GOBIND MOHAN AND ANOTHER v. BRIAN SHANE MCELNEY AND OTHERS

HCA004611E/1978

Action No. 4611 of 1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_______

BETWEEN

	GOBIND MOHAN also known as OBI MOHAN	1st Plaintiff
	DETARAM SAKHRANI MOHAN	2nd Plaintiff
	AND
	BRIAN SHANE McELNEY	1st Defendant
	JOHNSON, STOKE & MASTER (a firm)	2nd Defendant
	PEAT, MARWICK, MITCHELL & CO. (a firm)	3rd Defendant
	THE HONGKONG AND SHANGHAI BANKING CORPORATION	4th Defendant
	WARDLEY LIMITED	5th Defendant

_______

Coram: The Hon. Mr. Justice Hunter

Dates of Hearing: 1 - 5, 8 - 12 & 15 October 1984

Date of Delivery of Judgment: 15 October 1984

__________

JUDGMENT

__________

 

1. I have now two applications before me in this matter. The first is by the plaintiffs for leave to amend the damages formulation in paragraph 42 of the Statement of Claim. That is opposed by the surviving defendants, who retaliate by saying that I should disallow this application and dismiss the action as against them.

2. There are three parts to the amendment. The third part arises on the claim by the 2nd plaintiff. It is conceded that this amendment is unsupported by the earlier part of the pleading and it is not pursued, with the result that as against the defendants, the 2nd plaintiff's claim must be dismissed.

3. The other two matters have rather more substance. I am going to take first the application to amend what is an unnumbered part of the particulars under this paragraph, which deals with the Herald Luxim Contract. One of the main heads of negligence pleaded against these defendants is that they urged the 1st plaintiff to enter into the Herald Luxim Agreement, when they ought to have advised him against it because the 1st plaintiff could only suffer detriment from it.

4. Now there were three parts to the Herald Luxim transaction which all to be found in the first heads of agreement dated the 17th February. They were aplit off into three separate agreements later. The three parts were first: An agreement by MPIL to purchase the building from the Herald Luxim Company at a price of $4 million in cash and $2½ million shares in MPIL to be issued and allotted at par. The second part was the buy-back agreement by the plaintiff under which he undertook on certain terms to buy back these shares from the Herald Luxim Company at a price of $2.60. It is upon that agreement that the plaintiffs have focussed in this case. The third part was a rental guarantee given by Mr. Bloch.

5. Now what has been urged strenuously upon me by Mr. Eddis in that respect is that I should look for this purpose only at the buyback agreement. He says that if you look at that buy-back agreement you would see that this could only produce pain and grief to the 1st plaintiff, and there was no possibility of profit at all.

6. Now that is an observation which seems to me could always be made about a guarantee. Indeed a guarantee is almost by definition a unilateral obligation, and the person who gives the guarantee is not looking for or expecting a profit from the guarantee itself, but from the underlying transaction to which the guarantee relates. With the greatest respect to Mr. Eddis it seems to be totally impossible to separate this from the rest of the transaction, or as it were, to sever the heads of agreement themselves. It is perfectly obvious that at the time, this agreement was entered into in the. hope and expectation of profit to Mr. Mohan, a profit to be derived from the proposed floatation of MPIL. The proposed floatation was then expected to start at or about a price of $2.60, which compared very favourably indeed with the $1 or par which Mr. Mohan had paid or was about to pay for a considerable parcel of shares. What went wrong was that the market collapsed. Although everything looked set fair on the 17th February, by the time the issue actually came to be made, it was launched on a collapsed market and failed.

7. So much of the discussion over the last two days had illustrated the great problem of trying to formulate a claim against professionals for the consequences of a market collapse for which they were in no way responsible.

8. Now as far as this particular application is concerned, what Mr. Scott says in opposition to it goes like this. The cause of action here accrued on 17th February, when these contracts were entered into, upon the assumptions of negligence which he makes for the purposes of this submission. He relies primarily upon the decision of the Court of Appeal in. England in Forster v. Outred (1982) 1 W.L.R. 86 for the proposition that the entering into of an agreement like this, is the date at which a cause of action of this nature in negligence accrues. But he also acknowledges, as was pointed out both by Stephenson L.J. in that case at p.98, and more specifically by Dunn L.J. at p.100; that although the damages have to be assessed as at 17th February, for certain purposes in the actual assessment of quantum one can go forward and look at future events. The obvious future event for this purpose is the 17th July, which was the date upon which the bank as assignees from the original Luxim Company, called upon the plaintiff to perform his obligations under this contract and to re-purchase two and a half million shares at $2.60 a share.

9. In essence his submission is this. The assessment here has to be a valuation assessment as at 17th February. What the court has to do is to compare two things. First it has to make a valuation of the risk of the 1st plaintiff being called upon under this buy-back agreement to pay a sum in respect of these shares which turned out to be more than the then market price. Then it has to compare that with another value which is the total of two things; first any immediate benefit which he derived from the making of the contract; and secondly the benefit of the chance of profit which it was intended to bring about. He submits that under the first head, one can go forward to the 17th July and see what the market value of the shares would then have been immediately after the bank's call upon the plaintiff. I need not pause to consider whether the relevant price for this purpose is the buying or the selling price. That he says involves evidence of market at that date because this was quite a substantial proportion, over 5%, I think, of the company's capital, and you cannot simply take the then list price on the Hong Kong Stock Exchange and apply it willy-nilly to this particular parcel without further inquiry.

10. Secondly and more substantially, he says, that you have also got to take into account the other half of the equation; and that is the immediate benefit and the chance of profit. As far as the immediate benefit is concerned, he points to two immediate benefits; derived directly and indirectly from shareholdings in MPIL, both by the plaintiffs and by Mohan's Limited. This was because under these Herald Luxim Agreements, MPIL was acquiring a property said to be worth $8 million for a total consideration of $6½ million. This profit, it intended to capitalise, and then immediately after, did so, to the direct benefit of the plaintiff in his shareholding, where his increased shareholding derived from that capitalization; and to this indirect benefit from the new shares then issued to Mohan's Limited. That he says, is another crucial element in this assessment.

11. In summary what he submitted about the new formulation under this paragraph goes like this. First of all it is wrong as it stands. Secondly it constitutes new fact. He submits that the paragraph as it stood was totally useless, and indeed this is acknowledged by the fact that the whole thing is being struck out. Therefore anything which is added to it is new. Damages are an essential feature of the cause of action in negligence. This therefore constitutes part of a new cause of action in negligence, because it asserts new material facts which have to be proved in support of that cause of action. On that basis he seeks to bring himself within the familiar principle that I have dealt with so many times in this case, that this amendment should be disallowed as raising a new cause of action after the expiry of the limitation period. Thirdly and alternatively he says, this is much too late. To allow the plaintiffs to advance a new case for the first time at this stage, is going to prejudice the defendants, in having to meet it at this stage, and in trying to get back, for example, to market evidence as to the value of MPIL shares in 1973.

12. Mr. Eddis seeks to deal with those objections initially and basically in this way. He said, first of all, that the amendment as formulated was right, and indeed it was the only basis upon which the matter could be put forward. In other words the only basis upon which damages could be assessed here in respect of these shares, was by the comparison between the price at which the plaintiff was required on 17th July 1973 by the bank to buy them i.e. $2.60; and their actual realisation price fo 30¢ a share which must have occurred either in September 1977 or January 1978. He insisted that this was the only basis upon   which damages could be assessed and for some time was refusing to advance any other basis.

13. My first observation upon that is that it seems to me plain as a matter of law that that basis is wrong. The matter is to my mind made crystal clear by the authorities that were put before me this morning, which were in fact conveniently summarised by the Court of Appeal in England in Perry v. Sydney Phillips (1982) 3 A.E.R. 705. Each member of the Court of Appeal made it clear that in this type of case the basic measure of damages is a comparable valuation measure as at the date of the breach. I need only read what Lord Denning M.R. said at page 708 G:  "The general rule of law is that you assess tab damages at the date of the breach". He goes on to say, "you have to take the difference in valuation". That is said in that case, to be derived from a trilogy of cases, two of which concern surveyors and one of which concerns solicitors. I cannot see any possible escape from that conclusion. Nor can I see how an actual realisation price some four or five years later can be remotely relevant, except in so far as it might reflect upon value at the material time which cannot go beyond July/August 1973. The-suggestion that this was dictated by the terms of the mortgage between the plaintiff and the bank is (a) irrelevant in law and (b) not made out on the facts. So the present formulation in the document in front of me is, in my judgment, plainly wrong.

14. At a very late stage, and after some considerable pressure and prompting from the court, Mr. Eddis advanced an alternative formula which is that the comparison is between the price of $2.60, and the mean market price on 16th July 1973 say, 80¢. Now this in my judgment gets very much closer to the correct basis in law.

15. Mr. Eddis seems to me to have two insuperable problems arising from the date at which this amendment is being put forward. The first is, that it is perfectly obvious that to consider the true value of those shares as at the 16th July, one would have, as Mr. Scott submits, to consider the impact on the list price of a parcel of this size. This means trying now to get evidence of market, of events of some 11 years ago. Secondly as Mr. Scott points out, this is only half the valuation problem anyhow. I think he is right when he submits that you have to bring in the whole valuation approach. Indeed I accept his argument upon this matter in its entirety. This amendment simply does not touch the other aspects of value to this plaintiff, which he was expecting to derive, or in fact derived from this Herald Luxim Contract. The result is that this is on any view new fact. I think that it probably falls within the new cause of action definition which I have already referred to repeatedly. But whether it does or not, it is equally obvious that no court can now properly grant leave to the plaintiff to re-open and rejig his case to this extent years after the event.

16. So I go back to the first amendment which is sought under paragraphs (c) and (d) of this paragraph, with the preliminary observation that it-is common ground that (d) is derivative of (c) and dependent upon it. The first observation there is that, as drawn, the original red version here is meaningless. It was not a damages computation at all. It was simply a claim for repayment of the cost of loans. Now the amendment advanced in (c) is an attempt to deal with this by converting it into a damages formulation - a profit and loss, or a plus and minus formulation, I do not mind how it is put - by giving credit for the repayments under the loan. But the repayments figure that it is given turns out to be simply a balancing figure. Mr. Eddis confessed that he has no idea how this figure is made up. He simply did an arithmetical sum from two existing figuren in the particulars namely $15.972 million and $2.185404 million and arrived at his balance. It seems to me quite impossible to invite a party at this juncture to accept a balancing figure like that, without further information, and simply upon the assurance of counsel that it is generous. It is perfectly obvious that this figure would have to be investigated with considerable detail. Therefore that approach cannot be right.

17. Secondly this particular formulation suffers from the same malaise as the original formulation under the earlier paragraph I dealt with, because this again does not purport to be based upon value. It is apparently based upon actual realisation over some considerable period of time. So those observations alone, would I suspect be fatal.

18. But there is a much more. fundamental objection to this type of formulation. A man in my judgment does not lose money by taking a loan. If he suffers some loss, that loss arises from the use he thereafter makes of the money he borrows. A profit or loss calculation has to look to that conduct not simply to the loan. itself. You have to ask yourself what was the money applied to and for, and what was the result of that investment, was it a plus or a minus. That is simply not attempted to be done under this paragraph.

19. It can be very simply tested, because the first item in the list of loans is a loan of $2.3 million. This relates to a house in Creasey Road. This was owned by MPIL, and was a house in which the plaintiff lived rent free for some considerable time. I have been told that he was advised, that MPIL could not possibly go public with one of its directors living rent free in one of its assets. Something had to be done about it. The only thing that could be done was for him to buy the property from the company. I pause there to notice, that the motivation for the purchase was the decision to go public, and had no connection whatever with any professional advice. The result was that the plaintiff borrowed $2.3 million and purchased the property for that sum.

20. One asks oneself therefore what loss did he suffer from that transaction? The answer seems to be nothing. There is no suggestion that he paid over the odds for that property. He then continues to live there. I am told, in the particulars, that the property was sold in January 1976 for $2.7 million. But what apparently I have got in this amended claim is this. A claim for the recovery of the loan itself at $2.3 million: a claim for the recovery of the interest paid on that loan; a possibility that the capital repayment on the property has been included in the repayments; but nothing included at all in respect of the use and occupation of the property. Mr. Scott described this plea as "just silly", I can only agree with him.

21. The second item in this list is bridging overdraft of $8.172 million. I was told that this was made up of two figures. The first is the $4 million which he borrowed, and then used to buy 4 million shares from MPIL; that company then passed the cash on to Herald Luxim in respect of the purchas I have just referred to. The second one was a similar transaction where there was a borrowing of $4.72 million, the purchase of shares to the same figure at par, and the use by MPIL of that sum to buy another property. Now there may be doubt as to whether those facts are well founded. But that, I was told is the hypothesis behind this plea. Again one only has to state those facts, to see that a loss under this transaction can only arise by comparing the price at which he bought the shares, with the market price of the shares at that time. He bought these shares at par, or perhaps I should say, they were issued and allotted to him at par. A damages computation would have to start with the assertion that those shares were then worth less than par. In the market conditions prevailing at this time that seems to me to be almost impossible. The shares only collapsed in value after the collapse of the market. This again underlines the basic problem which runs through all this, of trying to bring home to negligent solicitors losses caused by a market collapse.

22. The third item in this is a loan of $5.5 million, which again is claimed in specie. Mr. Scott's phraseology also applies to this. If it is right, it would-assume that the total buy-back cost of the $2½ million shares in MPIL was not 6½ but 6½ plus 5½ i.e. $12 million which is, as he said, just silly. So that if one looks at those-three items individually one can see that there is simply no substance in them at a11.

23. Finally for my part I cannot see any sufficient nexus between the negligence pleaded and this damage. The negligence pleaded has been very conveniently summarised in what has been called the 4th edition of the summary of the complaints. One looks here at the failures to warn, particularly those enumerated under paragraphs 1(b), 2 and 3. All these go to a complaint of negligence in failing to give advice that the floatation should be stopped.

24. The pleading asserts that "sufficient advice" would have been that the floatation could be reversed. For reasons that I have already given, that plainly is not so. Sufficient advice had to have included a warning about the risk of litigation arising out of the Herald Luxim contract. If one assumes that that difficulty can be overcome, a damages computation under this head seems to me necessarily to entail two things. First of all, you have to consider the date at which the warning was given, and do a prospective or a hypothetical analysis of what the plaintiff's position would then have been, had the warning been given and acted upon, and the floatation stopped at some date before the launch; and then compare this position with the actual position following the floatation. That is the only way that I can see that you can formulate damages under this head. The formulation must be very very close to the impossible. It would be very difficult to do on the figures alone. But having done it on the figures alone, one would then have to bring in some estimate of the risk of Mr. Bloch suing under the Herald Luxim contracts, which seems to me to create a totally impossible situation.

