Peconic Industrial Development Ltd and Another v. Yu Ka Hong Paul and Another

CACV 285/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 285 OF 2005

(ON APPEAL FROM HCA NO. 4555 OF 2001)

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BETWEEN

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Before : Hon Woo VP, Cheung JA and Hartmann J in Court

Dates of Hearing : 18-19 May 2006

Date of Judgment : 30 May 2006

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J U D G M E N T

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Hon Woo VP:

Introduction

1.This is an appeal from the judgment dated 20 July 2005 given by Deputy High Court Judge Gill whereby he struck out the plaintiffs’ statement of claim (as re-amended) in this action and dismissed the action with costs.

Leave to adduce fresh evidence

2.At the commencement of the hearing before us, we dismissed the defendants’ two applications for leave to adduce fresh evidence by referring to the evidence of the officers of the plaintiffs (or the Bank referred to below) in the trial of HAC 16255 of 1999 and HCA 3083 of 2002 that had only ended on 5 March 2006, with costs.  The purpose of adducing the evidence is in support of the striking out order (made by the judge) on the ground that some of the plaintiffs’ claims are barred by limitation. 

3.The reasons for our refusal of leave can be briefly stated.  The judge’s ruling is in relation to a striking out, and it is only in plain and obvious case that this drastic measure is justified.  If the judge were wrong (as the plaintiffs contend) in his ruling on the evidence before him, it would not be just to the plaintiffs to allow the defendants to adduce fresh and additional evidence in support of a wrong ruling, especially when there is no respondents’ notice to raise any point so in support.  Moreover, allowing the fresh evidence would entail the plaintiffs putting in other fresh evidence to counter the points to be made by the defendants.  In any event, the fresh evidence proposed to be adduced would be subject to different interpretations by the parties and thus may not have any significant bearing on the outcome of the appeal.

The plaintiffs’ claims

4.There are essentially four causes of action pleaded by the plaintiffs against the defendants, namely, (a) dishonest assistance in the breach of fiduciary duties and trust, (b) dishonest breach of fiduciary duty, (c) breach of duty and (d) negligence. 

5.The main allegations in the Re-Amended Statement of Claim (“RASC”) that was struck out by the judge are summarised in the following paragraphs. 

6.The Agricultural Bank of China (“the Bank”) or its various branches intended to invest in a joint venture project with Chio Ho-Cheong (“Chio”) in buying various lots of agricultural land at Mai Po, a well-known conservation area, for the purpose of developing the land into residential premises (“the project”).  It was Chio who approached the 2^nd plaintiff (“P2”), a wholly-owned subsidiary of the Bank, for the project. 

7.On 25 September 1991, the 1^st defendant (“D1”), a partner of the 2^nd defendants (“D2”), was instructed by Chen Jun-Yi (“Chen”), the General Manager of P2, to do all things necessary for the proper prosecution of, and in relation to, the project (para 6 of RASC), including to provide all necessary professional advice on and in connection with various matters which needed to be inquired about before deciding on the purchase of the land, planning restriction and permission and user (para 9 of RASC) and to make full disclosure of facts known to the defendants (para 9A of RASC).  The 1^st plaintiff (“P1”), a shell company, was made available by D2, for the purpose of the project.  Chio and Chen became P1’s directors.

The claims based on dishonesty

8.The following circumstances, which are alleged to be highly suspicious, in the purchase of the land are pleaded in various paragraphs of the RASC, and in particular para 36 thereof, in support of the plea that D1 dishonestly assisted the breaches of fiduciary duty and breaches of trust on the part of Chio and/or Chen.  Asiagreat Limited (“Asiagreat”) was to sell the land as confirmor to P1.  The agreed price was $187 per square foot.  Asiagreat had just acquired the land at very substantially less than the price very shortly before selling it to P1.  Asiagreat pressurised P1 to complete the purchase at great speed.  Unknown to the plaintiffs, Chio and his girlfriend, a well-known artiste, Ms Chan Yik Sze, Elsie (“Elsie Chan”), beneficially owned Asiagreat.  Elsie Chan was introduced by Chio to D1 in October 1991 as Chio’s girlfriend, prior to 4 October.  Thereafter Elsie Chan attended D2’s offices on one or more occasions in connection with the project.  After portions of the purchase money were sent to Asiagreat’s solicitors Messrs Albert K K Luk & Co (“AKKL”), AKKL sent six official receipts dated respectively 7 October, 9 November, 21 November, 9 December 1991 and 20 January and 2 March 1992 to the defendants.  These receipts showed AKKL’s Ledger Name (ie AKKL’s client name) as Elsie Chan.  There was no reasonable prospect that planning permission would be obtained for the proposed development.

