Gobind Mohan and Another v. Brian Shane Mcelney and Others
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1. On 6th October 1978, the plaintiffs, through their solicitors, sent each of the defendants a letter of demand together with a draft statement of claim, contending that the defendants were liable to the plaintiffs for damages and other relief arising from the public flotation or Mohan's Property and Investment Co. Ltd. (hereafter referred to a "MPIL"), the shares of which were first publicly traded on 10th May 1973.
Cited by 1 case
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HCA004611F/1978 Striking out for want of prosecution - whether plaintiff's imprisonment amounts to reasonable excuse for delay - prejudice.
IN THE SUPREME COURT OF HONG KONG HIGH COURT -----------------
----------------- Coram: Mr. Justice Rhind Date of Judgment: 3rd December 1981 ----------------- JUDGMENT ----------------- In Open Court 1. On 6th October 1978, the plaintiffs, through their solicitors, sent each of the defendants a letter of demand together with a draft statement of claim, contending that the defendants were liable to the plaintiffs for damages and other relief arising from the public flotation or Mohan's Property and Investment Co. Ltd. (hereafter referred to a "MPIL"), the shares of which were first publicly traded on 10th May 1973. 2. For the purpose of the present proceedings only, it was common ground that the causes of action, which were all based on either breach of contract, negligence, breach of fiduciary duty or breach of trust, arose on 10th May 1973, the day of the first public trading of the shares, so that the six year limitation period for initiating proceedings would have expired on 9th May 1979. (For the sake of completeness, perhaps I should add that I have excluded from my consideration an item of $93,000 which the plaintiffs' contend was wrongfully debited to them by the 4th defendant for an audit carried out in 1976. That item, which is dealt with in paragraphs 58 to 61 of the statement of claim, is only peripherally relevant to the main issues in the case, and could still form the subject matter of separate proceedings where there would be no problem of limitation periods). 3. That letter of the 6th October 1978 with its accompanying draft statement of claim was the first intimation any of the defendants had that the plaintiffs were contemplating proceedings against them for events dating back to 1973 and earlier. 4. Next, the plaintiffs' writ, indorsed with the statement of claim, was issued on 20th December 1978, and all the defendants entered appearances. During the course of the proceedings before me, the plaintiffs' claim against the 3rd defendant was withdrawn. 5. All defendants sought and were granted an extension of time till the end of February 1979 for filing their defences. However, during the last week of February 1979, without having filed their defences, all the defendants submitted requests for further and better particulars of the statement of claim from the plaintiffs, The plaintiffs' solicitors refused those requests with the result that on dates between 24th February and 9th March 1979 the solicitors for the various defendants took out summonses seeking orders that the particulars be delivered, the time for filing defences meanwhile being extended. 6. After consultation with counsels' diaries, those summonses were fixed to be heard on 18th June 1979. However, the plaintiffs' solicitors must have had a change of heart before then, because the particulars requested were all filed and served between the 6th and 15th June. 7. When the summonses came on before the learned Registrar on the 18th June, orders in terms of the summonses were obtained by the 1st, 2nd 3rd and 5th defendants, and the 4th defendant's summons was adjourned sine die. At that stage the defendants all reserved their position regarding the adequacy of the particulars filed. 8. That the particulars by then supplied to the defendants were not adequate was impliedly acknowledged by the efforts of the plaintiffs' solicitors to furnish the defendants with amended particulars between the time of the appearance before the Registrar on the 18th June and the end of July 1979. However, in no case did the plaintiffs succeed in properly filing and serving those amended particulars. On behalf of the plaintiffs, it was argued that at least technically the plaintiffs had complied with the orders for further and better particulars in that they had filed and served particulars, albeit inadequate ones, before 18th June 1979. I regarded that argument as specious, the reality of the situation being that the plaintiffs had not supplied adequate particulars, and the plaintiffs well knew that to be the case. 9. On 20th July 1979, a significant event occurred: the 1st plaintiff was arrested on fraud charges, which led to his being tried in May 1980, and being imprisoned from May 1980 till 7th November 1980. 10. From the beginning of August 1979 till 10th November 1980, the plaintiffs' case against the defendants went to sleep. On 28th November 1979, the plaintiffs' then solicitors got leave of the court to withdraw from the case, and nothing happened after that till 10th November 1980 when new solicitors for the plaintiffs filed notice of intention to proceed at the expiration of one month. 11. The defendants countered in December 1980 and January 1981 by filing summonses to the effect that the plaintiffs' action should be dismissed for want of prosecution, the plaintiffs being guilty of prolonged or inordinate and inexcusable delay. 12. It is those summonses of the defendants (except for the summons of the 3rd defendant which is no longer a party) that this court is now considering. 13. An alternative ground for dismissal included in the 1st, 2nd and 5th defendants' summonses was that the plaintiffs had failed to serve the further and better particulars ordered by the Registrar on 18th June 1979. However, if I understood the defence arguments correctly, it was not urged on me that the plaintiffs' failure to conform with the orders for particulars was sufficient ground by itself to justify my dismissing the plaintiffs' claim, but rather, that the plaintiffs' omission to supply the necessary particulars yet would make the delay even more inordinate. 14. In any event, shortly after the proceedings before the Registrar on 18th June 1979, the plaintiffs went a long way towards complying with his order. They supplied the 1st and 2nd defendants with proposed amendments to the particulars, but failed to take the final step of filing, despite getting consent to filing out of time during vacation. They also filed and served amended particulars on the 5th defendant, but did so out of time without consent. 15. As I see the position, the only question of substance to which I need address myself is whether the plaintiffs' claim should be dismissed for want of prosecution on account of inordinate and inexcusable delay. 16. The principles on which a court should act in deciding whether to exercise its discretion to strike out for want of prosecution can be found in the following observations of Lord Diplock in Birkett v. James(1):
