Tan Poh Lean v. Hong Kong Communications Equipment Co Ltd and Others

HCA006630/1982

IN THE HIGH COURT OF JUSTICE

BETWEEN

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AND BETWEEN

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Coram: Hon. Clough, J.

Dates of Hearing: 22nd and 23rd November 1983

Date of Delivery of Judgment: 14th December, 1983.

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JUDGMENT

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1. On the 23rd November 1983, I made an order striking out specified parts of the Defence and Counterclaim of the three Defendants by original action and Plaintiffs by Counterclaim in these proceedings. I also gave leave to the same parties to file amendments to the Defence and Counterclaim within 21 days relating to specified matters. These are my reasons for my order which included leave to the Plaintiff by original action and the Defendants by counterclaim to file a Reply and Defence to counterclaim within a stipulated period and also dealt with costs.

2. The background to this matter is as follows. The pro-ceedings were begun by the issue of a specially endorsed writ On the 29th July 1982 by Tan Poh Lean ("Mrs. Khoo") as Plaintiff against the Hong Kong Communications Equipment company Limited ("the Hong Kong Company"). By the Statement of Claim endorsed on the writ the Plaintiff makes a claim for commission of S$151,728.48 or alternatively the equivalent sum in Hong Kong dollars against the Hong Kong company with ancillary relief which the Plaintiff claims by reason of the alleged breach by the Hong Kong Company of an agreement pleaded under the circumstances outlined below.

3. The Plaintiff pleads that she is the wife of Mr. Khoo Soo Chye and that at all material times she and her husband ("the Khoos") were the directors of the Singapore communications Equipment Company (Private) Limited ("the Singapore company"), a company incorporated on or about the 14th January 1975 in Singapore. In paragraph 2 it is pleaded that the Defendant ("the Hong Kong company") is incorporated in Hong Kong and, in paragraph 3, that Chan Ching Kwok ("Mr. Chan") and Mrs. Chan Shuk Ling ("Mrs. Chan") were at all material times directors of the Hong Kong Company.

4. By paragraph 4 of the Statement of Claim an agreement between the Plaintiff and the Hong Kong company is pleaded whereby the Plaintiff agreed "to promote and incorporate", together with Mr. Khoo, the Singapore company to purchase certain electronic equipment for telephones from the Hong Kong company and to sell and dis-tribute the same in Singapore. It is further pleaded that under the Agreement the Hong Kong Company was to pay the Plaintiff a 5%  commission on the price of all equipment sold by the  Hong Kong Company to the Singapore Company.

5. By way of particulars of the Agreement it is pleaded that it was made partly orally, partly in writing and partly by conduct and there follows particularisation of various meetings, memoranda and letters relied upon by the Plaintiff to establish the relevant oral and written matters followed by the particulars of the conduct relied upon in this respect.

6. After pleading in paragraph 5 of the Statement of Claim that it was an express or implied term of the alleged Agreement that the Hong Kong Company would render statements of accounts to the Plaintiff of the sales of electronic telephone equipment by the Hong Kong Company to the Singapore Company, the Plaintiff pleads under paragraph 6 that the Hong Kong Company paid the commission due to the Plaintiff under the agreement for the period from the date of incorporation on the 14th January 1975 until the 31st December 1979. By paragraphs 7 and 8, the Plaintiff pleads that she ceased to be a Director of the Singapore Company on or shortly after the 30th June 1981 but that in breach of the agreement the Defendant Company has failed to pay commission to her for the period from the 1st January 1980 to the 30th June 1981 and that the outstanding commission to which she is entitled amounts to S$151,728.48.

7. By paragraph 9 of the Statement of Claim the Plaintiff pleads that further or alternatively the Hong Kong Company has wrongfully and in breach of the agreement failed to render to her any statement of account of the relevant sales of electronic telephone equipment for the period from the 1st January 1980 to the 30th June 1981 or to pay the Plaintiff any commission in respect of those sales during that period.

8. On the 4th October 1982 Master Wilson made a consent order under 0.15 r.6, on the application of the Hong Kong Company, adding the Chans as the 2nd and 3rd Defendants respectively in the action. On the 7th October 1982 the Defence and Counterclaim of the Chans and the Hong Kong Company as Defendants by original action and Plaintiffs by Counterclaim was filed. By that pleading they added Mr. Khoo as a co-defendant by Counterclaim of Mrs. Khoo pursuant to 0.15 r.3. On the 27th November 1982 Mr. Khoo by his Hong Kong solicitors, acknowledged service of the claim upon him as Defendant by Counterclaim and gave notice of intention to defend. I will return to the content of the Defence and Counterclaim below.