9.The fact that Elsie Chan and Chio beneficially owned Asiagreat features most significantly in the matters complained of.  Para 25 of RASC pleads:

“… Chio and Elsie Chan (by Asiagreat) succeeded in defrauding the 1^st Plaintiff and/or the 2^nd Plaintiff by concealing from the Plaintiffs their improper involvement in Asiagreat and by selling for a total price of HK$515,193,914 land which they (by Asiagreat) had purchased shortly before from the registered landowners for a total price of only HK$150,580,144.40 and/or in respect of which they knew there was no reasonable prospect of planning permission for development being granted or were reckless as to whether such permission would be granted (“the fraud”).”

10.I adopt “the fraud” as bearing the same meaning in the above pleading.  It is pleaded under the particulars of dishonesty in para 36 of RASC that the highly suspicious facts and matters (referred to in paragraph 7 above)

“… did alert the 1^st defendant and would have alerted an honest solicitor in the position of the 1^st defendant to the likelihood that the transaction involved a fraud on the 1^st Plaintiff and/or the 2^nd Plaintiff of the character referred to in paragraph 25 above.” (Emphasis added)

11.The fact that the suspicious facts and matters “were known to D1” is also pleaded in para 37A of RASC.

12.The judge struck out the plea in para 36 of RASC of dishonest assistance.  His main reasons can be found in the following paragraphs of his judgment:

“47. Mr Griffiths SC leading Mr Bullet submitted that in the particulars going to dishonesty as now amended the words lack particularity of actual knowledge and thus absent is the vital ingredient of dishonesty.  I agree.  Awareness of the so-called suspicious facts taken singly and together at best can be taken as inferences of impropriety and no more than that.

…

54. These pleadings are largely denied in the statement of defence.  But even if taken as correct; it is not pleaded that D1 read and absorbed the contents [of the receipts] and noticed an apparent irregularity.  And why should he?  The money did not come from his firm’s trust account but from his client.  More importantly, given his professional obligations owed his client, was that his firm received the assignments and documents of title which gave his client what it had paid for; registered and registrable instruments that could secure its interest.  His duty being to his client, that is what he would have been particularly concerned about.  Even if he was to note the irregularity of a strange name on the trust account receipt (and that is not the pleaded case) enquiry would not have improved his client’s position which was already secured.  Had he followed up with AKKL he may well have been told: ‘How we deal with your client’s money is a matter for us and our client.  Mind your own business.’  Such arrangement that may have been made may well have troubled AKKL’s auditors were they to have been spotted; that is neither here nor there; certainly it is not a matter for D1.

55. The plaintiffs have not in the circumstances, pleaded particulars of knowledge of dishonesty.  The pleadings do not disclose ‘… a dishonest state of mind, that is to say, consciousness that one is transgressing ordinary standards of honest behaviour’; per Lord Hoffman at p. 807, Twinsectra supra.  And there is nothing in the particulars that goes close to suggesting that this can be repaired by amendment.

56. I find the plea of dishonest assistance discloses no cause of action.  I allow the amendment to paragraph 36 and as amended order that it be struck out.”

13.There are a number of matters in the cited passages that, in my judgment, are wrong.  The knowledge of D1 of the name Elsie Chan (whom he knew as Chio’s girlfriend) on the receipts and his being alerted by that name has been cleared pleaded.  It is unnecessary for the pleading to contain an allegation, as suggested by the judge, that D1 read and absorbed the contents of the receipts and noticed an apparent irregularity.  The effect of that has already been pleaded. 

14.Secondly, at a striking out for disclosing no cause of action, it was not pertinent for the judge to have conjecture what steps D1 would have taken to deal with the irregularity that he noticed.  The simple and obvious step to take was for D1 to inform his client, the plaintiffs and the Bank. 

