HCCL000009A/1987
IN THE SUPREME COURT OF HONG KONG
HIGH COURT
COMMERCIAL LIST
| BETWEEN | ALLIED ARAB BANK LIMITED | Plaintiffs |
| and | |
| TAJ EL AREFIN HAJJAR (Male) UTG INVESTIMENTS (FAR EAST) LTD UTG PROJECTS (CHINA) LTD UTG INDUSTRIAL (H.K.) LTD UTG FUJIAN HOTELS LTD UTG XIAMEN INVESTMENTS LTD | 1st Defendant 3rd Defendant 4rd Defendant 5rd Defendant 6rd Defendant 7rd Defendant |
Coram: Deputy Judge Litton Q.C in Chambers
Date of Hearing: 8th-12th June, 1987
Date of Delivery of Decision: 12th June, 1987
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DECISION
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1. This is an application to strike out the Points of Claim, brought by the five corporate defendants in this Action. I will, for the sake of convenience, call them D3 to D7. The application is brought under Order 18 Rule 19(1) of the Rules of the Supreme Court, the main ground being that the Points of Claim disclose no reasonable cause of action. In the course of argument, other grounds were relied upon, perhaps upon the implied invitation of the Bench: these are under sub-paragraphs (b) and (c) of paragraph (1) of Order 18 Rule 19; that is, that the pleadings as against D3 to D7 are vexatious, embarrassing and an abuse of process. However, little time was taken up on these later points.
2. All five defendant companies are registered in Hong Kong. D3 to D6 were incorporated on 21st August 1984. D7 was incorporated on 7th December 1984. D3 to D6 were originally incorporated under different names and, in November 1984, the names were changed to those now appearing in the writ. The plaintiff is the Allied Arab Bank. The 1st defendant to the action is a Mr. Hajjar.
3. It is alleged in the Points of Claim that D3 to D7 are part of a group of companies call the UTC Group: the pleading also avers that the Managing Director of D3 (a Mr. Kharouba) has denied this is so, but it is also alleged in the pleading that the denial was a lie and was dishonestly made.
4. The Points of Claim is a formidable document, particularly to a Judge who comes to the matter raw for the first time. It covers 151 pages and includes nine schedules. Paragraph 60 alone goes from page 58 to page 121. In essence, four causes of action are pleaded against D3 to D7; they are:-
| (1) fraudulent misrepresentation, (2) conspiracy to defraud, (3) an accounting on the basis of constructive trusteeship, and (4) an action for discovery of the Norwich Pharmacal type. |
5. I take a brief look first of all at what Mr. Wadsworth Q.C. (counsel for the plaintiff) calls the story in the case.
6. At the foundation of the plaintiff's case is the allegation of a dishonest scheme concocted to defraud the creditors of the UTC Group, including the plaintiff bank.
7. As averred in paragraph 39(i), it is as follows:-
"The corporate defendants and all other companies and/ or firms in the UTC Group and/or its associates and/or Hajjar and the individuals listed in Schedule One have dishonestly conspired together to defraud creditors generally and the plaintiffs in particular of their proper entitlements to receive money from those persons or companies in or associated with the UTC Group with whom such creditors have dealt."
Schedule One referred to above contains a list of 51 names which includes D3 to D7.
8. The averments of fact pleaded in the Points of Claim span the time from about 1977 to about December 1986. Accordingly, the allegations of conspiracy to defraud go back to 1977, long before the corporate defendants were formed. What is alleged in paragraph 39(ii) is that D3 to D7 became parties to the conspiracy not later than the dates set out in Schedule 8; and when one reads Schedule 8, it gives the date as 21st August 1984. What is therefore alleged this: the defendants joined a pre-existing conspiracy, and thereafter assisted in its execution. To see what that conspiracy is, one must look at the averments of fact dealing with the period prior to August 1984.
9. In summary (and it can only be a very brief summary) the picture emerges as follows:
| (1) | From about 1977, the plaintiff bank started lending money and providing banking facilities to certain customers, being companies in the UTC Group. |
| (2) | The pleading avers that the Group is ultimately owned by Mr. Hajjar, Mr. B. Tabbaa, Mr. T. Tabbaa, Mr. Majali and others unknown. (These are said to be "the partners"). |
| (3) | Paragraph 5(1) of the Points of Claim avers as follows At all material times, Hajjar has been the or a controlling mind of the UTC Group." Elsewhere in the pleadings, it is also alleged that a Mr. R. Hajjar, (a cousin of Mr. Hajjar), a Mr. Olabi, (a nephew) and a Mr. Sakhel are also "controlling minds" of the Group. |
| (4) | It is averred that in many dealings with the plaintiff bank by Hajjar or by companies in the UTC Group, Hajjar has been described as Group President, and none of the companies including D3 to D7 ever demurred from the use of the term Group President as an accurate description of Hajjar's capacity within the Group. |
| (5) | It is alleged that by massive bribes to the bank's Managing Director and Chief Executive (some £3.5 million having been paid allegedly between 1978 and 1983), Hajjar was able to procure, from the bank, loans and facilities to companies in the Group and to procure the postponement of repayments to the bank. |
| (6) | It is alleged that the group of companies was deliberately structured in such a way as to frustrate the enforcement of judgments against individual members of the Group. It is pleaded in paragraph 60(i) as follows: |
" | The plaintiffs aver that the UTC Group is a web set up by Hajjar primarily for the benefit of himself and the Partners to frustrate the enforcement of judgment in circumstances entitling the court to pierce the corporate veil and to treat the corporate defendants and their apparent assets as the assets of Hajjar and/or the Partners in order to achieve justice." |
| (7) | It is alleged that the companies in the Group including D3 to D7 were established by Hajjar and his associates for the purpose of receiving the proceeds of frauds and then holding such proceeds for the Partners. |
10. So much byway of summary of the main story as disclosed in the Points of Claim.
11. As opened by Mr. Wadsworth Q.C., the fraud as practised on the bank has three facets:
| (1) | The unlawful obtaining of money whether by loans or by the provision of banking facilities. |
| (2) | The deliberate construction of a complex web of companies in order to hide the money away. |
| (3) | The making of deliberately untrue statements to the bank in order to ward off inquiries and to cause the bank to forbear the sue. It is also alleged that there were statements not said to be untrue which were intended to have the same result and did have the same result. |
12. This is a summary provided by counsel (a most helpful one at that) in simple layman terms of what is averred as the conspiracy in rather more sophisticated language in the Points of Claim. Mr. Wadsworth also added in the course of argument the specific averment (maybe again on the implied invitation of the Bench) that D3 to D7 were established for the purpose of receiving assets, including proceeds of fraud from the UTC Group: a question here arises as to whether the pleading sufficiently avers that not only were D3 to D7 formed for such purpose, but whether they were thereafter operated for such purpose; that is to say, operated for the purpose of receiving the fruits of fraud and holding them for Hajjar and his associates.