9. On the 19th January 1983 Mrs. Khoo the Plaintiff by original action and both the Khoos as Defendants by Counterclaim issued a summons under O.18 r.19 applying inter alia to strike out specified parts of the Defence and Counterclaim. On the 16th March 1983 the Khoos issued a second summons to amend the first summons issued on the 19th March 1983 by adding a prayer for alternative relief in the form of a stay of the present Counterclaim in the action under the inherent jurisdiction of the court on the ground that there are pending proceedings in the Supreme Court of Singapore between the Singapore Company and the Khoos concerning the same subject matter and claiming the same or similar relief as in the Counterclaim in this action in Hong Kong. In support of the relief intended to be applied for under the amended summons an affirmation of Mr. Wong Che Ming was filed on the 16th March 1983. He exhibited a copy of the pleadings in the Singapore action and deposed to matters relied upon by the Khoos in support of the proposed relief sought by the summons to amend. On the 28th March 1983 evidence in answer in the form of an affidavit of Mr. Anthony Sheung Yee Ching an Article Clerk of the firm of solicitors acting for the Hong Kong Company and the Chans was filed and a further affidavit was filed on behalf of the same parties by a solicitor acting for them on the 21st November 1983.

10. I do not dwell on the above mentioned evidence because the summons to amend was abandoned and withdrawn after 1 had decided to strike out on the hearing of the summons to strike out which had been issued on the 19th January 1983. At the hearing Mr. Dennis Chang; leading counsel for the Khoos pursued only the striking out relief applied for in the first Summons on the footing that the parts of the Defence and Counterclaim sought to be struck out disclosed no cause of action and were an abuse of the process of the court. Reliance on abuse of the process of the court was really treated by him as the consequence of the absence of a reasonable cause of action and I therefore paid no regard to any evidence adduced on behalf of the Khoos although I was taken through the pleadings in the Singapore action.

11. In the Defence and Counterclaim filed on behalf of the Hong Kong Company and the Chans as the Defendants by original action and Plaintiffs by Counterclaim the agreement pleaded in paragraph 4 of the Statement of Claim is not admitted and it is pleaded that the Khoos were at all material times the agents of the Hong Kong Company and/or Mr.Chan and/or Mrs Chan and that they were therefore under a fiduciary duty to them and each of them and that they were in breach of that duty in the manner pleaded therein.

12. The crucial part of the Defence and Counterclaim is paragraph 3. Most of the matters pleaded in that paragraph are not the subject of complaint in the striking out application. It is the alleged legal consequences of the fact pleaded that are under attack.

13. In paragraphs 3(a) to (h) the following matters are pleaded. It is pleaded that the Singapore Company was formed in January 1975 by the Chans and that at the time of its incorporation the paid-up capital was S$14,000 put up by the Chans and that in about May 1976 the paid-up share capital was increased by a sum of S$11,000, again put up by the Chans.

14. It is further pleaded that the Hong Kong Company at all material times carried on inter alia the business of the sale and distribution of certain telephone communications equipment manufactured or supplied by a Japanese Company and that at all material times the Hong Kong Company held the sole and exclusive agency and distribution rights of the equipment from the Japanese Company in both Hong Kong and Singapore. It is further pleaded that the Chans are and were at all material times in control of the Hong Kong Company.

15. It is then pleaded that the Singapore Company was formed by the Chans for the purpose of expanding the business of the Hong Kong Company in Singapore and in particular to undertake the sale and distribution of the above-mentioned equipment in Singapore. In paragraph (g) it is pleaded that in about January 1975 -

"............... Mr. and Mrs. Chan entrusted the management and control of the Singapore Company to the Khoos ..........."

16. There follows a reference to a further issue of 11,000 shares to the Chans and in paragraph (i) it is pleaded that in the premises the 14,000 shares of the Singapore Company held by the Khoos were held by them upon trust for the Chans and the 11,000 shares held by the Chans were held by the latter as beneficial owners.

