the wrongfulness and fraud till September 1980."

47. Besides the respondent's assertion of absence of knowledge of fraud or wrongdoing in paragraph 26 of the Statement of Claim, there is also paragraph 27 of Mr. Fan's affirmation of the 26th May 1981 to the same effect. He there states plainly in sub-paragraph (b) "The (respondent) did not have any actual knowledge of any acts or breach of trust and/or fiduciary duties committed by Yang, Chang and Tuns. In this connection I respectfully refer the Honourable Court to paragraph 26 of the Statement of Claim herein."

48. I do not regard it as proper for such an assertion simply to be ridden rough shod over and ignored at this stage. (Perhaps I should add at this point that I regarded Mr. Fan as a competent individual to make an affirmation on the respondent's behalf. In due course I will touch upon why I rejected a submission made by Mr. Chang on the 2nd appellant's behalf that the content of Mr. Fan's affirmation should be disregarded because Mr. Fan was not qualified under the Rules of the Supreme Court to make it.)

49. The appellants urge the Court to go behind the respondent's dis- avowal of knowledge, and ask how could it have been that the respondent was in the state of ignorance it claims for itself. Perhaps in an appropriate case a Court might feel entitled to ignore a claim of ignorance, whether embodied in a Statement of Claim or in an affirmation, and simply say, "You must have known," but I would not feel justified in doing that here. Albeit in a somewhat elliptical way, an explanation was forthcoming in the affidavit material filed on the respondent's behalf as to why it might have failed to realise that the forfeiture of shares and removal of directors were wrongful and fraudulent at the time they were done. Exhibit FTT 41 to Mr. Fan's affirmation, being a communication from the Bank of. China dated 23rd May 1981, and the affirmation dated 26th May 1981 of Mr. Hui YIng Choi (Mr. Hui), a director of Pao Hsing between 1953 and 1971, disclosed that in the early 1950's it started to be inexpedient for any Hong Kong textile com-pany to appear to have any connection with the People's Republic of China, if it wished to avoid falling foul of the trade embargo which the United States of America was practising at that time. In the context of the present case, a reasonable implication in that communication from the Bank of China and in Mr. Hui's affirmation is that Mr. Yang caused the forfeiture of the shares and the removal of the directors as a means of deceiving the United States of America, but there was no reason for the respondent to suppose that it was being deceived too. On this basis, Yang, Chang and Tung were not undermining the interests of the respondent in Pao Hsing but were seeking to promote them in the unusual circumstances then existing.

50. No doubt, the respondent's position would be strengthened if it were spelt out explicitly somewhere that the respondent had believed that in forfeiting the shares and removing the directors Mr. Yang, Mr. Chang and Mr. Tung were really acting in the respondent's interests, but I think, on a commonsense basis, there is a sufficient implication to that effect. The impression I gather from the communication of the Bank of China and from the affirmation of Mr. Hui is that both the Bank of China and Mr. Hui had presumed that Mr. Yang was acting in the respondent's interests. If the Bank and Mr. Hui thought that way, then it is not unreasonable to suppose that the respondent thought that way too.

51. It was suggested on behalf of the appellants that belief on the respondent's part that Mr. Yang; Mr. Chang and Mr. Tung were acting in its best interests in 1950/1952 in forfeiting the shares and removing the directors was inconsistent with the rest of the respondent's case but the supposed inconsistency eluded me.

52. Having arrived at the conclusion that the respondent's absence of actual knowledge of the wrongdoing and fraud of Mr. Yang, Mr. Chang and Mr. Tung must be acepted as a given fact for the purpose of the striking out application does not entirely dispose of the topic of knowledge it still remains to consider at a later stage in this judgment whether, despite the absence of actual knowledge, it would be significant if the respondent, ought to have had such knowledge.

53. Reference has already been made to the actions to which the respondent contends the facts give rise, namely actions for breach of trust or other fiduciary duties and actions for fraud, and conspiracy. Needless to say, the actions for breach of trust or other fiduciary duties are equitable in their nature, while, the others are common law.

54. In respect of the equitable table actions, the respondent seeks a range of different types of relief such as declareations that Mr. Yang, Mr. Chang and Mr. Tung stood in a fiduciary position to the respondent in respect of the affairs and assets of Pao Hsing, declarations that they had been trustees for the respondent of all the shares and property of Pao Hsing, an inquiry to trace into whose hands the trust property had passed, an account and payment of all profits generated from the trust properties, and an order for the appellants to hand over to the respondent all assets and money subject to the trust, whereas the common law claims are for damages.

55. Delay is bound to defeat all of the respondent's claims according to the appellants, the equitable claims being sure to fail by virtue of the doctrine of laches, and the common law claims being caught by the combined provisions of section 4 and section 26 of the limitation Ordinance, the relevant parts of which are as follows -

"4(1) The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say-

(a) actions founded on simple contract or on tort.