Inordinate Delay 17. The defendants urge that the delay in the present case should be counted from February 1979, the time when the plaintiffs' solicitors refused to furnish further and better particulars voluntarily. Summonses for those particulars, taken out by the defendants' solicitors, were fixed in consultation with counsels' diaries for hearing on 18th June 1979. As already mentioned, the plaintiffs' solicitors had a change of heart before that date, and voluntarily started supplying particulars to the defendants' solicitors. For the defendants it was argued that, if the plaintiffs' solicitors had adopted that co-operative attitude from the outset, there need never have been the wasted delay between February and June. 18. There is nothing in the material before me to suggest that the plaintiffs or their solicitors were engaging in delaying tactics at that stage. Fault can hardly be laid at their door for a date no earlier than 18th June 1979 being given by the court. The impression I get is that the plaintiffs' solicitor at first genuinely though he was entitled to refuse particulars before defence, but then, after more mature consideration, changed his mind. Because a solicitor turns out to be less than infallible in the steps he takes in litigation, I do not think that time which gets wasted through an error of judgment on his part can necessarily be regarded as part of inordinate delay. The impression I get is that the plaintiffs' solicitors were moving the case along with proper despatch from the time they initiated proceedings until the end of July 1979. 19. Therefore, in my opinion, the period of operative delay should only be counted from the beginning of August 1979. Between then, and the notice of intention to proceed of 10th November 1980 is a period of approximately fifteen months. To my mind, a period of fifteen months delay qualifies as inordinate, particularly when one bears in mind that the late start in commencing the action near the end of the limitation period made it incumbent upon the plaintiffs to proceed with proper despatch. In the words of Lord Diplock in Birkett v. James(1) at page 322G -
Inexcusable 20. Although other reasons such as the difficulty of locating documents have been mentioned to me, it is quite plain from the 1st plaintiff's affidavit that the real reason he ceased to press on with the civil proceedings was lack of finance. Such funds as he had, he devoted to defending the criminal proceedings to which he gave top priority. 21. I do not think that his decision to concentrate his resources on the criminal proceedings excuses his neglect of the civil proceedings. If he could not afford both, he could have sought legal aid, but refrained from adopting that course. 22. Mr. Dean sought to draw an analogy between the 1st plaintiff's position and the position of the plaintiff in Fakes v. Taylor Woodrow Construction Ltd.(2) In that case, the plaintiff had done work for the defendant under a contract containing an arbitration clause. The plaintiff wanted to recover monies he claimed were due to him under the contract, but contended that because of the defendants defaults he had finished up so impoverished that he was no longer able to afford either litigation or arbitration. Legal aid was available to the indigent for litigation but not arbitration. The plaintiff, having been granted legal aid to litigate, issued a writ in the High Court for the monies due to him, whereupon the defendant sought a stay of the litigation on the ground that there should be arbitration as provided for under the contract. Although normally the court will grant a stay of the litigation, it took the exceptional step of refusing to in the circumstances of that case on the ground that there was a reasonable probability that the plaintiff's contention that his poverty had been directly induced by the defendants' default might be well founded. Likewise, in the case before me, it has been argued that there is a reasonable probability that the 1st plaintiff's impecuniosity, which rendered him unable to wage both civil and criminal litigation at the same time in 1979 and 1980, might be attributable to the wrongs allegedly done to him by the defendants way back in 1972 and 1973. That being so, the argument goes, the plaintiff's delay becomes excusable because the defendants are really to blame for it. 23. I find that argument on the plaintiff's behalf unpersuasive. His poverty in 1979 is, to my mind, too remote from events which happened in 1972-73. In all, the plaintiffs are supposed to have lost approximately $84 million because of the problems of the Mohan Group of companies between 1973 and 1979 (see Mr. Chulani's affidavit of 18th July 1981 at page 219 of the Agreed Bundle). As I understand the position, the plaintiffs are not blaming the defendants for the loss of that whole $84 million. The plaintiffs have also launched suits against others in respect of party of their alleged losses (e.g. the suit against Mr. Wyllie and Hutchison International Ltd. at pages 247-260 of the Agreed Bundle). For policy reasons, the courts will not allow a chain of causation to stretch on for ever. There were, no doubt, a whole cluster of causes of the 1st plaintiff's poverty in 1979-80, and it would be unrealistic to isolate the defendants' alleged conduct in 1972-73 as the cause which directly induced his poverty. 24. Certainly, up until 20th May 1980, when he was sent to prison, the 1st plaintiff lacked a reasonable excuse for delaying the civil proceedings. Once inside the prison, he suffered what in common parlance is usually described as a nervous break-down. In some circumstances, a nervous break-down could excuse delay (see Anderson v. The Norwich Union Fire Insurance Society Ltd. an unreported decision of the English Court of Appeal, dated 30th January 1975), but, in the 1st plaintiff's circumstances, I do not think it should. Bearing in mind the 1st plaintiff's conduct in the months preceding his incarceration, I regard it as more probable than not that he would still have neglected his civil suit while in prison, even if his mental health had remained normal. The probability is that, in prison, he would have concentrated his energies and resources on pursuing his appeal against his convictions. Moreover, although some forms of misfortune will serve to excuse delay, I do not think that prison is one of them (see Peeling v. Guidice(3).) 25. My conclusion, therefore, is that the 1st plaintiff's delay was inexcusable. 