Cs Low Investment Ltd v. East Asia Warburg Ltd and Others

HCA007786/1988

1988, No. 7786

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H E A D N O T E

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A bank underwent a capital reconstruction. The largest single pre-reconstruction shareholder sued various parties involved in the reconstruction alleging, inter alia: -

(i)    a conspiracy to injure it by the sabotage of an earlier reconstruction proposal under which it i.e. the plaintiff shareholder would have been better off;

(ii) the commission by an individual defendant of an innominate tort by such act of sabotage; and

(iii) breach of confidence on the part of an advisor to certain parties to the earlier proposal, through the disclosure of information disclosed by the bank to such advisor for the purpose of negotiations on such proposal.

Various defendants applied to strike out the pleas of conspiracy, innominate tort and breach of confidence on the ground that the averments of the same disclosed no reasonable cause of action.

HELD :-    (1)     Since the averment in conspiracy was that, although the Plaintiff was worse off under the reconstruction which took place than it would have been under the one sabotaged, the bank was in fact better off in the events that happened and could not itself sue, the Plaintiff was not suing to enforce corporate rights in a personal action, and, accordingly, the plea of conspiracy did not offend against the rule in Prudential Assurance v. Newnan Industries [1982]1 Ch. 204.

(2)    The fact that the averment of damage pleaded as the result of the conspiracy had built into it the consequence of the reconstruction which took place was not objectionable: First, the statement by Viscount Simon L.C. in Crofter Hand Cloven Harris Tweed Co v. Veitch [1942] AC 435 at p. 445 that it was not the 'consequence' of a conspiracy to injure (as opposed to the 'object thereof) which matters relates not to what damage can be considered but rather to the test of what makes a conspiracy an actionable one to injure as opposed to a justifiable one to protect legitimate interests. Secondly in any event, in the present case the consequence in question is brought in only as a credit.

(3) Thus, the plea of conspiracy would not be struck out (although the Plaintiff had to amend to remove averments which seemed to hint at a conspiracy other than the one pleaded clearly.

(4)    The plea of innominate tort was accompanied by an adequate plea of damage resulting and would not be struck out. ('Salmond & Heuston on the Law of Torts', 19th ed. (1987) at pp. 44 - 45 referred to).

(5) The plea of breach of confidence would be struck out because there was no averment that any of the information disclosed was ever provided by the Plaintiff whether directly or indirectly, and the argument that a non-confider can sue is incontestably bad, it being well-established that only a confider can sue : 'Goff & Jones : The Law of Restitution, 3rd ed. (1986) at p. 667; A. G. v. Guardian Newspapers (No. 2) [1988] 3 W L R 776; Saltman Engineering v. Campbell Engineering (1948)65 R P C 203.

1988, No. 7786

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Bokhary J. in Chambers

Dates of Hearing: 10 - 13 April , 1989

Date of delivery of judgment : 17 April, 1989

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J U D G M E N T

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1. The events leading up to the 1986 capital reconstruction of Ka Wah Bank Ltd ('the Bank') in the wake of the liquidity problems which it had begun to experience in 1985 form the background to this case. For reasons which will become obvious, I purpose to refer to this reconstruction as 'the Citic reconstruction.'

2. As the matter comes before me on applications to strike out parts of the Amended Statement of Claim on the ground that the same fail to disclose any reasonable cause of action, I must - all the parties agree - proceed for present purposes on the assumption that the facts are as set out in the pleadings under attack.

3. The plaintiff company, which is controlled by members of the Low family, is a minority shareholder in the Bank. Prior to the Citic reconstruction, it was the largest single shareholder in the Bank, holding over 40% of the Bank's issued capital, then made up of ordinary shares of a nominal value of $1.00 each. Following and as a result of the Citic reconstruction, its shareholding in the Bank fell to something like 3% of the Bank's issued captial, which had been re-organized so as to be made up of ordinary shares of a nominal value of $0.05 each.