25. The other failure relied upon is paragraph 1(a). This is a failure to enquire what assets the plaintiff had available to use personally, if the floation fail to reach its intended objective, namely a price of more than $3 a share. I can see arguments for saying that that would bite on the buy-back agreement under Herald Luxim. With the best will in the world I can see no way in which that could bite upon the purchase of the house, which is the subject matter of the first loan, or the purchase of any of the shares under the second.

26. Therefore in respect of this paragraph it seems to me that there is no substance in these claims at all; and that if there was, the dual objections of limitation and discretion would apply equally.

27. All this seems to me to underline the near impossible task a person faces in a damages formulation when he tries to attribute losses which are fundamentally occasioned by a collapse of the market (or bad luck if you like) to professional negligence. There have been three attempts so far in this case. The black one in the original Statement of Claim failed, because it had no foundation in law. The second one likewise failed, that is the red one, because that had no foundation in law. The third one, the purple one, is that which I have just dealt with. All I can say about it is this, I am not surprised that these matters have occasionally great difficulty to a successive pleaders because they have faced a very difficult task indeed.

28. Before simply dismissing the claim, which necessarily follows from my conclusion, I feel it necessary to add one further comment on liability. This is a matter which I have not reached. I am simply expressing certain tentative views upon it, really for the benefit of Mr. Obi Mohan who unfortunately has not been able to attend to court today.

29. This case was opened to me upon the basis that the negligence was founded upon two principal assertions. The second of those assertions was the failure to stop the floatation. For reasons which I have already pointed out, that seems to me to be as near a hopeless assertion as you can get. The second related to the Herald Luxim contract. There are two points which arose particularly in relation to that.

30. The first is that I have seen a number of documents. I have seen a number of bills rendered by these solicitors to their apparent clients. All those documents and all those bills proceed upon the basis that they were retained by and performing professional services for, one or other of Mr. Mohan's companies. But the contention is that from the outset in 1970 the solicitors accepted a retainer from Mr. Mohan personally and from his father personally because Mr. Mohan regarded Mr. McElney as his solicitor. That contention was not originally advanced by counsel at all when he referred me to the documents. In fact he disclaimed it. It is only after I drew his attention to the difficulty of reconciling that disclaimer with his pleadings, that he put it in the way in which he was eventually forced to put it. I need only say that it would be an exceedingly difficult contention to establish.

31. The second problem arising under the Herald Luxim contract is this. Once one rejects Mr. Eddis isolation argument as I have already done, the Herald Luxim deal was a very simple exercise in financing. Its profitability was obviously and admittedly going to depend upon the success of the floatation. In the heady state of the market on 17th February the prospects looked good. A good floatation would inevitably lead to a good profit. That was the confident expectation. Objectively speaking the converse situation was equally obvious but unexpected. A bad floatation could necessarily lead to a repurchase of these shares at more on the market price then ruling. The market collapsed, through nobody's fault, and that was the actual result. I venture to doubt whether Mr. Obi Mohan has ever really faced up to the fact that to start to maintain this claim, and to maintain the need for the advice that he asserts, he has to claim that despite his experience in the market he did not understand a transparently obvious risk; a risk I am minded to think that would have been so regarded by a first year economics student. In the events that have happened he has not been required to give evidence. But if he had gone into the witness box, I venture to doubt whether he could have brought himself to assert a degree of ignorance of this nature. I also feel constrained to add that if he had asserted it, I very much doubt if I could have regarded such assertion as credible.

32. My decision on this application is based upon the damages claims advanced, I have added those observations because if there is anything in them or if there is any prospect of their being well founded, the conclusion is inescapable that this action, from its outset, was ill advised and mis-conceived. My ruling upon this matter is that leave to amend is refused and that the actions stand dismissed against both the surviving defendants.

	(D.S. Hunter)
	Judge of the High Court

Representation:

Mr. Francis Eddis instructed by M/s Haldane Midgley & Co. for Plaintiffs.

Mr. Peter Scott, Q.C., Mr. D.A.L. Wright and Mr. Andrew Li instructed by M/s Lo & Lo for 1st and  2nd Defendants.

Mr. Alexander Irvine, Q.C. and Mr. Anthony Dicks instructed by Baker & McKenzie for 4th Defendant.

HCA004611D/1978

Action No. 4611 of 1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

______

BETWEEN

	GOBIND MOHAN also known as OBI MOHAN	1st Plaintiff
	DETARAM SAKHRANI MOHAN	2nd Plaintiff
	AND
	BRIAN SHANE McELNEY	1st Defendant
	JOHNSON, STOKES & MASTER (a firm)	2nd Defendant
	PEAT, MARWICK, MITCHELL & CO. (a firm)	3rd Defendant
	THE HONGKONG AND SHANGHAI BANKING CORPORATION	4th Defendant
	WARDLEY LIMITED	5th Defendant

   ________

Coram: The Hon. Mr. Justice Hunter

Date of Hearing: 10 October 1984

Date of Delivery: 10 October 1984

_______

RULING

_______

 

1. The position we have now reached in this trial is this. The defendants have produced the third edition of their summary of the allegations made against the 1st and 2nd defendants in the main body of this pleading. It is an exceedingly useful document because the pleading as originally drawn (and I hasten to say that Mr. Eddis had nothing to do with that at all) was redolent with generality and repetition. Therefore it was highly desirable and exceedingly useful to distill what is there into a three-page document. Fortunately there is now very little issue about the third edition of that document as it stands. The issue is whether two things should be added to it: one deriving from the old paragraph 32 of the Statement of Claim, and the other from the old paragraph 35.

2. Now the old paragraph 32 contains this allegation against I think all the defendants except the third. "They jointly and severally failed to advise the plaintiffs properly or at all in respect of the said Herald Luxim transaction, and further after the stock market had declined, wrongfully and negligently failed to advise the plaintiffs as to their best interests and how to protect those interests". That was the totality of the allegation in that paragtaph. There was not a single particular given. It seems to me about as bad an exercise of the pleader's art as you could ever find.

3. A long request for particulars was then advanced. The pleader was asked to say, first of all, what advice should have been given. The answer to that was nothing: go round the pleadings, look at a lot of other references, and you find nothing. In respect of the second half, of the failure to advise the plaintiffs as to their best interests advice was said to have been required on a number of matters.  In answer to a further request about best interest, advice was said to have been required of a number of further matters.   In both cases the pleader uses the formula "but not limited thereto".

4. Again there then follow a series of heads of complaint. As an exercise in the giving of particulars it was a total disaster. It did not start to comply with the purpose of particulars set out conveniently in the note to Order 18 rule 12 not 2 in any material respect at all. It gave no sort of information as to what was really the plaintiff's case. It gave the opposing parties (which in that case I think included all but one of the defendants) no sort of idea of the case that they had to meet. What has happened as a result of this is that Mr. Eddis has been striving manfully to extract something from this mess.

5. The first issue which I have to decide is what is open to the plaintiffs to assert on this pleading. The rival viewpoint can be simply put. Mr. Eddis submits, and indeed has to submit, that anything is open under this pleading any allegation at all which can be brought in under the framework of reduction of capital and refund of monies. I should have recorded that the two material paragraphs to which my attention is now directed is an allegation that advice was necessary, this is 4 on page 90, "in relation to the sale of MPIL property and a consequent reduction in the issued capital of MPIL"; and item 4 on the next page, "to be advised as to whether MPIL should reduce its capital and refund the monies expended on its behalf in the acquisition of assets for it". What Mr. Eddis said is that any proposition, any sale of anything resulting in a reduction of capital, can be led in evidence, and advanced as negligence against these defendants, from the period when the market started to fall, which must be 9th March 1973, "until at least December of 1976". He has to make that assertion because he said that he is not adding to the paragraph, he is narrowing it down. He is simply specifying matters which are already encompassed by the pleading.

6. Conversely Mr. Scott submits that really this pleading as it stands is totally useless. It tells nobody anything. He really repeats the submission made to me at an earlier stage in this case by Mr. Irvine for the bank. The paragraph as it stands is useless. Therefore if you add anything to it by way of particulars, which is what is sought now to be done, you are for the first time giving it teeth.

7. For my part I have no hesitation in accepting Mr. Scott's proposition and in saying that this pleading as it stands is a complete waste of time. I am not prepared to do anything to encourage what I regard as an abuse of the rules and which produces a document which totally unhelpful to everybody, the court, or the opposing parties. It does nothing to define the issues. It simply gives you heads of complaint which (it is said) allows a party, a free vein to say whatever he likes within that umbrella. It necessarily follows in my judgment that what is being sought to be added to paragraph 32 here is a particular, which is not there in the pleading. It must be rejected on the two grounds which I no longer need to repeat from my repeated rulings in this case. The first relates to limitation and the second relates to discretion. So on that first ground this application must fail:

8. There are two additional grounds which leads to the same conclusion. The first ground is that in my judgment this allegation is simply not open on this Statement of Claim. This claim is brought by the plaintiffs in their personal capacity and as shareholders and directors of MPIL. But the advice which is alleged, the solicitors should have volunteered in these two paragraphs, is advice to MPIL itself. I can see no sort of basis on which personal complaint can be made of a failure to advise MPIL, and I can see no sort of basis on which anyone, other than MPIL, through the Board of MPIL could advance the contention which is sought to be advanced here. It is common ground that all these matters were matters for the Board of MPIL. It is MPIL that had to consider whether it sold any, and if so what property. It is MPIL that had to consider whether it reduced its capital. I do not see how this complaint in that form could be advanced in a personal action brought by two individuals. In addition it is apparent (and this is perhaps in echo of the first point) that this is a matter which would have had to have been considered by the Board of Directors. If this matter was to be pursued it seems to be inevitable that evidence would have to be given on these matters by the Board members. If there is any duty to advise, the duty was owed, in my judgment, to the Board of MPIL and to nobody else.

9. The third point is this. It is said that the particulars at present advanced raise more questions than they solve and that they, themselves open some pandora's box leading to a hundred and one other questions. Having listened to the argument and having listened particularly to Mr. Eddis's attempt to answer that, I can only say I am convinced that that submission is right.

10. These particulars simply lead to a whole series of fresh questions. If this matter is allowed it would unquestionably add appreciably to the length of this case by the time one had mailed down a whole series of new points which were constantly being advanced in this context by Mr. Eddis. I invited him to put it in writing because it seemed to me that I was getting two very confused differing accounts at an earlier stage.  Having put it in writing it is perfectly obvious that this has not in fact clarified the point, and it has simply raised yet more problems.

11. So that on those three grounds in my judgment this matter cannot be allowed to be added by way of voluntary particulars to paragraph 32 or at all.

12. The other paragraph where a dispute arises is paragraph 35. Now this raises, again in language of supreme generality, complaints against these solicitors in respect of the Herald Luxim transaction because it is said: "in breach of their duty as solicitors and/or breach of trust, and/or breach of fiduciary duty, and/or negligently" in the said Herald Luxim Building transaction that "they failed to advise the plaintiffs properly or at all". I pause there because that gave rise to three specific particulars later. I need not trouble to refer to those because it is now common ground that those particulars add nothing to what is already in the pleading. The important allegation is what follows in paragraph 35 to this effect: "and/or to seek separate legal advice for the plaintiff well knowing at the time that they were acting for (and then their other clients are set out) and were or would be accordingly exposed to serious conflicts of interest and duty". What is said in respect of that by Mr. Scott is that those words in the paragraph reveal no cause of action; are prejudicial and embarrassing; and can prejudice the fair trial of this case by an inquiry into a solicitors' duty in acting for two parties, Hong Kong Practice in that respect, and so on. You only had to look at the paragraph to see that it must fail.

13. Now Mr. Eddis' first argument in support of that paragraph is That the existence of a conflict of duty itself shows a cause of action, and that therefore the paragraph is sufficient because it pleads the existence of a conflict. I cannot accept that proposition. It is perfectly true that a solicitor who acts for both parties in a transaction can put himself at risk, but the fact that there is a potential risk it does not necessarily give rise to liability. The sort of situation which can arise, and which is referred to in the cases is where in the course of acting for A and B, the solicitor in his capacity as A's solicitor learns certain information from A which is his duty to A to keep quiet about; whereas in his capacity as solicitor to B it is his duty to reveal to B. What is said in the cases is that given that situation the solicitor is in a mess. He must act in breach of his duty to one or the other. That is the sort of situation that can arise if you have a conflict of duty. But it is only in that special sort of situation that any breach of duty must arise.

14. If you have got a conflict of duty situation which you want to rely upon as giving rise to an action of negligence, it seems to me that you have to assert at least the following propositions. First that he put himself in a position of potential conflict; secondly that a particular problem arose; thirdly that that gave rise to a duty on him to do something or other; fourthly that he was in breach of that duty and fifthly what the consequences are?  In other words a properly pleaded case of negligence arising out of conflict of duty involves something like five propositions not one. All that I have in this Statement of Claim at the moment is the first proposition. On that basis I have absolutely no doubt that this allegation is not sufficient and is embarrassing. This seems to me to emerge precisely from the authorities to which Mr. Eddis was referring this morning.

15. When Mr. Eddis realised the difficulties that faced him on this pleading (I repeat it is not his handly work), he then advanced a different proposition which really was that he should have leave to amend by adding some particulars. The application arises in this way.

16. It seems to have been assumed by the various pleaders in this case that because the Herald Luxim contracts were expressed to be conditional, they created no more than options to purchase, and that the plaintiffs and MPIL could resile from those contracts at will by stopping the company floatation. The assumption seems to go right through the pleading. I had yesterday to give a ruling on whether or not that allegation was sufficiently pleaded (I think in the original of 32). I had no difficulty in ruling that it simply did not start to leave the ground as at the date of the agreement, because no such plea was remotely advanced in that paragrraph. I ruled likewise that it could not be raised at a later date. In the cause of that ruling I expressed some surprise that this assumption had been made, and that the prospect of self-induced frustration had never crossed anyone's mind.

17. The effect of Mr. Eddis' current application to amend this paragraph is now to add specifically into the document a plea which is almost indistinguishable from that which I was considering yesterday. Yesterday it was being put upon the basis that it was negligence of the solicitor not to volunteer advice that there was no risk in the Agreement. Today it is being put that it was negligent of the solicitor not to have advised some release mechanism in that same document. I can only assume that this application is made because having seen the way my mind was going, it is now desired to add in this allegation under a fresh guise by way of particulars in this paragraph.