26. An identical conclusion must inevitably be reached in respect of the 2nd plaintiff, for whom no excuses have been put forward with regard to delay. Prejudice 27. This can take two forms, the first being general prejudice in the sense that the delay has brought about a position that a substantial risk exists that it is not possible to have a fair trial of the action, and the second is particular prejudice likely to be caused to individual defendants by the delay. The burden of establishing prejudice lies on the defendants: Allen v. McAlpine(4). 28. Before actually considering prejudice, it will be useful to look at the nature of the plaintiffs' case, as revealed by the statement of claim, the further and better particulars so far filed, and the affidavits. 29. The 1st plaintiff, who is the 2nd plaintiff's son, took over the running of his family's companies, which can loosely be described as "the Mohan Group of Companies", from his father in about 1967. 30. In the second half of 1972, when the Mohan Group of Companies were in a flourishing financial state, the 1st plaintiff sought advice from the 1st defendant, who is the senior partner of the 2nd defendant firm of solicitors, on the topic of seeking a public listing for MPIL, of which at that time the plaintiffs were majority and/or controlling shareholders. The 2nd defendant, mainly through the 1st defendant, had for a long time past acted as advisers to the plaintiffs on their personal and financial affairs, and were aware of the plaintiffs' financial position. 31. According to the 1st plaintiff, the only method recommended by the 1st defendant for MPIL to go public was chat it should first of all acquire more assets, after which it could seek a public listing. The 1st plaintiff then asked the 1st defendant for advice on what assets MPIL should acquire and how this might be financed. 32. For the purpose of arranging the necessary finance, the 1st defendant introduced the 1st plaintiff to personnel of the 4th defendant which is a large bank for which the 1st defendant and the 2nd defendant also act as solicitors. Prior to that time, the 4th defendant had not been the bankers for the plaintiffs or their companies, except that MPIL kept a small current account with the 4th defendant's Tsim Sha Tsui branch. 33. Firstly, in August 1972, the 1st defendant introduced the 1st plaintiff to Mr. Sandberg, the 4th defendant's General Marager, and at that meeting the 1st defendant explained the 1st plaintiff's present situation and intentions. Mr. Sandberg gave his approval to what was proposed, and said the 4th defendant would make credit facilities available to the 1st plaintiff. Matters were left on the basis that the 1st plaintiff would have to contact Mr. Purves, the 4th defendant's Chief Accountant, to settle the final details. 34. Next, at a meeting in the later part of 1972, attended by the 1st defendant and Mr. Purves, the 1st plaintiff was advised by the 1st defendant and Mr. Purves to borrow money in his own name from the 4th defendant for the purpose of purchasing properties which could then be injected into MPIL, which in its turn would issue fully paid up shares to the plaintiffs at a par value of $1 for every $1 the 1st plaintiff spent on acquiring such property. The shares thus issued and other shares which the plaintiffs owned in MPIL had to be mortgaged to the 4th defendant as security. 35. As the loan was personal to the 1st plaintiff, the problem naturally arose of how he was supposed to repay it. According to the 1st plaintiff, the 1st defendant and Mr. Purves represented to him at that meeting that the $1 shares of MPIL would rapidly reach at least $3 each after floatation, so that the 1st plaintiff could then sell off sufficient of those shares to repay the 4th defendant, while at the same time being able to retain sufficient of them to ensure that control of MPIL remained in the plaintiffs' hands. No advice was given to the plaintiffs of any other means of arranging borrowing facilities such as, for example, through another bank or through a merchant bank. 36. It is further contended by the plaintiffs that, at that same meeting, Mr. Purves, on behalf of the 4th defendant, insisted that the plaintiffs and/or MPIL should use the 5th defendant to prepare and issue the prospectus for the proposed floatation. The 5th defendant is a subsidiary of the 4th defendant, and carries on the business of merchant bankers, underwriters and financial advisers. 37. Although the 3rd defendant has now been dismissed from the suit, it still remains necessary to consider the part played by the 3rd defendant in the floatation. The 3rd defendant is a firm of Chartered Accountants which had been appointed as auditors to MPIL in June 1972. The 3rd defendant was involved in the floatation by preparing the Accountant's Report for the prospectus. 38. From January 1973 till April 1973, there were many meetings in relation to the floatation, attended from time to time by the 1st plaintiff, his employee Manu Chulani, the 1st defendant, a Mr. Osborne and a Mr. Hope representing the 3rd defendant, and a Mr. King - Halford and other staff members representing the 5th defendant. 39. At or before those meetings, the 3rd defendant and the 5th defendant are supposed to have been made aware of the method devised by the 1st defendant and the 4th defendant for financing the floatation by the plaintiffs, whom the 3rd defendant and the 5th defendant knew to be the controlling shareholders of MPIL. At all maternal times, the 5th defendant is alleged to have acted as financial advisers and/or as merchant bankers to the plaintiffs in their capacity as controlling or majority shareholders in MPIL. All the defendants were supposed also to have known the plaintiffs' financial involvement in the floatation. 40. At those meetings, the defendants are alleged jointly and severally to have represented to the plaintiffs, or at least to the 1st plaintiff, that the price of the $1 MPIL shares immediately or shortly after the public listing would be at least $3 each. Allegedly acting in reliance upon those representations, the plaintiffs say they authorised the defendants to proceed with the public listing of MPIL. 41. Whether the defendants or any of them ever made any such representations to the plaintiffs is a crucial issue in the case. 42. The preparations for the public listing of MPIL proceeded against a background of a rapidly rising stock-market until 9th March 1973 when the bubble burst and the market went into retreat. 