Terkild Johan Terkildsen and Another v. Barber Asia Ltd

HCA 1963/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1963 OF 2003

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BETWEEN

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Before : Hon Saunders J in Chambers

Date of Hearing : 23 March 2007

Date of Handing Down of Judgment : 27 March 2007

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JUDGMENT BY WAY OF CORRIGENDA

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Introduction:

1.On 8 March 2007, I handed down judgment in this matter.

2.In paragraph 21, when dealing with the background facts, I recorded that Mr Clark was a director of ISG.  However, in paragraph 82, when dealing with the liability of Mr Clark under the cause of action based upon the Protection of Investors Ordinance, I recorded that Mr Clark was not a director of ISG.  I then proceeded to reach a conclusion that, as a consequence of that fact, no reasonable cause of action was disclosed against Mr Clark in that respect.

3.My conclusion was plainly based upon a false premise.  Mr Smith, for Mr Clark, is obliged to accept that Mr Clark was a director of ISG, as was pleaded in paragraphs 18 and 36 of the original statement of claim, those pleas continuing in the draft amended statement of claim, as paragraphs 16 and 33.

4.My attention was drawn to that error by the solicitors for the plaintiffs.  I heard from Mr Bedford, and Mr Clark’s solicitors on 15 March 2007, and indicated to them that I was minded to recall the judgment and to correct the error.  I invited submissions on that proposition.  At the request of Mr Clark’s solicitors I adjourned the matter to 23 March 2007, in order that Mr Clark may be represented by counsel.

Jurisdiction to correct the error:

5.The judgement has not yet been sealed.  Both Mr Bedford and Mr Smith accept that I have power to recall the judgment and to correct the error.  If authority is required for the proposition it may be found in Re Harrison [1955] 1 Ch 260, applied in Hong Kong in Bank of India v Murjani & Ors [1989] 2 HKLR 585.  Both counsel agreed that in the particular circumstances of this case the proper course that I should follow is to correct the error, and then conduct the appropriate analysis of Mr Clark’s position in the light of the correct factual situation.

The consequences of the correction of the error:

6.Mr Smith argues that notwithstanding the correction of the error, the conclusion reached should be the same.  Mr Bedford says that the statement of claim, asserting as it does that Mr Clark was a director of ISG, means that there must be a cause of action disclosed against Mr Clark under the Protection of Investors Ordinance.

7.The essential paragraph upon which the plaintiffs must rely to establish an assertion of liability on the part of any of the defendants under the statutory tort created by the Protection of Investors Ordinance was paragraph 7 of the original statement of claim, now paragraph 6 of the draft amended statement of claim.  The paragraph is essential to the cause of action because it establishes the assertion of a duty that is allegedly owed to the plaintiffs, by the defendants to be charged with the cause of action. 

8.It is useful to set out the two paragraphs in their original and amended forms, (the amendments in bold).

Original form:

Further to the above duties, at all material times the 1^st, 2^nd, 3^rd, and 4^th Defendants were under statutory duties vis-à-vis the 1^st and 2^nd Plaintiffs by virtue of the Protection of Investors Ordinance, Cap 333 directly or through their agents:

Amended form:

Further to the above duties, at all material times the 1^st, 2^nd, 3^rd, 4^th  and 7^th Defendants were under statutory duties vis-à-vis the 1^st and 2^nd Plaintiffs by virtue of Section 8 of the Protection of Investors Ordinance Cap 335 directly or through their agents:

It will immediately be seen that, notwithstanding the amendment, there is no reference at all to Mr Clark, the 5^th defendant, in the claim based upon Protection of Investors liability.

9.In the course of the original argument Mr Bedford set out in a document, given to me and to all other parties, the paragraphs of the draft amended statement of claim which he said identified the factual basis for the various claims.  At the same time he identified the various causes of action relating to the various prayers for relief.  Prayer 2, he said was the cause of action under the Protection of Investors Ordinance.  Mr Bedford said that the statutory tort claim was brought against all defendants, and relied upon the following paragraphs of the draft amended statement of claim upon which he relied to substantiate that prayer for relief: 1-7, 12-17, 24-25, 35-40, 47, 49 and 50.

10.The involvement of Mr Clark in prayer 2 is by amendment.

11.In the course of the argument I pressed Mr Bedford as to whether or not he sought to further amend the draft amended statement of claim by including Mr Clark in those persons against whom he alleged a statutory duty under the Protection of Investors Ordinance.  Mr Bedford specifically and clearly did not seek any such amendment.

12.The Protection of Investors Ordinance, by s 8(3), imposes liability on a director of a company, who has not personally made a negligent representation, by way of rebuttable presumption.  For a plaintiff to succeed against such a director, he need only establish an appropriate negligent representation inducing him to enter into an agreement, and that that representation was made by some other director or employee of the company.  That established, liability is presumed against the other directors, a burden then falling on those other directors to establish that they have neither caused nor authorised the representation.