13. The reliefs claimed in the Points of Claim in summary are as follows:
| (a) | Damages or an inquiry as to damages. |
| (b) | An inquiry as to what money of the bank obtained by fraud has been received and/or transmitted by each or any of the defendants or held by any other person or persons to their order or for their use or in the transmission or receipt whereof such defendant has assisted and as to the present whereabouts of the said money, all the property represented thereby. |
| (c) | An account of all profit obtained by the employment by each of the defendant of the money of the bank obtained by fraud and of all the property represented thereby. |
| (d) | A declaration that such defendant holds all such money or profit or property as constructive trustee for the plaintiffs. |
| (e) | An order for payment of all sums found due upon such inquiries or account and for delivery-up of all such property. |
14. Then there are injunctive relief sought which I do not need to read and then finally (I believe added by amendment) the claim for discovery of the Norwich Pharmacal type which I will deal with in detail later on.
15. Now Mr. Wadsworth Q, C. takes what I think could properly be regarded as a preliminary point, that the court should not in any event accede to this strike out application because of what happened in proceedings between the same parties in London. Mr. Wadsworth relies upon the point in the alternative to say that in the exercise of my discretion under Order 18 Rule 19 I should decline to strike out.
16. The factual foundation for this argument is as follows:-
| (1) | D3 to D7 are the 33rd to the 37th defendants in proceedings in England numbered 1987 A114. |
| (2) | Substantially the same claims were brought against these defendants in England as in the Hong Kong proceedings: I say substantially because the Points of Claim in England have not been amended,. but what I am dealing with in this court is the amended pleading, the Points of Claim having been extensively amended without leave on the 3rd of June 1987. |
| (3) | There was a consent order made in the English proceedings on 10th April 1987 to this affect, that 20 days after the amended Points of Claim have been served, the 33rd to 37th defendants should serve their Defence. |
| Now Mr. Wadsworth argues thus: |
| (a) | This raises an issue estoppel so that the defendants are now estopped from asserting that the amended Points of Claim in these proceedings disclose no cause of action: the estoppel arises because, in London, the defendants consented to putting in a Defence to the same claim which they, the defendants, now say should be struck out. |
And | (b) | He argues that essentially there is an inconsistency between the consent order in London and the present application in Hong Kong, and therefore as a matter of discretion I should not accede to the application. |
17. For proposition (a) above he relies on the case of SCF Finance v. Masri[1987] 2 WLR R1. For proposition (b) he relies on the case of Pierre Fabre v. Ronco[1983] Fleet Street Reports 148.'
18. I do not propose to spend too much time on these two points. In my judgment, they are not well-founded. In SCF Finance, there was a simple factual issue between the parties as to whether a sum of money belonged to the 1st defendant's wife beneficially or whether she was merely her husband's nominee. If the money belonged to her beneficially when a Mareva Order was made ex parte in relation to the disposal of that money, then the order must be discharged. She had the opportunity to deal with that issue. She chose to let that opportunity go. It was held that the principle in Yet Tung Investment[1975] AC 581 applied, namely, (and here I quote from the judgment of Lord Justice Ralph Gibson at page 101) that "it would be an abuse of the process of the court to raise in subsequent proceedings matters which could and should have been litigated in earlier proceedings. Lord Kilbrandon giving the judgment of their lordships gave warning at page 590: 'The shutting out of a subject of litigation was a power which no court should exercise but after a scrupulous examination of all the circumstances'."
19. I cannot, sitting as a Judge in Hong Kong, conduct any examination of the circumstances of the English proceedings, not to mention the scrupulous examination mentioned by Lord Kilbrandon in Yat Tung Investment. I am a Hong Kong Court. It is not alleged that there have been proceedings between the parties in Hong Kong which could preclude the defendants coming to the Hong Kong Court to apply to strike out a Hong Kong pleading. But I go further. I see no inconsistency between the consent order of 10th April in England and the present application. Order 18 rule 19 of the Rules of the Supreme Court says that the court may at any stage of the proceedings order pleadings to be struck out. It follows that the rules do not preclude a defendant from applying to strike out even after the Defence has been served. I cannot therefore see how by consenting to be given of time for the service of their Defence in England the defendants can be prejudiced in the present application. I, therefore, proceed with the present application uninfluenced by the consent order made on the 10th of April 1987 in Action No. 1987 A114.