43. Before then, pursuant to the arrangements made by the 4th defendant to lend money to the 1st plaintiff for the purchase of assets to be injected into MPIL, the 1st plaintiff entered into commitments to purchase two major properties. One was for the purchase of a property known as Tai Gardens at a price of $4,180,000, and the other for the purchase of a property known as the Herald Luxim Building at a price of $4,000,000 cash plus 2,500,000 shares in MPIL of a nominal value of $1 each, which the 1st plaintiff undertook to buy back at $2.60 each if the shares had not risen above that price of $2.60 within six months from the date of the first public listing of MPIL. 44. I will have more to say about those two transactions in due course, but, for present purposes, I am only interested in them because they involved the 1st plaintiff in an immediate debt of $8,180,000 to the 4th defendant in respect of the money the 1st plaintiff borrowed. What the 1st plaintiff got for making himself responsible for that loan was an allotment of 8,172,000 shares in MPIL for himself and the 2nd plaintiff on 9th March 1973. (The reason why the plaintiffs did not get precisely 8,180,000 shares rather then 8,172,000 as consideration for the 1st plaintiff having incurred a debt of $8,180,000 escapes me at the moment, but I do not think this apparent discrepancy carries any significance) 45. The 4th defendant required the plaintiffs to deposit those newly alloted shares together with all the other shares they owned in MPIL as security for the loan. Moreover, on 28th February 1973 the 2nd plaintiff guaranteed the 1st plaintiff's debts to the 4th defendant to the extent of $8 million, plus interest. 46. The plaintiffs' complain, in effect, that because the stock market went into decline from March 9th 1973 onwards, they should have been advised by the defendants not to go ahead with the public listing, the defendants being aware that the plaintiffs would incur substantial personal liability if the MPIL shares did not reach $3 each. Why this should be so was far from clear at first sight, but Mr. Dean for the plaintiffs sought to explain paragraph 33 of the statement of claim, which embodies this allegation, by saying, in effect, that the plaintiffs did not want to have to relinquish their shares for less than $3 each, because at a lower price, they would have to sell off so many of the shares to repay their debt to the 4th defendant that they would lose control of MPIL. 47. By a special resolution dated 14th April 1973, MPIL was converted into a public company. On 24th April 1973, MPIL issued its prospectus, inviting the public to subscribe for 12,500,000 shares of $1 each. That would make MPIL's issued capital 50 million shares of $1 each, 37,500,000 shares already having been issued. 48. On the 10th May 1973, which was the first day the shares were publicly listed, they traded around $1 or less, and never picked up after that. 49. For failing to advise the plaintiffs of their personal exposure to liability for debt by following the method of financing adopted here, and for failing to advise the plaintiffs not to continue with the public listing once it became apparent that MPIL's shares might not rapidly reach a price of $3 or above, the defendants are alleged to be liable for a loss of $2 per share on each of the 8,172,000 shares alloted to the plaintiffs on 9th March 1973, making a total of HK$16,344,000 damages under this head. 50. An alternative claim for $8,172,000 plus interest is also made against all defendants in respect of the loans which financed the acquisition of Tai Gardens and the Herald Luxim Building. The basis of this alternative claim seemed to be breach of fiduciary relationship, judging from Mr. Dean's submission, but the pleadings also throw in breach of trust and negligence for good measure. 51. In February 1973, which was the time the 1st plaintiff negotiated for the purchase of the Herald Luxim Building, that property had been professionally valued at $8,000,000. Herald Luxim Investment Co. Ltd., the owner of the building, had mortgaged it to the 4th defendant for $9.5m., but, with accumulated interested, $10.5m. was owing to the 4th defendant by the time the 1st plaintiff became interested in purchasing the building. The 1st defendant or his firm, the 2nd defendant, acted for Herald Luxim Investment Co. Ltd., as well as for one George Bloch who controlled that company. Thus, the 1st defendant or his firm, the 2nd defendant, acted for all the parties interested in this transaction, namely the plaintiffs, MPIL, the 4th defendant, Herald Luxim Investment Co. Ltd. and George Bloch. 52. According to the 1st plaintiff, he wanted to buy the property for $8,000,000, the amount of the valuation, but George Bloch and the 1st defendant made it clear to him that the 4th defendant would not allow the property to be sold for less than $10.5, the amount needed to clear off the mortgage. 53. In the end, the 1st plaintiff agreed that MPIL should purchase the property for $4m. in cash (which the 1st plaintiff had to borrow personally from the 4th defendant), plus 2.5m. shares allotted by MPIL. That 1st plaintiff further agreed that he personally would buy back those shares from Herald Luxim Investment Co. Ltd. or its assignees at a price of $260 each six months after the shares were first publicly quoted if they had not reached the price of $2.60 by then. Thus, the 1st plaintiff was potentially liable to pay $6.5m. for those 2.5m. shares. That 6.5m. plus the $4m. which the 1st plaintiff had borrowed from the 4th defendant for this transaction meant that the 1st plaintiff faced a potential $10.5m. personal liability. That became an actual liability after the 4th defendant took an assignment of those 2.5m. shares from Herald Luxim Investment Co. Ltd., the shares never going much above par. 54. Mr. Dean submitted that this was a horrendous transaction which no solicitor should ever have allowed his client to enter into without independent advice, the 1st defendant not being in a position to give such advice because of the conflicts of interest he faced by also acting for the 4th defendant, which was his firm's biggest institutional client, Herald Luxim Investment Co. Ltd., George Bloch and MPIL. 55. As Mr. Dean characterized the transaction, the 1st plaintiff was left in the position of underwriting the loan previously owed by Herald Luxim Investment Co. Ltd. to the 4th defendant. 56. I must confess that, at this point, I do not necessarily share Mr. Dean's abhorrence of this transaction. Rather than having to fork out ready cash here and now, businessmen often enter into agreements where they have to pay out substantially more at a later stage. Whether it is worth taking the risk of not being able to pay when the time comes around is essentially a businessman's decision. 57. Perhaps, ideally, all the parties to that transaction should have had separate legal representation, but, so long as the 1st plaintiff, as a businessman, understood the arithmetic of what he was letting himself in for, and so long as he was not positively encouraged by the 1st defendant to enter into this transaction, I tend to doubt whether the plaintiffs have so much to complain about in relation to it. This transaction harks back to the issue of whether the 1st defendant represented that the shares would rise above $3. If the 1st defendant did made a representation of that type in relation to this transaction, then the plaintiffs might well have cause for complaint. 