13.It must always be open to plaintiff who seeks to bring a cause of action based upon the statutory tort to make a sensible assessment, prior to commencing his proceedings, as to whether or not he wishes to draw into those proceedings all of the directors of the company, other than the person who has actually made the representation upon which reliance was placed.  A sensible plaintiff will look at the burden on those other directors to rebut the presumption, and may well say to himself that those other directors may easily meet that burden.  He may then, sensibly, elect not to bring them into the action, in order to avoid the risk of costs.

14.In this respect I note particularly that the plaintiffs, while issuing the writ against the 6^th, 8^th and 9^th defendants, have elected not to pursue any claims further against them.  I am told by Mr Bedford that Ms Barber and Mr Scott-Laws were directors of Barber Asia, against whom a Protection of Investors liability claim is also made: see paragraph 61 of the draft amended statement of claim.  Mr Bedford tells me that the writ has not been served on them and they have now been dismissed from the action with the plaintiffs’ consent.  Notwithstanding the fact that they are directors, no claim is made against them.  The plain inference is that the plaintiffs are satisfied that they would be able to rebut the presumption.

The references to Mr Clark in the statement of claim:

15.The draft amended statement of claim refers to Mr Clark in paragraph 12.  That plea, added by amendment, is clearly a plea directed at establishing Hedley Byrne liability on the part of Mr Clark, a cause of action which I have rejected as far as he is concerned.

16.He is referred to in paragraph 16, the plea being effectively merely a formal plea that Mr Clark was a director of ISG.  Paragraph 33 of the draft amended statement of claim, (a paragraph not relied upon for the statutory tort), repeats the assertion that Mr Clark was a director of ISG and says further that he was actively involved in the FSLP project.  The clear purpose of the paragraph is to establish a basis to assert a conflict of interest impacting upon advice given to the plaintiffs.  The paragraph plainly relates to Hedley Byrne liability.  Paragraph 35, into which Mr Clark is added by amendment, again plainly relates principally to Hedley Byrne liability.

17.Mr Clark is referred to in paragraph 36, which is a plea of evidence, and is not relied upon for the statutory tort.  He is added to paragraph 41, (not relied upon), but this is merely an irrelevant plea of evidence of events occurring after the acts upon which any liability may be based.  He is added to paragraph 49, a plea, not of a representation, but of a fact, namely that no guarantee was in place.

18.He is referred to in paragraph 55, by amendment, a paragraph which is not relied upon for the statutory tort, and which clearly relates to the claim in Hedley Byrne liability.  References to Mr Clark in paragraphs 57 and 58 of the draft amended statement of claim are irrelevant allegations relating to events and circumstances after the acts upon which liability might be based, and do not assist.

Discussion:

19.Having regard to the way in which the pleading has been drawn, and the deliberate decision not to include Mr Clark in the fundamental allegation contained in paragraphs 6 of the draft amended statement of claim, that a duty is owed to the plaintiffs, I am driven to the conclusion that the cause of action under Protection of Investors Ordinance liability cannot be construed to have been pleaded against Mr Clark.  For a plea under the statutory tort to be successful there must be a clear pleading imposing a duty on the defendant.  Where the ordinance is specifically pleaded, as is here, and a director is omitted from those defendants upon whom the duty is alleged, the clear inference is that the pleader does not bring the action against the director who was omitted.

20.The other references to Mr Clark in the draft amended statement of claim, all other claims against him having gone, merely form what was described by Nourse LJ in Balfour Beattie Construction Ltd v Parsons Brown and Newton Ltd (1990) 7 Const LJ 205 at 213, as

“part of the background narrative and (it) not essential to the claims which are ultimately made”. 

The essence of Mr Bedford’s submission was to repeat his assertion that, so long as defendant has been named in respect of a cause of action, any other cause of action may be pleaded against him at any time, even if that additional cause of action required the pleading of additional facts, a proposition which I have rejected.

21.I reject Mr Bedford’s proposition that the inclusion of Mr Clark in prayer 2 of the prayers for relief is sufficient to make it clear that Protection of Investors Liability is sought against Mr Clark.  A prayer for relief is a consequence of the pleas made in the statement of claim, and cannot add anything to allegations in the statement of claim.  If the content of the allegations in the statement of claim does not disclose a reasonable cause of action against a party, they are not improved by merely adding that party to a prayer for relief.

Conclusion:

22.Accordingly, for different reasons, I conclude that the draft amended statement does not disclose a reasonable cause of action against Mr Clark under the Protection of Investors Ordinance.  Mr Clark succeeds in having that claim against him struck out.

23.The order made for costs in paragraph 118 of the judgment of 8 March 2007, stands.  I accept Mr Bedford’s submission that in the light of the circumstances in which the hearings on 15 March and 23 March 2007, arose, there should be no order for costs in respect of those two days.

Mr Nigel Bedford, instructed by Messrs Weir & Associates, for the Plaintiffs

Mr Clifford Smith, SC, instructed by Messrs Tanner de Witt, for the 5^th Defendant