15.Thirdly, the judge’s criticism that no “particulars of knowledge of dishonesty” has been pleaded cannot be upheld.  If the criticism was directed at lack of particulars of D1’s knowledge of the fraud, the fact that Elsie Chan was mentioned in the receipts as AKKL’s Ledger Name could very well indicate that the recipient of the purchase money was Elsie Chan, who was known to D1 as Chio’s girlfriend, and thus would be very relevant to the likelihood that any reasonably competent solicitor would appreciate or at least suspect that dishonest secret profits that were substantial had been made by Chio (a director of P1) as the purchaser of the land through Elsie Chan via the vehicle of Asiagreat by sub-selling it to P1 at a very considerably higher price.  The plea is adequate.  See Barlow Clowes v Eurotrust International Ltd [2006] 1 All ER 333, 341, para 28, per Lord Hoffmann. 

16.If the criticism was directed at the lack of particulars of 1^st defendant’s own dishonesty, the pleading is clear that D1 had a duty to disclose material facts (the highly suspicious circumstances pointing to the fraud) that came to his knowledge which might affect his client’s interest: see paras 4-95 to 4-102 of Jackson & Powell on Professional Negligence, 3^rd Ed, but he had failed to discharge that duty. 

17.Moreover, it is pleaded in para 36 of RASC under the Particulars of Dishonesty that:

“The 1^st Defendant ignored such facts and matters and acted in reckless disregard of the rights and possible rights of each of the Plaintiffs.  By reason of the foregoing the 1^st Defendant acted dishonestly. …” (Emphasis added)

18.In my view, the pleas that the suspicious facts and matters “were known to the 1^st Defendant” and “did alert the 1^st Defendant” and that “the 1^st Defendant ignored such facts and matters” amount to sufficient particulars of knowledge of the fraud and sufficient particulars of D1’s dishonesty.  I am of the view it was wrong for the judge to have struck out the claim for dishonest assistance on the ground of the RASC disclosing no cause of action.

19.The judge also struck out the plea of intentional and dishonest breach of fiduciary duty.  He said:

“77. I come now to the claim founded in intentional and dishonest breach of fiduciary duty; namely, to act and advise one’s client in good faith and in the best interests of the client; in particular to make full disclosure of facts known.

78. Arguably, no limitation period runs because of the necessary ingredient of fraud.  But as I have earlier found the element of dishonesty has not been established.

79. I allow the application to incorporate this ground but strike it out for disclosing no cause of action.” (Emphasis added)

20.As I have already held, the judge was wrong to strike out the claim on dishonest assistance, he was also wrong for the same reasons in striking out the claim of intentional and dishonest breach of fiduciary duty for disclosing no cause of action. 

The claims for breach of duty and negligence - limitation

21.The defendants raised limitation against the claims of the plaintiffs who relied on the extension of the time limit under sections 26 and 31 of the Limitation Ordinance, Cap 347. 

22.Whether the claims founded in breach of duty as solicitors and negligence were time-barred depends essentially on when the plaintiffs first came to know that the defendants had failed in their duties to disclose the fraud to them or were negligent for failing to do so, and whether the plaintiffs, with reasonable diligence, could have uncovered the matters material to this cause of action and damage. 

23.In the Reply, the plaintiffs plead that they did not discover, and could not with reasonable diligence have discovered the fraud until December 1998 in the course of criminal investigations conducted by the ICAC.  The plaintiff first became apprised of the following facts on 15 August 2000 when D1 gave evidence at the Preliminary Inquiry, namely, (i) D1 had received the said receipts, (ii) the receipts bore the name of Elsie Chan, (iii) D1 had been introduced to Elsie Chan and knew her to be Chio’s girlfriend, and (iv) accordingly, the receipts disclosed to D1 an improper connection between Chio and Asiagreat (para 4(2)(a), (d) and (e) of the Reply).  There is no positive fact to gainsay these allegations.  Thus, for the purpose of striking out, there is apparently a sound case that D1 had concealed those facts or one or more of them from the plaintiffs all along.