58. The 4th defendant is alleged to be liable in respect of the Herald Luxim transaction for, inter alia, breach of fiduciary duty for having "insisted" that MPIL should purchase the Herald Luxim Building, knowing that the total consideration including the personal guarantee from the 1st plaintiff was in excess of the value of the building. Also, as bankers to the plaintiffs, the 4th defen ant was said to be at fault in failing to advise the plaintiffs of the dangers to which this transaction exposed them. 59. Even the 5th defendant is said to be at fault in knowing that the 1st defendant, the 2nd defendant and the 4th defendant were in a conflict of interest situation in relation to the Herald Luxim transaction yet failing to advise the plaintiffs to seek separate legal advice and/or failing to explain the true meaning and nature of the transaction to them. 60. In July 1973 the 4th defendant, as assignee from Herald Luxim Investment Co. Ltd., requested the 1st plaintiff to purchase the 2,500,000 MPIL shares at $2,60 each. To enable the 1st plaintiff to do that the 4th defendant lent him a further $5.5m., but requested the plaintiffs to deposit not only those 2,500,000 MPIL shares as security but also additional shares, so that the 4th defendant finished up holding 18,146,000 MPIL shares plus 105,600 shares in the 4th defendant itself, as security. 61. The 4th defendant was alleged to be in breach of its duties as the 1st plaintiff's banker and in breach of trust, and/or breach of fiduciary duty and/or negligent in requiring the 1st plaintiff to purchase those 2,500,000 MPIL shares, knowing that he would have to raise additional loans to fund the purchase and/or being reckless as to whether the 1st plaintiff was in a position to fund the acquisition of those shares. 62. The Tai Gardens transaction was much simpler. There the 1st defendant acted only for the plaintiffs, MPIL and the 4th defendant on a straightforward loan of $4,180,000, for which the 1st plaintiff made himself responsible in exchange for an allotment of $4,172,000 shares in MPIL. All the combinations of breach of duty as solicitors, breach of duty as bankers, breach of duty as merchant bankers or financial advisers are pleaded against the 1st defendant, the 2nd, the 4th and the 5th, as appropriate, plus allegations of breach of trust and/or breach of fiduciary duty and/or negligence. 63. To round off the story, the plaintiffs were unable to service their loans from the 4th defendant, so that, ultimately, on 3rd January 1978, the 4th defendant sold off the 18,146,000 MPIL shares deposited with the 4th defendant by the plaintiffs. The plaintiffs allege that the 4th defendant acted in breach of its duties as a banker in doing that, and seek a declaration that such sale was wrongful and an order for the return of the shares to the plaintiffs. 64. From the above outline of the plaintiffs' case, as disclosed by the statement of claim, answers to particulars, and affidavits, I think I can discern the following main issues -
65. In the same way that a court is undoubtedly entitled to take into account that a plaintiff appears to have a strong case on its merits as a factor disposing the court to exercise its discretion in that plaintiff's favour by refusing to strike out his action for want of prosectuion, it was argued by the defendants before me that in the converse situation of a plaintiff appearing to have a weak case on its merits the court should likewise take that into account as a circumstance inclining the court to strike out. I think the defendants are correct in principle on that argument. 66. Much time was devoted by the counsel on both sides to the subject of whether the plaintiffs' claim was a strong one or not. In some cases, a judge will find himself in the position where he can give a straight answer "Yes" or "No" on this topic, but, in the peculiar circumstances of the case before me, I do not think that the issues of either law or fact are as yet in a position where I can come up with a bold "Yes" or "No" answer. 67. A major part of the plaintiffs' case hinges on whether the defendants represented that the MPIL shares would quickly reach $3 or above. The legal significance of this assertion is that it opens up for the plaintiffs the opportunity of claiming that the defendants were guilty of the type of negligent misstatement for which the well-known case of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.(5) can provide a remedy. I do not think it an exaggeration to say that Hedley Byrne v. Heller has opened up a vast, yet sparsely charted sea where it is difficult to predict in advance whether or not a plaintiff is going to find a safe haven. 68. As against their own solicitors, the 1st and the 2nd defendants, it is easy enough to say that if what the plaintiffs allege turns out to be true, the plaintiffs might well have a good cause of action in negligence, but whether either the 4th defendant or the 5th defendant stand in the type of "special relationship" to the plaintiffs which is necessary for a Hedley Byrne v. Heller type of claim I just would not like to say at this stage. Before venturing an answer on such a difficult point, I would want to know a lot more about the facts in the present case, and I would want to be addressed fully by counsel on both sides on the Hedley Byrne doctrine. 69. As to the facts, I think the plaintiffs, as a matter of practicality, will face formidable problems in proving that the defendants carried on in some of the ways alleged by the plaintiffs. Inherent probability will be against the plaintiffs in some of their assertions, and, of course, the onus of proof will be on the plaintiffs, but, all that having been said, much will depend on credibility, and the trial judge alone is competent to express views on that. I really do not feel myself to be in a position where I can say that the plaintiffs' case appears to be either weak or strong on the facts. 70. Beyond saying that the plaintiffs appear to have at least an arguable case on both the facts and the law I am not prepared to go any further at this stage. (i) General Prejudice 71. On behalf of the defendants, emphasis was placed on the importance of oral events, (as, for example, the alleged representations the shares would sell above $3), for the purpose of conducting a trial of this action. Because, generally, memories of events in 1972 and 1973 would have begun to dim even more on account of the post writ delay by the time this action came on for trial in, say, another two years time, and because in particular Mr. Osborne would no longer be available to give evidence, having died in January this year, the defendants contended that the delay for which the plaintiffs were responsible had brought about a situation where there was now a substantial risk that it was no longer possible to have a fair trial of the action. 