20. Before dealing with the four causes of action and seeing whether the pleadings are so hopelessly defective as to justify the strong remedy of a strike out, I should make some preliminary observations:-
| (1) | What is alleged against Hajjar his associates and these corporate defendants is fraud and concealment of fraudulent conduct. |
| (2) | Fraud by its nature is clandestine proof is not readily obtained. |
| (3) | If a party has deliberately arranged his affairs so that a third party (be it a creditor or liquidator) will find it impossible to untangle the web he has created, and lay hands on real assets, then the averments of fraud cannot, by the very nature of the wrong complained of, be too precise. In saying this, I have in mind Mr. Lindsay Q.C.'s submission that fraudulent conduct must be distinctly alleged and as distinctly proved, and that it is not allowable to leave fraud to be inferred from the facts. (This I think is a quotation from the 19th century case of Davy v. Garrett). The facts of modern commercial life have however to be faced. There are instances known to modern courts of law (I do not say that this is necessarily one of them) where, through companies in different jurisdictions (and governed by different laws) and by inter-company accounting, nominee shareholdings and such-like devices, frauds become extremely difficult to uncover. Where therefore the Court is asked to strike out a fraud claim of this kind, based upon a complaint that the pleading lacks particularity, the Court should look upon the strike-out application with great care. And I have already noted the averment on page 58 of the pleading, paragraph 60(i), that the UTC Group was set up deliberately as a web to frustrate the enforcement of judgment. |
| (4) | On the other hand, it should be noted that when an action like this goes to trial, it is bound to be extremely oppressive as regards D3 to D7. Very many allegations are made in the pleadings with which D3 to D7 cannot remotely be concerned. I note, for example, the averments on pages 36 to 39, pages 42 to 56. The averments on pages 42 to 56 are said to be allegations of overt acts of conspiracy as against Hajjar and others; in fact as pleaded, they are allegations of fraud on other parties and not on the plaintiff bank. For example, a group of chicken exporters in Brazil are said to have become victims of Hajjar's fraud; this has been pleaded because, I am told, the plaintiffs invoke the 'Similar Facts' rule. It appears to me very odd that in a fraud case, the 'similar Facts' rule should be invoked. If evidence of injury to the plaintiff by the defendants' frauds is not strong enough to establish the plaintiff's case against the defendants, I cannot see how the fact of someone else being defrauded can help to bolster up the deficient case. |
21. I say no more about that.
22. I come now to the four causes of action. And first of all, fraudulentmisrepresentation.
23. In essence, what is pleaded is as follows:
| (1) | There is the general averment in paragraph 32(1) of the Points of Claim to the effect that Hajjar and others made false representations to the bank as to the means, source and timing of possible repayment by the customers of indebtedness to the bank. |
| (2) | This general averment is then particularized in Particulars to paragraph 35 of the pleading and as regards the corporate defendants, the only one of possible relevance are those numbered (11) to (14). Subparagraph (11) reads as follows: |
| | "(i) | On 5th December 1984, Hajjar orally agreed with one Wakelin on behalf of the bank that the customers would pay US$1.2 million to the bank, the source being China", by certain dates and the pleading goes on to say "and thereby represented that he reasonably believed that the customers could and would do so. |
| | (ii) | The only interest and/or business that Hajjar and the UTC Group had in China was via the corporate defendants herein." |
| (3) | Then we have paragraph (12) where the pleading reads: "by telex dated 23rd January 1985, B. Tabbaa represented to the bank that the promise to pay the bank US$1.2 million would be honoured." |
| (4) | Then we come to paragraphs (13) and (14). Paragraph (13) says that there was a telex dated the 14th of December 1986, the effect of which was that the "individual partners" represented to the bank that proposals for repayment would be sent to the bank during the first week of January 1987; and paragraph (14) says that "by telex dated the 22nd December 1986, the individual partners represented to the bank that the proposals and a payment on account of the indebtedness of the customers (and guarantors) were being considered seriously and would be furnished soonest". |
24. Now it is to be noted that the representations in (13) and (14) were not made earlier than the 14th of December 1986. By that time, the loans to the customers and Hajjar's guarantee had been called in by the bank. The loans were called in on the 18th of November 1986 and the guarantee the 19th. It would seem very odd that the plaintiff bank placed any reliance on anything said by the partners (and this would include Hajjar) at that stage, at least to the extent of suffering loss in reliance upon such representations.
| (5) | Then paragraph 35 of the pleading reads: |
| " | The representations were made to the bank with the dishonest connivance of Shukri, [who was the Chief Executive and Managing Director] with the intent and by virtue of the bank's reliance upon them with the effect of persuading the bank to continue to offer and/or extend the overdraft and other banking facilities to the customers and/or to refrain from calling upon the customers and/or the guarantors to repay the monies owed to the plaintiffs. To see what damage is allegedly suffered by the bank arising from such reliance, one has to move forward 99 pages, to page 122 of the pleading. |
| (6) | Paragraph 62 (page 122) as formulated is ungrammatical. I shall read it in the grammatical sense in which as I understand the pleader it is intended to be read. It is as follows: |
| " | In and by reason of the foregoing, the plaintiff has suffered loss and damage, namely, loss and damage to the extent that, as against the customers and the guarantors, they are unable to recover to the full extent claimed in debt." |
| There is an alternative claim which says: |
" | the plaintiffs are unable to particularize the loss and damage until after completion of the accounts and enquiries prayed for herein." |
25. Now what Mr. Wadsworth Q.C. says is this: Arising from the fraudulent misrepresentations, what the bank lost was the chance of recovering sums or larger sums as against the customers and the guarantors which the bank would or could have done if the false representations had not been made.
26. It will be immediately seen that the loss as claimed is somewhat speculative. It is based upon at least two contingencies:
| (1) | that the bank would have or could have taken earlier action and |
| (2) | that such action would have or could have been more successful than whatever actions were actually taken in pursuit of their claims. |
27. The speculative nature of a claim will make a Court look more closely at the nexus between the alleged wrong and the loss, but it does not mean but in law the plaintiff cannot recover: See Chaplin v. Hicks[1911] 2KB 786; but the assessment of the loss will, of course, be a very difficult matter.
28. Now in these circumstances, Mr. Lindsay Q.C. (for the defendants) mounts his attack upon the pleadings thus: he make three points:
| (1) | It has not been sufficiently averred that the fraudulent representations were those of D3 to D7, or any of them. |
| (2) | It has not been sufficiently averred that the plaintiff altered its position in reliance upon such representations. |
| (3) | It has not been sufficiently averred that the plaintiff suffered consequential damage flowing directly and naturally from the tort pleaded. |
29. It will be more convenient to deal with the three points together.
30. Now plainly, a general averment that Hajjar and others have made fraudulent representations to the bank as to the means, source or timing of any possible repayment of indebtedness by the customers is not enough to found an action of deceit against these corporate defendants. I therefore must look at the way the claim is particularized.