4. It is the Plaintiff's core complaint that it has been deprived of a chance to benefit from a reconstruction of the Bank different from - and more advantageous to it i.e. the Plaintiff than - the Citic reconstruction.

5. For reasons which will become obvious, I will refer to this other reconstruction or, I should say, proposed reconstruction as 'the consortium proposal'. Had the consortium proposal been implemented, the Plaintiff would have retained over 30% of the Bank's issued captial, the nominal value of which would have remained at $1. 00 per ordinary share.

6. A number of ways in which the Plaintiff was deprived of the chance to which I have referred is pleaded in the Amended statement of Claim. One of these is the conspiracy pleaded in para. 65 thereof, which reads: -

"In the latter part of December 1985 E. A. W, David Li, Schroders, Paul Banner, C. C. I. C. and Arao Abe wrongfully conspired and combined amongst themselves, with the intent and for the purpose that the contract of retainer between E. A. W. and the Plaintiffs be breached, that the Plaintiffs be deprived of the benefits of a successful conclusion to the negotiations with the consortium and that the Plaintiffs be injured. Further or in the alternative such persons conspired as aforesaid with the predominant intent that the Plaintiffs be injured.'

7. It would, I think, be convenient if I were at this stage to identify the various companies and individuals who feature in the matter as it comes before me, and to touch upon the role each of them played. This I will do with some brevity. For the full picture, the Amended Statement of Claim itself should be consulted.

8. I have already mentioned the Plaintiff and the Bank.

9. Citic, as China International Trust and Investment Corporation is commonly called, is a well-known financial and trading institution. From about July to about September 1985, negotiations with a view to Citic's participation in the Bank took place. Citic withdrew from such negotiations in or about September 1985. Eventually, Citic re-appeared on the scene; and this time the Citic reconstruction resulted, with Citic injecting $350 million into the Bank and acquiring over 90% of its issued captial.

10. The consortium referred to is constituted by the combined interests of a Netherlands corporation and a company incorporated here in Hong Kong.

11. I turn now to the defendants named in para. 65 of the Amended Statement of Claim.

12. 'E. A. W.' is the 1st Defendant, East Asia Warburg Ltd. 'David Li' is the 2nd Defendant Mr David Li, E .A W.'s managing director. E. A. W had been retained by the Bank and the Plaintiff to advise them on Citic's proposed participation in the Bank when Citic first appeared on the scene in or about July 1985 and to negotiate with Citic on their behalf. Following Citic's withdrawl from such negotiations in or about September 1985, E. A.W. was retained by the Bank and the Plaintiff to advise them on the consortium proposal and to negotiate with the consortium on their behalf.

13. 'Schroders' is the 4th Defendant, Schroders Asia Ltd. 'Paul Banner' is the 5th Defendant, Mr Paul Banner, an officer of Schroders. 'C. C. I. C.' is the 5th Defendant, C. C. I. C. Finance Ltd. Schroders, Mr Banner and C. C. I. C. had been retained by the consortium to act on its behalf.

14. 'Arao Abe' is the 7th Defendnat, Mr Arao Abe. He is not a party to any of the applications now before me. Nor is the one defendant against whom no allegation of conspiracy is directed, the 3rd Defendant, Touche Ross & Co.

15. On the applications now before me, battle lines are drawn thus:

16. All the defendants against whom conspiracy is alleged seek to have paras. 64 to 68 inclusive of the Amended Statement of Claim struck out as disclosing no reasonable cause of action against them. Those paragraphs constitute Section F of the Amended Statement of Claim, which is the section within which - subject to incorporation by reference to paragraphs in other sections - conspiracy is pleaded.

17. Mr Li also seeks to have struck out for want of a reasonable cause of action the rest of the Amended Statement of Claim as it relates to him, which is constituted by a plea that he has committed against the Plaintiff what Mr Neville Thomas Q. C. for the Plaintiff has described as an innominate tort.