72. An effort was made on behalf of the plaintiffs to belittle the importance of oral evidence, contending that documents alone were sufficient to establish the plaintiffs' case, particularly the part relating to the Tai Gardens and Herald Luxim transactions. 73. I find it unnecessary to arrive at any conclusion as to whether the oral evidence or the documentary evidence will be the more important: suffice it to say that both will be important. 74. I regard it as unlikely that the post-writ delay will have had any appreciable effect on the recollections of witnesses in this case. Such forgetting as has occurred is likely to have been in the year or two immediately following the events of 1972 and 1973. (See Birkett v. James(1) Biss v. Lambeth Health Authority(6); The "Mollymawk"(7). 75. In any event, I do not regard this as a case where the memory of the witnesses to the oral events is likely to be all that important: what is going to matter chiefly is the view which the trial judge takes of their integrity. In Birkett v. James(1) Lord Salmon pointed out how in some cases integrity will matter more than memory, and in my view the present is such a case. 76. What I regarded as a most telling point made by Mr. Dean was his observation to the effect that no one would suggest that the 1st plaintiff had other than a fair trial last year on criminal charges, several of which related to events in 1973 concerning the MPIL prospectus. True, the issues in the criminal proceedings were not the same as those in the present civil proceedings, but they share a common factual matrix. If it was not too late in 1980 to embark upon a trial, involving the liberty of the subject, which had to establish something as elusive as the 1st plaintiff's subjective mental state in 1973, it would be somewhat surprising, so Mr. Dean argued, if two or three years later, one could not safely embark on a civil trial which sought to prove objective events occurring in that same era. 77. For the defence, it was argued there had been a significant development since the criminal trial: the death of Mr. Osborne, which now gave rise to the risk that there could no longer be a fair civil trial. It by no means follows that a defendant necessarily suffers more than minimal prejudice merely because a witness has died during the period of delay: City General Insurance Co. Ltd. v. Robert Bradford & Co. Ltd.(8) See also Alexander v. Page (unreported decision dated 15th June 1972 of the English Court of Appeal at page 5). 78. Medical evidence shows that Mr. Osborne would not have been in a fit state to give evidence after August 1980. For the plaintiffs, it was argued that it was unlikely that a case as complex as the present one could have come on for hearing as early as August 1980, even if there had been no post-writ delay. I would regard it as unrealistic to suppose that the case would have been heard anything like as early as August 1980. Defence counsel before me have indicated that they regard it as unlikely that this case could come on for trial earlier than two years hence, if I rule against them on the present applications, so treating two years as a reasonable period for getting this case on for trial, the end of 1980 becomes the estimated trial date of a case commenced at the end of 1978. 79. Even if without delays, it was unlikely that Mr. Osborne would have been well enough to give evidence by the time the trial came on, can it be said that the defendants have been prejudiced by the delay? The defendants say in effect, "Yes, we have. If the case had been moving along at a proper pace we could have arranged to take his evidence de bene esse". 80. I find that claim by the defendants unpersuasive. As far as the defendants were concerned, the plaintiffs' claim was still hanging over their heads in the months preceding August 1980, yet none of them did anything to arrange for Mr. Osborne's evidence to be taken de bene esse as far as I am aware. Why should it be assumed they would have acted any differently had the plaintiffs not been dilatory? 81. I am not satisfied that there is a causal link between the plaintiffs delay, and any prejudice the defendants might have suffered on account of the non-availability of Mr. Osborne. 82. Even assuming that the plaintiffs' delay was the cause of Mr. Osborne's not being available for the defendants, there still remains the problem of determining whether his absence might prejudice the defendants. Bearing in mind his evidence in the criminal proceedings against the 1st plaintiff, it is obvious that, on the issue of whether the defendants represented to the plaintiffs that the MPIL shares would quickly rise to $3 or above, Mr. Osborne's oral testimony would have supported the defendants in denying that any such representation was made. That the 1st defendant also denies making such a representation is apparent from the Court of Appeal's judgment in the criminal proceedings against the 1st plaintiff: (see Agreed Bundle, page 330). Mr. King-Halford's denial of such a representation can be found in the transcript of the criminal proceedings at page 460 of the Agreed Bundle, so obviously the 5th defendant will deny that any such representation was made. It would be unrealistic to doubt that the 4th defendant will also make a similar denial. 83. However, because Mr. Osborne is no longer available in person does not mean that the defendants need be prejudiced by the absence of corroborative evidence from him to the effect that no such representation as to the opening price of the shares was made. There is the transcript of Mr. Osborne's testimony in the criminal proceedings (see at page 405 of the Agreed Bundled) which makes It abundantly clear that Mr. Osborne supported the other defendants in denying that any representation as to opening price was made. Having to reply on Mr. Osborne's evidence in the transcript by virtue of the Evidence (Hearsay) Rules rather than having him personally in court is not likely to amount to more than minimal prejudice, I would have thought. 84. Whether Mr. Osborne might have been able to help the defendants on other issues is a matter for speculation at present. Not having put in their defences yet, the court is not in a position to know whether and to what extent Mr. Osborne might have supported the defendants on other issues. In such circumstances, I do not feel in a position to say that Mr. Osborne's absence gives rise to a risk that there might not be a fair trial. In reaching that conclusion I have not overlooked that besides no longer being available to give evidence in chief, Mr. Osborne will not be available for such pre-trial purposes as assisting the defendants on documents the plaintiffs might discover, and for such trial purposes as being cross-examined by co-defendants and providing the defendants with material for cross-examining the plaintiffs as the trial goes along. 