31. From subparagraph (11) which I have already referred to above, it will be seen that what Hajjar allegedly did on 5th December 1984 was to make an oral agreement with the bank. On the face of it, the oral agreement was made on behalf of those under liability to the bank, that is to say, the customers. From this primary averment of fact, I am not sure that it even follows as a matter of logic that Hajjar "thereby represented" that he "reasonably believed that the customers could and would pay. The averment is that there is a promise to pay US$1.2 million, the source being China. Assuming that it is a fair inference (and upon a striking-out that would be the proper approach) the question I ask myself then is: For whom was that representation made? On the face of it, it was a representation made by Hajjar and if he was acting in any representative capacity, it would have been on behalf of the customers. If subparagraph (ii) in the paragraph (11) is correct (and I assume it to be so) then on the face of it, the representation is a representation concerning the defendants; not, on the face of it, a representation by defendants.
32. I cannot see how paragraph (12) can advance the matter much further. It merely says that Tabbaa (who apparently had held himself out as the Group Chairman of the UTC Group) represented to the bank that Hajjar's promise to pay US$1.2 million would be honoured.
33. As for the representations pleaded in paragraphs (13) and (14), the notion that they could be held to be representations on behalf of D3 to D7 would seem highly improbable. I do not base my decision on this ground, for I cannot see how it can be argued that any damage flowed from such representations. It is expr6ssly pleaded on page 122 that the loss and damage suffered "by reason of the foregoing" (that is to say, the false representations) was that the bank was unable to recover to the full extent claimed in debt the amounts as against the customers and the guarantors. But by the time of the telexes averred in paragraphs 13 and 14, the debt had been called in. So there could be no loss even if there had been reliance upon such telexes.
34. Now there is the general averment in paragraph 36(ii) of the pleading to the effect that "the said representations" (that is to say, the paragraphs 11 and 12 representations) were made on behalf of all the members of the UTC Group (which would include D3 to D7) as at the date of the representations in question. I then ask myself this question: Is this general averment sufficient to found a case based upon agency: that is, representations made by Hajjar on behalf of D3 to D7, so that a Court might hereafter hold that they were the representations of D3 to D7?
35. In my judgment, the answer must be no. The averment in paragraph 36(ii) is a conclusion of law. Whether the conclusion is justified or not depends upon the averments of fact. In my judgment it is not sufficient to rely upon the averments of fact in paragraph 35 alone. To see whether the case based upon agency has been made out, I must look elsewhere.
36. What I shall now attempt to do is to summarize from the pleadings spread over many pages the averments of fact which might remotely be said to be relevant to the issue of agency. They are as follows:
| (1) | Hajjar was the or a directing mind of the Group: but I would note that it is also averred that R. Hajjar, Olabi and Sakhel were also "directing minds of the Group. |
| (2) | The group traded as a single entity. |
| (3) | Much monies have been syphoned off to Hong Kong; and the corporate defendants had substantial contracts with the Peoples Republic of China. |
| (4) (5) (6) (7) (8) | Hajjar was a director of each.of D3 to D7. Hajjar was chairman of D3. Hajjar has.been held out by D3 to D7 as Group President. D3 is the holding company of the D4 to D7. D3 to D7 had not demurred from the use by the bank of the term 'Group President' in correspondence as an accurate description of Hajjar's capacity. |
| (9) | There is a telex from Hajjar of the 30th May 1985 from Hong Kong with the reference number bearing the initials UTG/HKG which says "we have completed all accounting of our first project in the PRC". |
| (10) | There is another telex from Hajjar on the 27th November 1985 where he refers to "our full address;' and gives the address of "UTGI Far East". |
| (11) | There is the averment that Hajjar spent much of his time in 1986 in Hong Kong; and finally |
| (12) | There is the averment in paragraph 31(b) to this effect: in making such representations Hajjar and/or the other partners acted to the knowledge of and with the permission of each company that was a member of the UTC Group at the time of each representation and by reason thereof each such representation was made on behalf of each such member of the UTC Group. |
37. I should say here in parenthesis that I cannot see how this last point can advance the case of the Plaintiff what is pleaded is a conclusion. What the pleader says is that by reason of what is said before, each representation was made on behalf of each member of the Group. When one sees what is pleaded before, it pleads knowledge and permission of each company. I cannot see how, as a matter of logic, knowledge and permission as regards representations made by an individual, Hajjar, can make such representations those of the company.
38. The broad question I ask myself therefore is this: From the facts as I have recited above (I think I have enumerated all the most relevant ones) can it arguably be said that Hajjar was making the paragraph 11 representation on behalf of D3 to D1 I remind myself that the threshold is low: if it can be argued, then the point is good as far as the pleading is concerned. On this issue I place no reliance on the case cited by Mr. Wadsworth: The Ford Motor Credit Company case reported in the Times newspaper of the 7th of July 1972. Mr. Wadsworth suggested in argument that the case established the proposition that a man who has a control of a group of companies has actual as well as of ostensible authority to represent each and every member of the group. I cannot see how that could be advanced as a proposition of law. Whether there is such authority or not is surely a matter of the internal arrangements within the group, and that is essentially a question of fact. I find the case of Hampshire Land Company[1896] 2 Ch. 743 more helpful, where the court held that where one person is officer of two companies, his personal knowledge is not necessarily the knowledge of both companies.
39. Coming back to the averment in paragraph 11 (the particulars go paragraph 35 of the Points of Claim), I think that Mr. Lindsay is plainly right when he says that prima facie the representation is that of the representor. It is, on the face of it, a representation about the customer and affecting the customer. Assuming every fact that I have outlined above to be true, I do not think that a court could. reasonably conclude that the paragraph 11 representation was made by D3 to D7. It follows therefore the paragraph 12 representation cannot have been made by D3 to D7 either.
40. I look now at the question of damages flowing from the alleged wrong. Mr. Lindsay argues that the pleading on page 122 of damage is not enough; it is not plain from the pleading what loss is said go have flowed from the wrong alleged. The Plaintiff's loss is the loss of opportunity to take prompt action go recover the money from the customers and guarantors; but it is not alleged what action they would or could have taken if there had been no representations. These are Mr. Lindsay's arguments and I found considerable force in them. Mr. Lindsay also argues that where no immediate and necessary consequence arises from the wrong alleged then all the facts and circumstances giving rise to the loss must be pleaded. He cites the case of Perestrello v. United Paint[1969] 1 WLR 570. That proposition seems to me to be right in the circumstances of this case. Page 122 cries out for particulars; if none are given then no evidence could be adduced at trial. However, I do not think that this damage point alone would suffice to permit me to strike out the averment based upon fraudulent misrepresentation. But having regard to my finding as to agency and the clear view I have formed that the fraudulent misrepresentation as particularized cannot conceivably be said to have been made on behalf of D3 to D7, in my judgment the averments of fraudulent misrepresentation, and the reliefs based thereupon, must be struck out.