24.The judge dealt with the matter in some detail:

“63. In support of their contention that the plaintiffs lacked the requisite knowledge until August 2000 an affidavit was made by Huang Zhuyong.  I have already referred to him; he emerged from the Guangdong Branch of the ABC [the Bank] to be made managing director of both of the plaintiffs following Chen’s departure from the bank in later 1992.  By then the land in question had been bought.  Mr Huang came to know almost immediately that the original landowners had sold to Asiagreat at a much reduced price from that paid by the bank.  Between then and 1999 various consultants and experts were engaged to write environmental impact and other studies concerning and going towards the ultimate objective of a rezoning of the land; all, it finally transpired by September 1999, to no avail.                       

64. Meanwhile, in January 1997, Chio having failed to pay for his allotted shares in P1 and both Chen and Chio having failed adequately to assist in P’s objectives, the share capital in P1 was adjusted to reflect the actual contributions made, and Chen and Chio were retired from their directorships.

65. Mr Huang went on to state that in December 1998 he first learned of an ICAC enquiry into a fraud which concerned Asiagreat’s involvement in the transactions as middleman, and implicated Chio and Elsie Cha.

66. One wonders who if not the bank’s officers initiated the investigation.  That has not been revealed in the pleadings or evidence.

67. In any event, according to Mr Huang, this was the first indication that: ‘the plaintiffs or anyone in the bank (other than Chen and Chio) had been informed that a fraud had been practised on them through the vehicle of Asiagreat’.

68. The evidence adduced by D1 at the preliminary hearing which followed, primarily goes to the issue of the trust account receipts from AKKL already traversed.  In his affidavit, Mr Hung adduced at paragraph 31:

“31. On 15 August 2000, Mr Yu gave evidence at the Preliminary Inquiry referred to in ASC paragraph 33.  The Plaintiffs’ solicitors attended Court throughout the proceedings on a watching brief.  It was then that the Plaintiffs’ first became apprised on the facts that (i) Mr Yu had received the receipts referred to in ASC paragraph 22; (ii) the receipts bore the name Elsie Chan; (iii) Mr Yu had been introduced to Elsie Chan and knew her to be Chio’s girlfriend; and (iv) accordingly, the receipts disclosed to Mr Yu an improper connection between Chio and Asiagreat. …”

There were other matters revealed going towards D1’s involvement which I regard as inconsequential and not worth discussing.  These are the revelations, Mr Huang stated, that for the first time disclosed the defendant’s participation in the fraud or, as pleaded, went to the issues of negligence and breach of duty of care; matters which the plaintiffs did not discover and could not have discovered with reasonable diligence any earlier.

69. Mr Huang went on to adduce that D1 had deliberately concealed or failed to disclose matters which gave rise to the plaintiffs’ actionable claims in negligence.

70. D1 made two affidavits.  On the issues specifically raised going to the limitation point he said he had no cause to know of or to suspect that Asiagreat had conducted itself fraudulently, or otherwise that there had been a fraud on the plaintiffs or ABC; on the issue of the trust account receipts he stated in the first:

‘16. The Plaintiffs place reliance on six receipts bearing the name ‘Elsie Chan’ which they allege alerted me, or should have alerted me, inter alia to a connection between Ms Chan and Asiagreat.

17. According to my firm’s records only two such receipts were received.  I do not recall examining such receipts personally, and do not believe I would have done so and the name “Elsie Chan” did not mean anything in particular to me prior to the commencement of these proceedings.  Such receipts are clerical matters which normally would be filed and dealt with by clerical staff.  Such receipts related to monies the receipt of which had already been formally acknowledged in the executed agreement, so there was no reason to give them particular attention.

18. Even if I had noticed the name “Elsie Chan” I would not have connected it with the person to whom I had been introduced, who was an artiste known to the public as Chan Yik-Sze.  I had been aware of the existence of the artiste of that name before I was introduced to Ms Chan.  I continued to think of Ms Chan as Chan Yik-Sze and was not aware of her English name.  If she was ever introduced to me as Elsie Chan I failed to register that fact.  I never realised and it was not made apparent to me that Ms Chan had any involvement with Asiagreat or the land.  When I met her I thought she was present simply to accompany Chio as his girlfriend.’