85. Like absence of witnesses, absence of documents can give rise to the risk of a trial not being fair. There is mention in some of the affidavits filed on the plaintiffs' behalf of documents which might be relevant to the trial being missing, but as this state of affairs existed before the writ was issued and does not appear to have been aggravated by the plaintiffs' delay, I do not think I am entitled to treat it as a factor disposing me to exercise my discretion in the defendant's favour. 86. It was urged on behalf of the defendants that injustice might arise from the difficulty by the time the trial comes around of trying to reconstruct what was happening in the Hong Kong stock market in the period of late 1972 and early 1973 relevant to the present case. The "sentiment of the market", as Mr. Dicks aptly called it, while being very important in determining whether the advice and actions of the defendants were reasonable at the time, might be very difficult to re-create through evidence at the trial, it was argued for the defendants. 87. Recapturing. the mood of the market is probably difficult even a few months after any specified time, but I would not have Thought the difficulties were appreciably greater 10 years rather than six years after the event. 88. There is the further point against this defence argument, that here, we are not dealing with some hum-drum, featureless period of the stock market's history, but one which must be vididly etched on the mind of anyone having any connection with the stock market at that time. Of all periods in the history of the Hong Kong stock market, the time relevant to the present case should be amongst the easiest to reconstruct. (ii) Prejudice to particular defendants 89. As the cases against the defendants are all interrelated, it follows that prejudice against any one defendant is likely to affect them all. It is for the sake of facilitating analysis only that I have chosen to separate the prejudice allegedly suffered by individual defendants. 90. It is no light matter to make allegations against solicitors of the type levelled against the 1st defendant and the 2nd defendant in the present action. Being accused of incompetence would be disconcerting enough, but, when to this is added an allegation of gravely unethical conduct by, in effect, sacrificing the interests of a small client to those of a larger one, any solicitors finding themselves in such a position are bound to treat the matter as extremely serious. To have such allegations pending unresolved against a solicitor or a firm of solicitors for an unnecessary extra fifteen months, does that amount to prejudice, as understood in this branch of the law? The answer to some extent must depend, I think, on the circumstances of the solicitor and his firm. 91. In one example cited by Denning L.J. in Biss v. Lambeth Health Authority(6) the Court of Appeal in England struck out an action against a solicitor where the delay had been for merely 13 months. However, that example does not really offer any guidance for the case before me as the law report neither elaborates on the allegations against the solicitor, nor on the circumstances of the solicitor or firm of solicitors. 92. As a matter of common sense, the impact of serious allegations against, say, a one or two man firm which has only recently been established by comparatively recently admitted solicitors will be vastly different from that on the senior partner of a well established firm facing the same allegations. In the former example, the reaction might be one of near paralysis; in the latter, the allegation though, no doubt, troublesome, might be just taken in their stride by the senior partner and his firm. 93. Not without some hesitation, I have come to the conclusion that the prejudice to the 1st defendant and 2nd defendant from the delay in this action does not rise above the minimal, and is not such as to justify me in denying the plaintiffs their day in court. Obviously the 1st defendant and 2nd defendant would be happier to be relieved from this action here and now, but, on the view I take, the 1st defendant, as senior partner, should be sufficiently broad-shouldered to withstand the wasted 15 months without excessive strain, and the 2nd defendant, which is well known to be the largest English firm of solicitors in the Colony, is sufficiently well founded to emerge comparatively unruffled from the unwelcome inconvenience of having this action start up again at this late stage. I, therefore, dismiss the application by the 1st and 2nd defendants. 94. Particular prejudice is said to have affected the 4th defendant because many of its officers who had relevant dealing with the plaintiffs are now living overseas, either having left Hong Kong on retirement or having been transferred to foreign postings. Two of its officers have died. The position is shown in tabular form at page 124 of the Agreed Bundle. Except in the case of Mr. Mills, all the retirements, deaths or transfers appear to have occurred before 10th May 1979, i.e. within the limitation period for the present action, so that the 4th defendant is not entitled to complain of prejudice in relation to them. Even in the instance of Mr. Mills, who retired from the 4th defendant on 31st December 1979 and now lives in the U.K., there is nothing to suggest that the plaintiffs delay has given rise to any prejudice. At the time of Mr. Mills retirement, the plaintiffs had delayed for five months only, and there is nothing to suggest that the 4th defendant's defence would have been advanced materially through Mr. Mills presence in Hong Kong during that five month period from August to December 1979. 95. In paragraph 26 of his affidavit (at page 98 of the Agreed Bundle), the 4th defendant's solicitor refers to the organisational difficulties the 4th defendant might experience if the action is allowed to go ahead. Of the four current employees shown in the list, about half (i.e. two) are expected to be out of Hong Kong during the preparation stages and at the time of the trial, unless the 4th defendant decides to keep all four of them in Hong Kong pending the trial. It is pointed out that could disrupt the 4th defendant's staffing arrangements and the careers and promotion prospects of those employees. Presumably the 4th defendant would have faced the same dilemma even if there had been no delay. There is nothing in the material before me to show that the 4th defendant allowed the existence of the present action to influence its staffing policies during the period from, say, December 1978 to July 1979 when the litigation was being actively pursued, and I have not been persuaded that it will do so now if I permit the litigation to continue. If Mr. Purves or Mr. Snowden the two staff members of 4th defendant shown by the table to be in Hong Kong still, get transferred by the 4th defendant away from Hong Kong before the trial is concluded, I do not think the 4th defendant need be prejudiced. In these days of long distance phone calls, telex and air-mail, the 4th defendant need not be prejudiced in the preparation of its defence, and if the witnesses find it impossible to come to Hong Kong for the trial, evidence can be taken on commission. 