Silverlink (Hong Kong) Finance Ltd v. Zhang Sabine Soi Fan and Others
Read the full judgment text of HCA 2783/1998 on BabelCite. This High Court CFI judgment was delivered on 23 October 2003.
1. This ruling deals with four summonses, namely :
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HCA002783B/1998 HCA2783/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.2783 OF 1998 -----------------------
(By Original Action) --------------------
(By Counterclaim) ------------------ Coram: Deputy High Court Judge Muttrie in Chambers Date of Hearing: 25 September 2003 Date of Ruling: 23 October 2003 ---------------- R U L I N G ---------------- 1.This ruling deals with four summonses, namely :
2.This action arises out of dealings between the plaintiff and the 1st defendant, Madam Zhang at the time of the Initial Public Offer of shares in China Telecom in late 1997. The plaintiff was a licensed moneylender and a wholly owned subsidiary of China Merchants Bank ("CMB"). Madam Zhang was the director and principal shareholder of Fortune Bell Venture Ltd ("Fortune Bell"), which had held an account with the 3rd defendant. She approached the plaintiff on behalf of Fortune Bell for a loan for the purchase of China Telecom shares in the IPO. 3.By a Facility Letter dated 9 October 1997 the plaintiff provided to Fortune Bell loan facilities of up to $200,000,000 for the purpose of subscribing to the shares. By the Facility Letter, Fortune Bell was obliged to repay the loan in full one month after the first drawdown. Madam Zhang was to provide a guarantee of Fortune Bell's obligations to the plaintiff. 4.Two drawdowns were made, one of $130,000,000.00 on 9 October 1997, and one on 13 October 1997. The funds were paid into Fortune Bell's securities account ("the Account") with the 3rd defendant. However the loan was not repaid, or not repaid in full; and the plaintiff claimed against Madam Zhang on a dishonoured cheque for $38,434,600. Part judgment was obtained but on 26 January 1999 Suffiad J allowed an appeal against the Master's judgment and gave Madam Zhang unconditional leave to defend. 5.Thereafter on 4 October 1999 the plaintiff amended its pleadings to claim against Madam Zhang, both as guarantor and on the dishonoured cheque and also against the 2nd and 3rd defendants. We are here only concerned with the 3rd defendant. The claim is for $129,210,171.11, being a principal sum of $109,000,000.00 plus interest up to 11 October 1999. 6.The plaintiff's case against the 3rd defendant is that as security for the loan it required control of the Account, which would hold the money advanced and the shares subscribed, and that at a meeting on 9 October 1997 at the offices of the 3rd defendant, it was agreed between officers of and solicitors for the plaintiff, Madam Zhang and her solicitor and an officer of the 3rd defendant, a Mr Edward Tam, that such control would be achieved by appointing the plaintiff's officer, Madam Wang Dawei, as the sole signatory of the account. The plaintiff says that a standard form of mandate was filled in and signed by Madam Zhang as sole signatory to the account, and that Mr Tam confirmed that only Madam Wang would be able to operate the Account. Further, the 3rd defendant at that meeting provided, on the request of the plaintiff's officer, Mr Li, a computer print-out of the status of the Account. 7.The loan was then made in two tranches as indicated above. However, it was later found that Madam Wang was not the sole signatory of the Account, and that other transactions had been made which were not authorised by her, which diminished the value of the assets in the Account. Particulars are given of two debits totalling $100,000,000.00 between 9 and 17 October 1997, the diversion of $25,000,000.00 out of the second drawdown of $70,000.00, and the purchase and sale of various stocks and securities not authorised by Madam Wang. 8.The plaintiff also pleads that if the sums totalling $100,000,000.00 were removed from the Account prior to the pleaded oral agreement and before Madam Wang became the sole signatory, the 3rd defendant either deliberately or negligently misrepresented the status of the Account in the computer print-out on 9 October 1997. If those sums were removed after the pleaded oral agreement and Madam Wang became the sole signatory, the 3rd defendant either deliberately or negligently misrepresented that there were no outstanding unexecuted instructions which would materially change the status of the Account. If there existed on 9 October 1997 some other mandate on which the 3rd defendant was obliged to act in relation to the Account after Madam Wang signed the mandate as sole signatory, the 3rd defendant deliberately or negligently misrepresented to the plaintiff and its solicitors that Madam Wang was the only person authorised to operate the accounts. Finally the plaintiff says that in all the circumstances the 3rd defendant owed the plaintiff a fiduciary duty which prohibited it from operating the Account otherwise than in accordance with the instructions of the plaintiff. 9.The plaintiff accordingly claims against the 3rd defendant for :