And in the second :-

‘21. I have already explained in paragraphs 16-18 of my first Affidavit herein that I probably did not see the receipts bearing the name “Elsie Chan” and that had I done so I would not have associated “Elsie Chan” with Ms Chan and that in any case I neither realised nor had reason to realise that there was any connection between either Ms Chan or Chio and Asiagreat.  I note that the name is handwritten and is more or less illegible in the receipts exhibited at HZY-9, especially those receipts, dated 9.12.91 and 2.3.92, which my firm received.  In particular “Elsie” is difficult or impossible to made out.’

And he went on to deny that he had concealed any facts.

71. It seems to me and I so find that there is nothing in the plaintiffs’ assertion that their knowledge of the defendants’ purported negligence or breach of duty to their clients was simply absent until D1 ‘spilt the bean’ in August 2000.

72. The ABC and thus, by implication, the plaintiffs (excluding the fraudsters Chio and Chen) were as early as 1993 alive to the cost to the bank of the land related to its sale price by the original holders; it was also beginning to experience difficulties in the rezoning of it.  Yet no steps were then taken which would have led to the uncovering of the actual fraudsters, in the context, to find implication of the solicitor in charge of the conveyancing because his counterpart on the other side of the transactions had written unquestionably irregular receipts is, in my view, risible.  Back in 1993 the plaintiffs (excluding Chio and Chen) had enough information to put them on enquiry; sufficient to engage surveyors and other experts and by reasonable application uncover the perpetrators and then, if they saw fit, join the defendants in negligence.

73. That deals with section 31.

74. As to section 26, there is nothing I find to promote the prospect of deliberate concealment by the defendants.  Besides, for the same reasons as before the plaintiffs could in 1993 by exercise of reasonable diligence have discovered the fraud and the fraudsters.

75. The consequences follow.

76. Leave is granted to file the amended reply.  In respect of the claims of negligence and/or breach of duty founded in trust and contract, they fail through expiry of the limitation period, which ran out no later than 1999, and are struck out accordingly.” (Emphasis added)

25.Unless the evidence of the plaintiffs is wholly incredible or there is plainly no evidence in support of the plaintiffs’ allegations that the fraud was not known to them until the ICAC investigation in 1998 and that D1’s involvement was not disclosed to them until they learned of it in the Preliminary Inquiry on 15 August 2000, the judge should not have made a finding as to facts to reject the allegation in para 71 of his judgment. 

26.Regarding what reasonable diligence could have uncovered, I do not understand why the judge should have used the knowledge of the cost of the land to the Bank as compared with the sale price by the original landowners and the difficulties experienced in the rezoning of the land, separately or cumulatively, as reasons for denouncing the lack of steps taken by the plaintiffs which would have led to the uncovering of the actual fraudsters (para 72 of the judgment).  The knowledge of the high cost and the impossibility of rezoning cannot reasonably by themselves give rise to a suspicion of the existence of a fraud that secret profits had been made in breach of fiduciary duties, but rather they would just indicate a bad deal.  A fortiori, these two matters would not reasonably have given rise to any suspicion that D1 knew of the fraud but concealed it from and did not disclose it to the plaintiffs, which is the basis for the claim on breach of duty as a professional adviser and negligence.  The facts alleged against the defendants being unknown to the plaintiffs until 15 August 2000 consist of not only D1’s knowledge of the receipts bearing Elsie Chan’s name, but more importantly that D1 knew that Elsie Chan was Chio’s girlfriend at the material time.  This latter fact could not have been discovered by the plaintiffs until D1’s own admission, even if the plaintiffs had exercised reasonable diligence in making enquiries.

27.It may be argued that by the end of 1993, when Mr Huang was sent by the Bank to Hong Kong to take over the handling of the affairs relating to the project from Chen, if Mr Huang (and the Bank) had exercised reasonable diligence he should have made enquiries which could have uncovered the fraud and the breach of duty or negligence of the defendants.  However, as matters presently stand I am not certain that it is impossible or hopeless for the plaintiff to prove the contrary.  To put it another way, the defence of limitation is not so “manifestly and immediately destructive of” the plaintiffs’ claim under this head, per Sir Sebag Shaw in Ronnex Properties v John Laing [1983] 1 QB 398, 408A as adopted by Godfrey J in Lam Kee On v Lam Hing [1992] 2 HKC 317, at 320B.