26. Where, in the case of an action for which a period of limitation is prescribed by the Ordinance, either -

(a) the action is based upon the fraud of the defendant or his agent or, of any person through whom he claims or his agent; or

(b) the right of action is concealed by the fraud of any such person.

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it."

56. It was common ground that, if on the facts as they at present stand before the Court, the appellants clearly have got unanswerable defences based on laches or the Limitation Ordinance, any cause of action which could be met in this way could not be regarded as reasonable and hence should be struck out.

57. I do not think the words spoken by Lord Justice Megaw in 1980 in the unreported case of Merlyn Albery - Speyer and Fidel Budden v. B. P. Oil Limited and Shell U. K. Limited, cited by the learned judge below, can be improved upon as a statement of the principles to be applied by the courts in deciding whether to strike out -

"Where a court is driven to the conclusion that the action has no real chance of success, after making every possible, sensible allowance in favour of the plaintiff as to the possibilities of what might emerge on issues of fact or as to submissions of law at the hearing of the action, then it is the duty of the court to put an end to the action."

58. A not dissimilar sentiment was expressed by Fletcher Moulton L. J. in Goodson v. Grierson ⁽¹⁾ at 764 when, in refusing an application to strike out a statement of claim, he said -

"All that I say is that, seeing that this action has not reached the stage at which the court can assume that it knows the whole of the facts, it is impossible to say that the plaintiff must necessarily fail to show that his forbearance would, under the decided cases, constitute a good consideration to support the account stated. Having come to that conclusion, it is obvious that this action ought not to be stopped at this stage. It ought to go on until all the facts can be laid before the court, and when the court has cognizance of, those facts it can then decided whether there is a proper cause of action."

59. An adequate working definition of lathes is to be found in Spry's Equitable Remedies (2nd Edition) at page 247 -

"Lathes is established when two conditions are fulfilled. In the first place, there must be unreasonable delay in the commencement or prosecution of proceedings; in the second place, in all the circumstances the consequences of delay must render the grant of relief unreasonable or unjust."

60. Delay, while being a necessary condition for laches, will not by itself be a sufficient codition; there must also be the additional element of injustice to the defendant in all the circumstances. I do not agree with the judge below when he accepted the proposition that where there is delay of inordinate length, from that delay alone the Court will be in a position to infer that the claimant has abandoned his claim or that because of the inevitable changes which must occur with the passage of years, the party against whom the claim is being enforced must be gravely disadvantaged if called upon to present his side of the matter to a court. As a type of reductio ad absurdum some of the older cases ask hypothetical questions along the lines of, "What about if the claimant waits till a century has passed before commencing his action? How can it then be fair to allow his claim to go ahead?" I do not think that sort of approach is helpful. What one has to do is to look at the particular circumstances of the actual case in hand rather than contemplate hypothetical situations.

61. As on the view I take of the facts there is no scope at this stage for saying that the respondent actually knew of the fraudulent breach of trust or breach of the other fiduciary duties prior to September 1980, the only way in which the condition of unreasonable delay necessary for laches can be satisfied is if it can be said that the respondent has fallen short of some duty imposed on it to have made itself aware at some earlier stage of the alleged misconduct of which it now complains. The learned judge below proceeded on the basis that the standard expected of a plaintiff in relation to the discovery of the existence of equitable claims was in effect the same as that laid down by the Limitation Ordinance for the discovery of common law claims, namely reasonable diligence. On that, I consider the learned judge was being unduly favourable to the appellants. Unlike the position with regard to common law claims, it is strongly arguable that for equitable claims delay will not begin to run against a claimant merely because it can be said that he had the means of discovering fraud. What is required is proof that his suspicions were aroused and that he chose not to enquire: Betjemann v. Betjemann. ⁽²⁾ Equity appears to take the view that it ill behoves those in whom trust has been reposed to turn around and say that their fraudulent misconduct should have aroused suspicion at an earlier stage.

62. Whether the respondents suspicions were aroused at an earlier stage than it cares to admit is a topic which can only be explored at the trial and does not admit of solution at this interlocutory stage.

63. Even if I were wrong in accepting as a fact at this stage that the respondent neither knew, nor ought to have known of the alleged fraudulent breaches of trust, I still do not think the Court would be justified in saying that the defence of lathes is bound to succeed.

64. In the words of Lord Loreburn in Lindsay Petroleum Co. v. Hurd ⁽³⁾ laches becomes operative where it would be "practically unjust" to give the claimant a remedy. To reach a conclusion on what is "practically unjust" entails a carefully carried. out balancing exercise. For the purpose of carrying out such a balancing exercise, the Court will generally need to be in possession of as much information as it can get in as refined a form as possible. Only then will the Court be able to gauge the relative weights to be attributed to the material going into the scales.