18. Finally, Schroders seeks to have struck out for want of a reasonable cause of action so much of the Amended Statement of Claim as contains a claim against it for breach of confidence.

Conspiracy

19. It fell to Mr Michael Thomas Q .C., who appears for E. A. W., to deliver the principal attack on the plea of conspiracy. This he did with his customary ability. His arguments were adopted by counsel for the other defendants before me, who added certain refinements, if that is the word I want, of their own.

20. There is no real difference between the parties on general considerations such as what a strong course it is to strike out any part of a pleading, or the right of a defendant - particularly one facing a serious allegation - to be able to see, from the pleading itself, precisely what case is being pleaded against them.

21. I have already recited para. 65 in which the averment of conspiracy is made. Now before turning to the Para. 68 reads: -

'By reason of the matters aforesaid the Plaintiffs have suffered loss and damage.

Particulars

(a)    Loss of the opportunity to secure the benefits of a successful conclusion to the negotiations with the consortium as at paragraph 63 hereof.

(b) Exposure to the consequences of an involvement of Ka Wah with Citic at a valuation of Ka Wah's shares, including the Plaintiffs' shares which no representative of Ka Wah or its shareholders had considered or negotiated and in circumstances, as herein before described, where neither Ka Wah nor its shareholders could realistically have resisted the commitments entered into purportedly on their behalf. And the Plaintiffs repeat paragraph 41 hereof.

22. This brings us back to para. 63. The particulars of damage set out thereunder, displaying considerable economy of expression, read: -

23. 'The Plaintiffs repeat paragraph 60(a) hereof:

24. Finally, we are brought back to para. 60(a) which tells us that upon implemention of the consortium proposal: -

25. 'The capital structure of Ka Wah would have been:

Kaihin and Amev are respectively the Hong Kong company and the Netherlands corporation whose combined interests constitute the consortium.

26. With this, I turn now to the arguments advanced for and against the striking out of Section F of the Amended Statement of Claim, the conspiracy section. I will not attempt to set out every nuance of the arguments.

27. Essentially, the defendants arguments run as follows : First of all, as pleaded, the conspiracy is one which would injure the Bank, if anybody, and not the Plaintiff. Thus, if anybody y can sue fin respect of the sum is the Bank and not the Plaintiff. The result is that the Plaintiff's claim in conspiracy is, quite apart from anything else, misconceived as being advanced - in violation of the rule in Prudential Assurance v. Newman Industries [1982] 1 Ch. 204 - to invoke corporate rights in a personal action.

28. The Plaintiff counters this argument in this way : As indicated in para. 20 the Bank would have received a capital injection of only $121,340,513 under the consortium proposal. Under the Citic reconstruction, however, the Bank received, as indicated in para 4(5), a capital injection of no less then $350 million. In the result, therefore, the Bank, as a company, acquired a broader capital base than it would have done if the consortium proposal had been implemented. In other words, by the time this action was brought the Bank, as a company, was far better off than it would have been if there had been no conspiracy. So the Bank could not sue. And the only one who could sue is the Plaintiff, who, unlike the Bank, has suffered detriment. Such detriment is personal and two-fold, taking, the form of a dilution of its shares in the bank and a fall in value of the shares as diluted. The facts and figures behind this argument were stated earlier on in this judgment when I dealt with the Plaintiff's position pre and post the Citic reconstruction, and what it would have been under the consortium proposal.

29. Responding to this argument, the defendants say first that the argument does not appear with sufficient clarity on the pleadings. In my judgment it does. Secondly, the defendants say that, in any even, it is not permissible to look at how the position was affected by the Citic reconstruction. The 'curtain came down', as Mr Michael Thomas Q. C. put it, once the consortium proposal hid been, still employing his terminology, 'scuppered'.