41. I come now to the 2nd cause of action, conspiracy to defraud. This is pleaded in Chapter M of the Points of Claim. I shall attempt to enumerate the averments:
| 1) | There is the general averment in paragraph 39(i) which I have already set out earlier; |
| 2) | There is the averment in paragraph 44(20)(a) to this effect: between 1984 and 1986 Hajjar and/or others cause new companies to be incorporated or acquired and to be operated so as to continue the UTC Group's activities (the companies including D3 to D7). The pleading then goes on to say the plaintiffs will particularly contended (a) that the companies referred to in this subparagraph were incorporated or acquired "as set out at paragraph 28 above". To make sense of this averment one must then move to paragraph 28; |
| 3) | Paragraph 28 says: "the follwoing companies or bodies are companies or bodies established or acquired or operated by or on behalf of the individuals particularized for the purposes of receiving assets which have included the proceeds of fraud pleaded herein from members of the UTC Group and then holding such assets, or utilising them, as if such assets were not assets of the UTC Group Companies, and holding them for members of the families of the relevant individuals as hereafter set out". The companies pleaded include D3 to D7 and the individuals include the partners and Hajjar or Hajjar and his wife; |
| 4) | Paragraph 44(20) (b) (i) to this effect: that "the purposes of acquiring or forming the companies was to enable the continuance of trading by the UTC Group through companies not apparently indebted or otherwise liable to creditors including the plaintiffs and so far as the plaintiffs are presently aware in particular to facilitate performance of the substantial contract in China ..... and for the purposes of acquiring or causing the new companies to be incorporated to take over UTC Group trading and/or its administration was to ensure that no profits earned from inter alia Chinese contracts already signed by or on behalf of members of the UTC Group should be capable of attachment by persons or bodies known to creditors of the UTC Group to be part of the UTC Group but that instead such profits should be diverted in a manner which Hajjar and/or the other individuals named herein thought to be proof against the process of law or otherwise available to be dealt with. As they so chose irrespective of the interests of such creditors"; and then |
| 5) | There is the pleading in paragraph 44(20) (b) (ii) to the effect that the purposes of acquiring or forming the companies (including D3 to D7) was "to preserve primarily for the benefit of those personalities listed at paragraph 28 above the fruits of the fraud pleaded therein'; and then |
| 6) | Paragraph 45 which says that in averring the existence and operation of the fraud pleded, and the conspiracy which the corporate defendants joined in August 1984, the plaintiffs will rely on "the following matters". The "following matters" are pleaded as subparagraphs (1) to (24), none of which as far as I can see are remotely relevant in substantiating the averments against D3 to D7; and then |
| 7) | finally, the pleading in paragraph 60(iii): the plaintiffs . will "rely on the matters set up below, in addition to the .. matters herein before pleaded in support of the allegation that the corporate defendants herein were parties to be misrepresentations and conspiracy''; and then "the matters set out" go on and as far as these corporate defendants are concerned over many pages. There is nothing of relevance until one comes to page 93, and here the pleading in relation to the Hong' Kong companies is as follows: |
" | The companies under this sub-heading were established or acquired or operated by Hajjar for himself and the other partners for the purpose of receiving assets including the proceeds of the fraud herein pleaded from the UTC Group and then holding such assets as if such assets were not assets of UTC Group Companies and holding them for (1) the purpose set out at M hereinand (2) the partners." |
| Now I add in parenthesis that as far as holding the assets for "(1) the purpose set out at M herein", it is a completely circular pleading because the averment itself is part of M and it cannot advance the case any further. |
42. Now, in the light of this extra-ordinarily complex web of pleadings, it is not surprising that Mr. Lindsay attacks under the provisions of Order 18 Rule 19. He first of all takes a date point. In paragraph 39(ii) it is alleged that the corporate defendants joined and became parties to "the said conspiracy" not later than (in effect) the 20th of August 1984; but, he says, D7 was not incorporated until December 1984; so as far as D7 is concerned the entire basis of a charge of conspiracy must go. Mr. Wadsworth answers the point by saying that the date of joining the conspiracy is not a material averment; what is material is what D7 did in execution of the conspiracy, whenever D7 joined.
43. I think it would be helpful for me to go back to Mr. Wadsworth's formulation of the conspiracy as charged, as presented to me in his opening. It is as follows:
| (1) | the unlawful obtaining of loans and facilities, this was achieved by massive bribes. |
44. But this did not go beyond 1983 and I cannot see how it can be alleged that D3 to D7 were parties to such unlawful obtaining; any averments to that effect must obviously be disregarded.
| (2) | The deliberate construction of the web, to make the Group and members of the Group-"judgment-proof". |
45. These are of course prima facie allegations against the promoters of the companies. If it be alleged that later on D3 to D7 knowingly took part in hiding away assets, particularly proceeds of fraud, then of course, D3 to D7 would be accountable as constructive trustees, and the companies need not be conspirators in setting up the web in order to be accountable: I say this in parenthesis.