96. Mr. Dicks complains that the plaintiffs' claim is "shadowy", in the sense that the plaintiffs have not even been able to put a coherent, consistent story together yet, and they keep adding new characters to the cast. Confronted with a shifting, incomplete story from the plaintiffs, the 4th defendant, according to Mr. Dicks, is left in an embarrassed position if it has to try to plead a defence. This "shadowiness" of the plaintiffs case is claimed to be one facet of its lack of merits. 97. In this context, Mr. Dicks pointed in particular to what he perceived as differing versions of how the 1st plaintiff came to negotiate his loans from the 4th defendant. From paragraph 11 of the statement of claim the impression is created, so Mr. Dicks contended, that the 1st plaintiff conducted the negotiations for the with Mr. Purves, the 4th defendant's Chief Accountant in the latter part of 1972. However, in paragraphs 10 to 14 of the 1st plaintiff's affidavit (pages 262 to 264 of the Agreed Bundle) dated 18th July 1981, which was filed in opposition to the present applications to strike out, there appears a version in which the 1st plaintiff claims that his first contact with the 4th defendant was with Mr. Sandberg, the then General Manager, in August 1972. At that meeting, according to the 1st plaintiff, Mr. Sandberg approved what the 1st plaintiff proposed, and said that the 4th defendant would make credit facilities available to the 1st plaintiff. That affidavit of the 1st plaintiff was the first mention made that Mr. Sandberg might be connected with this case. 98. I regard the protests made on the 4th defendant's behalf as somewhat, exaggerated. I see no real difficulty in reconciling the version in paragraph 11 of the statement of claim with the version in the 1st plaintiff's affidavit. Basically, it appears that what the 1st plaintiff is saying is that first of all he saw the General Manager who accepted the 1st plaintiff's proposals in principle and then he was referred to the Chief Accountant who worked out the details, while at the same time allegedly tendering advice. 99. How much of the plaintiffs' narrative of events should be included in the statement of claim is a matter of judgment for his legal advisers. Provided there is no inconsistency, I see nothing objectionable in the plaintiffs subsequently fleshing out the bare bones of the statement of claim. 100. As to the plaintiffs coming up with new names of people from the 4th defendant who were allegedly involved, I am not persuaded that the plaintiffs are deserving censure for this. The events alleged by the plaintiffs are somewhat complex so it is not necessarily surprising or sinister if the plaintiffs come up with some afterthoughts. 101. Moreover, the probing carried out by the defendants through their requests for further and better particulars is likely to have prompted the plaintiffs into awareness that individual officers from the 4th defendant who were previously not regarded as significant for the purposes of the present proceedings might in fact be of some relevance. 102. As I am not satisfied that the 4th defendant might suffer some prejudice from the delay, I dismiss the 4th defendant's application. 103. There is not much which need be said about the 5th defendant's position. The 5th defendant is anxious to show that it acted independently of the 4th defendant, and hopes to call some of the 4th defendant's staff as witnesses to that end. The 4th defendant's alleged difficulties with its witnesses on account of the plaintiffs' delay are also likely to be the 5th defendant's difficulties as well. 104. In the same way I have rejected the 4th defendant's contention that it runs the risk of prejudice from delay if the action is allowed to continue, I also reject the 5th defendant's contention to the same effect, and dismiss the 5th defendant's application. Miscellaneous 105. Relying on Hatter v. Port of London Authority(9) and Kelly v. Marley Tile Co.(10), it was argued on behalf of the defendants that because the plaintiffs had withdrawn their case against the 3rd defendant, it was only fair that the plaintiffs' claims against all other defendants should be dismissed on considerations of broad justice. It was suggested that a dilemma had been created for all the other defendants: they now were faced with a situation where they would have to consider whether to join in the 3rd defendant as a third party. 106. In my opinion, the plaintiffs withdrawing their case against the 3rd defendant in no way affects the other defendants adversely, and if they feel they need to join in the 3rd defendant as a third party it is entirely a matter for them. The cases just referred to appear to relate only to the situation where one of several defendants has acquiesced in delay, but there is no suggestion of that state of affairs here. Conclusion 107. Like the judge in the Mollymawk(5), I have had to perform a balancing exercise in relation to the rights of all the parties "........ and to make, in the end, a decision whether it is more just to stop the action summarily or to allow it to go on." 108. As I have already indicated in the course of giving my reasons above, I have concluded that, on balance, it would be more just to allow the action to continue, with the result that the defendants' applications all stand dismissed.
Representation: Counsel and Solicitors: Mr. M. Dean, Q.C. and Mrs. P. Graham (Robertson, Double and Boase) for Plaintiffs (on 22-24, 27-28, 30-31/7 and 4-6/8) Mr. C. Mumford and Mrs. P. Graham (Robertson, Double and Boase) for Plaintiffs (on 27-28/10) Mr. A. Li (Lo and Lo) for 1st and 2nd Defendants. Mr. Mills-Qwens, Q.C. and Mr. Ribeiro (Slaughter and May) for 3rd Defendant. Mr. A. Dicks (Baker and McKenzie) for 4th Defendant Mr. D. Chang, Q.C. and Mr. Y.C. Mok (Deacons) for 5th Defendant. (1) (1978) AC 297 (1) at page 322G (2) (1973) 1 Q.B. 436 (3) the Estate Gazette, April 3, 1963 at 113 (4) (1968) 2 Q.B. 229 at 259 (5) (1964) A.C. 465 (1) at 335 (6) (1978) 1 WLR 382 at 388 (7) (1974) 1 LI. L.R. 32 at 35 (1) at 327 F and G (8) (1970) LI. L.R. 520 at 522 and 523 (6) at 388 (9) (1971) 115 S.J. 950 (7) at 35 (10) (1978) 122 S.J. 17 |
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