18. The assertion sought to be added, is that it was negligent of Mr. McElney in drawing the guarantee agreement not to advise the 1st plaintiff that there must be some release mechanism, and it must be some release at his option. I am bound to say I find it an astonishing matter to be advanced. It seems to me apparent from what appears in the Statement of Claim itself that Mr. Bloch's answer to that would have be short and very simple. It would have been "no". He wanted a fixed price in substance for this property and this agreement was the only way of achieving it. There was no prospect, as far as I can see, of any release mechanism ever been remotely acceptable to him.

19. That this is a brand new allegation now being made is obvious as can be. Furthermore it is being made only after I had given a ruling adverse to the plaintiffs which more or less covers the same ground yesterday. It seems to me quite impossible even to consider allowing this brand new application to be made at this juncture: again on the same two bases of limitation and discretion which I have been through so often in the case. So that for those reasons it is plain, I think, that there is nothing left in paragraph 35.

20. At one stage I was minded to think that I could only strike out half the paragraph; that part of the paragraph which deals expressly with conflict of interest. But since I am told there is nothing else in the paragraph which is worth keeping, and I am told that by both parties, the solution is now simple I direct that paragraph 35 be struck out. That means that the third edition of the defendant's summary of the live allegations of negligence in these pleadings now accurately summarises what is left in this case for me to try.

	(D.S. Hunter)
	Judge of the High Court

Representation:

Mr. Francis Eddis instructed by M/s Haldane Midgley & Co. for Plaintiffs.

Mr. Peter Scott, Q.C., Mr. D.A.L. Wright and Mr. Andrew Li instructed by M/s Lo & Lo for 1st and 2nd Defendants.

Mr. Alexander Irvine, Q.C. and Mr. Anthony Dicks instructed by M/s Baker & McKenzie for 4th Defendant.

HCA004611C/1978

Action No. 4611 of 1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

________

BETWEEN

	GOBIND MOHAN also known as OBI MOHAN	1st Plaintiff
	DETARAM SAKHRANI MOHAN	2nd Plaintiff
	AND
	BRIAN SHANE McELNEY	1st Defendant
	JOHNSON, STOKES & MASTER (a firm)	2nd Defendant
	PEAT, MARWICK, MITCHELL & CO. (a firm)	3rd Defendant
	THE HONGKONG AND SHANGHAI BANKING CORPORATION	4th Defendant
	WARDLEY LIMITED	5th Defendant

__________

Coram: The Hon. Mr. Justice Hunter.

Date of Hearing: 9 October 1984

Date of Delivery: 9 October 1984

________

RULING

________

 

1. The matter upon which I have not to rule is whether it is open to the plaintiffs on their pleading to make two assertions of negligence against the defendant solicitors in the context of the Herald Luxim Contracts. What is wished to be said arises at two points in time; the first is on or before the 17th February, and the second is after the market collapsed. The market peaked on the 9th March, and so the allegations would bite at some time after that day. What is sought to be said is this: "that the solicitors were negligent at both these points in time in failing to volunteer advise to the effect that the plaintiffs and MPIL could get rid of these Herald Luxim Contracts by not proceeding with the floatation without any risk at all."  The proposition is simply this that the Agreement being conditional, it was open to the plaintiffs to ensure that that condition was not fulfilled. In substance it reduces the Contracts to the status of options.

2. Now having considered the matter as best I can, I have no doubt about two things; the first is (and I am putting the matters quite deliberately in this order) that in my judgment this charge of negligence has not the slightest chance of succeeding, and secondly that it is not in fact open on the pleadings as they stand.

3. Now to understand those two reasons I must say a little bit more about the Herald Luxim Contract.

4. The initial deal was made in the course of a long day on Saturday, the 17th February and was reduced to writing that afternoon by the solicitors. More formal Agreements followed on the 28th February. What the documents in the Statement of Claim tells me about this transaction comes down to this: The vendors, the Herald Luxim Investment Company Limited owned a building, the Herald Luxim Building, which was valued at that time at eight million dollars, but was then mortgaged for a sum in the order of ten and a half million dollars. Not surprisingly that company was unwilling to sell that building for a lesser sum than would clear that mortgage i.e. they were looking for a total consideration of ten and a half million. The problem was how to reconcile Herald Luxim's demands with the apparent value of the property. The imaginative device which someone thought up (and no doubt I shall hear more about this in due course) was that the great Hong Kong public could fill the gap. Because it was then in everyone's mind that there was going to be a public listing of MPIL. In the bullish market conditions which then existed, everyone was confident about the success of this floatation. Everyone was confident that these $1 share would going to be bought at some extravagant premium in a matter of days of the floatation, and that these monies could be used to bridge the gap between the eight million and ten and a half million.

5. The arrangement was (as recorded in the documents) that MPIL were to buy for a total consideration of six and a half million of which four million was to be paid in cash, and the balance of two and a half million was to be satisfied by the issue of two and a half million shares in MPIL as fully paid $1 shares. The intention then was that these could then be realised by the Herald Luxim Company on the market for a sum of not less than $2.60 and possibly more within days of this floatation. But to make sure that that was in fact brought about, and that the Herald Luxim Company in fact got the balance of six and a half million in this way. (Six and a half million being the total one reaches by multiplying two and a half million shares by $2.60), the plaintiff was asked to enter into a. buy-back agreement which in fact in substance guaranteed that sum to the Herald Luxim Company come what may.

6. Now the first complaint that is made in the action about these Agreements is a failure by the solicitors to spell out the market implications of it. The plaintiff apparently recognised the relationship between this figure of six and a half million and the premium price and was conscious of the fact that the premium would dictate the number of shares which will have to be sold if necessary to realise that price. But the complaint is that it was not spelt to him that there might be no premium at all and that he might be exposed to personal liability if the floatation failed to produce a premium price.

7. The second allegation is the one, which is sought to be advanced by my ruling, is that at the same time the solicitors should have explained to him that these Agreements where as I have indicated "options only" because of the conditional nature of the contracts.

8. What happened after the 17th of February was that, as I have said, more detailed Agreements were drawn by - the solicitors and all entered into on the 28th February. I need only look for this purpose at the principal vending agreement of the property which was made between the Herald Luxim Company and MPIL. It provided for a purchase price of six and a half million. It provided for the payment of four million in cash on or before the 28th February which is the date of the Agreement. I understand it was then paid. It provided for the balance being satisfied by the allotment to the vendors of two thousand five hundred ordinary shares on $1 each in MPIL credited as fully paid. That happened on the 9th March. By clause l8 of the Contract one finds this: "This Agreement is subject to the purchasers being converted into a public company and obtaining an official listing or any one or more recognised stock exchanges in Hong Kong within four months from the date hereof."  Very shortly after the 9th March it would seem that the bank took an assignment of the benefit of the Buy-back Agreement from the Herald Luxim Company, because the bank gave notice of that assignment to the plaintiffs on 17th March (the pleading asserts) I have seen a document, dated 22nd March addressed by the 1st plaintiff to the bank, in which he confirms that notwithstanding the transfer of the Herald Luxim shares to you my agreement to repurchase these shares shall continue in full force and effect. So that very shortly after the date on which the market peaked, from the point of view of the vendors of this property, the sale was completed. They had received four million dollars in cash. They had received and assigned their shares. As I apprehend, will appear from the document in due course, they had thus secured the discharge of their financial obligations under the mortgage to the bank. Now it is at this point in time that it is hoped to be said that it was negligent of these solicitors not to volunteer the advice that you can bring this edifice to the ground by deliberately not proceeding with this floatation, and you can do so without any risk at all.

9. Now with the greatest respect to those who wish to advance this proposition, it seems to me that one only has to state those facts to see that it simply is not going to leave the ground. Mr. Bloch and Herald Luxim had the strongest possible incentive for hanging on to the Agreements that they had got. The alleged advice assumes that Mr. Bloch would have handed back four million dollars in cash without argument. It assumes that in some way the shares could have been returned to the company, and I am mystified as to how that was to be brought about, either by Herald Luxim or by the bank. It assumes more significantly that no attempt would have been made by anyone to say to the 1st plaintiff: "Oh, No, you have agreed to buy back these shares at a certain price on a certain basis. You have made sure that that basis is not now going to be fulfilled i.e. the listing. That makes this Contract as against you unconditional, you will now pay this price personally." It seems tome that that argument would have been bound to have been raised, had an attempt been made by the plaintiffs to extract themselves from these Herald Luxim Agreements by deliberately not proceeding with the floatation. There was not simply a real risk of its being asserted; I think it was almost a stark certainty.

10. It is quite unnecessary for me to determine now whether the argument would have succeeded. It is sufficient to say that there was a real risk of it proving successful. It seems to me that Mr. Peter Scotts' proposition that the solicitor who volunteered advice of this nature was negligent, is almost unanswerable. No one in their right mind could have offered this advice, in my judgment, and therefore to assert that it was negligent not to do it, is simply a proposition that I cannot see any prospect at all of succeeding. So, that is why this is not an allegation which I can take seriously in this case at all.

11. Secondly I am quite satisfied that on the pleadings as they stand, it is not open. It is sought to bring the allegation in under paragraph 32 of the Statement of Claim. There two parts to this. The first part asserts negligence against the 1st and 2nd defendants "in failing to advise the plaintiffs properly or at all in respect of the Herald Luxim transaction." I rather wish that courts would take a strong line with pleas like this: and ignore them completely and treat them as worthless. That is the treatment they deserve. But understandably few parties can take that risk. They ask for particulars; they give the pleader a chance to fill the glaring gap. Particulars were asked in this case of the advice that was sought. The particulars given were simply a non-event. They take you for a paper chase round the documents and produce nothing. So that there is no doubt in my mind at all that the first part of this allegation is totally worthless. Indeed Mr. Eddis sensibly did not seriously contend to the contrary.

12. His submissions were based on the second half of this paragraph which goes on to say that "after the stock market had declined wrongfully and negligently failed to advise the plaintiffs as to their best interests and how to protect those interests."  The same observations as far as generalities are concerned apply to that half of the paragraph as well. But in this case in answer to the request for particulars two things were said. First on page 90 there are listed the subject matters which should have been covered under this preamble: "The 1st and 2nd defendants should have given advice to the plaintiffs upon the following matters but not limited only thereto." I will come back to that phrase again in a moment. Then five heads are set out, it goes on to say that the advice should have covered matters which are enumerated on page 91 again with the qualification "but not limited thereto."

13. Mr. Eddis seeks to bring this plea under this paragraph on two bases. First, he said that if you add together paragraph 5 on page 91 with paragraphs 2 and 3 on page 90 they are sufficiently broad to cover this plea. I cannot accept that. The heads on paragraphs 2 and 3 of page 90 are broad because the pleader wanted it both ways and he says "whether or not" in both cases. But neither of these "whether or nots" cover this particular eventuality. What is being asserted there is the position as against the 4th defendant, the bank, not the position as between the plaintiffs and the vendors of this property under the original Agreement. Indeed the point being taken there, as is shown by other paragraphs of the Statement of Claim, was quite different to the present point.

14. Secondly he said that the matter can be brought in and under this phrase "but not limited only thereto".  The effect of this would be that by using a catch-all like this, a plaintiff can come to court and add whatever he likes to his particulars.   Now there are two constructions and it seems to me of this phrase "but not limited only thereto".  The first is that the pleader is saying this: "I am not setting out every detail, but I am setting out all the relevant matters of which I complain, and I am therefore giving you proper particulars of the matters of which you are asking."

15. The second construction which is that urged by Mr. Eddis. It is really that the pleader is saying: I am specifying nothing. I am giving you half of my case now; I will give you the rest later if at when I think about it, or if at when I want to do so. Now I have no doubt in my mind that I should prefer the first of those constructions because it gives a meaning to the phrase which is consistent with and reconcilable with the rules and practice of pleading. If I was to adopt Mr. Eddis' approach, the whole of this would be a wasted exercise, because no one would know at any moment (so long as a phrase like this was used) what the case was, what they had to meet and as far as the court is concerned, what it had to try.

16. So upon the pleading as they stand my ruling must be that these two points are not open. But for the reasons that I sought to enumerate at the out set of this ruling, I cannot see that this is any loss at all to the plaintiff.

	(D.S. Hunter)
	Judge of the High Court

Representation:

Mr. Francis Eddis instructed by M/s Haldane Midgley & Co. for Plaintiffs.

Mr. Peter Scott, Q.C., Mr. D.A.L. Wright, Mr. Andrew Li instructed by M/s Lo & Lo for 1st and 2nd  Defendants.

Mr. Alexander Irvine, Q.C., Mr. Anthony Dicks instructed by M/s Baker & McKenzie for 4th Defendant.

HCA004611B/1978

No. 4611 of 1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_______

BETWEEN

	GOBIND MOHAN also known as OBI MOHAN	1st Plaintiff
	DETARAM SAKHRANI MOHAN	2nd Plaintiff
	AND
	BRIAN SHANE McELNEY	1st Defendant
	JOHNSON, STOKES & MASTER (a firm)	2nd Defendant
	PEAT, MARWICK, MITCHELL & CO. (a firm)	3rd Defendant
	THE HONGKONG AND SHANGHAI BANKING CORPORATION	4th Defendant
	WARDLEY LIMITED	5th Defendant

_________

Coram: The Hon. Mr. Justice Hunter.

Date of Hearing: 5 October 1984

Date of Delivery: 5 October 1984

_________

RULING

_________

 

1. The application upon which I now have to rule is one made by the 4th defendants, the bank, to be dismissed from this action. The basis of the application is simply this that there is manifestly nothing now left in the claim against it.

2. The matter arises in this way. The Statement of Claim gathered together the claims against the bank under four paragraphs. The first of those paragraphs was paragraph 38.   This, and a number of earlier paragraphs, formulated a claim against the bank in negligence, upon the basis that a banker who is simply asked to lend money, owes a duty to the customer or proposed customer positively to advise him upon the commercial soundness or good sense of the enterprise upon which that customer is about to embark with the assistance of money borrowed from the bank. In my judgment no such duty is in fact owed as a matter of law, a point which I thought was settled by a decision in England some four or five years ago. Mr. Eddis has accepted that position. He has expressly abandoned any cause of action in negligence, and if I may say so rightly abandoned. So I need say no more about paragraph 38.

3. The next paragraph is 39.  Now the initial pleader of this Statement of Claim regrettably used a lot of extravagant language, apparently upon the basis that when you have used extravagant language sufficiently often, it achieves some substance or life of its own. There is much extravagant language in this paragraph but no substance. Particulars were asked which revealed this lack of substance. It really is “a thing of sound and fury signifying nothing". There is simply nothing left in paragraph 39 following my refusal to allow what I regarded as a new cause of action to be added by way of amendment.

