Gobind Mohan and Another v. Brian Shane Mcelney and Others

HCA004611C/1978

Action No. 4611 of 1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: The Hon. Mr. Justice Hunter.

Date of Hearing: 9 October 1984

Date of Delivery: 9 October 1984

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RULING

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1. The matter upon which I have not to rule is whether it is open to the plaintiffs on their pleading to make two assertions of negligence against the defendant solicitors in the context of the Herald Luxim Contracts. What is wished to be said arises at two points in time; the first is on or before the 17th February, and the second is after the market collapsed. The market peaked on the 9th March, and so the allegations would bite at some time after that day. What is sought to be said is this: "that the solicitors were negligent at both these points in time in failing to volunteer advise to the effect that the plaintiffs and MPIL could get rid of these Herald Luxim Contracts by not proceeding with the floatation without any risk at all."  The proposition is simply this that the Agreement being conditional, it was open to the plaintiffs to ensure that that condition was not fulfilled. In substance it reduces the Contracts to the status of options.

2. Now having considered the matter as best I can, I have no doubt about two things; the first is (and I am putting the matters quite deliberately in this order) that in my judgment this charge of negligence has not the slightest chance of succeeding, and secondly that it is not in fact open on the pleadings as they stand.

3. Now to understand those two reasons I must say a little bit more about the Herald Luxim Contract.

4. The initial deal was made in the course of a long day on Saturday, the 17th February and was reduced to writing that afternoon by the solicitors. More formal Agreements followed on the 28th February. What the documents in the Statement of Claim tells me about this transaction comes down to this: The vendors, the Herald Luxim Investment Company Limited owned a building, the Herald Luxim Building, which was valued at that time at eight million dollars, but was then mortgaged for a sum in the order of ten and a half million dollars. Not surprisingly that company was unwilling to sell that building for a lesser sum than would clear that mortgage i.e. they were looking for a total consideration of ten and a half million. The problem was how to reconcile Herald Luxim's demands with the apparent value of the property. The imaginative device which someone thought up (and no doubt I shall hear more about this in due course) was that the great Hong Kong public could fill the gap. Because it was then in everyone's mind that there was going to be a public listing of MPIL. In the bullish market conditions which then existed, everyone was confident about the success of this floatation. Everyone was confident that these $1 share would going to be bought at some extravagant premium in a matter of days of the floatation, and that these monies could be used to bridge the gap between the eight million and ten and a half million.

5. The arrangement was (as recorded in the documents) that MPIL were to buy for a total consideration of six and a half million of which four million was to be paid in cash, and the balance of two and a half million was to be satisfied by the issue of two and a half million shares in MPIL as fully paid $1 shares. The intention then was that these could then be realised by the Herald Luxim Company on the market for a sum of not less than $2.60 and possibly more within days of this floatation. But to make sure that that was in fact brought about, and that the Herald Luxim Company in fact got the balance of six and a half million in this way. (Six and a half million being the total one reaches by multiplying two and a half million shares by $2.60), the plaintiff was asked to enter into a. buy-back agreement which in fact in substance guaranteed that sum to the Herald Luxim Company come what may.

6. Now the first complaint that is made in the action about these Agreements is a failure by the solicitors to spell out the market implications of it. The plaintiff apparently recognised the relationship between this figure of six and a half million and the premium price and was conscious of the fact that the premium would dictate the number of shares which will have to be sold if necessary to realise that price. But the complaint is that it was not spelt to him that there might be no premium at all and that he might be exposed to personal liability if the floatation failed to produce a premium price.

7. The second allegation is the one, which is sought to be advanced by my ruling, is that at the same time the solicitors should have explained to him that these Agreements where as I have indicated "options only" because of the conditional nature of the contracts.

8. What happened after the 17th of February was that, as I have said, more detailed Agreements were drawn by - the solicitors and all entered into on the 28th February. I need only look for this purpose at the principal vending agreement of the property which was made between the Herald Luxim Company and MPIL. It provided for a purchase price of six and a half million. It provided for the payment of four million in cash on or before the 28th February which is the date of the Agreement. I understand it was then paid. It provided for the balance being satisfied by the allotment to the vendors of two thousand five hundred ordinary shares on $1 each in MPIL credited as fully paid. That happened on the 9th March. By clause l8 of the Contract one finds this: "This Agreement is subject to the purchasers being converted into a public company and obtaining an official listing or any one or more recognised stock exchanges in Hong Kong within four months from the date hereof."  Very shortly after the 9th March it would seem that the bank took an assignment of the benefit of the Buy-back Agreement from the Herald Luxim Company, because the bank gave notice of that assignment to the plaintiffs on 17th March (the pleading asserts) I have seen a document, dated 22nd March addressed by the 1st plaintiff to the bank, in which he confirms that notwithstanding the transfer of the Herald Luxim shares to you my agreement to repurchase these shares shall continue in full force and effect. So that very shortly after the date on which the market peaked, from the point of view of the vendors of this property, the sale was completed. They had received four million dollars in cash. They had received and assigned their shares. As I apprehend, will appear from the document in due course, they had thus secured the discharge of their financial obligations under the mortgage to the bank. Now it is at this point in time that it is hoped to be said that it was negligent of these solicitors not to volunteer the advice that you can bring this edifice to the ground by deliberately not proceeding with this floatation, and you can do so without any risk at all.