28.For the reasons I have set out above, I also consider that the judge was wrong to hold that “there is nothing I find to promote the prospect of deliberate concealment by the defendants” and that “the plaintiffs could in 1993 by exercise of reasonable diligence have discovered the fraud and the fraudsters” (para 74 of his judgment).

29.The plaintiffs’ pleaded case, as supported by the evidence of Mr Huang, is that they only realised the involvement of D1 (and so D2) giving rise to the claim of breach of duty and negligence at the earliest on 15 August 2000, and that even with reasonable diligence they could not have discovered the defendants’ involvement.  In my judgment, this is not a clear and plain case that the claim is unarguably barred by limitation or that it ought to be struck out.

Conclusion

30.For the above reasons, I would allow the appeal, with an order nisi that the plaintiffs have the costs of here and below.

Cheung JA:

31.I agree with Woo VP that the appeal should be allowed and the action should proceed to trial.  As we are differing from the judge, I would add the following comments of my own.

Pleading

32.It is clear from the judgment that the reason why the cause of action on ‘dishonestly assisting a breach of fiduciary duty and breach of trust’ was struck out was because of insufficiency of pleading.  While there are passages in the judgment which may suggest that the judge had also evaluate the strength of the plaintiffs’ case, it was clearly not the case.  In any event that task should be left to the trial.

The principle

33.On the requirement of pleading dishonesty I would respectfully adopt the judgment of Lord Millett in Three Rivers District Council and Others v. Governor and Company of the Bank of England (No. 3) [2003] 2 AC 1 at 291 and 292:

‘184    It is well established that fraud or dishonesty (and the same must go for the present tort) must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake, 7^th ed (1952), p 644; Davy v Garrett (1878) 7 Ch D 473, 489; Bullivant v Attorney General for Victoria [1901] AC 196; Armitage v Nurse [1998] Ch 241, 256.  This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.

185     It is important to appreciate that there are two principles in play. The first is a matter of pleading.  The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him.  If the pleader means “dishonestly” or “fraudulently”, it may not be enough to say “wilfully” or “recklessly”.  Such language is equivocal.  A similar requirement applies, in my opinion, in a case like the present, but the requirement is satisfied by the present pleadings. It is perfectly clear that the depositors are alleging an intentional tort.

186     The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.’

Dishonesty sufficiently pleaded

34.In the present case before the plaintiffs pleaded the 19 matters (which have been summarised by Woo VP at paragraph 8 of this judgment) as particulars of dishonesty, they have pleaded the following:

‘By acting or continuing to act for the Plaintiffs in respect of the purchase of the land the 1^st Defendant

(a) did not act as an honest solicitor would have acted; or

(b) acted in a way which was dishonest by the ordinary standards of reasonable and honest people and which he himself realized was dishonest by those standards.

A number of highly suspicious facts and matters (referred to below) did alert the 1^st Defendant and would have alerted an honest solicitor in the position of the 1^st Defendant to the likelihood that the transaction involved a fraud on the 1^st Plaintiff and/or the 2^nd Plaintiff of the character referred to in paragraph 25 above.

The 1^st Defendant ignored such facts and matters and acted in reckless disregard of the rights or possible rights of each of the Plaintiffs.  By reason of the foregoing the 1^st Defendant acted dishonestly; alternatively, it may be inferred from the foregoing that the 1^st Defendant acted dishonestly.  Such facts and matters were: …’

35.In my view dishonesty has been sufficiently pleaded.  There was nothing equivocal about the nature of the plaintiffs’ claim and the particulars in support of the claim.  The plaintiffs have pleaded, as primary facts, that the defendants knew of the 19 matters but chose to disregard them.  From these primary facts the plaintiffs seek to draw an inference of dishonesty on the part of the defendants.  While the word ‘reckless’ has appeared in the plea, it must be understood in its context and does not by itself offend the requirement of putting forward an unequivocal plea of dishonesty.

The receipt

36.Much has been said about the fact that the plaintiffs had not alleged that the defendants had read the receipt.  But it is clear from the passage I have quoted at paragraph 34 that the plaintiffs’ pleaded case was that the defendants had knowledge of the receipt.