4. The third paragraph is 41. That was tarred with much the same brush as 39, until by a late amendment the word negligently was removed. So it was simply left as a plea of fact.

5. So the only paragraph left in this Statement of Claim which asserts a cause of action against the bank is paragraph 37. It is in these terms:

"Further or alternatively the 4th defendant in breach of its duty as bankers to the 1st plaintiff, and/or in respect of both plaintiffs in breach of trust and/or in breach of fiduciary duty and/or negligently wrongfully insisted that MPIL should purchase and that the plaintiffs should procure MPIL to purchase the said Herald Luxim Building well knowing that the said total consideration, including the guarantee, would be far in excess of the value of the said building and well knowing that as mortgagee to Herald Luxim, the 4th defendant had a potential conflict of interest, in that the proceeds of the said purchase would be used to discharge the said mortgage granted to it, the 4th defendant, over the said building by Herald Luxim."

6. The background to that plea is set out in the earlier paragraphs of the Statement of Claim. This pleads that on a particular day, Saturday-the 17th February, as a result I was told of a morning meeting, a luncheon meeting and an afternoon meeting, an agreement was reached between the 1st plaintiff on behalf of MPIL and Mr. Bloch on behalf of Herald Luxim for the purchase and sale of the Herald Luxim Building, in respect of which the bank were mortgagees. It is I think significant to notice that the operative words are "wrongfully insisted". There is no suggestion of coercion financial or otherwise; no suggestion of duress; no suggestion that in any way the bank sought to override the plaintiffs will. Therefore it is a peculiar allegation when you read it first. If the plaintiffs were free to say, yea or nay to the offer that was made to them, one might be forgiven for thinking "what is there in this plea?"

7. That was apparently confirmed on the first day of this hearing. When opening his case against the bank, Mr. Eddis put the matter against it in a very narrow compass, and on a completely new basis. Mr. Eddis had great problems with this pleading, which he was no way responsible for drawing, and no one could have done more than he to try and make something out of it. He plainly regarding this as a rather bizarre plea on the basis that I have just put namely that no one could be forced to do something like this against their will. Specifically as I understood him, he abandoned the words "wrongfully insisted that MPIL should purchase". In the course of his argument I put those words in pencil brackets with a line through them. The same impression was created on the minds of counsel. That was confirmed both later that afternoon on day 1, and on day 2, when a draft amendment was put before me which took out this particular allegation and substituted the new allegation which had been outlined by Mr. Eddis in the course of his opening. That application was in fact not pursued, and yesterday Mr. Eddis invited me to allow him to reinstate paragraph 37 upon the basis that his abandonment of the material allegation in it was mistaken.

8. My approach to this question is this: If counsel on their feet abandon an allegation ill advisedly and then seek to withdraw it, I should be very ready to allow that to happen, if it appeared to me that the original abandonment was in fact mistaken, and that there was potential substance in the allegation. But in my judgment in this case there is no substance in this present allegation, and Mr. Eddis' original reaction to it was wholly correct. There are two reasons for that.

9. The first is that on the facts pleaded (if you look at them as a whole) it is perfectly apparent that the main burden of the plaintiff's complaints against the bank in this contest is that the plaintiffs as mortgagees were saying they were not prepared to release their security unless the building sold for a particular price.  They were, (if you want to use the word "insisting") insisting that the property realised $X if they were to consent as mortgagees to this particular sale. This is something they were perfectly entitled to do. The pleader has got a very muddled view about this, and somehow confused in his mind the difference between insisting upon the property realising $X and insisting upon the purchase of the property. When he came towards the end of the pleading he resorted to the extravagant and somewhat meaningless language which one finds in paragraph 37.

10. This seems to me to emerge with complete clarity when you see how this claim is put together. One has to go back to the paragraphs which plead the meetings on the 17th February which resulted in the written agreement that afternoon. In paragraph 17 for a start one finds this:

"Further the 1st defendant arranged a meeting with the 1st plaintiff and the said George Bloch as director of Herald Luxim (I emphasise those words because there were some suggestion that the gentleman was acting for the bank) to discuss the purchase price of the building.  The plaintiffs cannot be more particular than to say that a certain meeting took place in about February 1973 and was attended by the 1st plaintiff, George Bloch and the 1st defendant. At the said meeting the 1st plaintiff was orally informed by the 1st defendant and/or George Bloch that the building was mortgaged to the 4th defendant and had notwithstanding that its value was, as valued as aforesaid $8m, the 4th defendant would not permit the building to be sold for a price less permit than $10 .5m such being the sum payable to the 4th defendant by Herald Luxim and secured by the mortgage."

That is a plain clear statement that the bank was not going to release its security and consent to the sale unless it was achieved a certain sum. It is flatly inconsistent with any insistence or anybody buying on any terms.

11. 19 is to the same effect. The intervening paragraph says that the plaintiffs thereupon offered $8m in cash.  19 pleads: "the 1st defendant and/or George Bloch however repeated that the 4th defendant would not permit the building to be sold at such a price, and if the 1st plaintiff wished to buy it he would have to make an offer to purchase on the following terms" which are then set out, and are said to be commercially disadvantageous to this plaintiff. Paragraph 19 therefore precisely and specifically repeats the same allegation as you will find in 17.

12. One then comes on to paragraph 20 which originally read like this:

"Thereupon the 1st and 4th defendant induced the 1st plaintiff to enter into such a purchase agreement."

Particulars were given of that. In the original allegation (which had since been abandoned) against the bank, the particulars were to this effect (and this is on page 161 of the bundle). Under particulars of inducement it was said that the person concerned was Mr. Purves, who was the senior representative of the bank involved in this negotiation. The answer was in these terms: "The plaintiffs cannot be more particular than to say the import of such inducement was to the effect (and I emphasise this) that if MPILwanted to purchase the property the method of purchase as hereinbefore set out was the only way in which MPIL would obtain such property", this is a precise repetition of what was in paragraphs 17 and 19.

13. Some particulars were also given to the 1st and 2nd defendants, but which were specifically enlarged to cover the position of the 4th defendant. Those against the 1st defendant simply say that he was encouraging or urging this upon the basis that it seemed to him to make financial sense. As against the 4th defendant what has said is this: "The 1st defendant acted on behalf of the 4th defendant and/or the said George Bloch and the 1st defendant informed the 1st plaintiff that the 4th defendant would not be prepared to discharge the mortgage upon Herald Luxim Building unless the agreement as hereinbefore set cut was completed."  It is exactly the same thing again. Then it goes on "Further the same George Bloch stated that one Neville Mills of the 4th defendant had stated that the 4th defendant wanted to ensure a minimum price for the sale of the said building and wanted to take the two and a half million shares in MPIL." That again is totally consistent with everything that had gone before.

   

14. Then one comes on to paragraph 37 itself which I have already read. Particulars were delivered under that. First, there were particulars of the insistence (at page 179) "of the allegation that the 4th defendant wrongfully insisted that MPIL should purchase the Herald Luxim Building (1) giving particulars of all matters relied upon in support of such allegation." The answer is that "the plaintiffs in paragraphs (what are now) 15 to 23 of the Statement of Claim set out the best particulars that the plaintiff can give."  In other words as particulars of insistence they went back to the precise paragraphs I have just been reading and particularly 17 and 19.

15. Then we have the only matter which can be relied upon by the plaintiffs. The next request was this: "State whether the 4th defendant so insisted orally or in writing" and then the common form request on that. The answer was: "Orally. These matters have been set out in paragraphs 18 to 29 of the Statement of Claim." That is going back and certainly paragraphs 17 and 19 are picked up again. Then: "the plaintiffs contend that the said George Bloch at the same time, and at the same place orally asserted that one Neville Mills, servant to the 4th defendant had insisted that MPIL should purchase the Herald Luxim Building."  So this is the one account which is out of step with every other one. Where as we were told originally that Bloch had said Mr. Mills wanted a particular price, it now become insistence on a purchase. It seems to me that it is perfectly plain, taking this pleading as a whole that this is simply a misuse of language, and that from start to finish all the bank was saying was: If you want us to release this property you have got to put up X dollars. This simply does not start to constitute any sort of breach of duty at all. So that is the first ground for saying that this abandonment was right.

16. The second ground is that in my judgment a banker who is asked to lend money owes no duty whatever not to make extravagant, misguided, rapacious, unfair or unreasonable demands upon his customer. That is what has to be asserted as a duty, for this insistence to be wrongful or in breach of duty. In my judgment this duty simply does not exist at all. There are occasions when a banker assumes additional obligations. He may assume obligations to advise on investments. He may assume obligations if a relationship of confidentiality is created between him and his customer, or in other special circumstances like that. But to say that a banker owes some general duty not to make unreasonable demands on his customer or a potential customer is to my mind nonsense. And you only have to assert the duty to see how impossible it would be to formulate. Who is to decide whether the demands were one side of the line or the other, the demand of a reasonable banker or the demand of some rapacious person?

17. So I believe that looking at this pleading and looking at the underlying law one is driven to the conclusion that the pleader was not accurate and was simply trying to dress up a demand by the bank, which it was entitled to make, as "wrongful insistence". Secondly, even if he was right about that and there was some evidence of that, it simply displayed no breach of duty at a11.

18. Therefore I cannot see that there is now any substance in paragraph 37, and the court is in this position. A Statement of Claim was lodged against the bank in this case which contained a number of extravagant allegations which upon investigation, have either been shown to be ill founded or have been abandoned. I can see no conceivable reason for keeping the bank in this suit any longer. Indeed the kindest thing that I can do is to dismiss it from the suit. I have an uncomfortable feeling that this is an action, in view of what I have now seen, which should never had been launched against it at all in the first place. A court in that frame of mind should say so at the earliest possible moment. That is my conclusion. I do not believe that there is anything left in the claim against the bank and therefore I dismiss it from the suit.

	(D.S. Hunter)
	Judge of the High Court

Representation:

Mr. Francis Eddis instructed by M/s Haldane Midgley & Co. for Plaintiffs.

Mr. Peter Scott, Q.C., Mr. D.A.L. Wright, Mr. Andrew Li instructed by M/s Lo & Lo for 1st and 2nd Defendants.

Mr. Alexander Irvine, Q.C., Mr. Anthony Dicks instructed by M/s Baker & McKenzie for 4th Defendant.

HCA004611A/1978

Action No. 4611 of 1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_______

BETWEEN

	GOBIND MOHAN also known as OBI MOHAN	1st Plaintiff
	DETARAM SAKHRANI MOHAN	2nd Plaintiff
	AND
	BRIAN SHANE McELNEY	1st Defendant
	JOHNSON, STOKES & MASTER (a firm)	2nd Defendant
	PEAT, MARWICK, MITCHELL & CO (a firm)	3rd Defendant
	THE HONGKONG AND SHANGHAI BANKING CORPORATION	4th Defendant
	WARDLEY LIMITED	5th Defendant

______

Coram: The Hon. Mr. Justice Hunter.

Date of Hearing: 4 October 1984

Date of Delivery: 4 October 1984

__________

DECISION

__________

 

1. This is an application by the plaintiffs for leave to serve voluntary particulars under paragraph 39 of the Re-amended Statement of Claim, and also to make a slight amendment to paragraph 20.

2. The first question which arises, is whether the cause of action asserted in the proposed amended Statement of Claim by the new particulars and in the amendment arises on a specialty, because by section 4(3) of the Limitation Ordinance an action "upon a specialty" shall not be brought after the expiration of twelve years.  If the cause of action asserted can be said to be an action on a specialty, twelve years has not expired, and there is no obstacle in the way of granting leave to amendment upon the basis simply that this would enable the plaintiffs to circumvent an accrued defence under the Limitation Ordinance.

3. Now the first point to note on this, I think, is that the document in fact is executed underhand (as it appears to me) and I have the gravest doubt whether this document can be said to constitute a Deed, or whether the document can be said to constitute a specialty. But assuming that in one or other of those two ways the document can be said to be a specialty, I am quite satisfied that the proposed amendments do not raise a cause of action "upon a specialty" as I understand the words in the Limitation Ordinance. There are a great many causes of action which arise in connection with Deeds, including such obvious things as collateral warranties mis-representations and so on, all of which are governed by the six year and not the twelve year period. I am quite satisfied that this complaint is one of them. This is not an action upon a specialty which I take to mean founded upon a specialty. It is really a counter-claim or a defence to a possible action on that particular document. In my judgment the appropriate limitation period is six years and not twelve.

4. In those circumstances it seems to me that I am in the same position as I was on the 21st September, when an earlier application to amend the Statement of Claim was made. It was then conceded, and the same concession is made today, that the first matter for me to decide is whether or not the proposed amendment raises a new cause of action. That is because it was discovered at an earlier stage in this litigation that Order. 20 rule 5(5) did not achieve its purpose and was in fact ultra vires. The legislature has intervened for future actions and not in respect of pending actions. So again I have to apply the old common law rule as enunciated in the case of Reed v. Brown 22 Q.B.D. 128, where Lord Esher adopted a definition of cause of action to this effect: "every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court". That definition focuses on the facts which the plaintiff has to prove. The emphasis is on "every fact". This is a very wide definition, and it was to mitigate the consequences of that in the face of potential limitation act defences, that Order 20 rule 5(5) was introduced. But that is ineffective in this case. I have to apply the old, as it seems to me rigid common law rule. Therefore I have to ask myself: Does this amendment introduce new fact which the plaintiff would have to prove to justify paragraph 39 of the Statement of Claim.

5. Now Mr. Irvine's first answer to that for the bank is to say: "look at 39 as it stands now; it is totally valueless."  It is the sort of paragraph which the bank coming to trial was perfectly entitled to ignore, because it said nothing against it. What lies behind that submission is this. The complaint in paragraph 39 is that the bank requested the 1st plaintiff to purchase or re-purchase a certain number of shares and pursuant to a Notice of Assignment which the bank had already given. In other words the bank were enforcing their security against their debtor. That conduct is said to have been wrongful and in breach of duty. Now in order to see whether that allegation has substance one has to look at the facts relied upon in support of the allegation that this was wrongful or in breach of duty. What is the duty alleged?  What is the breach alleged?  What makes this conduct wrongfully?

6. Now particulars were requested of that allegation and given. All those particulars did is to repeat the allegation itself. You enforced your security against me. It did not start to put forward any facts which lay any sort of foundation at all, for the allegation that this was wrongful or in breach of duty. So what Mr. Irvine said in substance is this: This is meaningless as it stands and totally useless. Any attempt to give teeth to this paragraph now must be adding something new. Or to put it rather more shortly: nought plus one still equals one and not nought. For my part I cannot see any answer to that proposition, because I think his submissions upon the in utility of paragraph 39 are right.