65. The type of factors which the Court should take into account were correctly identified at pages 20 and 21 of the judgment under appeal. Perhaps there could be a case where even at the interlocutory stage the facts were all so clear and the justice of the case so obvious that the only conceivable answer was lathes.

66. I do not regard the present as such a clear and obvious case. Even making the assumption most favourable to the appellants, as I am at the moment, that the respondent knew of its claim some 28 years before making it, I am still far from convinced that the appellants will be guaranteed success in a Court of Equity. According to the respondents, Mr. Yang, Mr. Chang and Mr. Tung have fraudulently appropriated trust property. Conduct more unconscionable and less likely to find favour in the eyes of equity is difficult to imagine. Equity is far less likely to have qualms about dismantling a family fortune founded on fraud than one having an honest origin. (To avoid any misunderstandings I hasten to add that I have no views one way or the other whether the deceased committed the wrongs of which they are accused. To determine whether there is any merit in the allegations is the province of a trial judge).

67. Whether there are countervailing equities which would outweigh the fraudulent appropriations alleged is to my mind a matter for the trial judge. The sort of factor which the trial judge will need to take into account is whether the persons in whose names Pao Hsing's shares now stand were volunteers, whether they did anything to benefit Pao Hsing and so forth.

68. Mr. Wilmers indicated that the respondent was not seeking its full pound of flesh. For example, it was not seeking the return of any trust monies applied in the education of the deceased's children. In making a concession of that sort, the respondent was perhaps doing little more than bowing to the inevitable. Equity can be extremely flexible in the degree of relief it affords, and need not grant any relief A I regards as unfair. For example. Equity can limit the number of year for which an account is to be taken, thereby limiting its award to a return of trust capital plus only such income, if any, as it regards as fair. Some might be ordered to return capital; but such an award against others might be deemed unfair.

69. This flexiility of remedies ties in with the approach that equity needs to carry out a balancing exercise to come up with a fair result which, depending on the circumstances, might be a total refusal, a total granting, or a partial granting of relief. Some of the individuals into whose hands trust property has come might be more deserving than others but which, if any of them, should be dispossessed, requires the performing of delicate weighing exercise by a judge apprised of all the facts.

70. Much has been made of the prejudice to the .appellants due to the inability of the deceased to give their version of events. Maybe at the trial this will prove a crucial factor in favour of the appellants; maybe it will not. I would like to know a lot more about the evidence available for this trial before determining the significance of the absence of the deceased to talk for themselves. I regard it as premature to attempt such an . evaluation at this stage. A blanket assertion about prejudice to the appellants on this score is too general to be helpful in a weighing exercise.

71. Whether there were political factors which inhibited the respondent from pursuing its claim and whether Mr. Yang, Mr. Chang and Mr. Tung were aware of this will also need to be weighed by the trial judge. This aspect of the respondents' case was adverted to by the judge below under his item no. 6 of the circumstances to which the Court should look in determining laches. That item no. 6 was "whether or not the explanation which is put forward is such that some weight must be given to when it is balanced against the delay and prejudice occasioned the person being sued."

72. In paragraph 16 of the Statement of Claim the respondents complain of Mr, Yang, Mr. Chang and Mr. Tung having taken advantage of the political situation in the People's Republic of China in the 1950s to begin their breaches of trusts. Mr. Fan elaborated on that theme in paragraph 28 of his affirmation of 26th May 1981. Just because a reason for delay happened to be political would not mean that it need necessarily be excluded by the judge from his deliberations when performing his balancing exercise, in my opinion.

73. Not very much needs be said about the common law claims. Flowing from my view that the respondent must be taken not to have discovered its claims till September 1980, it follows that the respondent is to be treated as having commenced the present action within the six year limitation period allowed under the Limitation Ordinance unless it is clear that the respondent could with reasonable diligence have discovered the alleged fraud outside the limitation period ie. prior to 1974 the present case. Proof of absence of diligence will be an easier threshold for the appellants to pass than the one embodying the degree of awareness required of a claimant in equity, but all the same I cannot be satisfied on the material before the Court at present that the appellants can be assured of defeating even the respondent's common law claims.

74. Finally, a word can be said about Mr. Chang's submission to the effect that the respondent should not be allowed to proceed with its action unless and until it clarifies its status as a legal persona, and his further submission that no reliance should be placed on Mr. Fan's affirmations" on account of non-compliance with 0.41 r.1(4) which reads -

"Every affidavit must be expressed in the first person and must state the place of residence of the deponent, and his occupation, or if he has none, his description, and if he is, or is employed by, a party to the cause or matter in which the affidavit is sworn, the affidavit must state that fact."