17. After pleading in paragraph (j)that after the incorporation of the Singapore Company the Khoos received remuneration in the form of salary, director's fees and bonus drawn from the Singapore Company, it is pleaded in paragraph (k) as follows:-

18. Paragraph 3 is the base or platform for the Counterclaim and all the matters subsequently pleaded to substantiate the Counter-claim are founded on allegations of breach of the duty alleged in paragraph 3.

19. Thus in paragraph 4 it is pleaded that by virtue of their duty to the Hong Kong Company and/or Mr. Chan and/or Mrs. Chan "as agents aforesaid" the Khoos were responsible for rendering accounts to the Hong Kong Company and/or to Mr. and Mrs. Chan of all sales and purchases made and of all stock retained by the Singapore Company and for remitting the purchase price to the Hong Kong Company.

20. Paragraph 6 relies upon the same duty as agent as giving rise to a further duty to render statements or accounts of the sale and purchase of the equipment by the Singapore Company in Singapore and of all stocks retained by the Singapore Company.

21. Paragraph 8 alleges irregularities and breaches of duties committed by the Khoos

".......... in the management and conduct of the business affairs, operations and finance of the Singapore Company"

22. In paragraph 9 there was acknowledged to be a typing error and the reference, in relation to duty was in fact contended to be to paragraph 3(k) and not to paragraph 3(i). The duty alleged to have been breached in paragraph 10 is again the alleged duty as agent and the duty relied upon in paragraph 12(c) is in terms described as

"breaches of duties in the management and conduct of the affairs of the Singapore Company and/or their breach of duties as agents of the Hong Kong Company and/or Mr. Chan and/or Mrs. Chan as pleaded hereinabove".

23. Finally the Counterclaim is in terms based upon paragraphs 1 to 15 of the Defence, as indicated in paragraph 16 of the Counter-claim and in paragraph 17 thereof is an allegation of loss and damage in terms made "By reason of the matters aforesaid".

24. Mr. Chang attacked the Defence and Counterclaim at its root, in paragraph 3. It indicated, he contended, an attempt to confuse corporate rights for the rights of individuals. The matters complained of in the Defence and Counterclaim as regards the conduct of the Khoos might give the Singapore Company a right to relief but not the plaintiffs by Counterclaim on the basis of the matters actually pleaded.

25. No attempt was made to strike out paragraphs 3(a) to (h). They were, so far as he was concerned, innocuous. He emphasised that the use of the word "entrusted" in paragraph (g) could not give rise, in its context, to a fiduciary duty to the Chans in the absence of any further averments in the pleading, because the appintment of the Khoos as Directors of the Singapore Company and the transfer of shares to them as nominees of the Chans was effected by due process of the machinery of Singapore Company law and resulted in their having powers of management of the company by virtue of their position and likewise owing fiduciary duties to the company itself. Any benefits the Khoos received from their status in relation to the company were received from the company and not the Chans.

26. He accepted that, as alleged in paragraph 3(i) the Khoos held their shares in the Singapore Company as nominees upon trust for the Chans but emphasised that the effect of the trust thus arising was to impose duties upon the Khoos to do the bidding of the Chans in relation to the exercise of all the rights of shareholders but not further or otherwise.

27. On the footing of these arguments Mr. Chang contended that there could be no proper legal foundation for the contention in paragraph (k) of paragraph 3 of the Defence and Counterclaim that "In the premises" the Khoos were constituted agents of the Plaintiffs by Counterclaim or any of them, nor was there any basis for alleging fiduciary duty other than the fiduciary duty arising in relation to the nominee shares held by the Khoos.

28. For the Defendants by original action and Plaintiffs by Counterclaim leading counsel. Mr. Pokhary. first contended that he relied on the authority of Reading v. Attorney General (1951) A. C. 507 for the proposition that the Khoos were in the position of agents who were in breach of their fiduciary duty because they had received secret profit in the course of their agency and taken advantage of the position in which their contract of agency had put them. They were accordingly obliged to account to their principals for their profit they were likewise obliged to account for shortages and irregularities. Their duty arose, he contended, by operation of law. He cited the dictum of Lord Porter in Reading v. Attorney General at p.515 for the well settled principle that an agent who has realised a secret profit from his employment is liable to disgorge it to his principal and he cited the dictum of Lord Normand to similar effect at P.517.

