The Ing on Bank Ltd and Another v. Wai Man Estates Ltd and Another

HCA001118A/1986

HEADNOTE

Courts - Practice - Extension of time for carrying out amendment - Discretion - Refusal of extension where failure to carry out amendment was deliberate choice - Refusal of extension where amendments were beyond that envisaged by original leave to amend

Courts - Practice - Amendment - Allowability - disclosure of cause of action

Conspiracy - whether necessary that sole or primary purpose of conspiracy was to cause damage to Plaintiff

Conspiracy to commit an actionable wrong - material averments - fraud - need to plead reliance upon the untrue statement

1986, No. A1118

IN THE SUPREME COURT OF HONG KONG

HUGH COURT

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BETWEEN

Coram: Hon. Deputy Judge Rogers Q. C in Chambers

Dates of hearing: 2, 3 & 4 November 1988

Date of Delivery of Judgment: 5 December 1988

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DECISION

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1. There are two matters before me on this application the first is an appeal from the Master against his refusal to exercise his discretion to extend time for filing a re-amended Statement of Claim in this consolidated action and the second is an application made now for leave to file and serve a re-amended Statement of Claim in accordance with the draft before me.

2. Before dealing with the first application it is necessary to set out some of the background to this matter. This consolidated action arose from a series of loans which were made to the First and Second Defendants, for the most part, commencing in 1984 or thereafter.

3. Order 14, summary judgment, proceedings were taken at the commencement of the actions and the Master gave leave to defend in four of the actions and subsequently, on appeal, Rhind J. gave leave to defend in the fifth action as well. In view of the Judgment of Rhind J. of the 13th August, 1986 it is unnecessary for me to do more than to refer to his Judgment and I will not repeat the facts set out therein. At the conclusion of the hearing Rhind J's Order included the provision that the Plaintiff had leave to further amend the Statement of Claim within 3 weeks. This was in its terms a general order to amend but as Mr. Mills-Owens, who appeared for the Plaintiffs, frankly agreed with Mr. Bernacchi, who appeared for the Defendants, it was not in the contemplation of any of the parties that the amendment would be other than to incorporate into the Statement of Claim the facts relating to the action in respect of which Rhind J. had allowed the appeal from the Master. It was common ground between the parties before me that it was certainly not in the contemplation of the parties at that stage that an amendment to plead fraudulent conspiracy would be made. Indeed it would be surprising if such an amendment had been contemplated, in view of the provisions of Order 14 rule 1, which excludes from order 14 applications claims based upon an allegation of fraud.

4. After Rhind J.'s Order it appears that investigations were carried out by the Commercial Crimes Bureau in respect of the matters which give rise to this consolidated action and on the 12th September, 1986 a raid was carried out. It is self evident that criminal investigations must have been carried out thereafter because in December of that year the Second Defendant was charged with conspiracy, in March of this year he was tried and convicted and in October the conviction was quashed on appeal.

5. Given that state of affairs the Plaintiff, in 1986, deemed it appropriate not to proceed with the action. As set out in paragraph 5 of the Affirmation of Winnie Lun:-

"After having consulted their legal advisers, the Plaintiffs chose to wait for the outcome of the prosecution against the 2nd Defendant before deciding on the further conduct of the proceedings".

6. The Plaintiffs' position was further expanded in the course of argument by Mr. Mills-Owens and I accept that for a number of reasons, which are valid, the Plaintiff chose not to take any further steps in this action until after the criminal trial had taken place. Whilst I have no doubt that the decision was a perfectly proper decision it was nevertheless one taken without a formal stay of the proceedings and the inevitable consequence of it was that the leave to amend the Statement off Claim was, in the circumstances, deliberately allowed to lapse.

7. After the conclusion of the trial in the criminal proceedings, the Plaintiffs sought to amend the Statement of Claim by including an allegation of fraudulent conspiracy. Initially the Plaintiffs sought to plead the criminal conviction but now, naturally, that has had to be removed from the proposed draft.

8. Before the Master, the Plaintiffs sought to effect the amendment by obtaining an extension of time of the 3 week period granted by the order of Rhind J. in August, 1986.

9. In my view the Master correctly refused such an extension of time. In the first place, as I have indicated, the Plaintiffs deliberately allowed the order of Rhind J. to lapse. Whereas that action is acceptable, it was nevertheless not an instance of the Plaintiffs attempting to comply with the order and being unable to do so nor was it a case of inadvertence but it was a case of a deliberate decision. Furthermore, in my view the proceedings had reached a fundamentally new stage in March and April of this year when the Plaintiffs began to revive them and it was then right and proper for the Court to review the whole case including the state of the pleadings and it would not be right simply to revive an order which had been deliberately allowed to lapse.