10.The 3rd defendant admits that a meeting was held at its offices on 9 October 1997, but denies that any oral agreement to which it was a party was reached. It is admitted that Madam Zhang on behalf of Fortune Bell signed a form giving Madam Wang authority to operate the Account, but averred that she only became one of the authorised signatories along with Madam Zhang and one other person who were already authorised. The 3rd defendant says that it did in fact act on the instructions of Madam Zhang subsequently in making the transfers and share dealings but denies the particularised breach of agreement, the making of misstatements whether deliberate or negligent or breach of fiduciary duty. 11.It will be necessary to set out in detail what the parties are seeking in the various summonses because that has changed in the course of the hearing which was adjourned part-heard. The 3rd defendant obtained leave for amendment of its proposed amendments, and the plaintiff abandoned its objections to some of the Interrogatories. The plaintiff before the hearing and during the adjournment gave some further discovery and produced some of the documents sought. The Amendment Summons 12.The 3rd defendant seeks to make various minor amendments which are not in dispute and also to add a paragraph 32 to its defence. I set out this paragraph in full because counsel amended it in the course of the hearing. It now reads as follows :
13.The plaintiff objects to this proposed amendment, except for particulars under sub-paragraphs (e) and (f) basically on the grounds that contributory negligence is no defence to a claim in contract or for fraudulent misrepresentation, and further that the matters raised would not, on a factual analysis, give the 3rd defendant a defence either on liability or on quantum. It is also argued that sub-paragraphs (e) and (f) should be further amended to make it clear that they only relate to the claims for negligent misrepresentation and breach of fiduciary duty. The plaintiff also says that insofar as the amendments go to causation, the concept of causation cannot be divorced from that of contributory negligence, so that if arguments on causation would break down for a particular matter, that matter cannot be raised under paragraph 32. 14.As to sub-paragraphs (a) to (c) and (l), it is argued that the particulars are inadequate in that they do not state what would have happened if the plaintiff had taken the steps which the 3rd defendant says the plaintiff should have taken. In any event these steps would only affect the decision whether or not to lend. Sole control of the Account would have given the plaintiff a complete security, even if the loan was made imprudently, which is not admitted. As to the rest of the sub-paragraphs it is argued, as I understand it, that if there was an agreement that only Madam Wang could operate the account, the steps therein particularised would have been unnecessary. 15.The 3rd defendant accepts as it must that contributory negligence is not a defence in contract or in a claim for fraudulent misrepresentation. However, it is argued that since it is a defence to the other claims the amendments should be allowed and further that the amendments are relevant to causation for the purposes of the contract and fraud claims as well as to contributory negligence in respect of the other claims. 16.Leave to amend is discretionary but bona fide amendments should be allowed for the purpose of determining the real question between the parties. See Tang Kam Wah v. Ming Yat [2003] 1 HKC 532 per Stock JA at 541. 17.The parties are not, I think, in dispute on the law. Contributory negligence is not a defence to the breach of a strict contractual duty at common law. The provisions of the Law Reform (Contributory Negligence) Act 1945 do not apply to give rise to apportionment in breach of contract because they only apply to fault on a plaintiff's part which would give rise to the defence at common law. See Standard Chartered Bank v. Pakistan National Shipping Corporation (Nos. 2 & 4) [2003] 1 AC 959 (HL); Forsikringsaktieselskabet Vesta v. Butcher [1986] 2 All ER 488, at 582. However where the defendant's liability in contract is the same as his liability in the tort of negligence independently of the existence of any contract, it seems that the Act does apply; per Hobhouse J in Forsikringsaktieselskabet Vesta at 508. The position is the same under section 21 of the Law Amendment and Reform (Consolidation) Ordinance, Cap.32. Further, contributory negligence is not a defence to fraudulent misrepresentation; see Standard Chartered Bank above. Whether it applies to breach of fiduciary duty was not argued at any length but I expect it would apply if the breach were negligent rather than deliberate. 