37.As Peter Gibson LJ observed in Rigby v. Decorating Den Systems (Hearing date: 15/3/1999):

‘It does not seem to me a necessary requirement for a pleading of this nature, where it is quite clear that fraud is being alleged and where the pleading expressly states that the defendants had the relevant knowledge, that particulars of knowledge must be given. That to my mind is sufficient to enable the plea to withstand an application to strike out.’

On this basis, the judge was wrong to strike out this cause of action.  In any event, the defendants accepted that they have not asked for particulars of the knowledge of the defendants on the receipt.  In the circumstances the cause of action on ‘dishonestly assisting’ should not be struck out.

Limitation

38.The judge also struck out the cause of action on negligence and breach of duty on the basis of limitation.  The transactions took place between 1991 and 1993.  The parties agreed that without the extension the limitation period expired in 1999.

39.I must say that I am not impressed with the plaintiffs’ case that they only became suspicious and were only able to take action after they were alerted by ICAC of the fraud in October 1998 and came to know of the evidence of Mr. Yu at the criminal hearing that he had received the receipts which bore the name of Elsie Chan.

40.In my view the objective evidence in this case pointed towards a different direction:

(1)      The Bank which controlled the plaintiffs were aware in 1993, not merely that it had a ‘bad deal’ because of the large sums of money that it had invested in the project (over $500 million for some wet-land which could not be developed into residential buildings as intended) but also of the unusual feature of the transaction.  This is so stated by Mr. Huang Zhi-yong who was assigned in 1992 to take charge and manage the Bank’s investment which included the Mai Po project.  The Bank had documents which showed not merely the substantial price difference in the two sales but also the astronomical price increase occurred in an extremely short period of time.

(2)      The Bank was also aware of the relationship between Mr. Chio and Elsie Chan.  The plaintiffs accepted two bank officials were aware of this relationship: Mr. Foo Shi-feng (to whom Mr. Huang reported what he discovered in 1993 of the huge price difference paid by the Bank to Asiagreat) and Mr. Leung Kwan Pui (who was the deputy general manager of the 2^nd plaintiff).

(3)      The plaintiffs’ present solicitors had no difficulties at all in inspecting the defendants’ conveyancing file in October 2000 in which the receipt to Elsie Chan was discovered.  This receipt, which was so highly placed by the plaintiffs as the key to unravel the true identity of the confirmor vendor, when considered in the context of the knowledge of the Bank, would indicate that the Bank could have conducted a proper inquiry at a much earlier time if it was truly interested in finding out the truth. Yet despite knowledge of the unusual feature and other relevant matters and despite Mr. Huang reporting this matter to his seniors, the Bank had chosen not to take action in investigating the background of the sale.  The attitude it had adopted was one of ‘head in the sand’ response. 

(4)     All this becomes even more mystifying when the protagonist here is a bank which is familiar with commercial transactions and when it knew it had landed not simply with a bad deal but a transaction with highly unusual features.

41.I am of the view that based on the present evidence the Bank ought to have carried out a proper investigation in 1993 or at the latest in 1994 when it had failed to obtain planning permission to build residential properties on the land.  However, what is more significant for the present appeal is whether, if an inquiry should be commenced earlier, the Bank would be able to unravel all the evidence of the fraud and formulate a proper claim against the defendants before the limitation period expired in 1999.  Bearing in mind that this is a strike out application, I cannot at this stage conclude without hesitation that this must be so.  The problems with discovery should not be underestimated.  It had taken a criminal investigation agency, namely, the ICAC quite some time before it could lodge a criminal prosecution against those who had defrauded the Bank.  For this reason the extension of the limitation period is an issue that has to be tried and cannot be properly dealt with in a strike out application.

Hartmann J:

42.I agree that the appeal should be allowed.  As to the law and its application in this case, I agree with my brother judges and do not think I can usefully add anything further.

Mr John Scott SC and Mr C W Ling, instructed by Messrs Raymond T.Y. Chan, Victoria Chan & Co., for the Plaintiffs (Appellants)

Mr John Griffiths SC and Mr Andrew Bullett, instructed by Messrs Richards Butler, for the Defendants (Respondents)