| (3) | The way Mr. Wadsworth formulates it in this way: (i) the making of deliberately untrue statements in order to ward off inquiries and to cause the bank to forebear to sue: that of course is the charge of fraudulent misrepresentation which I have already ordered to be struck out; but, (ii) in relation to statements made in order to ward off enquiries there is a second part to the case as developed by Mr. Wadsworth. It is also alleged in the pleading that there were truthful representations, and it is alleged that D3 to D7 took part in this aspect of the conspiracy. The plaintiff relies upon the representations pleaded in. 94 onwards; only two, as far as I can see, are of any particular relevance. They are the telex .of the 30th May 1985 and that of the 25th November 1985. |
46. The general averment, of which those telexes are particulars, is at the bottom of page 94. It says "from as early as August 1984 monies arising out of projects of the UTC Group in China were being held out by Hajjar and/or Karjawally on behalf of the partners and the corporate defendants and the UTC Group generally as being available to allay the fears of the creditors in the UTC Group ... Further it was being held out that these defendants were members of the UTC Group and/ or that their trading was beneficially that of the UTC Group. And then particulars are given. And then on page 8, it is averred: "By the said representations, the corporate defendants were parties to the fraud herein pleaded in that they knowingly assisted in causing the bank to forbear or grant time to the customers and/or guarantors etc."
| (4) | And finally I come to Mr. Wadsworth's formulation, by way of summary, to the effect that the companies D3 to D7 were formed and operated for the purposes of receiving and holding assets, the proceed of fraud, for the partners. |
47. Now, arising out of the four averments of conspiracy as I have attempted to summarise above, in my judgment it is only the second part of (3) and (4) which are arguably viable as averments of conspiracy.
48. As regard the second part of (3), I have to look at the particulars given under the averments on page 95. Let us look more closely. I add here in parenthesis that the pleader appears to have lost heart when he came to these later pages; it is almost impossible to try to identify the paragraph numbers. Now, the factual matters are that Hajjar by telex said "we have completed all accounting of our first project in the PRC"; and the factual averment in the telex of the 25th November 1985 concerns "chinese prospects generally"(whatever that menas) and "our full address (name and address given)".
49. I ask myself these questions: If these are particulars of overt acts, what wrong-doing is disclosed? The telex of the 30th May 1985 says nothing about monies being available from any of the defendants D3 to D7. Assuming that the royal "we" in the telex is capable of referring to D3 to D7, then it merely is an averment to the.effect that those companies had completed all accounting. As far as the telex of the 25th November 1985 is concerned, it is pleaded as an invitation to the bank to general discussions. I cannot see how these can be relied upon as overt acts of any conspiracy.
50. I come therefore to the formulation in point. (4) of Mr. Wadsworth's summary, that the companies were formed and then were operated thereafter for the purposes of receiving and holding assets which were the proceeds of fraud. I focus attention in particular upon the averment in paragraph 60(iii) on page 58 where it says that the plaintiffs will "rely on the matters set out below" in support of the allegation that the corporate defendants were parties to conspiracy; and then moving on to page 93, the averment that the companies were operated for the purposes of receiving assets including the proceeds of fraud from the UTC Group and then holding such assets as if such asset were not assets of the UTC Group, and holding them for the partners. For this purpose I ignore the averment in the passage which says: "holding them for the purposes set out at M herein" which is far too wide, so wide as to be meaningless. I ask myself therefore if this is a sufficient allegation of conspiracy as formulated by Mr. Wadsworth against D3 to D7.
51. In my judgment it is just enough. By the very nature of the case, it is unlikely that the plaintiff at this stage would be able to particularize the allegations further. If the allegations in the Points of Claim against Hajjar and his associates be true then there has been a massive fraud practised upon the bank over a number of years. The bank has been milked, on those averments, of tens of millions of pounds; loans so called have been extracted with the assistance of a corrupt chief executive - with presumably no intention that they be repaid. If the proceeds of such fraud have been channelled to members of the UTC Group (and it is specifically alleged D3 to D7 were formed and operated to receive such proceeds of fraud) and then through D3 to D7 channelled into the pockets of Hajjar and his associates, then these are serious allegations of fraud and conspiracy. It is sufficiently pleaded for evidence to be led thereon. Such allegations cannot be likely brushed aside.
52. Now, Mr. Lindsay complains that the damage flowing from the execution of this particular aspect of the conspiracy has not been pleaded. I note, however, the prayer for relief at page 127, which prayed for damages and inquiry as to damages and then (b) an enquiry as to what money of the plaintiff obtained by fraud has been received and or transmitted by each or any of the defendants etc. And I note the averment on page 122 to the effect that the plea of damages is in the alternative. Paragraph 62 (on page 122) says "alternatively the plaintiffs are unable to particularize the loss and damages until after completion of the accounts and enquiries prayed for herein."
53. In my judgment that is a sufficient pleading as to damage flowing from the execution of this aspect of the conspiracy for the case to proceed on that ground.
54. I now come to the question of constructive trusteeship.
55. What has to be made out for the plea to be good is as follows:
| 1) | that the defendants received trust property (the expression "trust property" is here used in the technical sense connoting property for which a Court of Equity would hold the defendant accountable; and this must include the proceeds of frauds and money extracted from a bank by bribery); |
| 2) | that it has been shown that the defendant had notice (actual or constructive) that it was trust property, and |
| 3) | that the defendant had actual or constructive notice that transfer to him was in breach of trust. |
56. Now, that is the first way in which Mr. Wadsviorth on behalf of the plaintiff formulates the case as regards constructive trusteeship. He also formulates it secondly as follows:
57. In the alternative even if the Defendant has not received trust property (again the expression "trust property" is used in the technical sense) but knowingly has assisted in the fraudulent design of the trustee then he is equally accountable.
58. Now, as regards the primary formulation of the constructive trusteeship, Mr. Wadsworth relies upon the following averments:
| a) | that the defendant has received trust property: he relies upon paragraph 19.1 of the pleading which says: "each and every facility and/or use thereof was procured by the fraud of Hajjar and Shukri in that on dates which the plaintiffs will hereafter as far as possible set out Hajjar paid or caused to be paid to Shukri between about 1978 to 1983 at least £3.5 million pounds as bribes, such monies being drawn from one or more accounts held by the customers". The purpose and effect of such bribes was "to procure the payment to or on behalf of the cus-tomers of money". |
| b) | As to the receipt of trust money by the defendants, Mr. Wadsworth relies upon the paragraph 28, the averment which I have already read, to the effect that D3 to D7 were operated for the purposes of receiving proceeds of fraud. |
| c) | On the question of notice Mr. Wadsworth relies upon the averments in pages 93 to 94 which say that the companies were established and then operated for the purposes of receiving the assets including the proceeds of fraud, and plead the fact that Hajjar among others was a director of each of the defendants. And finally as regards the question of notice that the transfer of property to the defendants was in breach of trust, Mr. Wadsworth relies upon the same averments. |
59. As I have said earlier, by the very nature of the wrong as pleaded (the operation of the companies for the purposes of receiving the proceeds of fraud), evidence of such wrong would not be readily available. And in the circumstances, it seems to me that the pleading as I have enumerated above is a sufficient pleading of constructive trusteeship and breach thereof. As regards the alternative way in which the case was formulated (that is to say, that the defendants have knowingly assisted in the fraudulent design of the constructive trustees) this is in effect another way of formulating the fraudulent misrepresentation plea and I do not propose therefore to repeat for what I said above.