9. Now with the greatest respect to those who wish to advance this proposition, it seems to me that one only has to state those facts to see that it simply is not going to leave the ground. Mr. Bloch and Herald Luxim had the strongest possible incentive for hanging on to the Agreements that they had got. The alleged advice assumes that Mr. Bloch would have handed back four million dollars in cash without argument. It assumes that in some way the shares could have been returned to the company, and I am mystified as to how that was to be brought about, either by Herald Luxim or by the bank. It assumes more significantly that no attempt would have been made by anyone to say to the 1st plaintiff: "Oh, No, you have agreed to buy back these shares at a certain price on a certain basis. You have made sure that that basis is not now going to be fulfilled i.e. the listing. That makes this Contract as against you unconditional, you will now pay this price personally." It seems tome that that argument would have been bound to have been raised, had an attempt been made by the plaintiffs to extract themselves from these Herald Luxim Agreements by deliberately not proceeding with the floatation. There was not simply a real risk of its being asserted; I think it was almost a stark certainty.

10. It is quite unnecessary for me to determine now whether the argument would have succeeded. It is sufficient to say that there was a real risk of it proving successful. It seems to me that Mr. Peter Scotts' proposition that the solicitor who volunteered advice of this nature was negligent, is almost unanswerable. No one in their right mind could have offered this advice, in my judgment, and therefore to assert that it was negligent not to do it, is simply a proposition that I cannot see any prospect at all of succeeding. So, that is why this is not an allegation which I can take seriously in this case at all.

11. Secondly I am quite satisfied that on the pleadings as they stand, it is not open. It is sought to bring the allegation in under paragraph 32 of the Statement of Claim. There two parts to this. The first part asserts negligence against the 1st and 2nd defendants "in failing to advise the plaintiffs properly or at all in respect of the Herald Luxim transaction." I rather wish that courts would take a strong line with pleas like this: and ignore them completely and treat them as worthless. That is the treatment they deserve. But understandably few parties can take that risk. They ask for particulars; they give the pleader a chance to fill the glaring gap. Particulars were asked in this case of the advice that was sought. The particulars given were simply a non-event. They take you for a paper chase round the documents and produce nothing. So that there is no doubt in my mind at all that the first part of this allegation is totally worthless. Indeed Mr. Eddis sensibly did not seriously contend to the contrary.

12. His submissions were based on the second half of this paragraph which goes on to say that "after the stock market had declined wrongfully and negligently failed to advise the plaintiffs as to their best interests and how to protect those interests."  The same observations as far as generalities are concerned apply to that half of the paragraph as well. But in this case in answer to the request for particulars two things were said. First on page 90 there are listed the subject matters which should have been covered under this preamble: "The 1st and 2nd defendants should have given advice to the plaintiffs upon the following matters but not limited only thereto." I will come back to that phrase again in a moment. Then five heads are set out, it goes on to say that the advice should have covered matters which are enumerated on page 91 again with the qualification "but not limited thereto."

13. Mr. Eddis seeks to bring this plea under this paragraph on two bases. First, he said that if you add together paragraph 5 on page 91 with paragraphs 2 and 3 on page 90 they are sufficiently broad to cover this plea. I cannot accept that. The heads on paragraphs 2 and 3 of page 90 are broad because the pleader wanted it both ways and he says "whether or not" in both cases. But neither of these "whether or nots" cover this particular eventuality. What is being asserted there is the position as against the 4th defendant, the bank, not the position as between the plaintiffs and the vendors of this property under the original Agreement. Indeed the point being taken there, as is shown by other paragraphs of the Statement of Claim, was quite different to the present point.

14. Secondly he said that the matter can be brought in and under this phrase "but not limited only thereto".  The effect of this would be that by using a catch-all like this, a plaintiff can come to court and add whatever he likes to his particulars.   Now there are two constructions and it seems to me of this phrase "but not limited only thereto".  The first is that the pleader is saying this: "I am not setting out every detail, but I am setting out all the relevant matters of which I complain, and I am therefore giving you proper particulars of the matters of which you are asking."

15. The second construction which is that urged by Mr. Eddis. It is really that the pleader is saying: I am specifying nothing. I am giving you half of my case now; I will give you the rest later if at when I think about it, or if at when I want to do so. Now I have no doubt in my mind that I should prefer the first of those constructions because it gives a meaning to the phrase which is consistent with and reconcilable with the rules and practice of pleading. If I was to adopt Mr. Eddis' approach, the whole of this would be a wasted exercise, because no one would know at any moment (so long as a phrase like this was used) what the case was, what they had to meet and as far as the court is concerned, what it had to try.

16. So upon the pleading as they stand my ruling must be that these two points are not open. But for the reasons that I sought to enumerate at the out set of this ruling, I cannot see that this is any loss at all to the plaintiff.

Representation:

Mr. Francis Eddis instructed by M/s Haldane Midgley & Co. for Plaintiffs.

Mr. Peter Scott, Q.C., Mr. D.A.L. Wright, Mr. Andrew Li instructed by M/s Lo & Lo for 1st and 2nd  Defendants.

Mr. Alexander Irvine, Q.C., Mr. Anthony Dicks instructed by M/s Baker & McKenzie for 4th Defendant.