7. What Mr. Eddis seeks to say is this: the new facts which he wishes to add by way of voluntary particulars under this paragraph are matters which had all been alleged in the past in other parts of these very compendious pleadings, and therefore there is nothing new vis-a-vis the bank. The trouble when you look at that contention is this. There are three crucial paragraphs in these particulars, (d), (e) and (h). If you look at each of those paragraphs in turn, you find that the present facts were at one time alleged against the bank in a totally different context, and having been alleged were then equally specifically and unequivocally abandoned. So that in respect of all those matters the bank was entitled to come to this court and say: Those allegations are dead as far as the bank is concerned.

8. This emerges quite specifically from (d) which was originally in paragraph 29 of the Statement of Claim, and went as soon as paragraph 29 was amended to exclude the bank. The same thing is true of (e) and paragraph 35 where the same thing happened. I may say it happened in the light of discovery, by the first amendment made after discovery. It is equally true of the vital plea of inducement, which is now being sought to be inserted by (h) and by way of amendment to paragraph 20. What emerges now is this: The original plea of inducement against the bank asserted that the inducement derived. from Mr. Purves and had nothing to do with the 1st defendant. The only particulars now relating to the 4th defendant were not delivered to the 4th defendant but in fact to the 1st defendant. We are in the position that Mr. Eddis has to ask for leave to amend paragraph 20 to delete his particulars against the bank on page 161, and to substitute half the particulars which were deleted on Monday against the 1st defendant, as against the 4th defendant's.

9. All this seems to me inevitably to be new fact. I cannot see any difference between something which is being inserted in the pleading for the first time at the trial, and something which was once inserted was then specifically abandoned against that particular party.  As far as the particular party is concerned he is entitled to say: that allegation is dead your attempt to revive now against me is new.

10. I can see no escape from the conclusion that the proposed amendment, by delivery of voluntary particulars to paragraph 39 is a new cause of action, and in those circumstances I am in effect precluded by authority from giving leave. But if I am wrong about that and it is a matter of discretion, then I am bound to say that my decision would have been exactly the same. This is a brand new case first adumbrated as far as I know on the documentation by Mr. Eddis in opening on the first day.  This was the first time any attempt has been made to put the case in this way. There is no hint of it in any of the documents which had passed between parties before. This action has been going on for a very long time, and I have only over 350 pages in the bundle of pleadings. In my judgment in a case like this enough is enough; and if ever an amendment is too late this is.

11. Secondly I cannot and do not seek to conceal that there is another motivating factor behind a discretionary refusal. Mr. Eddis has made it clear that the purpose of the new amendment is to found a submission based basically upon two decisions on the Court of Appeal in England in recent years. The most recent is National Westminster Bank v. Morgan (1938) 3 All E. R. 85: , the other was Lloyds Bank v. Bundy (1975) 1 Q. B. 326. Now those decisions turned on their very special facts, and were founded upon the existence of a relationship of confidentiality, defined by the Court in both cases, which led to a fiduciary duty of care and a presumption of undue influence in favour of the two plaintiffs.

12. Now the first thing to observe is that confidentiality, which is a very special concept indeed, is still not alleged by this new amendment and a case founded upon those two authorities simply cannot leave the ground unless it is alleged.

13. The second point to note is that upon the pleaded facts, it is, as far as I can see, totally impossible to get a case of confidentiality as defined in those cases off the ground. The first of those cases concerned an elderly smallholder in the west country in England. The second case involved a wife who had been put upon by her husband.  It is really absurd to suggest that there is any way in which the plaintiffs or either of them who are established businessman, and who had the benefit of advice from all quarters from solicitors, from accountants and from merchant bankers in this case, can be remotely put into that category in relation to the bank.  Therefore it seems to me there is no prospect whatever of a case on these lines ever leaving the ground. That is a factor which I am bound to say has influenced me in my conclusion that if the matter is one of discretion, and I am wrong on the first basis, I should refuse leave to amend. That is my ruling and the application for leave to amend under both paragraphs is rejected.

	(D.S. Hunter)
	Judge of the High Court

Representation:

Mr. Francis Eddis instructed by M/s Haldane Midgley & Co. for Plaintiffs.

Mr. Peter Scott, Q.C., Mr. D.A.L. Wright and Mr. Andrew Li instructed by M/s Lo & Lo for 1st and 2nd Defendants.

Mr. Alexander Irvine, Q.C., and Mr. Anthony Dicks instructed by M/s Baker & McKenzie for 4th Defendant.

HCA004611/1978

No. 4611 of 1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_____

BETWEEN

	GOBIND MOHAN also known as OBI MOHAN	1st Plaintiff
	DETARAM SAKHRANI MOHAN	2nd Plaintiff
	AND
	BRIAN SHANE MCELNEY	1st Defendant
	JOHNSON, STOKES & MASTER R (a firm)	2ndDefendant
	PEAT, MARWICK, MITCHELL & Co. (a firm)	3rd Defendant
	THE HONGKONG AND SHANGHAI BANKING CORPORATION	4th Defendant
	WARDLEY LIMITED	5th Defendant

_____

Coram: The Hon. Mr. Justice Hunter

Dates of Hearing: 21 September 1984

Date of Delivery of Judgment: 24 September 1984

 

________

DECISION

________

 

1. This is an application by the plaintiffs for leave to re-amend their Statement of Claim. The bulk of the amendments are cosmetic and convenient because they get rid of the allegations originally made against the 3rd and 5th defendants which allegations are no longer being pursued. So there is no difficulty about giving leave to make those amendments. What I am going to concentrate on is the parts of the new draft where the application is opposed. The opposition is based upon two grounds of principle. The first is that the new matters or some of them raise new causes of action and that others are much too late.

2. As far as the first ground of objection is concerned the legal position is not in dispute. At an earlier stage in this particular litigation, it was discovered that Order 20 rule 5(5) had feet of clay for want of enabling, underlying legislation, and was declared by the Court of Appeal to be ultra vires. The legislature intervened to restore that position in a way that does not effect pending litigation.

3. So I am back to the old common law position. The question for me now is whether these allegations constitute new causes of action within the pretty wide definition of those words in Reed v. Brown 22 Q.B.D. 128 by Lord Esher and the other members of the Court of Appeal. I have no doubt whatever that this objection is well founded in respect of the paragraphs to which it is directed; first paragraphs 6 and 7, and then paragraphs 25, 26, 27 and 39.

4. Now as far as paragraph 6 is concerned, this introduces a new basis for asserting a breach of duty against the 1st plaintiff. The original Statement of Claim was based upon a breach of duty by a solicitor. The amendment seeks to introduce a breach of duty against that man as a financial adviser and seeks to assert that he held himself out and accepted responsibility as a financial adviser. That is totally different to the original claim which charged him simply with negligence as a solicitor, and must constitute an attempt to assert a new cause of action.

5. The same is true of paragraphs 25, 26 and 27 which specifically introduce new allegations of negligence. Almost by definition those are new causes of action. Mr. Eddis sought to persuade me that this was not the case and that they were, what he described simply as, pieces of evidence. With respect to him when they are introduced in a pleading they are nothing of the sort. You do not plead evidence. The paragraphs are introduced into the pleading as material allegations, in support of matters upon which the plaintiff is now seeking relief. They are no longer pieces of evidence, background facts which are liable to emerge in the case in any event. They are being brought into close-up; they are being brought into the foreground, or that was the attempt. It seems to me that it must fail on the application of the old common law principle.

6. As far as paragraph 6 is concerned, I think there are a number of other objections to this amendment which also are well founded. First it is in my judgment much too late to make a fundamental alteration to the claim such as is envisaged by the amendment. Secondly it is (I regret to say) totally obscure. I cannot begin to understand a continuing offer and a continuing acceptance extended over three years which at some stage is said to fructify into a contract. Thirdly, there is a particular point about this amendment to which objection is taken. The original Statement of Claim asserted that advice was sought from the 1st and 2nd defendants in relation to obtaining a public listing for a particular company. By their defence the same defendants asserted that the plaintiffs went to them for advice along these lines but themselves put a figure upon the capitalization of the company, that figure begin $50m. The Statement of Claim was then amended and the advice was then pleaded as being sought to obtain a public listing for MPIL "based upon an assert value of HK$50m". What is sought by this proposed amendment both here and in paragraph 7(b) is to delete those words. I do not believe it is right for the court to allow that deletion to be made now without further explanation and without hearing the evidence. Simply from a reading of this Statement of Claim, this could be a matter of some considerable importance. The basic complaint these plaintiffs make is that in substance the existing remaining defendants permitted them to become over-stretched, over-committed financially, over-committed to loans with the result that when the market turned against them the results were totally catastrophic. Now when someone complains that they were over-stretched or permitted to become over-stretched financially, it may be of some significance to see that at one stage it seemed to be common ground on the pleadings, that the degree of stretch, the goal of the capitalization of this company, was in fact prescribed by the client and not by the adviser. The position may change in the course of the evidence, but I regard this as akin to an admission in the pleadings. I do not believe that the court should readily allow admissions of this nature to be withdrawn at this very late stage without sufficient explanation. The explanation that I was offered in respect of date, that this all was tied in with the change of chronology in this proposed amendment, I did not find sufficient or satisfying. So for those several reasons I am not prepared to allow the amendment sought in paragraph 6, or for the same reasons in paragraph 7.

7. Paragraph 9 the only contested matter there arises on the last 3¹/₂ lines in the paragraph where it is desired to add the words: "the 1st defendant specifically advised the said method in preference , to a reverse take-over method being the preferred method of the 1st plaintiff".

8. Two objections are taken to that. First is it in conflict with some further and better particulars already given to the plaintiff's bank, namely the 4th defendant. Secondly, that as it stands this allegation is almost totally meaningless. The phrase "reverse takeover" conveys many things to different people. To assert a preferred method in the context of this case without at the same time asserting, the chosen method of finance in respect of that preferred method seems to be a complete waste of time. So I cannot allow those three lines to be added to paragraph 9.

9. The next matter (and I should add that the numbering I am using is the new numbering not the old) is paragraphs 14 and 15. That application was not pursued. The same is true of the word to which objection was taken "and/or coerced" in paragraph 20. That application was abandoned. I have already disallowed 25 to 27 inclusive. The next one is paragraph 36. There was some objection to that as a matter of terminology. I do not think that that is any real substance to it, I allow that. I also should have pointed out that there was an objection to paragraph 8(3) where the amendment substitutes the words "advised" for a formula which started originally as "represented" and then became "represented and promised". It seems to me that these words in the context come down to an allegation that this is what the plaintiffs were told. The present formula is completely neutral and there is no reason to object to it. So I allow that in paragraph 8, and in the subsequent paragraph where the same point is made.

10. Again I allow 37, likewise with the further deletion of the words "and have been put to inconvenience and expense suffered loss and damage".

11. The last one is paragraph 39 which I have already disallowed. I think that covers all the matters. So I will grant leave to amend in respect of all the paragraphs which I have not specifically disallowed. Running down those again, they are 6, 7, the last three lines in 9, 25, 26, 27 and 39. That I think covers everything.

	(D.S. Hunter)
	Judge of the High Court

Representation:

Mr. Francis Eddis instructed by M/s Haldane Midgley & Co. for Plaintiffs.

Mr. Andrew Li instructed by M/s Lo & Lo for 1st and 2nd Defendants.

Mr. Anthony Dicks instructed by M/s Baker & McKenzie for 4th Defendant.

HCA004611F/1978

 

Striking out for want of prosecution - whether plaintiff's imprisonment amounts to reasonable excuse for delay - prejudice.

 

1978 No. 4611

 

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

-----------------

 

BETWEEN
	GOBIND MOHAN	1st Plaintiff
	DETARAM SAKHRANI MOHAN	2nd Plaintiff
	AND
	BRIAN SHANE MCELNEY	1st Defendant
	JOHNSON STOKES & MASTER (a firm)	2nd Defendant
	PEAT, MARWICK, MITCHELL & CO. (a firm)	3rd Defendant
	THE HONG KONG & SHANGHAI BANKING CORPORATION	4th Defendant
	WARDLEY LIMITED	5th Defendant

-----------------

Coram: Mr. Justice Rhind

Date of Judgment: 3rd December 1981

 

-----------------

JUDGMENT

-----------------

 

In Open Court

1. On 6th October 1978, the plaintiffs, through their solicitors, sent each of the defendants a letter of demand together with a draft statement of claim, contending that the defendants were liable to the plaintiffs for damages and other relief arising from the public flotation or Mohan's Property and Investment Co. Ltd. (hereafter referred to a "MPIL"), the shares of which were first publicly traded on 10th May 1973.

2. For the purpose of the present proceedings only, it was common ground that the causes of action, which were all based on either breach of contract, negligence, breach of fiduciary duty or breach of trust, arose on 10th May 1973, the day of the first public trading of the shares, so that the six year limitation period for initiating proceedings would have expired on 9th May 1979. (For the sake of completeness, perhaps I should add that I have excluded from my consideration an item of $93,000 which the plaintiffs' contend was wrongfully debited to them by the 4th defendant for an audit carried out in 1976. That item, which is dealt with in paragraphs 58 to 61 of the statement of claim, is only peripherally relevant to the main issues in the case, and could still form the subject matter of separate proceedings where there would be no problem of limitation periods).

3. That letter of the 6th October 1978 with its accompanying draft statement of claim was the first intimation any of the defendants had that the plaintiffs were contemplating proceedings against them for events dating back to 1973 and earlier.

4. Next, the plaintiffs' writ, indorsed with the statement of claim, was issued on 20th December 1978, and all the defendants entered appearances. During the course of the proceedings before me, the plaintiffs' claim against the 3rd defendant was withdrawn.

5. All defendants sought and were granted an extension of time till the end of February 1979 for filing their defences. However, during the last week of February 1979, without having filed their defences, all the defendants submitted requests for further and better particulars of the statement of claim from the plaintiffs, The plaintiffs' solicitors refused those requests with the result that on dates between 24th February and 9th March 1979 the solicitors for the various defendants took out summonses seeking orders that the particulars be delivered, the time for filing defences meanwhile being extended.

6. After consultation with counsels' diaries, those summonses were fixed to be heard on 18th June 1979. However, the plaintiffs' solicitors must have had a change of heart before then, because the particulars requested were all filed and served between the 6th and 15th June.