75. It might well be that in due course the respondent will be required to elaborate on its status but I do not think it can be asked to at this stage. That would infringe the principle of a plaintiff not normally being liable to supply particulars before defence.

76. Mr. Chang's complaint concerning Mr. Fan's affirmations is that Mr. Fan has not defined his relationship to the respondent with sufficient precision, a circumstance which, according to Mr. Chang, makes it difficult for a court to know what weight to attach to the information Mr. Fan purports to supply. If ,I understood Mr. Chang aright, there is a contravention of O. 41 r. 1(4) in that the affirmations do not even spell out clearly whether or not Mr. Fan is supposed to be an employee of the respondent.

77. Mr. Fan's description of himself in one of the affirmations as "Deputy Director of Commerce and the principal representative of the plaintiff herein" sufficiently describes Mr. Fan to satisfy the provisions of the rule in my view. Someone holding the position Mr. Fan describes sounds well qualified to speak for the respondent, a corporation owned by the People's Republic of China. As Mr. Fan fails to refer to himself as an employee of the respondent, I regard it as   reasonable to assume simply that he is not. I do not think the rule requires of him the negative averment "I am not an employee of the respondent."

78. In view of the foregoing, I conclude that the learned judge below reached the correct conclusion and I would dismiss the appeal.

Kempster J:

79. On the lst of November 1980 the personal representatives of the deceased Yang Sen Hui, Chang Jye An and Tung Teh Mei, formerly the directors of and shareholders in Pao Hsing Cotton Mill Ltd. (hereafter called "the company") received letters in identical and peremptory terms requiring them to signify their agreement, by the 4th of the same month, to the demand of the plaintiffs, Pao Yuen Tung Hsing Yieh Co. Ltd., to hand over the entire shareholding, undertaking and assets of the company to them. Failing compliance an action for an injunction and appointment of a receiver was threatened.

80. None of the personal representatives acceded to the plaintiffs' demand. The plaintiffs issued proceedings, since discontinued, on the 13th of November. The action now in question was begun by writ dated 3rd February 1981. In it the plaintiffs, who are alleged to be and for present purposes must be accepted as being, a corporation situate in and entirely owned by the People's Republic of China, claim against the estates of the three deceased (hereinafter called "the defendants") wide-ranging relief including declarations that they hold the shares and assets of the company in trust. for the plaintiffs; all such accounts, inquiries and orders as may be necessary to secure the transfer of legal ownership to the plaintiffs and damages for fraud, for breach of trust and for conspiracy. Some of the claims sound in law and others inequity. The company was also joined as a defendant. No point has been taken on behalf of any defendant that the proceedings are improperly constituted by reason of Rule 6A of the Rules of the Supreme Court (Cap. 4). If this action goes to trial it will involve substantial discovery, exhaustive inquiries and great expense.

81. The matters relied upon by the plaintiffs to establish both the relationship of trustees and cestuis que trust as between the three deceased and themselves and breaches of such trusts have been set out in the judgment of the Vice-President. They are alleged to have taken place between May 1948 and July 1953. It is said that the three deceased wrongfully appropriated the whole shareholding in and appointed themselves the only directors, of the company. No further or subsequent overt act is alleged during the 28 or so years which have since elapsed albeit the three deceased are alleged wittingly to have continued to act in breach of their fiduciary obligations until their respective deaths and the defendants unwittingly thereafter. Chang died in 1963, Tung in 1966 and Yang in 1977.

82. Not surprisingly the defendants moved to dismiss these proceedings in limine on the grounds that the action was bound to fail; as regards the legal claims by reason of the period. of limitation provided by the Limitation Ordinance (Cap. 347) and as regards the equitable claims by reason of the doctrine of lathes. The company sought to dismiss on the grounds that the Statement of Claim disclosed no cause of action. The applications were heard by Power, J. on 5 days during late May and early June 1981. On the 16th of June he gave his decision; declining to dismiss the proceedings as against the defendants but acceding to the application made on behalf of the company. The defendants now appeal to this court against that decision. There is no cross appeal in relation to the company which, accordingly, is no longer a party to the proceedings.

83. In coming to his carefully considered decision the learned judge was exercising his discretion and the conclusion that we might have exercised our discretion in a different way would not entitle us to interfere. If, on the other hand, we were satisfied that the learned judge over-rated or under-rated particular factors or, indeed, was wrong, then this court not only might but should interfere. Metropolitan Bank v. Pooley⁽¹⁾ ; Attorney General of Lancaster v. L & NW Rly Co. ⁽²⁾ Ward v.James ⁽³⁾; McKay v. Essex Area Health Authority & Anor 'The Times' February 20 1982.