60. The effect therefore of this part of my judgment is that the allegation of breach of constructive trusteeship succeeds in withstanding the strike out attack.
61. I come then to the last point, which is the Action for Discovery.
62. This is pleaded, first of all, on page 124. Again I will have to read it slightly differently from the way it is actually written because (it is conceded) as written it is ungrammatical. Reading paragraph 66 grammatically it is as follows:
"If contrary to the plaintiff's primary contention, any of the corporate defendants is not a party to the fraud herein-before set out, but has acted only as an honest agent of Hajjar or of any other partner or member of the UTC Group which is such a party then to the extent that each such corporate defendant is an unwitting participant in the execution by Hajjar and/or other defendants, the other partners, and the other members of the UTC Group of the conspiracy about set out, the plaintiff will claim against each such innocent corporate defendant an order that such corporate defendant do within such time as the court may appoint serve upon the plaintiffs a list of documents relating to all transactions between such corporate defendants herein and each of the partners and members of the UTC Group for such period as this honourable court may deem just, and an order that such documents be produced by appointment to the plaintiffs for the purposes of the plaintiffs inspecting copying and making notes of the same to the extent that such plaintiff may wish."
63. Now, that is pleaded as the material averments, all the material averments, of this cause of action. The relief is pleaded on page 130, and it claims "an Order requiring each defendant to make and serve upon the plaintiffs' solicitors and verify by affidavit served upon which solicitors a list of documents stating each and every document which is now, or has any time been, in the possession power or control of that. defendant relating to each and every matter set out in schedule 9 hereto", and then permitting inspection, the taking of copies etc. And then schedule 9 on page 150 of the pleading sets out 9 separate classes of documents. I note in particular two items, item 5 which requires disclosure of any payment exceeding HKD$10,000 in value passing between "any defendant, their servants or agents and any of the parties listed in schedule 1"; and of course schedule 1 lists 51 parties including D3 to D7. I note also item 9 in schedule 9 which requires disclosure of "any document relating to any allegation made herein in the Points of Claim".
64. Now the claim for discovery of that very wide nature as set out in this pleading is based upon the case of Norwich Pharmacal[1974] AC 133. In this regard, I make the following observations:
| 1) | In Norwich Pharmacal, by the time the case reached the House of Lords, every allegation that the Commissioners of Customs and Excise were themselves infringers of the plaintiff's patent had been abandoned. The case proceeded on the basis that the Commissioners were wholly innocent but they, in discharge of statutory duties, had in their possession names and addresses of undoubted infringers of the plaintiff's patent. The Commissioners were in a position to assist the plaintiff to vindicate its legal rights against third parties, by providing the names and addresses of third party infringers. The questions in the case were (i) whether the Commissioners were under a duty to give the information sought and (ii) whether public policy or statute prevented the court from ordering disclosure. |
| 2) | I observe that in fact the only information sought in Norwich Pharmacal was identity: that is to say, names and addresses' of infringers. It is, therefore, not surprising that much of the language of their lordships was addressed to this narrow issue. |
| 3) | The jurisdiction to order disclosure in Norwich Pharmacal was founded upon the old bill for discovery in the Chancery Courts, and this was clearly not confined to the identity of wrong doers; it could within proper limits extend to other information. In Hong Kong the case of Yew Seng Computer v. Computerland[1986] Hong Kong Law Reports 233 deals with this issue. The Court of Appeal held that Norwich Pharamacal discovery was not confined to names and addresses and. that in proper cases other information could be sought. This is consistent with the reasoning of the English Court of Appeal in Bankers Trust v. Shapira[1981] Weekly Law Reports 1274 where the plaintiff bank, a victim of fraud, sought discovery in order to trace the proceeds of the fraud against the Discount Bank, the 3rd defendant. The order sought was in the following terms: I read from page 1276 |
| | "B) as against all three defendants an order that each of defendants disclose to the plaintiffs forthwith the sums or balances at present standing in the account in either of the names of Shapira or Frei at Discount Bank and C) as against Discount Bank an order that they disclose to the plaintiffs forthwith and permit the plaintiffs to take copies of the following documents: |
| i) | all correspondence passing between Discount Bank and Shapira and Frei relating to any account at Discount Bank in the names of either Shapira and/or Frei. |
| ii) | All cheques drawn on any account at Discount Bank in the names of either Shapira and/or Frei. |
| iii) | All debt vouchers transfer applications and orders and internal memoranda relating to any account at Discount Bank in the names of either Shapira and/or Frei." |
| Mr. Wadsworth says that in essence what is sought in this case is discovery of approximately the same extent as in Bankers Trust. |
| 4) | I observe that the Discount Bank in the Bankers Trust case was a wholly innocent party; there were no allegations of any wrong-doing against the Discount Bank. Therefore there was no question in Bankers Trust v. Shapira of the Discount Bank being required to make discovery under Order 24. |
| 5) | Where a party is alleged to be a wrong doer, as is alleged against D3 to D7 in this case, then ordinary discovery under Order 24 would take place upon the matters in issue in the suit. This would take place long before any judgment given upon the Action for Discovery. In these circumstances, a Court would clearly be very slow to allow a Norwich Pharmacal claim to lie side by side with the action based upon the defendant's wrongdoings: this is clear from the judgment of Cons JA in Yew Seng Computer v. Computerland at page 286, where he says: |
"I appreciate that in the banking cases ground was pleaded and relied on but the discovery that was given was not in support of the action for fraud, it was in support of an equitable action to trace monies said to be the subject of constructive trust's."