10. Mr. Bernacchi raised strong objection to the extension of time on the grounds of delay. Whilst I consider that much of the delay was as a result of the decision to allow the action to lie fallow, there have been periods of delay beyond what was necessary and the overall delay in any event was substantial. Nevertheless I base my decision in the first place upon the fact that the Plaintiffs purposely chose not to take the benefit of their original order and the delay can be seen as a background to that.

11. In the second place, and separately, it seems to me wrong in principle to extend a period of time for making an amendment which is undoubtedly fundamentally different from the amendment which was contemplated by the parties, and therefore one must assume contemplated by the Court at the time when leave to amend was given. It is unusual for the Court to give unqualified leave to amend and it would be even more remarkable if the unqualified leave to amend were supposed to be to add a claim for fraudulent conspiracy in a pleading which hitherto contained no hint of fraud. What the Court should do now is to consider whether the new amendments are proper and not to extend time for doing something which was, in reality, only a small part of what the Plaintiffs now wish to do.

12. Mr. Bernacchi launched a strong argument that the proper construction of Rhind J's order was that the amendment was simply consequential upon the consolidation of the actions and the leave to defend given to the Defendants in respect of the fifth of the original actions. Whereas I see difficulty in implying limitations into what are otherwise broad terms of the order I consider it is quite a separate matter for a party to come to Court to seek the Court's discretion to extend time for taking some step under an order when that party is now intending to do something under the extended order which it was clearly not contemplated would be done under the original order. I therefore have no hesitation in coming to the conclusion that it would be a wrong exercise of the Court's discretion to extend time in these circumstances.

13. Mr. Mills-Owens in arguing that the Court's discretion to extend time should be exercised says that the power is liberally exercised except in case where the parties cannot be compensated by an award of costs. He further goes on to say that what the Plaintiffs were seeking to do was quite clear and whether they achieved the amendment by applying for a new amendment or by extending time under the previous order did not matter since the principles were the same, the Defendants could he protected in the same way by orders of costs and the result achieved would be the same. In my view this argument is wrong because it ignores the fact that the discretion to extend time is a different discretion from the discretion to allow an amendment. It may wel1 be that the result in the end is little different but it seems to me that the judicial approach to the discretion must, if strictly exercised, be different and only if the Court were to blur the edges of the distinction and in effect to exercise its discretion to allow an amendment whereas in practice actually exercising a discretion to extend time could the result be achieved. Moreover, if a Court is to permit an amendment, which if it had been incorporated in the original pleadings might have prevented a particular course of action, such as the taking of Order 14 proceedings, then it may be appropriate for the Court to require certain undertakings from the Plaintiffs for example not enforcing any orders as to costs in respect of the failed Order 14 proceedings if ultimately successful at trial.

14. The order of the Master of the 15th August, 1988 only recited the application made in respect of the extension of time and the refusal of that extension. The Notice of Appeal also seeks to appeal the Master's refusal to allow an amendment under Order 20 rule 5. As I understood it, oral application to make such amendment was made but the Master refused to hear it saying that a separate application should be launched in the proper manner it way purely an informal application and no order has been drawn upon in respect of it. Although, as I have been reminded, an appeal to the Judge in Chambers is a matter of rehearing this matter is far more a matter of the Master's control of the proceedings before him. I would be far more reluctant to hold that a Master had been wrong in such a matter of procedure and particularly proper control of proceedings before him than in a matter of substance. However in this respect again I consider that the Master was clearly right. He in effect said that the application should be properly launched and properly made and should come back on another occasion. In view of the fact that the Master would, even if he had allowed the application to proceed, have most likely ordered an adjournment so that the matter could be argued and evidence if necessary considered and filed, I consider that the Master acted quite correctly in refusing the informal application and requiring the application to be made in the ordinary way.

15. I turn then to the question of whether the Re-Amendments are allowable. The Re-Amendments now sought fall into two main categories. There are first of all some minor Amendments to the body of the Amended Statement of Claim to which no objection is take. The Re -Amendments in paragraphs 2, 6 and 19 of the Draft are therefore allowed. The Re-Amendments in paragraphs 26A-D are not objected to either and in the circumstances these are allowed. The Re-Amendments which cause difficulty however, are those from paragraph 28 onwards and the consequential amendments in the prayer for relief.