84. The applications to dismiss were made pursuant to R. S. C. Order 18 rule 19 and to the inherent jurisdiction of the court to prevent abuse of its process. Affirmations were made and filed in support of and in opposition to the applications. It is axiomatic not only that the court accedes to such applications if and only if it is plain and obvious that the action cannot succeed but also that what is revealed as plain and obvious after reading evidence and hearing argument and citation of authority need not have been obvious at first blush. If issues of fact arise it is wrong to attempt trial by affidavit and without the cross-examination of witnesses. The action must proceed to a full hearing, The question arose before us, however, as to the validity of the plaintiffs attitude in saying, and the submission was not couched in these exact words "Now you know in part, you see in a mirror darkly, but at a trial all may well be revealed, so to trial the action must go. We are not obliged to disclose all the facts on which we shall then rely at this interlocutory stage.” Such a submission was highly relevant in the context of a situation in which the defendants' affirmations showed that the overt acts pleaded in the Statement of Claim as wrongful and giving rise to the plaintiffs' claims would have been known to the plaintiffs more or less contemporaneously with their occurrence, while the Statement of Claim still allege in paragraph 26, that these acts only became known to the plaintiffs after September 1980. This paragraph Mr. Fan Tao Tsai, the Deputy Director of Commerce therein mentioned, adopted in paragraphs 3 and 27 (b) of his principal affirmation. It has not been pleaded by the plaintiffs in the alternative or by way of amendment nor did Mr. Fan suggest in any of his affirmations that the plaintiffs instigated, adopted, approved or accepted the overt acts or that the three deceased subsequently broke faith; thereby giving rise to rather fresher causes of action. No more is it pleaded or alleged in any affirmation that the plaintiffs accepted that the actions of the three deceased were taken in good faith and were only disabused of this belief in 1980. Nowhere is it alleged that the three deceased or any of them ever represented to the plaintiffs that all was well. What was contended before us was that Mr. Fan had meant to depose to discovering fraud when he came to Hong Kong; fraud which, retrospectively, he attributed to the overt acts. His principal affirmation none the less stands uncorrected by either of his two subsequent affirmations.

85. The learned judge himself advanced a hypothesis, perhaps anticipating and certainly adopted by, counsel representing the plaintiffs before him which might permit the plaintiffs to resist the pleas of limitation and laches if the action went to trial. In so doing he relied upon a passage in the so far unreported judgment of the Court of Appeal in Merlyn Alerty-Speyer & another v. BP Oil Co. & another. Giving the ,judgment of the court on 2nd May 1980, Megaw L. J. said at pages 6-7 of the official transcript:

"Where a court is driven to the conclusion that the action has no real chance of success after making every possible sensible allowance in favour of the plaintiff as to the possibilities of what might emerge on issues of fact or as to submissions of law at the hearing of the action, it is the duty of the court to put an end to the action."

The possibility relied upon by the learned judge was that the plaintiffs might have considered that the three deceased were acting in their interests in ostensibly severing links with China at a time when, during the Korean War and an American trade embargo, the company's prosperity depended on such an initiative and also that the plaintiffs might have considered it impolitic to make any inquiry. The plaintiffs, he implicitly suggested, were entitled to rely on the good faith of their trustees. As a proposition of law this is absolutely right. Betjemann v. Betjemann ⁽⁴⁾ Further, the transfer to the company as late as 1951 of Tsuen Wan Land by Pao Yuen Tung Trading Co. Ltd., described in paragraph 3(d) of the Statement of Claim as the plaintiffs' Kong Kong Branch, and the text of a telegram sent by the plaintiffs to the company in October 1956, following a strike at its premises, which was translated at our request, lends support to the hypothesis as regards those early years. The telegram reads:

"To Tsuen Wan Pao Hsing Cotton Mills Manager Yang Sen Hui and through him to all staff members and workers. Have. learned from newsaper that our factory factory is in difficulties. How are things now? We are extremely concerned. This is a special telegram to send. you our consolations. Pao Yuen Tung."

It cannot be overlooked, however, that this telegram, any reply to which we have not seen, was relied upon by hr. Fan as showing that the plaintiffs were unaware of the overt acts. In any event, the question is posed: "For how long could the plaintiffs or the shareholders and directors whom allegedly they had appointed, receiving neither dividends nor any other communication, in contrast with the thousand or more documents alleged in paragraph 5 of the Statement of Claim to have passed between the plaintiffs and the company or its agents during, 1948 and 1949, have continued without inquiry to regard their trust as well-placed?" It is difficult to accept so, broad an answer as that contained in paragraph 23 of Mr. Fan's first affirmation to explain over 20 years of silence and inactivity. The paragraph reads:

"In any event the political situation in China at the material times did not permit any effective intervention by the plaintiff. Examples of political movements since the early 1950's include the '3-Antis and 5-Antis Movements', the Great Leap Forward, the Cultural Revolution and its aftermath ending by the fall of the Gang of Four."