7. When the summonses came on before the learned Registrar on the 18th June, orders in terms of the summonses were obtained by the 1st, 2nd 3rd and 5th defendants, and the 4th defendant's summons was adjourned sine die. At that stage the defendants all reserved their position regarding the adequacy of the particulars filed.

8. That the particulars by then supplied to the defendants were not adequate was impliedly acknowledged by the efforts of the plaintiffs' solicitors to furnish the defendants with amended particulars between the time of the appearance before the Registrar on the 18th June and the end of July 1979. However, in no case did the plaintiffs succeed in properly filing and serving those amended particulars. On behalf of the plaintiffs, it was argued that at least technically the plaintiffs had complied with the orders for further and better particulars in that they had filed and served particulars, albeit inadequate ones, before 18th June 1979. I regarded that argument as specious, the reality of the situation being that the plaintiffs had not supplied adequate particulars, and the plaintiffs well knew that to be the case.

9. On 20th July 1979, a significant event occurred: the 1st plaintiff was arrested on fraud charges, which led to his being tried in May 1980, and being imprisoned from May 1980 till 7th November 1980.

10. From the beginning of August 1979 till 10th November 1980, the plaintiffs' case against the defendants went to sleep. On 28th November 1979, the plaintiffs' then solicitors got leave of the court to withdraw from the case, and nothing happened after that till 10th November 1980 when new solicitors for the plaintiffs filed notice of intention to proceed at the expiration of one month.

11. The defendants countered in December 1980 and January 1981 by filing summonses to the effect that the plaintiffs' action should be dismissed for want of prosecution, the plaintiffs being guilty of prolonged or inordinate and inexcusable delay.

12. It is those summonses of the defendants (except for the summons of the 3rd defendant which is no longer a party) that this court is now considering.

13. An alternative ground for dismissal included in the 1st, 2nd and 5th defendants' summonses was that the plaintiffs had failed to serve the further and better particulars ordered by the Registrar on 18th June 1979. However, if I understood the defence arguments correctly, it was not urged on me that the plaintiffs' failure to conform with the orders for particulars was sufficient ground by itself to justify my dismissing the plaintiffs' claim, but rather, that the plaintiffs' omission to supply the necessary particulars yet would make the delay even more inordinate.

14. In any event, shortly after the proceedings before the Registrar on 18th June 1979, the plaintiffs went a long way towards complying with his order. They supplied the 1st and 2nd defendants with proposed amendments to the particulars, but failed to take the final step of filing, despite getting consent to filing out of time during vacation. They also filed and served amended particulars on the 5th defendant, but did so out of time without consent.

15. As I see the position, the only question of substance to which I need address myself is whether the plaintiffs' claim should be dismissed for want of prosecution on account of inordinate and inexcusable delay.

16. The principles on which a court should act in deciding whether to exercise its discretion to strike out for want of prosecution can be found in the following observations of Lord Diplock in Birkett v. James⁽¹⁾:

"The power should be exercised only where the court is satisfied ..........

	(a)	that there has been inordinate and inexcusable delay on the part of the plaintiff or his lawyers; and
	(b)	that such delay will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action or is such as is likely to cause or have caused serious prejudice to the defendants either as between themselves and the plaintiff or between each other or between them and a third party."

Inordinate Delay

17. The defendants urge that the delay in the present case should be counted from February 1979, the time when the plaintiffs' solicitors refused to furnish further and better particulars voluntarily. Summonses for those particulars, taken out by the defendants' solicitors, were fixed in consultation with counsels' diaries for hearing on 18th June 1979. As already mentioned, the plaintiffs' solicitors had a change of heart before that date, and voluntarily started supplying particulars to the defendants' solicitors. For the defendants it was argued that, if the plaintiffs' solicitors had adopted that co-operative attitude from the outset, there need never have been the wasted delay between February and June.

18. There is nothing in the material before me to suggest that the plaintiffs or their solicitors were engaging in delaying tactics at that stage. Fault can hardly be laid at their door for a date no earlier than 18th June 1979 being given by the court. The impression I get is that the plaintiffs' solicitor at first genuinely though he was entitled to refuse particulars before defence, but then, after more mature consideration, changed his mind. Because a solicitor turns out to be less than infallible in the steps he takes in litigation, I do not think that time which gets wasted through an error of judgment on his part can necessarily be regarded as part of inordinate delay. The impression I get is that the plaintiffs' solicitors were moving the case along with proper despatch from the time they initiated proceedings until the end of July 1979.

19. Therefore, in my opinion, the period of operative delay should only be counted from the beginning of August 1979. Between then, and the notice of intention to proceed of 10th November 1980 is a period of approximately fifteen months. To my mind, a period of fifteen months delay qualifies as inordinate, particularly when one bears in mind that the late start in commencing the action near the end of the limitation period made it incumbent upon the plaintiffs to proceed with proper despatch. In the words of Lord Diplock in Birkett v. James⁽¹⁾ at page 322G -

"A late start makes it incumbent upon the plaintiff to to proceed with due speed and a pace which might have been excusable if the action had been started sooner may be inexcusable in the light of the time that has already passed before the writ was issued".

Inexcusable

20. Although other reasons such as the difficulty of locating documents have been mentioned to me, it is quite plain from the 1st plaintiff's affidavit that the real reason he ceased to press on with the civil proceedings was lack of finance. Such funds as he had, he devoted to defending the criminal proceedings to which he gave top priority.

21. I do not think that his decision to concentrate his resources on the criminal proceedings excuses his neglect of the civil proceedings. If he could not afford both, he could have sought legal aid, but refrained from adopting that course.

22. Mr. Dean sought to draw an analogy between the 1st plaintiff's position and the position of the plaintiff in Fakes v. Taylor Woodrow Construction Ltd.⁽²⁾ In that case, the plaintiff had done work for the defendant under a contract containing an arbitration clause. The plaintiff wanted to recover monies he claimed were due to him under the contract, but contended that because of the defendants defaults he had finished up so impoverished that he was no longer able to afford either litigation or arbitration. Legal aid was available to the indigent for litigation but not arbitration. The plaintiff, having been granted legal aid to litigate, issued a writ in the High Court for the monies due to him, whereupon the defendant sought a stay of the litigation on the ground that there should be arbitration as provided for under the contract. Although normally the court will grant a stay of the litigation, it took the exceptional step of refusing to in the circumstances of that case on the ground that there was a reasonable probability that the plaintiff's contention that his poverty had been directly induced by the defendants' default might be well founded. Likewise, in the case before me, it has been argued that there is a reasonable probability that the 1st plaintiff's impecuniosity, which rendered him unable to wage both civil and criminal litigation at the same time in 1979 and 1980, might be attributable to the wrongs allegedly done to him by the defendants way back in 1972 and 1973. That being so, the argument goes, the plaintiff's delay becomes excusable because the defendants are really to blame for it.

23. I find that argument on the plaintiff's behalf unpersuasive. His poverty in 1979 is, to my mind, too remote from events which happened in 1972-73. In all, the plaintiffs are supposed to have lost approximately $84 million because of the problems of the Mohan Group of companies between 1973 and 1979 (see Mr. Chulani's affidavit of 18th July 1981 at page 219 of the Agreed Bundle). As I understand the position, the plaintiffs are not blaming the defendants for the loss of that whole $84 million. The plaintiffs have also launched suits against others in respect of party of their alleged losses (e.g. the suit against Mr. Wyllie and Hutchison International Ltd. at pages 247-260 of the Agreed Bundle). For policy reasons, the courts will not allow a chain of causation to stretch on for ever. There were, no doubt, a whole cluster of causes of the 1st plaintiff's poverty in 1979-80, and it would be unrealistic to isolate the defendants' alleged conduct in 1972-73 as the cause which directly induced his poverty.

24. Certainly, up until 20th May 1980, when he was sent to prison, the 1st plaintiff lacked a reasonable excuse for delaying the civil proceedings. Once inside the prison, he suffered what in common parlance is usually described as a nervous break-down. In some circumstances, a nervous break-down could excuse delay (see Anderson v. The Norwich Union Fire Insurance Society Ltd. an unreported decision of the English Court of Appeal, dated 30th January 1975), but, in the 1st plaintiff's circumstances, I do not think it should. Bearing in mind the 1st plaintiff's conduct in the months preceding his incarceration, I regard it as more probable than not that he would still have neglected his civil suit while in prison, even if his mental health had remained normal. The probability is that, in prison, he would have concentrated his energies and resources on pursuing his appeal against his convictions. Moreover, although some forms of misfortune will serve to excuse delay, I do not think that prison is one of them (see Peeling v. Guidice⁽³⁾.)

25. My conclusion, therefore, is that the 1st plaintiff's delay was inexcusable.

26. An identical conclusion must inevitably be reached in respect of the 2nd plaintiff, for whom no excuses have been put forward with regard to delay.

Prejudice

27. This can take two forms, the first being general prejudice in the sense that the delay has brought about a position that a substantial risk exists that it is not possible to have a fair trial of the action, and the second is particular prejudice likely to be caused to individual defendants by the delay. The burden of establishing prejudice lies on the defendants: Allen v. McAlpine⁽⁴⁾.

28. Before actually considering prejudice, it will be useful to look at the nature of the plaintiffs' case, as revealed by the statement of claim, the further and better particulars so far filed, and the affidavits.

29. The 1st plaintiff, who is the 2nd plaintiff's son, took over the running of his family's companies, which can loosely be described as "the Mohan Group of Companies", from his father in about 1967.

30. In the second half of 1972, when the Mohan Group of Companies were in a flourishing financial state, the 1st plaintiff sought advice from the 1st defendant, who is the senior partner of the 2nd defendant firm of solicitors, on the topic of seeking a public listing for MPIL, of which at that time the plaintiffs were majority and/or controlling shareholders. The 2nd defendant, mainly through the 1st defendant, had for a long time past acted as advisers to the plaintiffs on their personal and financial affairs, and were aware of the plaintiffs' financial position.

31. According to the 1st plaintiff, the only method recommended by the 1st defendant for MPIL to go public was chat it should first of all acquire more assets, after which it could seek a public listing. The 1st plaintiff then asked the 1st defendant for advice on what assets MPIL should acquire and how this might be financed.

32. For the purpose of arranging the necessary finance, the 1st defendant introduced the 1st plaintiff to personnel of the 4th defendant which is a large bank for which the 1st defendant and the 2nd defendant also act as solicitors. Prior to that time, the 4th defendant had not been the bankers for the plaintiffs or their companies, except that MPIL kept a small current account with the 4th defendant's Tsim Sha Tsui branch.

33. Firstly, in August 1972, the 1st defendant introduced the 1st plaintiff to Mr. Sandberg, the 4th defendant's General Marager, and at that meeting the 1st defendant explained the 1st plaintiff's present situation and intentions. Mr. Sandberg gave his approval to what was proposed, and said the 4th defendant would make credit facilities available to the 1st plaintiff. Matters were left on the basis that the 1st plaintiff would have to contact Mr. Purves, the 4th defendant's Chief Accountant, to settle the final details.

34. Next, at a meeting in the later part of 1972, attended by the 1st defendant and Mr. Purves, the 1st plaintiff was advised by the 1st defendant and Mr. Purves to borrow money in his own name from the 4th defendant for the purpose of purchasing properties which could then be injected into MPIL, which in its turn would issue fully paid up shares to the plaintiffs at a par value of $1 for every $1 the 1st plaintiff spent on acquiring such property. The shares thus issued and other shares which the plaintiffs owned in MPIL had to be mortgaged to the 4th defendant as security.

35. As the loan was personal to the 1st plaintiff, the problem naturally arose of how he was supposed to repay it. According to the 1st plaintiff, the 1st defendant and Mr. Purves represented to him at that meeting that the $1 shares of MPIL would rapidly reach at least $3 each after floatation, so that the 1st plaintiff could then sell off sufficient of those shares to repay the 4th defendant, while at the same time being able to retain sufficient of them to ensure that control of MPIL remained in the plaintiffs' hands. No advice was given to the plaintiffs of any other means of arranging borrowing facilities such as, for example, through another bank or through a merchant bank.

36. It is further contended by the plaintiffs that, at that same meeting, Mr. Purves, on behalf of the 4th defendant, insisted that the plaintiffs and/or MPIL should use the 5th defendant to prepare and issue the prospectus for the proposed floatation. The 5th defendant is a subsidiary of the 4th defendant, and carries on the business of merchant bankers, underwriters and financial advisers.

37. Although the 3rd defendant has now been dismissed from the suit, it still remains necessary to consider the part played by the 3rd defendant in the floatation. The 3rd defendant is a firm of Chartered Accountants which had been appointed as auditors to MPIL in June 1972. The 3rd defendant was involved in the floatation by preparing the Accountant's Report for the prospectus.

38. From January 1973 till April 1973, there were many meetings in relation to the floatation, attended from time to time by the 1st plaintiff, his employee Manu Chulani, the 1st defendant, a Mr. Osborne and a Mr. Hope representing the 3rd defendant, and a Mr. King - Halford and other staff members representing the 5th defendant.

39. At or before those meetings, the 3rd defendant and the 5th defendant are supposed to have been made aware of the method devised by the 1st defendant and the 4th defendant for financing the floatation by the plaintiffs, whom the 3rd defendant and the 5th defendant knew to be the controlling shareholders of MPIL. At all maternal times, the 5th defendant is alleged to have acted as financial advisers and/or as merchant bankers to the plaintiffs in their capacity as controlling or majority shareholders in MPIL. All the defendants were supposed also to have known the plaintiffs' financial involvement in the floatation.

40. At those meetings, the defendants are alleged jointly and severally to have represented to the plaintiffs, or at least to the 1st plaintiff, that the price of the $1 MPIL shares immediately or shortly after the public listing would be at least $3 each. Allegedly acting in reliance upon those representations, the plaintiffs say they authorised the defendants to proceed with the public listing of MPIL.

41. Whether the defendants or any of them ever made any such representations to the plaintiffs is a crucial issue in the case.

42. The preparations for the public listing of MPIL proceeded against a background of a rapidly rising stock-market until 9th March 1973 when the bubble burst and the market went into retreat.

43. Before then, pursuant to the arrangements made by the 4th defendant to lend money to the 1st plaintiff for the purchase of assets to be injected into MPIL, the 1st plaintiff entered into commitments to purchase two major properties. One was for the purchase of a property known as Tai Gardens at a price of $4,180,000, and the other for the purchase of a property known as the Herald Luxim Building at a price of $4,000,000 cash plus 2,500,000 shares in MPIL of a nominal value of $1 each, which the 1st plaintiff undertook to buy back at $2.60 each if the shares had not risen above that price of $2.60 within six months from the date of the first public listing of MPIL.