30. Did the curtain come down thus? The defendant's rely heavily on a statement in the speech of Viscount Simon, L.C. in Crofter land Woven Harris' Tweed Co. v. Veitch [1942]A C 435, a leading, if not the leading, case on the tort of conspiracy to injure. At p. 445 the learned Lord Chancellor said: -

'The test is not what is the natural result to the plaintiffs of such combined action, or what is the resulting damage which the defendants realize or should realize will follow, but what is in truth the object in the minds of the combiners when they acted as they did.'

His lordship continued by saying the it '... is not the consequence that matters but purpose '…'the relevant conjunction being 'in order that' and not 'so that'.

31. Thus, say the defendants, a curtain descends once the object of the conspiracy is achieved, and there is no room for the consequences which follow.

32. I do not agree with the defendants. In my view, what the learned Lord Chancellor was dealing with is he teat to determine whether the combination is to injure (and therefore actionable) or to promote or protect the legitimate interests of the combiners (and therefore not actionable). It is to be observed that the paragraph in which the words I have recited appear open (at p. 444) with these words of introduction : 'On this question of what amounts to an actionable conspiracy "to injure"…'

33. Lord Wright said in the same case (at p. 471): -

'The appellants must establish that they have been damnified by a conspiracy to injure, without just cause, and consequential damage.' (Emphasis supplied).

34. In my judgment, the rule in Prudential Assurance v. Newman Industries. (supra) does not leave the claim in conspiracy without any reasonable chance of success.

35. But the matter does not end there. I still have to consider the defendants argument that damage to the Plaintiff, an essential ingredient of the tort of which they complain, has not been pleaded or adequately pleaded.

36. One limb of this argument on damage is disposed of by what I have said about the 'descending curtain' argument. Under that limb, the defendants 'contention is that the Plaintiff's averment of damage is bad because it has a Citic reconstruction value of $0.05 built into it, and the Citic reconstruction cannot be considered because it falls on the wrong side of the curtain. I have already dealt with - and rejected - the argument that a curtain descends.

37. Anyway, all that the Plaintiff is doing is bringing in the Citic reconstruction to limit the damage caused by the loss of the consortium proposal. It operates by way of mitigation – to the benefit of the defendants. Mr Neville Thomas Q. C. described it as a 'credit'.

38. The other limb of the defendants' argument on damage is that the Plaintiff's averment of damage is bad because it is based on nominal share values. The Plaintiff says that it is not based on nominal share values: the word 'nominal' is not used in the averment; nor is any equivalent word such as 'par' used.

39. This is how Mr Neville Thomas Q. C. put it : It is the Plaintiffs' pleaded case that the value, i.e. the actual value, of the shares in the Bank would have been $l.00 per share at the time when the consortium proposal was implemented, had it been implemented. And it is the Plaintiffs' pleaded case that the value, i. e. the actual value, of the shares in the Bank at the time of Citic reconstruction was $0,05 per share. He submits that the fact that those actual values coincide with the corresponding nominal values does not vitiate the Plaintiff's averment. I agree; and also think that there may well be considerable substance in his point that there is nothing odd about actual and nominal values coinciding at the time when the shares are issued in circumstances such as those which we are considering here. I should mention that included in the arguments advanced by the defendants in reply is the argument that when he means something other than nominal value, the pleader of the Amended Statement of Claim uses clear words to so indicate. For example, the words 'proper and accurate share value in para. 52 have been pointed out. In my view, it is clear that the pleader is simply using that formula in contradistinction to a contrived value. I reject the defendants' argument on value.

40. It is plain from a complete reading of what the Plaintiff has pleaded that its case is that it shares in the Bank had no, or a negative, value in the absence of an injection of capital. One sees the figure of 147,544,925 being applied in para. 60(a) to the number of shares in the Bank which the Plaintiff would have had under the consortium proposal. Then one sees the same figure applied in para. 63 to the total value of is shares in the Bank, at $1.00 per share, under that proposal. Since the Plaintiff claims, by para. 63, that it has lost the entire value of its shares in the Bank under the consortium proposal less the value which the Citic reconstruction gave those shares, its pleaded case is necessarily that those shares had no, or a negative, value in the absence of an injection of capital.