86. During this long period the plaintiffs were able, on 7th October 1957, to wind-up their other company in Hong Kong mentioned above. Apparently a similar, abortive, resolution had been passed as long before as the 7th April 1950. From the particulars filed pursuant to the Companies Ordinance (Cap. 32) it appears that three of its directors were still resident in Canton in the People's Republic of China on July 26, 1957. The plaintiffs were also able to learn of the strike in 1956 and of the strike in 1956 and of the company's cessation of business in 1980. I express no view as to whether the plaintiffs were aware that the company established a subsidiar in Taiwan in 1974.

87. I regard the extracts from affirmation filed on behalf of" the plaintiffs to which I shall now refer and upon which the learned judge relied as, at best, equivocal. In paragraph 26 of his first affirmation Mr. Fan identified a letter written to him by the Bank of China on the 23rd of May 1981. It reads:

"Today you talked to us about the termination of business relationship between Pao Hsing Cotton Mill Ltd. and us on 20th October 1953. We replied as follows -

1. Our bank began to advance money to Pao Hsing Cotton Mill Ltd. because on 21st June 1948 and 3rd November Pao Yuen Tung Hsing Yieh Co. Ltd. Head Office requested. us for a loan of $1,600,000 to be responsible for Pao Yuen Tung Head Office and its branch organisation; we began to support Pao Hsing Cotton Mill's request for loans in order to  support the production development of the said factory.

2.From 1950 to 1953 as a result of the United States of America's embargo on our country, the textile factories in Hong Kong which were related to China were discriminated, not allowed to buy American cotton, textile products not allowed to be exported to the United States of America, the Philippines and South Korea, etc. Because of that and during that period, Pao Hsing Cotton Mill's Manager Mr. Yang Sen Hui called on us and explained. the factory's difficulties to us, in order to deal with the difficult situation he could only draw a clear dividing line between Pao Yuen Tung Filing Yieh Co. Ltd.'s representatives; and request to terminate its business relationship with the Bank of China, changed to Hong Kong & Shanghai Banking Corp. as its main banker; that was an unavoidable method, begged for understanding. Our bank appreciate the said factory's difficulties, agreed to Yang's request. At that time other factories in Hong Kong also did the same.

3. Our bank and Pao Hsing Cotton Mill Ltd., was business relationship: the said factory. fully repaid all loans, of course our Bank has to return the title deed of the mortgaged land, that was normal procedure."

There is no suggestion anywhere in the evidence that there was communication between the bank and the plaintiffs at the material times. In paragraph 7(d) of his supporting affirmation Mr. Hu Ying Choi says that in July 1953 he believed that what the deceased Yang had done to sever links with China was in the interests of the company. He does not say he believed they were in the interests of the plaintiffs.

88. A defendant is entitled in the first instance to look to his opponent's Statement of Claim to ascertain the nature of the case he has to meet. If he believes that he has a defence which is bound to succeed he can apply to dismiss. It is then open to the plaintiff, by argument or even amendment if the case comes within R. S. C. Order 18 rule 19(1)(a) and also by evidence if within Order 18 rule 19(1)(b), (c) or (d) or the inherent jurisdiction, to show if and where he joins issue. If he elects not to do so and, as a result, it appears plain and obvious that the defendant must succeed he can hardly complain. It is not for the Court to speculate on possible factural answers not asserted by the plaintiffs themselves in pleading or evidence. In Riches v. DPP⁽⁵⁾ Stephenson, L. J. observed -

"On the other point I am willing to assume that a cause of action which is statute barred as clearly as the plaintiffs' cause of action, nonetheless may be a reasonable cause of action within R. S. C. Order 18 . rule 19(1)(a). I say that on the authority of Dismore v. Milton⁽⁶⁾ to which Davies, L. J. has . referred. But I agree with his comments upon that case. It seems to me that that case is in no way a decision that the court cannot strike out a claim which is statute barred on the ground that it is an abuse of the process of the court where it is clear from the terms of the summons what statute is going to be relied upon and where, as  here, counsel has told the court that he has. express instructions to rely upon the statute. Even in such a case there may be a possibility of a defendant (plain tiff?) bringing himself within one of the exceptions which avoid the statute and make it inapplicable. Again, however, this is not such a case. There is no material put before the court which could suggest that the statute will not be a complete answer to the plaintiffs' claim. I think that it would be absurd for. the court, faced with an application such as this to strike out, under its inherent jurisdiction or under the rules, a claim as an abuse of the process of the court, to shut its eyes to, the fact that there is going to be raised an apparently unanswerable plea of the Limitation Act 1939. That was the view of this court in Wenlock v. Shimwell to which Davies, L. J. has referred, and was clearly the view of Lord Denning M. R. in Hanratty v. Butler in the passage which Davies L. J. has also cited. Why should not the court exercise its inherent jurisdiction to stay or to dismiss an action which must fail?