44. I will have more to say about those two transactions in due course, but, for present purposes, I am only interested in them because they involved the 1st plaintiff in an immediate debt of $8,180,000 to the 4th defendant in respect of the money the 1st plaintiff borrowed. What the 1st plaintiff got for making himself responsible for that loan was an allotment of 8,172,000 shares in MPIL for himself and the 2nd plaintiff on 9th March 1973. (The reason why the plaintiffs did not get precisely 8,180,000 shares rather then 8,172,000 as consideration for the 1st plaintiff having incurred a debt of $8,180,000 escapes me at the moment, but I do not think this apparent discrepancy carries any significance)

45. The 4th defendant required the plaintiffs to deposit those newly alloted shares together with all the other shares they owned in MPIL as security for the loan. Moreover, on 28th February 1973 the 2nd plaintiff guaranteed the 1st plaintiff's debts to the 4th defendant to the extent of $8 million, plus interest.

46. The plaintiffs' complain, in effect, that because the stock market went into decline from March 9th 1973 onwards, they should have been advised by the defendants not to go ahead with the public listing, the defendants being aware that the plaintiffs would incur substantial personal liability if the MPIL shares did not reach $3 each. Why this should be so was far from clear at first sight, but Mr. Dean for the plaintiffs sought to explain paragraph 33 of the statement of claim, which embodies this allegation, by saying, in effect, that the plaintiffs did not want to have to relinquish their shares for less than $3 each, because at a lower price, they would have to sell off so many of the shares to repay their debt to the 4th defendant that they would lose control of MPIL.

47. By a special resolution dated 14th April 1973, MPIL was converted into a public company. On 24th April 1973, MPIL issued its prospectus, inviting the public to subscribe for 12,500,000 shares of $1 each. That would make MPIL's issued capital 50 million shares of $1 each, 37,500,000 shares already having been issued.

48. On the 10th May 1973, which was the first day the shares were publicly listed, they traded around $1 or less, and never picked up after that.

49. For failing to advise the plaintiffs of their personal exposure to liability for debt by following the method of financing adopted here, and for failing to advise the plaintiffs not to continue with the public listing once it became apparent that MPIL's shares might not rapidly reach a price of $3 or above, the defendants are alleged to be liable for a loss of $2 per share on each of the 8,172,000 shares alloted to the plaintiffs on 9th March 1973, making a total of HK$16,344,000 damages under this head.

50. An alternative claim for $8,172,000 plus interest is also made against all defendants in respect of the loans which financed the acquisition of Tai Gardens and the Herald Luxim Building. The basis of this alternative claim seemed to be breach of fiduciary relationship, judging from Mr. Dean's submission, but the pleadings also throw in breach of trust and negligence for good measure.

51. In February 1973, which was the time the 1st plaintiff negotiated for the purchase of the Herald Luxim Building, that property had been professionally valued at $8,000,000. Herald Luxim Investment Co. Ltd., the owner of the building, had mortgaged it to the 4th defendant for $9.5m., but, with accumulated interested, $10.5m. was owing to the 4th defendant by the time the 1st plaintiff became interested in purchasing the building. The 1st defendant or his firm, the 2nd defendant, acted for Herald Luxim Investment Co. Ltd., as well as for one George Bloch who controlled that company. Thus, the 1st defendant or his firm, the 2nd defendant, acted for all the parties interested in this transaction, namely the plaintiffs, MPIL, the 4th defendant, Herald Luxim Investment Co. Ltd. and George Bloch.

52. According to the 1st plaintiff, he wanted to buy the property for $8,000,000, the amount of the valuation, but George Bloch and the 1st defendant made it clear to him that the 4th defendant would not allow the property to be sold for less than $10.5, the amount needed to clear off the mortgage.

53. In the end, the 1st plaintiff agreed that MPIL should purchase the property for $4m. in cash (which the 1st plaintiff had to borrow personally from the 4th defendant), plus 2.5m. shares allotted by MPIL. That 1st plaintiff further agreed that he personally would buy back those shares from Herald Luxim Investment Co. Ltd. or its assignees at a price of $260 each six months after the shares were first publicly quoted if they had not reached the price of $2.60 by then. Thus, the 1st plaintiff was potentially liable to pay $6.5m. for those 2.5m. shares. That 6.5m. plus the $4m. which the 1st plaintiff had borrowed from the 4th defendant for this transaction meant that the 1st plaintiff faced a potential $10.5m. personal liability. That became an actual liability after the 4th defendant took an assignment of those 2.5m. shares from Herald Luxim Investment Co. Ltd., the shares never going much above par.

54. Mr. Dean submitted that this was a horrendous transaction which no solicitor should ever have allowed his client to enter into without independent advice, the 1st defendant not being in a position to give such advice because of the conflicts of interest he faced by also acting for the 4th defendant, which was his firm's biggest institutional client, Herald Luxim Investment Co. Ltd., George Bloch and MPIL.

55. As Mr. Dean characterized the transaction, the 1st plaintiff was left in the position of underwriting the loan previously owed by Herald Luxim Investment Co. Ltd. to the 4th defendant.

56. I must confess that, at this point, I do not necessarily share Mr. Dean's abhorrence of this transaction. Rather than having to fork out ready cash here and now, businessmen often enter into agreements where they have to pay out substantially more at a later stage. Whether it is worth taking the risk of not being able to pay when the time comes around is essentially a businessman's decision.

57. Perhaps, ideally, all the parties to that transaction should have had separate legal representation, but, so long as the 1st plaintiff, as a businessman, understood the arithmetic of what he was letting himself in for, and so long as he was not positively encouraged by the 1st defendant to enter into this transaction, I tend to doubt whether the plaintiffs have so much to complain about in relation to it. This transaction harks back to the issue of whether the 1st defendant represented that the shares would rise above $3. If the 1st defendant did made a representation of that type in relation to this transaction, then the plaintiffs might well have cause for complaint.

58. The 4th defendant is alleged to be liable in respect of the Herald Luxim transaction for, inter alia, breach of fiduciary duty for having "insisted" that MPIL should purchase the Herald Luxim Building, knowing that the total consideration including the personal guarantee from the 1st plaintiff was in excess of the value of the building. Also, as bankers to the plaintiffs, the 4th defen ant was said to be at fault in failing to advise the plaintiffs of the dangers to which this transaction exposed them.

59. Even the 5th defendant is said to be at fault in knowing that the 1st defendant, the 2nd defendant and the 4th defendant were in a conflict of interest situation in relation to the Herald Luxim transaction yet failing to advise the plaintiffs to seek separate legal advice and/or failing to explain the true meaning and nature of the transaction to them.

60. In July 1973 the 4th defendant, as assignee from Herald Luxim Investment Co. Ltd., requested the 1st plaintiff to purchase the 2,500,000 MPIL shares at $2,60 each. To enable the 1st plaintiff to do that the 4th defendant lent him a further $5.5m., but requested the plaintiffs to deposit not only those 2,500,000 MPIL shares as security but also additional shares, so that the 4th defendant finished up holding 18,146,000 MPIL shares plus 105,600 shares in the 4th defendant itself, as security.

61. The 4th defendant was alleged to be in breach of its duties as the 1st plaintiff's banker and in breach of trust, and/or breach of fiduciary duty and/or negligent in requiring the 1st plaintiff to purchase those 2,500,000 MPIL shares, knowing that he would have to raise additional loans to fund the purchase and/or being reckless as to whether the 1st plaintiff was in a position to fund the acquisition of those shares.

62. The Tai Gardens transaction was much simpler. There the 1st defendant acted only for the plaintiffs, MPIL and the 4th defendant on a straightforward loan of $4,180,000, for which the 1st plaintiff made himself responsible in exchange for an allotment of $4,172,000 shares in MPIL. All the combinations of breach of duty as solicitors, breach of duty as bankers, breach of duty as merchant bankers or financial advisers are pleaded against the 1st defendant, the 2nd, the 4th and the 5th, as appropriate, plus allegations of breach of trust and/or breach of fiduciary duty and/or negligence.

63. To round off the story, the plaintiffs were unable to service their loans from the 4th defendant, so that, ultimately, on 3rd January 1978, the 4th defendant sold off the 18,146,000 MPIL shares deposited with the 4th defendant by the plaintiffs. The plaintiffs allege that the 4th defendant acted in breach of its duties as a banker in doing that, and seek a declaration that such sale was wrongful and an order for the return of the shares to the plaintiffs.

64. From the above outline of the plaintiffs' case, as disclosed by the statement of claim, answers to particulars, and affidavits, I think I can discern the following main issues -

A.	Did the defendants or any of them represent to the plaintiffs that the shares in MPIL would rapidly rise to $3 or above once publicly quoted?
B.	Did the defendants or any of them ever advise the plaintiffs on other ways of going public?
C.	Did the defendants or any of them ever advise the defendants on other ways of financing the acquisition of assets for the floatation?
D.	Did the defendants advise, or should the defendants have advised, the plaintiffs to discontinue the exercise of going public once the market started to tumble after 9th March 1973?
E.	Did the defendants advise or should the defendants have advised the plaintiffs what to do when the shares were only quoted at about $1 or less on going public?
F.	Are the defendants or any of them liable to the plaintiffs for wrongful acts (e.g. breach of fiduciary duty etc.) in relation to either or both of the Herald Luxim and Tai Gardens acquisitions?

65. In the same way that a court is undoubtedly entitled to take into account that a plaintiff appears to have a strong case on its merits as a factor disposing the court to exercise its discretion in that plaintiff's favour by refusing to strike out his action for want of prosectuion, it was argued by the defendants before me that in the converse situation of a plaintiff appearing to have a weak case on its merits the court should likewise take that into account as a circumstance inclining the court to strike out. I think the defendants are correct in principle on that argument.

66. Much time was devoted by the counsel on both sides to the subject of whether the plaintiffs' claim was a strong one or not. In some cases, a judge will find himself in the position where he can give a straight answer "Yes" or "No" on this topic, but, in the peculiar circumstances of the case before me, I do not think that the issues of either law or fact are as yet in a position where I can come up with a bold "Yes" or "No" answer.

67. A major part of the plaintiffs' case hinges on whether the defendants represented that the MPIL shares would quickly reach $3 or above. The legal significance of this assertion is that it opens up for the plaintiffs the opportunity of claiming that the defendants were guilty of the type of negligent misstatement for which the well-known case of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.⁽⁵⁾ can provide a remedy. I do not think it an exaggeration to say that Hedley Byrne v. Heller has opened up a vast, yet sparsely charted sea where it is difficult to predict in advance whether or not a plaintiff is going to find a safe haven.

68. As against their own solicitors, the 1st and the 2nd defendants, it is easy enough to say that if what the plaintiffs allege turns out to be true, the plaintiffs might well have a good cause of action in negligence, but whether either the 4th defendant or the 5th defendant stand in the type of "special relationship" to the plaintiffs which is necessary for a Hedley Byrne v. Heller type of claim I just would not like to say at this stage. Before venturing an answer on such a difficult point, I would want to know a lot more about the facts in the present case, and I would want to be addressed fully by counsel on both sides on the Hedley Byrne doctrine.

69. As to the facts, I think the plaintiffs, as a matter of practicality, will face formidable problems in proving that the defendants carried on in some of the ways alleged by the plaintiffs. Inherent probability will be against the plaintiffs in some of their assertions, and, of course, the onus of proof will be on the plaintiffs, but, all that having been said, much will depend on credibility, and the trial judge alone is competent to express views on that. I really do not feel myself to be in a position where I can say that the plaintiffs' case appears to be either weak or strong on the facts.

70. Beyond saying that the plaintiffs appear to have at least an arguable case on both the facts and the law I am not prepared to go any further at this stage.

(i) General Prejudice

71. On behalf of the defendants, emphasis was placed on the importance of oral events, (as, for example, the alleged representations the shares would sell above $3), for the purpose of conducting a trial of this action. Because, generally, memories of events in 1972 and 1973 would have begun to dim even more on account of the post writ delay by the time this action came on for trial in, say, another two years time, and because in particular Mr. Osborne would no longer be available to give evidence, having died in January this year, the defendants contended that the delay for which the plaintiffs were responsible had brought about a situation where there was now a substantial risk that it was no longer possible to have a fair trial of the action.

72. An effort was made on behalf of the plaintiffs to belittle the importance of oral evidence, contending that documents alone were sufficient to establish the plaintiffs' case, particularly the part relating to the Tai Gardens and Herald Luxim transactions.

73. I find it unnecessary to arrive at any conclusion as to whether the oral evidence or the documentary evidence will be the more important: suffice it to say that both will be important.

74. I regard it as unlikely that the post-writ delay will have had any appreciable effect on the recollections of witnesses in this case. Such forgetting as has occurred is likely to have been in the year or two immediately following the events of 1972 and 1973. (See Birkett v. James⁽¹⁾Biss v. Lambeth Health Authority⁽⁶⁾; The "Mollymawk"⁽⁷⁾.

75. In any event, I do not regard this as a case where the memory of the witnesses to the oral events is likely to be all that important: what is going to matter chiefly is the view which the trial judge takes of their integrity. In Birkett v. James⁽¹⁾ Lord Salmon pointed out how in some cases integrity will matter more than memory, and in my view the present is such a case.

76. What I regarded as a most telling point made by Mr. Dean was his observation to the effect that no one would suggest that the 1st plaintiff had other than a fair trial last year on criminal charges, several of which related to events in 1973 concerning the MPIL prospectus. True, the issues in the criminal proceedings were not the same as those in the present civil proceedings, but they share a common factual matrix. If it was not too late in 1980 to embark upon a trial, involving the liberty of the subject, which had to establish something as elusive as the 1st plaintiff's subjective mental state in 1973, it would be somewhat surprising, so Mr. Dean argued, if two or three years later, one could not safely embark on a civil trial which sought to prove objective events occurring in that same era.

77. For the defence, it was argued there had been a significant development since the criminal trial: the death of Mr. Osborne, which now gave rise to the risk that there could no longer be a fair civil trial. It by no means follows that a defendant necessarily suffers more than minimal prejudice merely because a witness has died during the period of delay: City General Insurance Co. Ltd. v. Robert Bradford & Co. Ltd.⁽⁸⁾ See also Alexander v. Page (unreported decision dated 15th June 1972 of the English Court of Appeal at page 5).