16. The Re-Amendments in paragraphs 28 to 31 of the Draft Re-Amended Statement of Claim are typical of the Re-Amendments sought in that the Re-Amendments fall into groups which correspond to the loans and claims pleaded earlier in the Statement of Claim. I will therefore confine my observations to paragraphs 28 to 31, but what is said would apply to the corresponding subsequent paragraphs in the pleading; indeed this is the manner the matter was argued before me by both parties.

Paragraphs 28 of the Draft Re-Amendment pleads that:-

"On or about 6th February, 1984, the Second Defendant and one Albert Kwok who was the Chief Manager, Deputy Chairman and a director of the First Plaintiff and a director of the Second Plaintiff at the material time and now deceased unlawfully and fraudulently conspired to defraud, inter alios the First Plaintiff by dishonestly causing and/or permitting the First Plaintiff to extend an existing overdraft facility in respect of the said account (number stated) afforded to the Second Defendant by $3,000,000. 00 such extension being inadequately secured, inadequately guaranteed, without proper provision for payment of interest and the true nature and purpose of the same being concealed from the First Plaintiff".

17. Paragraph 29 of the Draft Re-Amendment pleads various overt acts these included:-

18. Paragraph 30 pleads damage arising to the First Plaintiff and paragraph 31 pleads that the First Plaintiff will rely upon an Affirmation of the Second Defendant filed in this action as evidence or evidence of admission of the conspiracy which is referred to in paragraph 28.

19. Mr. Bernacchi on behalf of the Defendants raises objection to the Re-Amendments on the following grounds.

20. In the first place and as a follow on from the argument in respect of the appeal against the Master's Order the Defendants say that there has been such delay as should deprive the Plaintiffs' of the right to make those amendments. In the second place he alleges that the amendments alleging fraudulent conspiracy should not be allowed because none of them disclose a cause of action, in particular he relies upon the following 3 grounds:-

(a)     the Plaintiffs have not pleaded that the Second Defendant's intention was to injure the Plaintiffs, thus it shows no cause of action in conspiracy;

(b)     the Plaintiffs have in fact pleaded that the purpose of the alleged conspiracy was to make funds available to Manifest Underwriters (and in the corresponding subsequent paragraphs of the pleading other entities); and

(c)     that the pleading in paragraph 31 by placing reliance on the Affirmation of the Second Defendant as admission of the conspiracy pleaded confounded the issue because that Affirmation shows that the Second Defendant's intention was not to injure the Plaintiffs but indeed to assist them and the Wing On Group of Companies in general.

21. Dealing with the matter of delay first, it seems to me that there should be no objection on the grounds of delay and that if any amendment whether it be pleaded as fraud, conspiracy or any other cause of action is a valid amendment then it should be allowed to go forward; in fact delay was only lightly argued on this aspect of the case.

22. It was agreed by both Counsel that the basis upon which I should approach the issue as to whether the draft Amendment disclosed a cause of action was same as that which applies in applications to strike out pleadings. In summary, the approach which I take is that the pleading will only be struck out if the case is plain and obvious. Before embarking upon an analysis of the arguments I should mention that my attention was directed to the well known case ofPhilipps v, Philipps 4 O. B. D 139 and the well known passage therein particularly of Bramwell and Brett L. JJ. and also to the case of Bruce v. Odhams Press Limited 1936 1 KB 697 and in particular to the passage Judgment of Scott L. J. where he expands upon the meaning of the word material in the context in which it is used in the rules relating to pleadings as being necessary for the purpose of formulating a complete cause of action and draws the distinction between material facts which must be pleaded and matters which are proper subject matter for particulars. I would add that the observations of Lord Edmund-Davies in Farrell v. Secretary of State for Defence 1980 1 W. L. R. 172 @180 to the effect that it is bad law and bad practice to shrug off a criticism as a mere pleading point apply, in my view, particularly poignantly to pleadings alleging fraud and conspiracy where clearly the Defendant is entitled to be told in clear and specific terms precisely what allegations are being made against him. Indeed, it is in this context, that I regard the caution which the Courts used to approach amendments alleging fraud still has force, namely the Courts will not overlook material deficiencies in a pleaded case.