41. The defendants say that this is doubtful since there is a complaint in the Amended Statement of Claim that the $0.05 per share adopted under the Citic reconstruction was too low. In my view, this complaint is not inconsistent with the idea that the shares had no, or a negative, value in the absence of an injection of capital. All that the Plaintiff is saying is that given the size of the capital injection, the value on the shares should, in all the circumstances have been set at something higher than $0.05 per share.

42. In my judgment, the Amended Statment of Claim discloses, on its face, a reasonable cause of action in conspiracy to injure. The applications to strike out Section F of that pleading must therefore be refused.

The 'creeping conspiracy''

43. Nevertheless, the defendants are entitled to some limited relief in regard to the plea of conspiracy.

44. In opening his application, Mr Michael Thomas Q. C. complained that para. 67 of the Amended Statment of Claim contained what he called a 'creeping conspiracy' in that it seemed to involve an allegation that there was not only a conspiracy to sabotage the consortium proposal, but also a conspiracy to foist he Citic reconstruction upon the Plaintiff. I find this point persuasive, and so does Mr. Neville Thomas Q. C. He abandoned is attempt to defend para. 67 in its present form, and is agreeable to giving way on it to the extent of amending it by: (i) deleting the words 'for such time as was necessary for an understanding to be reached with Citic as pleaded in paragraph 40(1)(a) hereof so that' in sub-para (b) and replacing them with the words 'in consequence whereof it was'; (ii) deleting the words 'would take' in that sub-paragraph and replacing them with the words 'that took'; and (iii) deleting the words 'intent' and 'be' in sub-para. (c) and replacing them with the words 'consequence' and 'was' respectively.

45. Mr Michael Thomas Q. C. accepts that cause for complaint of a creeping conspiracy would be removed by such amendments. I give the Plaintiff leave to make those amendments within 14 days. If it does not do so all the words after the first 8 words in sub-para. (b) of para. 67 of the Amendment Statement of Claim and all the words after the first S words of sub-para. (c) thereof will be treated as having been struck out. Accordingly, Mr Michael Thomas Q. C.'s client and all the other defendants who applied before me, all of whose counsel adopted his submission, have achieved that limited measure of success in regard to the plea of conspiracy.

The innominate tort

46. I now leave conspiracy, and turn to the innominate I tort of which I made mention earlier. The plea is made against Mr David Li.

47. Mr Neville Thomas Q. C. summarised his pleaded complaint here as one by a client who engaged a professional advisor to negotiate on his behalf, and then found that the advisor's managing director, who was supposed to handle the negotiations, had deliberately sabotaged the mission on which he was engaged. It could not be said, he submitted, that the client did not have a reasonable cause of action against the managing director. Mr Tong, who appears for Mr David Li, did not suggest that this formulation failed to cover the present case as pleaded. Nor did he seek to challenge, at this stage, the proposition that such formulation would disclose a reasonable cause of action if it were accompanied by an adequate plea of resulting damage. Had he done so, the section in 'Salmond & Heuston on the Law of Torts', 19th ed. (1987) at pp. 44 - 45 headed 'Innominate Torts' might have been a useful starting point for the enquiry which would then have been necessary. What Mr Tong argued, in amplification of the skeleton argument which he helpfully provided, that there is no adequate plea of resulting damage in the Amended Statement of Claim. In my judgment, there is. In dealing with the conspiracy, I have already expressed the view that the particulars of damage pleaded under para. 63 are adequate. The body of that paragraph contains a clear averment of a causal connection between such damage and the alleged commission by Mr David Li of the innominate tort question. The application to strike it out is refused.

Breach of confidence

48. I turn now to breach of confidence.

49. It is pleaded in para. 21 of the Amended Statement of Claim that for the purpose of the negotiations over the consortium proposal: -

'Ka Wah made extensive disclosures of confidential internal documents and financial statement to Schroders and C. C. I. C. The same included information directly affecting the value to be placed on the shares in Ka Wah.'