78. Medical evidence shows that Mr. Osborne would not have been in a fit state to give evidence after August 1980. For the plaintiffs, it was argued that it was unlikely that a case as complex as the present one could have come on for hearing as early as August 1980, even if there had been no post-writ delay. I would regard it as unrealistic to suppose that the case would have been heard anything like as early as August 1980. Defence counsel before me have indicated that they regard it as unlikely that this case could come on for trial earlier than two years hence, if I rule against them on the present applications, so treating two years as a reasonable period for getting this case on for trial, the end of 1980 becomes the estimated trial date of a case commenced at the end of 1978.

79. Even if without delays, it was unlikely that Mr. Osborne would have been well enough to give evidence by the time the trial came on, can it be said that the defendants have been prejudiced by the delay? The defendants say in effect, "Yes, we have. If the case had been moving along at a proper pace we could have arranged to take his evidence de bene esse".

80. I find that claim by the defendants unpersuasive. As far as the defendants were concerned, the plaintiffs' claim was still hanging over their heads in the months preceding August 1980, yet none of them did anything to arrange for Mr. Osborne's evidence to be taken de bene esse as far as I am aware. Why should it be assumed they would have acted any differently had the plaintiffs not been dilatory?

81. I am not satisfied that there is a causal link between the plaintiffs delay, and any prejudice the defendants might have suffered on account of the non-availability of Mr. Osborne.

82. Even assuming that the plaintiffs' delay was the cause of Mr. Osborne's not being available for the defendants, there still remains the problem of determining whether his absence might prejudice the defendants. Bearing in mind his evidence in the criminal proceedings against the 1st plaintiff, it is obvious that, on the issue of whether the defendants represented to the plaintiffs that the MPIL shares would quickly rise to $3 or above, Mr. Osborne's oral testimony would have supported the defendants in denying that any such representation was made. That the 1st defendant also denies making such a representation is apparent from the Court of Appeal's judgment in the criminal proceedings against the 1st plaintiff: (see Agreed Bundle, page 330). Mr. King-Halford's denial of such a representation can be found in the transcript of the criminal proceedings at page 460 of the Agreed Bundle, so obviously the 5th defendant will deny that any such representation was made. It would be unrealistic to doubt that the 4th defendant will also make a similar denial.

83. However, because Mr. Osborne is no longer available in person does not mean that the defendants need be prejudiced by the absence of corroborative evidence from him to the effect that no such representation as to the opening price of the shares was made. There is the transcript of Mr. Osborne's testimony in the criminal proceedings (see at page 405 of the Agreed Bundled) which makes It abundantly clear that Mr. Osborne supported the other defendants in denying that any representation as to opening price was made. Having to reply on Mr. Osborne's evidence in the transcript by virtue of the Evidence (Hearsay) Rules rather than having him personally in court is not likely to amount to more than minimal prejudice, I would have thought.

84. Whether Mr. Osborne might have been able to help the defendants on other issues is a matter for speculation at present. Not having put in their defences yet, the court is not in a position to know whether and to what extent Mr. Osborne might have supported the defendants on other issues. In such circumstances, I do not feel in a position to say that Mr. Osborne's absence gives rise to a risk that there might not be a fair trial. In reaching that conclusion I have not overlooked that besides no longer being available to give evidence in chief, Mr. Osborne will not be available for such pre-trial purposes as assisting the defendants on documents the plaintiffs might discover, and for such trial purposes as being cross-examined by co-defendants and providing the defendants with material for cross-examining the plaintiffs as the trial goes along.

85. Like absence of witnesses, absence of documents can give rise to the risk of a trial not being fair. There is mention in some of the affidavits filed on the plaintiffs' behalf of documents which might be relevant to the trial being missing, but as this state of affairs existed before the writ was issued and does not appear to have been aggravated by the plaintiffs' delay, I do not think I am entitled to treat it as a factor disposing me to exercise my discretion in the defendant's favour.

86. It was urged on behalf of the defendants that injustice might arise from the difficulty by the time the trial comes around of trying to reconstruct what was happening in the Hong Kong stock market in the period of late 1972 and early 1973 relevant to the present case. The "sentiment of the market", as Mr. Dicks aptly called it, while being very important in determining whether the advice and actions of the defendants were reasonable at the time, might be very difficult to re-create through evidence at the trial, it was argued for the defendants.

87. Recapturing. the mood of the market is probably difficult even a few months after any specified time, but I would not have Thought the difficulties were appreciably greater 10 years rather than six years after the event.

88. There is the further point against this defence argument, that here, we are not dealing with some hum-drum, featureless period of the stock market's history, but one which must be vididly etched on the mind of anyone having any connection with the stock market at that time. Of all periods in the history of the Hong Kong stock market, the time relevant to the present case should be amongst the easiest to reconstruct.

(ii) Prejudice to particular defendants

89. As the cases against the defendants are all interrelated, it follows that prejudice against any one defendant is likely to affect them all. It is for the sake of facilitating analysis only that I have chosen to separate the prejudice allegedly suffered by individual defendants.

90. It is no light matter to make allegations against solicitors of the type levelled against the 1st defendant and the 2nd defendant in the present action. Being accused of incompetence would be disconcerting enough, but, when to this is added an allegation of gravely unethical conduct by, in effect, sacrificing the interests of a small client to those of a larger one, any solicitors finding themselves in such a position are bound to treat the matter as extremely serious. To have such allegations pending unresolved against a solicitor or a firm of solicitors for an unnecessary extra fifteen months, does that amount to prejudice, as understood in this branch of the law? The answer to some extent must depend, I think, on the circumstances of the solicitor and his firm.

91. In one example cited by Denning L.J. in Biss v. Lambeth Health Authority⁽⁶⁾ the Court of Appeal in England struck out an action against a solicitor where the delay had been for merely 13 months. However, that example does not really offer any guidance for the case before me as the law report neither elaborates on the allegations against the solicitor, nor on the circumstances of the solicitor or firm of solicitors.

92. As a matter of common sense, the impact of serious allegations against, say, a one or two man firm which has only recently been established by comparatively recently admitted solicitors will be vastly different from that on the senior partner of a well established firm facing the same allegations. In the former example, the reaction might be one of near paralysis; in the latter, the allegation though, no doubt, troublesome, might be just taken in their stride by the senior partner and his firm.

93. Not without some hesitation, I have come to the conclusion that the prejudice to the 1st defendant and 2nd defendant from the delay in this action does not rise above the minimal, and is not such as to justify me in denying the plaintiffs their day in court. Obviously the 1st defendant and 2nd defendant would be happier to be relieved from this action here and now, but, on the view I take, the 1st defendant, as senior partner, should be sufficiently broad-shouldered to withstand the wasted 15 months without excessive strain, and the 2nd defendant, which is well known to be the largest English firm of solicitors in the Colony, is sufficiently well founded to emerge comparatively unruffled from the unwelcome inconvenience of having this action start up again at this late stage. I, therefore, dismiss the application by the 1st and 2nd defendants.

94. Particular prejudice is said to have affected the 4th defendant because many of its officers who had relevant dealing with the plaintiffs are now living overseas, either having left Hong Kong on retirement or having been transferred to foreign postings. Two of its officers have died. The position is shown in tabular form at page 124 of the Agreed Bundle. Except in the case of Mr. Mills, all the retirements, deaths or transfers appear to have occurred before 10th May 1979, i.e. within the limitation period for the present action, so that the 4th defendant is not entitled to complain of prejudice in relation to them. Even in the instance of Mr. Mills, who retired from the 4th defendant on 31st December 1979 and now lives in the U.K., there is nothing to suggest that the plaintiffs delay has given rise to any prejudice. At the time of Mr. Mills retirement, the plaintiffs had delayed for five months only, and there is nothing to suggest that the 4th defendant's defence would have been advanced materially through Mr. Mills presence in Hong Kong during that five month period from August to December 1979.

95. In paragraph 26 of his affidavit (at page 98 of the Agreed Bundle), the 4th defendant's solicitor refers to the organisational difficulties the 4th defendant might experience if the action is allowed to go ahead. Of the four current employees shown in the list, about half (i.e. two) are expected to be out of Hong Kong during the preparation stages and at the time of the trial, unless the 4th defendant decides to keep all four of them in Hong Kong pending the trial. It is pointed out that could disrupt the 4th defendant's staffing arrangements and the careers and promotion prospects of those employees. Presumably the 4th defendant would have faced the same dilemma even if there had been no delay. There is nothing in the material before me to show that the 4th defendant allowed the existence of the present action to influence its staffing policies during the period from, say, December 1978 to July 1979 when the litigation was being actively pursued, and I have not been persuaded that it will do so now if I permit the litigation to continue. If Mr. Purves or Mr. Snowden the two staff members of 4th defendant shown by the table to be in Hong Kong still, get transferred by the 4th defendant away from Hong Kong before the trial is concluded, I do not think the 4th defendant need be prejudiced. In these days of long distance phone calls, telex and air-mail, the 4th defendant need not be prejudiced in the preparation of its defence, and if the witnesses find it impossible to come to Hong Kong for the trial, evidence can be taken on commission.

96. Mr. Dicks complains that the plaintiffs' claim is "shadowy", in the sense that the plaintiffs have not even been able to put a coherent, consistent story together yet, and they keep adding new characters to the cast. Confronted with a shifting, incomplete story from the plaintiffs, the 4th defendant, according to Mr. Dicks, is left in an embarrassed position if it has to try to plead a defence. This "shadowiness" of the plaintiffs case is claimed to be one facet of its lack of merits.

97. In this context, Mr. Dicks pointed in particular to what he perceived as differing versions of how the 1st plaintiff came to negotiate his loans from the 4th defendant. From paragraph 11 of the statement of claim the impression is created, so Mr. Dicks contended, that the 1st plaintiff conducted the negotiations for the with Mr. Purves, the 4th defendant's Chief Accountant in the latter part of 1972. However, in paragraphs 10 to 14 of the 1st plaintiff's affidavit (pages 262 to 264 of the Agreed Bundle) dated 18th July 1981, which was filed in opposition to the present applications to strike out, there appears a version in which the 1st plaintiff claims that his first contact with the 4th defendant was with Mr. Sandberg, the then General Manager, in August 1972. At that meeting, according to the 1st plaintiff, Mr. Sandberg approved what the 1st plaintiff proposed, and said that the 4th defendant would make credit facilities available to the 1st plaintiff. That affidavit of the 1st plaintiff was the first mention made that Mr. Sandberg might be connected with this case.

98. I regard the protests made on the 4th defendant's behalf as somewhat, exaggerated. I see no real difficulty in reconciling the version in paragraph 11 of the statement of claim with the version in the 1st plaintiff's affidavit. Basically, it appears that what the 1st plaintiff is saying is that first of all he saw the General Manager who accepted the 1st plaintiff's proposals in principle and then he was referred to the Chief Accountant who worked out the details, while at the same time allegedly tendering advice.

99. How much of the plaintiffs' narrative of events should be included in the statement of claim is a matter of judgment for his legal advisers. Provided there is no inconsistency, I see nothing objectionable in the plaintiffs subsequently fleshing out the bare bones of the statement of claim.

100. As to the plaintiffs coming up with new names of people from the 4th defendant who were allegedly involved, I am not persuaded that the plaintiffs are deserving censure for this. The events alleged by the plaintiffs are somewhat complex so it is not necessarily surprising or sinister if the plaintiffs come up with some afterthoughts.

101. Moreover, the probing carried out by the defendants through their requests for further and better particulars is likely to have prompted the plaintiffs into awareness that individual officers from the 4th defendant who were previously not regarded as significant for the purposes of the present proceedings might in fact be of some relevance.

102. As I am not satisfied that the 4th defendant might suffer some prejudice from the delay, I dismiss the 4th defendant's application.

103. There is not much which need be said about the 5th defendant's position. The 5th defendant is anxious to show that it acted independently of the 4th defendant, and hopes to call some of the 4th defendant's staff as witnesses to that end. The 4th defendant's alleged difficulties with its witnesses on account of the plaintiffs' delay are also likely to be the 5th defendant's difficulties as well.

104. In the same way I have rejected the 4th defendant's contention that it runs the risk of prejudice from delay if the action is allowed to continue, I also reject the 5th defendant's contention to the same effect, and dismiss the 5th defendant's application.

Miscellaneous

105. Relying on Hatter v. Port of London Authority⁽⁹⁾ and Kelly v. Marley Tile Co.⁽¹⁰⁾, it was argued on behalf of the defendants that because the plaintiffs had withdrawn their case against the 3rd defendant, it was only fair that the plaintiffs' claims against all other defendants should be dismissed on considerations of broad justice. It was suggested that a dilemma had been created for all the other defendants: they now were faced with a situation where they would have to consider whether to join in the 3rd defendant as a third party.

106. In my opinion, the plaintiffs withdrawing their case against the 3rd defendant in no way affects the other defendants adversely, and if they feel they need to join in the 3rd defendant as a third party it is entirely a matter for them. The cases just referred to appear to relate only to the situation where one of several defendants has acquiesced in delay, but there is no suggestion of that state of affairs here.

Conclusion

107. Like the judge in the Mollymawk⁽⁵⁾, I have had to perform a balancing exercise in relation to the rights of all the parties "........ and to make, in the end, a decision whether it is more just to stop the action summarily or to allow it to go on."

108. As I have already indicated in the course of giving my reasons above, I have concluded that, on balance, it would be more just to allow the action to continue, with the result that the defendants' applications all stand dismissed.

 

 

	(J.J. RHIND)
	Judge of the High Court

 

Representation:

Counsel and Solicitors:

Mr. M. Dean, Q.C. and Mrs. P. Graham (Robertson, Double and Boase) for Plaintiffs (on 22-24, 27-28, 30-31/7 and 4-6/8)

Mr. C. Mumford and Mrs. P. Graham (Robertson, Double and Boase) for Plaintiffs (on 27-28/10)

Mr. A. Li (Lo and Lo) for 1st and 2nd Defendants.

Mr. Mills-Qwens, Q.C. and Mr. Ribeiro (Slaughter and May) for 3rd Defendant.

Mr. A. Dicks (Baker and McKenzie) for 4th Defendant

Mr. D. Chang, Q.C. and Mr. Y.C. Mok (Deacons) for 5th Defendant.

(1) (1978) AC 297

(1) at page 322G

(2) (1973) 1 Q.B. 436

(3) the Estate Gazette, April 3, 1963 at 113

(4) (1968) 2 Q.B. 229 at 259

(5) (1964) A.C. 465

(1) at 335

(6) (1978) 1 WLR 382 at 388

(7) (1974) 1 LI. L.R. 32 at 35

(1) at 327 F and G

(8) (1970) LI. L.R. 520 at 522 and 523

(6) at 388

(9) (1971) 115 S.J. 950

(7) at 35

(10) (1978) 122 S.J. 17