23. Mr. Bernacchi on behalf of the Defendant raises objection to the pleading as formulated on the footing set out above and bases his submission on the proposition that the tort of civil conspiracy is only maintainable when the Defendant's sole or primary intention is to injure the Plaintiff, That proposition derives for its support passages in the decision in Lonrhe Limited v. Shell Petroleum Co Ltd. 1982 AC 173. The speech of Lord Diplock was adopted by the whole House and therefore commands even greater respect. In that case, having held there was no action in tort or beach of contract, Lord Diplock went on to consider the question as to whether an intent by the Defendant to injure the Plaintiff is an essential element in the civil tort of conspiracy, even where the acts agreed to be done by the conspirators amounted to a criminal offence under a penal statute. Lord Diplock held that the highly anomalous cause of action of civil conspiracy could not be constituted in such circumstances. It is important however that at page 189D Lord Diplock said:-

"My lords, in none of the judgments in decided cases in civil actions for damages for conspiracy does it appear that the mind of the author of the damage-causing acts although neither done with the purposes of injuring the plaintiff nor actionable at his suit if they had been done by one person alone, were nevertheless a contravention of some penal law. " (My emphasis added)

24. From that statement I derive the clear implication that if the damage causing acts were actionable if committed by one person alone then the civil tort of conspiracy can be constituted if two or more persons agree to embark upon a course of action to act in furtherance of that conspiracy and the acts cause damage to the Plaintiff. This was the conclusion reached by Gatehouse J. in Metall and Rohstoff v. Donaldson Lufkin 1988 3 W.L.R. 548 @556-7 Gatehouse J. derived assistance from a number of cases, the significance of one of which, Hadmor Production Limited v. Hamilton 1983 A. C.191, 228-9 seems to be not beyond doubt, the case of Lintas N. Z. v. Murphy 1986 and N.Z.Co. Reports 31 has not been located despite the efforts of Counsel and the Court and the case of Canada Cement La Farge Limited v. B. C Lightweight Aggregate Limited 1983 145 D.L.R. (3d) 385 is an authority upon which I would hesitate to place reliance in view the fact that it was a decision of the Supreme Court of Canada which set out on the basis that the Court was not disposed to follow the Lohnro decision. In coming to his conclusion Gatehouse J. felt constrained to disagree with the Judgment of Hirst J. in Allied Arab Bank Limited v. Hajjar 1988 3 W.L.R. 533. Hirst J. came to the clear conclusion that the tort of conspiracy applied exclusively to cases where the predominant purpose, of the Defendants' agreement was to injure the Plaintiff's interests see page 545 D. There is, however, considerable force in what Hirst J. states in the remainder of that paragraph on page 545, since if it is to be assumed that the civil tort of conspiracy is constituted where there is no predominant purpose to injure the Plaintiff but where there is an agreement to commit an act or acts which are otherwise actionable in the civil law, it is, perhaps difficult to foresee what additional benefit the action in the civil tort of conspiracy bestows upon the Plaintiff. There are, possibly, situations where the extra cause of action may be of same advantage to the Plaintiff litigant but I need not decide that. Furthermore, even if I had not construed Lord Diplock's speech in the way I had I consider that I would nevertheless have been constrained not to decide in a manner contrary to Gatehouse J. in view of the conflicting decisions in the face of which the matter should be properly ventilated at trial.

25. In the course of argument Mr. Mills-Owens placed strong reliance upon the overall picture which he painted of the Plaintiffs being financial institutions and $20,000,000. 00 to $25,000,000.00 worth of the Plaintiffs' funds representing money deposited by the public being spirited away in a scheme to which and Second Defendant was knowingly a party. He relied upon the submission that the true rule in the tort of civil conspiracy was that there should agreement which would result in an act which would be actionable if done by one of the conspirators alone. He put forward as part of his submission that paragraph 28 did not go so far as to plead that the predominant purpose of the Defendants was to injure the Plaintiffs and indeed he made it part of his submission that, of course, the predominant purpose upon his submission, was for the conspirators to benefit themselves or at least one of them. Mr. Mills-Owens' major attack upon the Defendants' objection was that the Defendants had failed to appreciate the distinction on the one hand between conspiracy to injure and on the other a conspiracy to defraud. I have already noted the fact that Mr. Mills-Owens relied upon the fact that all that need be pleaded is a conspiracy to commit an act which is actionable and in answer to a question from the Court Mr. Mills-Owens readily accepted that what was intended to be pleaded was a conspiracy to defraud.