18.I am not clear about the basis on which the plaintiff says that the 3rd defendant owed it a contractual duty. The 3rd defendant was Fortune Bell's broker. It would be under a contractual duty to follow the instructions of Fortune Bell given by or through Madam Zhang. It is pleaded that the 3rd defendant had an interest in seeing that the facilities were provided to the borrower since it was to buy the shares as Fortune Bell's broker but whether that would provide the necessary consideration between the plaintiff and the 3rd defendant, given that commission would be payable to under its brokerage contract with Fortune Bell, I do not know, nor was it argued. It may be possible for the trial judge to find negligent misrepresentation but no contract. 19.I do not think that the plaintiff can simply argue that if Madam Wang had been given sole control of the Account, there would have been no loss. The question of causation must come in here. It appears that the proximate cause of the loss was Fortune Bell's failure to repay the loan. If a promise is proved, the question will arise whether Fortune Bell would have failed to repay anyway; or at least, how much it would have paid, because if shares had been bought and had then fallen in value (as they apparently did) Madam Wang's sole control might not have availed the plaintiff. 20.In any event it seems to me that since the plaintiff is pleading negligent misrepresentation the 3rd defendant should be entitled to plead contributory negligence and the steps which it says the plaintiff should have taken, to protect its own interests. Those steps would, I think, include steps taken prior to lending such as due diligence. It must surely be open to the 3rd defendant to question whether the loan should have been made at all. I do not see that it would be necessary to specify that this defence only applied to some but not all of the plaintiff's claims in law (which all seem to rely on the same facts); the trial judge will know that. 21.The plaintiff says that "due diligence" is inadequately particularised. Such an amendment should not be allowed following Perak Pioneer Ltd v. Carrian Holdings Ltd, CACV No.59 of 1985. The 3rd defendant argues that if particulars are inadequate better particulars can be sought and I can still permit the amendments in the exercise of my discretion. Due diligence is a factual question which the 3rd defendant should not be barred from pursuing. I think this must be right. If further particulars are required they can be sought. 22.I propose therefore to allow the amendments sought. There will be an order in terms of the 3rd defendant's summons, but with the draft referred to amended as shown above. Since this ruling is to be handed down the costs order will be nisi but it is proper that the 3rd defendant which seeks the amendments should pay the costs. The Discovery Summons 23.The 3rd defendant seeks specific discovery, by affidavit, of the documents in the Schedule to the summons, as follows :
24.On 23 September 2003 the plaintiff's solicitor wrote to the 3rd defendant's solicitor that the latter would produce, without admitting the propriety of the request for discovery and without waiving any privilege whatsoever, certain documents covered by paragraphs 4, 5, 6 and 7 above. The 3rd affirmation of Kwan Siu Ming, Joseph, filed on 24 September, deals with this. This effectively removes the need for argument in respect of those paragraphs except on the question whether, as counsel for the 3rd defendant argues, there should be an affirmation to the effect that these are the only documents which are or have been in the plaintiff's possession, custody or power. 25.The principles on specific discovery are clear and not in dispute and I do not need to set them out here. 26.On paragraph 1 the 3rd defendant argues that the documents sought are relevant to the question whether the plaintiff suffered any loss at all. Also, the precise funding arrangements between the CMB and the plaintiff are important given that the 1st defendant's case is that there was no real loan at all. Counsel points to the fact that in the Order 14 proceedings between the plaintiff and the 1st defendant, Suffiad J found this to be a triable issue. 