Apart from this paragraph, breach of confidence is pleaded in paras. 73 to 77 inclusive of the Amended Statement Claim, which constitute Section H thereof, the breach of confidence section, and in the further and better particulars under paras 21 and 76 of the Amended Statement of Claim contained in the Further and Better Pariculars filed by the Plaintiff on March 31, 1989.

50. Essentially, what is alleged against Schroders is this : After it ceased to act on behalf of the consortium, Schroders continued to involve itself as agent and advisor in relation to shares in the Bank. It is necessarily to be inferred that in fulfilling such continuing role it published to persons, other than the consortium, estimates and opinions derived, in whole or in part, from the information disclosed to it in confidence by the Bank.

51. Mr Huggins for Schroders takes a number of points and these are outlined in the skeleton argument which he helpfully provided.

52. His first point is quite simply that there is no averment that the plaintiff provided whether directly or indirectly, any of the confidential information; and that the law is, as succinctly stated in 'Goff & Jones : The Law of Restitution', 0 3rd ed. (1986) at p. 667, that : 'It is only the confider who may maintain a suit'.

53. Mr Neville Thomas Q. C. relied on an observation made by Lord Keith of Kinkel in A. G. v. Guardian Neswpapers (No. 2) (1988] 3 W. L. R 776 (to give the celebrated 'Spycatcher Case' its correct if more prosaic name). At p. 781H Lord Keith of Kinkel noted that while an obligation of confidence may be imposed by an express or implied term in a contract, '…it may also exist independently of any contract on the basis of an independent equitable principle of confidence.' In support, he cites Saltman Engineering v. Campbell Engineering (1948) 65 R. P. C. 203.

54. But, as Mr Huggins pointed out, Saltman Engineering v. Campbell Engineering (supra) is a case in which the plaintiff was a confider albeit not directly to the defendant.

55. Mr Neville Thomas Q. C very properly informed me that he is not aware of any case in which a non-confider had, ever sued, successfully or otherwise. What he submitted was that there was no reason why a non-confider should not sue.

56. In my judgment, it is well-established that only a confider can sue, and that the argument to the contrary is incontestably bad. For this reason, I strike out paras 21, 73-77 inclusive and prayer (5) of the Amended Statement of Claim.

57. I would not have done so on any of Mr Huggins's other points.

Conclusion

58. I am of course very aware that the allegation of conspiracy which I have refused to strike out is a serious allegation. As every lawyer knows, the facts on which the allegation is based remain to he proved at the trial if the Plaintiff can do so. It is a rule of procedure that compels me to assume, for the purpose of these applications, that the Plaintiff can prove the facts it has pleaded. Since this decision may come to the notice of laymen as well as lawyers, it is only fair to the defendants that I make this plain. It may be that in truth the consortium proposal would never have worked, and that all that the alleged conspirators involved in the Citic reconstruction did was to bring about the Bank's rescue to the benefit of all concerned. At this stage, however, after considering all the arguments I have heard, I am unable to say that the Plaintiff is not entitled to proceed to trial with its case based on conspiracy.

59. Before parting with this matter, I would like to express my indebtedness to all counsel involved for their assistance.

60. As requested at the conclusion of the hearing, I will adjourn the question of costs to a date to be fixed in consultation with counsel's diaries.

Representation:

Sir Oswald Cheung, Q. C., Mr Neville Thomas, Q. C. and Mr P Fung (Oscar Lai & Ho) for Plaintiff

Mr Michael Thomas, Q. C. and Mr J Bleach (Linklaters & Paines) for 1st Defendant

Mr R Tong (Wilkinson & Grist) for 2nd Defendant

Mr A Huggins (Clifford Chance) for 4th and 5th Defendants

Mr G Ma (Baker & McKenzie) for 6th Defendants