26. As I have already indicated I consider if behooves a Plaintiff in framing a pleading involving an allegation of fraud to make clear and precise allegations. In so far as the present proposed pleading relies upon the allegation of conspiracy there is no attempt to pray in aid a conspiracy to commit an actionable matter other than fraud. For an action of fraud there must be the following factors:- the Defendant must have stated as a matter of fact what is untrue, knowing such statement to be untrue (or reckless as to its truth) with intent to induce the Plaintiff to act upon it, and has thereby induced the Plaintiff to act upon it to his loss, see e.g. Smith v. Chadwick 1884 9 App. Cas 187, 200. When turning to the present proposed pleadings the false statement is alleged in paragraph 29(1) in terms of the loan agreement which came:-

"into existence to give the false impression that the true borrower was the Second Defendant himself and that he was taking upon himself the responsibility of repaying the loan. "

27. I have considerable doubt as to whether this is a sufficient allegation of misrepresentation but consider that the Defendants are in a position to require sufficient particulars of the Plaintiffs that the matter could go forward.

28. I have been far more troubled as to whether there is a sufficient allegation that the Plaintiff relied upon the false statement by the Second Defendant. When I put the question to Counsel for the Plaintiffs I was told that that allegation was to be implied from the fact that the loan was granted. I consider that in a case where fraud is the underlying basis of the claim an allegation that the Plaintiff relied upon the statement is a material fact within the meaning of Order 18 as expounded by Scott L. J. I do not consider in pleading fraud it is right to leave such an allegation to be a matter of mere implication. It is possible that, as a matter of evidence, the fact of mispresentation having been made and the course pursued into which that mispresentation was calculated to mislead, is prima facie evidence that the Plaintiff was misled by it see e.g. Watson v. Charlemont 12 Q.B. 856 and Arnison v. Smith 41 Ch. D. 348 @369 but I do not consider that the pleading may leave that all important material allegation to be left to an inference from the pleading. The Defendant is entitled to know the way in which the case is put against him for example whether there was a deliberate and positive act of reliance or whether the matter is to be inferred simply from the surrounding circumstances; he will be entitled to particulars and to discovery in respect of the allegation and if he is to plead, particularly in the circumstances of a case such as this where clear allegations are made by the Plaintiffs that there were other causative factors in the Plaintiffs making the loans, the pleading of the defence may, it seems to me, take different forms. I would draw attention paragraph 29(ii) in which it is alleged that Albert Kwok caused the First Plaintiff to advance the sum of $3,000,000. 00 This, without saying more, raises a considerable inquiry as to what was the true operating factor in the Plaintiffs making the advances the subject to this action. Moreover the statement by the Second Defendant that he considered that he was acting in the Plaintiffs' best interests, cannot be lost sight of.

29. The Defendants further raised strenuous objection to paragraph 31 of the Draft Re-Amended Statement of Claim in that it alleges that the Plaintiffs will rely on the Affirmation of the Second Defendant of the 12th April in High Court Action No. A1120 as evidence or evidence of admission of the conspiracy without identifying what in the Affirmation will be relied upon. This Affirmation is not insignificant, running to over 7 pages, and it includes, the Second Defendant inter alia, at paragraph 5 of the Affirmation stating that he was asked by Mr. Kwok to render assistance to the Wing On Group and the Plaintiff Bank in particular by applying for the said loans which is further explained in paragraph 6. Mr. Mills-Owens' answer to Mr. Bernacchi's objection in respect of this is that the Plaintiff was, of course, only relying upon those matters which support the conspiracy alleged but not relying upon "self-serving statements" by the Second Defendant. I consider that the Defendants are entitled to know precisely what in the Affirmation the Plaintiffs are pleading will be relied upon as evidence of the admission and precisely what they are not, whether those statements be categorised as self-serving statements, matters of fact or whatever. This form of pleading is in my view imprecise and embarrassing and there is no reason why the pleading should not spell out what will be relied upon with adequate precision.  I would note that even if that were done, it may as a matter of evidence be difficult to divorce one matter from the rest of the Affirmation, but again that is matter for trial.

30. In the circumstances apart from the amendments allowed which I have referred to above I feel constrained to refuse the amendments sought making it clear that this decision is no bar to the Plaintiffs seeking to effect further amendments which cure the defects which I have held exist. I therefore make an order that the amendments in paragraphs 2, 6, 19 and 26A, B, C, and D in the Draft Re-Amended Statement of Claim submitted be allowed with consequential Amendments to the prayer of Statement of Claim and an Order Nisi that the costs of and occasioned by the Amendments and the hearing before me be to the Defendants in any event.

Representation:

Mr Richard Mills-Owens Q.C. and Mr. Patrick Fung instructed by Messrs Oscar Lai & Ho for the Plaintiffs

Mr Brook Bernacchi Q.C. and Mr. Robert Whitehead instructed by Messrs Chan & Wan for the Defendants