In my judgment, justice requires that no further time or money should be wasted by either party on litigation whic can only end with the failure of the plaintiff's claim, I therefore agree that, both in justice and in mercy we ought to put an end to :it now by dismissing this appeal."

On p 1024 appeared a passage to the same effect in the judgment of Davies L.J.-

"If there is any room for an escape from the statute well and good; it can be shown."

89. I see no reason in principle why these words should not apply as well to laches as to limitation. This does not mean that the burden ever shifts from the defendants to show that the action cannot succeed. When in Merlyn Alerty-Speyer & another v. BP Oil Co. & another (supra) Megaw L. J. referred to "the action" and "on issue of fact", he did so in the context of the Statement of Claim or its equivalent. Further, at p 8 of the official transcript, he said: "For the plaintiffs, it is rightly submitted that it is not for them at this stage, in respect of an application of this nature, to produce the evidence which they will hope to have available and to use when the actions come on for trial, if they were allowed to proceed. But' and I regard the following words as significant "they have indicated in outline the nature of the evidence which they would be minded to produce." As already observed this is in marked contract to the attitude of the present plaintiffs.

90. I now turn to the defendants' submissions. in rather more detail. As regards the legal claims they rely upon sections 4(1)(a) and 26 of the limitation Ordinance. They read:

"4(1) The following actions shall not be brought after the expiration of six years from the date. on. which the cause of action accrued, that is to say -

(a) actions founded on - tort.

26. Where in the case of any action for which a period of limitation is prescribed by this Ordinance, either -

(a) the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or

(b) the right of action is concealed by the fraud of any such person; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake as the case may be or could with reasonable diligence, have discovered it."

91. Making every possible sensible allowance in their favour there is nothing before this court to suggest that, exercising due diligence, the plaintiffs could not have discovered the fraud and conspiracy, alleged before, say, 1974. That the plaintiffs did indeed keep an eye on the. company is apparent from the facts already canvassed. Although, being a private company, it did not file accounts it did file Annual Returns and to these Mr. Fan has referred in his affirmations.

92. As regards the equitable claims the defendants make the same submissions by way of analogy; but the law is not so precise. Section 36 of the Limitation Ordinance provides only that "Nothing in this Ordinance shall affect any equitable jurisdiction to refuse relief on the ground of acquiescence or otherwise."

93. It is common ground that delay, even great defy, does not of itself bar a claim; that for present purposes the nature of the trusts allegedly affecting the three deceased is immaterial and that the whole circumstances must be considered. The most helpful guide, in my. view, is to be found in the speech of Lord Blackburin in Erlanger v. New Sombrero Phosphate Co. ⁽⁷⁾-

"In Lindsay Petroleum v. Hurd(1), it is said -' the doctrine of lathes in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practivcally unjust to give a remedy, either because the party has, by his conduct done that which might fairly be regarded as equivalent to a waiver of it, or where, by his conduct and neglect he has, though perhaps not waiving. that remedy yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases lapse of time and delay are most material. But in every case if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances always important in such cases are the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.' I have looked in vain for any authority which gives a more distinct and. definite rule than this; and I think, from the nature of the inquiry, it must always be a question of more or less, depending on the degree of diligence which might reasonably be required, and the degree of change which has occurred, whether the balance of  justice or injustice is in favour of granting the remedy or withholding it, The determination of such a question must t largely depend on the turn of mind of those who have to decide, and must therefore be subject to uncertainty; but that, I think, is inherent in the nature of the inquiry."

94. Put in summary form by Lord Radcliffe when giving the Opinion of the Judicial Committee in Anachuna Nwakobi v. Nzekwu⁽⁸⁾. "Lathes is an equitable defence, and to maintain it and obtain relief a defendant must have an equity which on balance outweighs the plaintiff's rights." Each case depends very much on its own facts.

95. I find on the admitted or uncontested facts that the plaintiffs knew sufficient about the business of the company throughout to be aware at least that the beneficial rights which they allege might be n jeopardy. In consequence it was in my view, inequitable for them to stand-by; demonstrating no interest at all in the company after October 1956.  Public policy requires that the processes of law should be responsive rather to those who are alert as to their rights than to the slothful or inattentive. In part of the eloquent speech of Lord Simon in the Ampthill Peerage⁽⁹⁾ he said:

"Parliament has passed statutes (the latest only last year) limiting the time within which actions at law must be brought. Truth may be thus shut out; but society considers that truth may be bought at too high a price, that truth bought at such expense is the negation of justice. The great American judge Story J. delivering the judgment of the Suprem Court of the United States in Bell v. Morrison⁽¹⁰⁾, called the first of these Acts of Limitation 'a statute of repose'; and in England Best, C. J. called it 'an act of peace' (A'Court v. Cross⁽¹¹⁾). The Courts of Equity, originally set up to make good deficiencies in the common law, worked out for themselves a parallel doctrine. It went by the technical name of lathes. Courts of Equity would give relief only to those who pursued their remedies with promptitude."