27.The plaintiff argues that documents already discovered show, as does Madam Wang's statement, that the CMB borrowed the money from the Bank of America and repaid it. The plaintiff never sought to hide that it was a subsidiary of CMB. In particular reference is made to accounting documents and correspondence showing repayment of the $70,000,000.00 on 12 December 1997 apparently by another subsidiary, Silverlink (Hong Kong) Finance Ltd. 28.This, it seems to me is all very well. No doubt the money was borrowed from the Bank of America by the CMB and repaid by the CMB or a subsidiary but in no way do the documents discovered cast light on the accounting arrangements for these transactions. It is an obvious inference that there must have been some documented accounting arrangements; a large organisation will not keep track of money shifted between accounts just by keeping the figures in someone's head. Such documents are obviously relevant to the question whether there was a real loan, or a dressed-up joint venture; obviously if it was the latter, this will make a very great difference to the plaintiff's case against the 3rd defendant. So it seems to me that such documents prima facie exist and are or have been in the possession, custody or power of the plaintiff; they are relevant under the Peruvian Guano principles; and the plaintiff cannot say that their discovery is not necessary for purposes of rule 8. 29.So far as paragraphs 2(a), (b) and (d) are concerned, these stand or fall with the application for amendment. Since I allow the amendment it follows that documents relating to the exercise of due diligence must be discoverable. 30.So far as sub-paragraph (c) is concerned the plaintiff's evidence appears to be that the approval of the loan was agreed verbally between Madam Wang and the president of CMB, Mr Wang Shizhen. This evidence appears in the 2nd affirmation of the plaintiff's solicitor. It seems unlikely that a large loan of this sort would be agreed "on the nod". One would expect meetings and deliberations and some sort of written record thereof. The 3rd defendant argues that even if the evidence is to be that there were no documentary records this should be given in a proper affirmation by an officer of the plaintiff rather than at second hand by a solicitor. Reliance is placed on the judgment of Yuen J (as she then was) in Tang Man Kit v. Hing Ping Timber Co. Ltd, HCA No.8000 of 1990 to the effect that an affidavit deposing to a list of documents should be sworn by a party personally. With this I respectfully agree. If there are no documents, an officer of the plaintiff should depose to it. 31.Paragraph 3 relates to the interview between Madam Wang and Mr Wang Shizhen covered in the affirmation of the latter. In Madam Wang's most recent affirmations she says that Mr Wang has told her that he cannot remember what were the relevant files and accounts relating to the transaction. He is unwilling to be involved further, and according to her, all relevant documents have been discovered. This is all very well but what she does not say, so far as I can see, is whether or not any written interview records exist. She would certainly know if a record was kept of her interview with Mr Wang Shizhen. I think this needs to be covered in a further affirmation. 32.The plaintiff has now put forward various documents sought under paragraphs 4 to 7. The 4th and 5th affirmations of Madam Wang were filed during the adjournment. The 3rd defendant complains that no reason has been given for late and piecemeal discovery, and argues that an affirmation is required to say whether or not discovery is now complete. The very fact that documents can be discovered in the course of the hearing for discovery supports that. 33.I think this must be right. What the 3rd defendant seeks in the summons is an affirmation stating whether it has or has had the documents sought and, if not, what efforts have been made to find those which it has not, and what became of those which it had but does not have. I think the 3rd defendant is entitled to know that discovery is complete. 34.Accordingly there will be an order in terms of the summons for discovery. Again, the costs order is nisi, but it is proper that they should follow the event and that the plaintiff should pay them, and without any credit being given for last-minute discovery which produced no real saving. The Production Summons 35.The 3rd defendant seeks :