I should perhaps add in parenthesis that in Vice-President Huggins' judgment on page 235 the reference to discovery being wider than disclosure of identity in the case of Radio Corporation v. Reddington[1975] RPC 95 was wrong. Huggins, V-P probably was misled (as, I think, all of us were in this court at the beginning) by the actual form of the order apparently drawn up pursuant to the judgment of the Court in Radio Corporation v. Reddington. If one looks at the order as apparently drawn up on p. 97 of the report, one sees that it included, apart from names and addresses, the requirement that the defendant should make an affidavit exhibiting copies of all documents in his possession relating to the supply to or by the defendant of certain material. This is plainly wrong because on p. 96, although that is what the applicant sought, this was in fact abandoned at the hearing, and at p. 96 line 8, Mr. Justice Goff said:
"It is clear, and the plaintiffs accept, that, in any event, that is too wide and must be limited to names of persons and companies known to the Defendants."
| 6) | Whatever the scope of Norwich Pharmacal discovery, it is plainly based upon the proposition that the defendant is under a duty to assist the plaintiff to vindicate legal rights against third parties. In Norwich Pharmacal, Lord Kilbrandon at p. 203 said: |
"The most attractive way to state an acceptable principle, intellectually at least, may be as follows: The dispute between the plaintiff and the defendants is of a peculiar character. The plaintiff is demanding what he conceives to be his right, but that right insofar as it has patrimonial substance is not truly opposed to any interest of the defendants; he is demanding access to a Court of Law, in order that he may establish that third parties are unlawfully causing him damage."
And Lord Cross at P. 199 said:
"In the course of the argument fears were expressed that to order disclosure of names in circumstances such as exist in this case might be the thin end of the wedge, that we might be opening the door to fishing requests by would-be plaintiffs who want to collect evidence or the requests for names made to persons who had no relevant connection with the person to be sued or with the events giving rise to the alleged cause of action but just happened to know the name. I think that these fears are groundless. In the first place, there is a clear distinction between simply asking for the name of a person whom you wish to make a defendant and asking for evidence. This case has nothing to do with the collection of evidence."
65. There is an echo of these sentiments in the judgment of Vice-President Huggins in Yew Seng Computers at p. 285(G).
66. Now if I am right in holding, as I do, that the duty of the defendant in a Norwich Pharmacal case is the duty to assist the plaintiff in vindicating his legal rights against third parties, or perhaps as in Banker's Trust in tracing trust property in the hands of third parties, then the averments of fact giving rise to such duty must clearly be pleaded.
67. Paragraph 66 of the Points of Claim is wholly deficient in this respect. The fact thst Hajjar and/or other parties have conspired to harm the plaintiff, and D3 to D7 are "unwitting participants' in the execution by Hajjar and/or other parties of the conspiracy is of course pleaded. But this does not per se give rise to a duty, imposed by law upon D3 to D7, to give discovery. It appears very much to me as if what the plaintiff seeks to do is what Lord Cross enjoins a plaintiff should not do, that is to say, embark upon a "fishing expedition". The plaintiff has sued a total. 51 defendants in the English proceedings. Discovery would be massive. They have not alleged in the Point of Claim before me that any discovery given by the defendants on the Norwich Pharmacal claim will lead, or is likely to lead, to further tortfeasors being discovered. Far less have they averred that such discovery is necessary for the vindication of their legal rights against third parties.
68. In this Action, since the cause of action based on constructive trusteeship still survives, and likewise the averments as regards the conspiracy to hide away assets, the defendants will have to give discovert in any event.
69. In my judgment the pleading as to discovery is wholly bad. There are no sufficient averments for the court to give relief in the way prayed for. The action for discovery as constituted cannot proceed. No reasonable cause of action is shown on the averments and the relief based thereon must be struck out.
70. Now I come then to the summons before me. The summons asks for the whole of the Point of Claim to be struck out and the action to be dismissed. The power under Order 18 Rule 19 is for the court to strike out the whole or part of the pleadings and to order that the action be either stayed or dismissed.
71. Now to give effect to my order, there will obviously have to be massive re-amendment of the pleadings. It is not appropriate for me to attempt to identify the particular passages in this 151-page document which requires to be struck out. This is a task which will have to be left to the parties.
72. To make sure that there is no misunderstanding, it might be helpful for me to summarize the effect of the order:
| 1. | The pleading as to damages for fraudulent misrepresentation must be struck out. |
| 2. | The pleading as to damages for conspiracy must be struck out except as to the claim for conspiracy as particularized on p. 93 to the extent I have indicated; that is to say, what then stands is as follows: |
| | The companies were established or acquired or operated by Hajjar for himself and the other partners for the purpose of receiving assets including the proceeds of the fraud pleaded from the U.T.C. Group and then holding such assets as if such assets were not assets of the U.T.C. Group companies and holding them for the partners. |
| That averment stands. |
| 3. | The averments based upon a liability to account as constructive trustees stand. |
| 4. | The action for discovery must be struck out. |
73. It seems to me that the appropriate order to make consequent upon my judgment is that the action should be stayed under Order 18 Rule 19. But I will obviously hear counsel. upon the precise form of the order I should make. I express the hope that when the occasion to re-form the pleadings arises, the pleader would heed the requirements in Order 18 Rule 7 of the Rules of the Supreme Court which say that the statement of material facts should be in as brief a form as the nature of the case admits. Order 13 Rule 7 specifically says: the evidence shall not be pleaded.
74. I will therefore hear counsel on two matters:
| 1) | The precise form of the Order I should make, and; |
| 2) | the question of costs; although as to the latter perhaps I ought to indicate that my present inclination, subject to anything further to be said, is to award the whole of the costs of the application to the defendants. |
| (Henry Litton) |
| Deputy High Court Judge |
Representation:
Mr. James Wadsworth Q.C. & Mr. Ronny Wong instructed by Messrs. Richard Butler for the Plaintiff.
Mr. John Lindsay Q.C. & Mr. Winston Poon instructed by Messrs. McKenna & Co. for 3rd to 7th Defendant.