96. The plaintiffs would be in no stronger position were they to assert at trial that they had elected not to question the facts known to them or to make any move until it suited their convenience. "Ignorance which is the result of deliberate choice is no grounds for equitable relief; nor is it an answer to an equitable defence based on lathes and acquiescence." per Lindley L. J. in Allcard v. Skinner⁽¹²⁾. Neither in their pleading nor in any of the evidence that they have seen fit to put before this Court have the plaintiffs alleged facts which, if proved at trial, would suffice to defeat the strong plea of laches advanced.

97. There are further material considerations to be taken into account. On the basis of the allegations in the Statement of Claim, which are to be accepted as correct for present purposes and which are probably now uncontestable due to the deaths of the three deceased, there was never any merit in the position of such deceased. The good faith of the respective widows and families, who in greater or lesser degree have been the legal owners of the shares since 1963, has not  been challenged before us. This is one of the considerations which distinguished this case from Betjemann v. Betjemarn (supra), But in accepting the bad faith of the three deceased for present purposes we may, in fact, be doing grave injustice to their memories in circumstances where a fair trial cannot take place in the absence of such witnesses. The words of Lord Campbell LC in Bright v. Legerton ⁽¹³⁾ are apt -

"It has been beautifully remarked with respect to the emblem of Time, who is depicted as carrying a scythe and an hour-glass, that while with the one he cuts down the evidence which might protect innocence, with the other he metes out the period when innocence can no longer be assailed."

To like effect the Earl of Halsbury LC observed in Watt v. Assets Co. ⁽¹⁴⁾:

"(a) At this distance of time I shall make ever intendment in favour of that having been honestly done which purported to be done. I think I should expect some evidence to be produced contradicting that state of things rather than insist oh evidence in its support at this distance of time, and with. the loss of evidence that undoubtedly has occurred from the delay that has taken place. .I should be content to rest my judgment on the language of the Lord Ordinary himself in which, on both occasions, he has pointed out, I think with great force and accuracy, the result that ought to follow from the absence of evidence which has been the feult of those who are the pursuers here - that is to say, they have lain by upon their supposed rights all this time, during which time withesses have died and the means of explanation have disappeared. also to an extent which, to my mind, renders it impossible, or at all evoidenee extremely inexpedient as a matter of law and administration, to allow these things to be ripped up at this distance of time, when both the opportunities of explaintion have gone by and when witnesses have passed away."

98. Again making evety sensible allowance and despite the fact that the industry of counsel has failed to unearth a reported instance in which a claim has been dismissed at this stage on the ground of laches I do not believe we are bound to accede to the submission that the action should be allowed to go to trial in case the image in the glass should then become distinct to the plaintiffs' advantage. 1 consider it plain and obvious that the plaintiffs' tardiness has barred their claim to equitable as well as to legal relief and that we are entitled to and should interfere. I would allow the defendants' appeal and dismiss the action as vexatious and an abuse of the process.

(2)    (1895) 2 Ch. 474

(3)    (1874) L. R. 5 P.C. at 239

(1)    (1885) 10 App. Case 210, at p 221

(2)    (1892) 3 Ch. 274 at p 277

(3)    (1966) 1 Q.B. 273 at p 293

(4)    (1895) 2 Ch. 474

(5)    (1973) 1 W. L. R. 1019 at p 1026

(6)    (1938) 3 All E. R. 762

(7)    (1878) 3 App. Cases 1218 at p 1279

(8) (1964) 1 W.L.R. 1019 at p 1026

(9) (1977) A. G. 547 at p 575-576

(10) (1828) 1 Peters 351, 360

(11) (1825) 3 Bing 329 332-333

(12) (1887) 36 Ch. 145 at p 188

(13)    (1861) 2 DeGF & J 604 at p 617

(14)    (1905) A. C. 317 at p 333

Representation:

Mr. D. Chang, Q. C. & Mr. R. Wong (P. Y. H, Wong & Co.) for. appellant in C.A. 77/81

Mr. Alexander, Q. C. & Mr. Yam (Johnson, Stokes & Master) for appellants in C.A. 79/81

Mr. J. Wilmers, Q. C., Mr. M. Lee, Q. C., Mr. A. Li & Mr. W. Chan (V. L. Cheung & Co.) for respondents in both appeals