36.Again, in the course of the adjournment documents were produced. The 3rd defendant says that it does not now pursue production of categories 2 and 3 above, though it seeks costs. 37.So far as category 1 is concerned, it appears that the letter of 8 October 1997 and most of the documents referred to therein have now been produced. The 3rd defendant complains that the debenture and share mortgage which were to be forwarded have not been produced. The plaintiff however says that all the documents in existence have been produced. According to Mr Tan, his instructions to draft a share mortgage were countermanded. For the purposes of rule 10, production can only be ordered of a document referred to in pleadings, affidavits or witness statements. By implication of Mr Tan's statement, the share mortgage was never fully drafted. 38.By rule 13, no order for production shall be made unless it is necessary either for disposing fairly of the cause or matter or for saving costs. It seems most likely that all documents have now been produced under category 1. It is suggested that, in case they have not, I make the order, with liberty to apply. I do not see how this is going to dispose of the cause or matter or save costs. It is simply going to increase them, in the search for a document which, given the fact that what is really important here is what was agreed at the 9 October meeting, is unlikely to make any difference to the outcome. 39.Category 4 documents are, it appears, covered as far as they can be by Madam Wang's latest affirmation. Mr Wang Shizhen does not now remember what documents are referred to. I think it must be accepted that the 3rd defendant has got all it is going to get of these documents. There will certainly be no saving of costs if this matter is to be pursued. 40.The result is that the application for production in respect remaining documents referred to but not produced will be refused and the summons dismissed. However, some production was given, and that late. Without the summons, it would not have been. I think the 3rd defendant, having largely succeeded, must have the costs (nisi) of the summons, in any event. Interrogatories Summons 41.By Order 26, rule 1 of the Rules of the High Court :
42.The 3rd defendant seeks answers to a large number of interrogatories; four paragraphs containing in all 34 sub-paragraphs. A few have been withdrawn. The plaintiff seeks an order that the others also be withdrawn. It is necessary to go through the remainder and decide whether each of them meets the above criteria. For the sake of brevity I will not set them out. 43.There is no dispute on the principles to be followed. Cheung J (as he then was) encapsulated most of them in Lee Nui Foon v. Ocean Park Corp. (No.2) [1995] 2 HKC 395. It is helpful to set them out as they appear in the headnote :
44.The burden lies on the plaintiff to satisfy the court why each of the specific interrogatories ought to be withdrawn. In many cases the objections to the interrogatories were founded on objections to the proposed amendments but since the amendments have been allowed those objections fall away. I turn to those which remain. 45.Paragraph 1.1(b) and 1.2 : these seek to ascertain who made the fund transfer vouchers for the payments of $130,000,000.00 and $70,000,000. 00 and who made a handwritten note on them. There are three signatures on them. Counsel for the plaintiff says, proper questions about these can be answered by the plaintiff's witnesses Wang, Li or Peng. Given the defence raised by the 1st defendant - which the 3rd defendant is obviously entitled to investigate - it seems to me necessary to know who was involved in authorising the making of these payments. Investigation could be made with such person or persons. These interrogatories will stand. 46.Paragraphs 1.4 to 1.7 : these are relevant to questions of the true nature of the transaction, the plaintiff's relationship with the 1st defendant and the plaintiff's conduct in making the loan. Any objections founded on the contention that the amendments should not be made, or that questions of discovery have not been settled, no longer apply in view of my decisions on these points. These interrogatories will also stand. 47.Paragraph 2.1 : This is relevant to the plaintiff's conduct in verifying the alleged representations of the 1st defendant particularly as to the timing of the subscription to the shares. The 3rd defendant is entitled to obtain an admission. This will stand. 48.Paragraph 2.2(a) : This concerns a meeting at which it is said the loan was discussed. The 3rd defendant was not privy to the meeting, and it is argued that it is relevant for the 3rd defendant to know who attended it for the purpose of investigation and possible subpoena of witnesses, in particular on the question of whether the loan was a real one, or a hidden joint venture. However the plaintiff argues that Madam Wang in her statement adequately specifies who was present, and in any event this interrogatory is "fishing". I think this is right. The interrogatory is unnecessary and must be withdrawn. 