29. As to the reference in paragraph 3(g) of the Defence and Counterclaim to the Chans entrusting the management and control of the Singapore Company to the Khoos, Mr. Bokhary relied on the proposition that it mattered not if the Khoos were not agents because it was sufficient to plead "entrustment with the job" and he cited the dictum of the Court of Appeal contained in its judgment delivered by Asquith L.J. in Reading v. The King (1949) 2 K.B. 232 at p.236 for the proposition that a fiduciary relation exists whenever the plaintiff entrusts to the defendant a job to be performed. He further contended, rightly, that a court should not strike out any pleading merely because it felt a "nagging feeling" about it.

30. After considering the relevant pleadings and the arguments on both sides I had no hesitation in accepting the contentions of Mr. Chang.

31. In the first place I can find no averment in paragraph 3 or in any other part of the Defence and Counterclaim to provide the basis for alleging that the Khoos were at any material time agents of the Hong Kong Company. The fact that it is alleged that the Khoos were appointed directors of the Singapore Company and put in control of its management when the purposes of the Singapore Company included the sale and distribution in Singapore of equipment purchased from the Hong Kong Company does not, in my judgment. give rise to the inference that the Khoos thereby became the agents of the Hong Kong Company.

32. This is a strange result in a situation where the claim made in the original action by the Plaintiff therein is that Mrs. Khoo had made an agreement with the Hong Kong Company relating to the sale of the Hong Kong Company's equipment to the Singapore Company but that agreement is not admitted in the Defence and it seems to me that I have to take the pleading in the Defence and Counterclaim as I find it.

33. As to the pleading in paragraph 3(k) that "In the premises" the Khoos or one or other of them were constituted agents of the Chans or one or other of them and therefore under a fiduciary duty to them I can find no allegation in paragraph 3 or in any other part of the Defence and Counterclaim to justify this inference.

34. As far as the management of the Singapore Company is concerned, in the absence of any pleading of any wider agreement giving rise to an additional duty imposed upon the Khoos in relation to the Chans it seems to me to be clear that the duties of the Khoos as to the management of the Singapore Company can only be to that company and not to the Chans as shareholders.

35. In my judgment the situation, on the pleadings, is that the Chans are bound by the rule in _Foss v. Harbottle (1843) 2 Hare 461 because, in respect of any breaches of duty by the Khoos as directors in connection with the management of the Singapore Company, it is for that company and not the Chans to sue. Moreover, the Chans are in control of the Singapore Company and therefore in a position to procure the Company to exercise its rights, if any. Accordingly this is not a situation in which there can be any question of any of the exceptions to the rule in Foss v. Harbottle being applicable.

36. I am unable to accept the argument advanced by Mr. Rokhary that mere "entrustment" of the management of the Singapore Company to the Khoos by the Chans in the present case gives rise, on the pleadings before me, to a fiduciary duty to account to the Chans for secret profits or irregularities in the case of the Khoos. The dictum of the Court of Appeal in Reading v. The King (supra) emanating from Lord Asquith is cited in Snell at p.251 as being applicable only in certain defined circumstances therein mentioned and 1 am satisfied that Lord Asquith did not intend his dictum to be applied at random. This is clearly indicated by the language which he in fact used in Reading v. The King at p.236. He there stated that -

"A consideration of the authorities suggests that for the present purpose a 'fiduciary relation' exists ........... (b) whenever the plaintiff entrusts to the defendant a job to be performed, for instance, the negotiation of a contract on his behalf or for his benefit, and relies on the defendants to procure for the plaintiff the best terms available......."

37. Accordingly, I concluded that it was plain and obvious that the Defence and Counterclaim did not, in the passages which were the subject of the application to strike out, disclose a reasonable cause of Defence or Counterclaim and I directed that the relevant parts of the pleading should be struck out.

38. A considerable time was thereafter taken up with an application on behalf of the Defendants and Plaintiffs by Counterclaim for leave to amend. I eventually, with considerable misgiving, gave leave to amend but in circumscribed terms which appeared in the order.

Representation:

Mr. Dennis Chang, Q.C. with Mr. Bharwaney instructed by Messrs Woo & Woo for the Plaintiff and 1st and 2nd Defendants (By Counterclaim).

Mr. Bokhary, Q.C. with Mr. B. Yu instructed by Messrs. Stevenson, Wong & Co. for the 1st, 2nd and 3rd Defendants (By Original Action) and 1st, 2nd and 3rd Plaintiffs (By Counterclaim)