49.Paragraph 2.3 (b) and (c) : These concern discussions at a meeting of Messrs Li, Tan and Peng about the control of the Account and how it was to be ensured. The 3rd defendant asks what (with precision to be relied on at trial) were the matters to be discussed. This is surely a matter of evidence. I do not see why the 3rd defendant needs to know it now, for the purposes of making inquiries, calling witnesses or the like. However so far as (c) goes there is, while there may be a question of privilege relating to the advice, if any of Mr Tan I accept the contention of counsel for the 3rd defendant that it is entitled to know whether advice was given and whether privilege is claimed so that the claim and any possible waiver may be tested. The interrogatory at 2.3 (b) is withdrawn but that at 2.3 (c) will stand. 50.Paragraph 2.5 : This has been superseded by events. Discovery has been given of Mr Tan's relevant documentation. This interrogatory is to be withdrawn. 51.Paragraph 2.6 (a) and (c) : The first of these asks is Mr Tan Xiang Dong was present at the meeting referred to in paragraph 17 of the statement of Li Ming Tao. I would have thought that on any sensible reading of that and the previous paragraph, it must be inferred that he was. So this question is not necessary. As to the second, what I have said in respect of the interrogatory at 2.3(b) applies here. The result is that (a) is withdrawn and (c) will stand. 52.Paragraph 2.7 and 2.8 : These go to matters covered by the amendments. Since those amendments have been allowed the interrogatories will stand. 53.Paragraph 2.9 : The answer to (a) appears at paragraph 25 of Madam Wang's affirmation of 28 July 1998, so this question is unnecessary and will be withdrawn. As to whether Mr Tan gave advice, and what advice he gave, what I have said in respect of the interrogatory at 2.3(b) applies so these questions (at (b) and (c) will stand). 54.Paragraph 2.10 : The 3rd defendant asks to whom, at its own office, the draft Broker Letter and Acknowledgment were faxed. In its pleadings the plaintiff says that it does not know who received the communication. I do not understand why this interrogatory should be necessary. If the documents were sent and received, either there was an addressee named or there was not; and if there was the 3rd defendant must know who it was. This is to be withdrawn. 55.Paragraph 3.1 : This relates to whether certain matters were discussed with the lawyers - who, on the statements, were clearly present - at the 9 October meeting, whether the advised, and what advice they gave. Again it seems that the 3rd defendant is entitled to know whether advice was given and whether privilege is claimed. This could save argument in the trial. This will stand. 56.Paragraph 3.3 : I do not understand the necessity for this. It asks who were the "Silverlink personnel" present at the meeting. That seems to be obvious from the statements and it is a matter of evidence. This interrogatory will be withdrawn. 57.Paragraph 4.1: This relates to what Madam Wang reported to Mr Wang Shizhen in order to obtain the prior approval of the loan by him, as referred to in his affirmation. The3rd defendant argues that it is relevant to the plaintiff's conduct and state of mind and as to what was understood and relied on by the plaintiff. I have some difficulty with this. It is true that Madam Wang does not deal specifically with these reports in her statement but nevertheless it goes to her evidence about which she can be asked in cross-examination. She will be able to say what the plaintiff's state of mind was. I also accept that if the questions are asked with a view to testing her consistency with what appears in Mr Wang's affirmation, this goes to credit and is not permissible. I think this interrogatory must be withdrawn. 58.Paragraph 4.2 relates to the "relevant officers of Silverlink" with whom Mr Wang Shizhen had discussions. Granted that he, according to Madam Wang, has suffered a complete lapse of memory, the identity of such persons should be known to the plaintiff and it seems to me that the 3rd defendant is entitled to know who they were so that their evidence may be sought if necessary. This will therefore stand. 59.Paragraph 4.3 is really a continuation of paragraph 4.1; the same applies; I think it must be withdrawn. 60.Accordingly, the plaintiff's application succeeds in respect of those interrogatories which I have ordered to be withdrawn and in respect of those which the 3rd defendant has withdrawn. There will be an order in terms of the summons in respect of those interrogatories. The plaintiff has, I think, largely succeeded, if one counts the interrogatories which the 3rd defendant has abandoned. So the costs (nisi) will be to the plaintiff in any event.
Representation: Mr S. Wong, instructed by Messrs Deacons, for the Plaintiff Mr G. Law, instructed by Messrs Freshfields Bruckhaus Deringer, for the 3rd Defendant | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Further hearings and rulings under HCA 2783/1998