Coram: Hon Kempster and Macdougall, JJA, and Nazareth, J
Dates of Hearing: 10 – 13 July 1990
Date of Handing down Judgment: 20 July 1990
Kempster, JA :
1. By reason of the separate representation of the defendants to these proceedings we have before us two appeals from the reserved judgmentof Jones J handed down in chambers on 15 December 1989 whereby applications to strike out the Statement of Claim, settled anonymouslyin London and wrongly bearing the purported signature of Hong Kong counsel, were dismissed. Albeit not appearing in his Order ofeven date, which should be the subject of an application under RSC Order 20 rule 11, the judge also dismissed the action as againstthe 11th defendant. There is no cross appeal in that regard.
2. By originating summons dated 29 December 1988 the plaintiffs, a Danish corporation and creditor of Wheelock Maritime InternationalLtd, in liquidation, (WWI), sought as against 12 defendants relief pursuant to section 275(1) of the Companies Ordinance (Cap 32) which reads : –
Such conduct could also be the subject of criminal proceedings.
3. As in the case of section 332 of the Companies Act 1948 section 275(1) contemplates : –
per Templeman J in Re Cooper Chemicals  Ch 262 at p 267. Thus, –
per Maugham J in Re william C Leitch Brothers Ltd  Ch 71 at p 77. This authority has been followed in Re white and Osmond (Parkstone) Ltd 30 June 1960 (unreported) by Buckley J and by the English Court of Appeal in R v Grantham  QB 675. The liquidator is not a party to the originating summons but has been made aware of this claim whereby, in relation to a periodduring which there was a downturn in charter and freight rates, graphically described to us by Mr Thomas on behalf of the first defendants,Wheelock Marden & Co Ltd, the plaintiffs contend that the shipowning and chartering business of WMI was carried on with intentto defraud its creditors, that the defendants were knowingly parties to such conduct and that they should personally and withoutlimitation of liability be responsible for the payment of the debts owing to the plaintiffs by WMI.
4. The Statement of Claim was served on 10 April 1989 and on 1 May extensive Further and Better Particulars were requested by the firstdefendants. A draft answer appears in the court bundle but meanwhile, on 7 September, the defendants issued their summonses to strikeout; contending that the form of the pleading and the manner in which the cause of action was presented was objectionable.
5. At all material times until 2 August 1985, when it went into voluntary liquidation, the first defendants had been the general managersand secretaries of WMI and, with the qualification that the 7th defendant resigned on 3 April 1985, all the other defendants hadbeen directors of that company. The plaintiffs allege that to the knowledge of the defendants WMI had been incurring liabilitieswithout prospect of honouring them since February 1983; a fortiori when, subsequently, it incurred various liabilities to them.
6. Paragraphs 4 and 5 of the pleading impugned include variations on formulae, prima facie apt for allegations of negligence or of “wrongfultrading” pursuant to section 214 of the Insolvency Act 1986, such as “which ought to have been known”, “ought to have known”, “shouldhave been clear”, “should have been” and “apparently” which may be, depending on context, consistent with an innocent state of mind.Belmont Finance v Willims Furniture  1 Ch 250. These expressions, particularly when “rolled-up” in pleas reading, for example, “the defendants knew or were reckless or ought tohave known”, are said to be demurrable since, as was common ground before the judge, liability for fraudulent trading requires proofof actual fraud; which may comprehend recklessness. Negligence will not suffice. We have been favoured with an exhaustive citationof authority relative to the issue of knowledge in support of the submission that the plaintiffs have been willing to wound and yetafraid to strike by unequivocally alleging fraud and dishonesty as required on the authority of Davy v Garrett (1878) 7 Ch D 473.
7. It may be that the words complained of add nothing to the general allegations of fraud but, be that as it may, they are in my opinionin no way calculated to embarrass the defendants in relation to the case which they have to meet or to which they have to plead.Indeed defences have already been served. The material words of the “conclusory” paragraph 9 of the Statement of Claim, encompassingparticulars which, far from being as consistent with innocence as with fraud, are apt to permit the “proper inference” describedin william C Leitch Brothers Ltd, are unequivocal. They are : –
Further, the form of the plaintiffs’ pleading overall accords with that suggested in Note 18/12/13 of the Supreme Court Practice 1988and the averments “must” or “ought to have known” predicate the rider “if acting honestly”. It demonstrates that the plaintiffs havenot been afraid to strike. In so finding I am relieved to find that insofar as the judgment of May LJ in Lipkin Gorman v Karpnale Ltd  1 WLR 1340 at p 1352 suggests that these “rolled-up” pleas are indeed demurrable his opinion was not shared by Parker and Nicholls LJJ as longas the pleas are girded with adequate particulars of knowledge. I am also happy to be able to follow the approach to a similar questionby this court in Advance Finance Ltd v Pang Sze-mui  HKLR 523. As Lawton LJ said when giving the judgment of the English Court of Appeal in R v Landy 1 WLR 355 at p 365 what a jury can say in relation to a defendant prosecuted for conspiracy to defraud is : –
This approach is very similar to that of Peter Gibson J in the civil case of Baden, Delvaux and Lecuit v SG (1983) BCLC 325 where, at p 407, he referred to the position of a stranger to a trust who might incur liability to the beneficiaries by knowinglyassisting in a fraudulent design by the trustees. His words were : –
8. At the very least the case to the contrary is neither plain nor obvious despite the doubts about William C Leitch Brothers Ltd expressed by Dixon CJ and Kitto J in Hardie v Hanson (1960) 105 CLR 451.
9. Jones J came to the same conclusion and held that in the instant case the pleading could not properly be criticised in that therewas no alternative plea in negligence. He stated : –
If further particularity is required other remedies are available to the defendants and it is certainly apparent to me, as it wasto the judge, that paragraph 7 of the Statement of Claim, like the allegations in paragraph 5 and the now corrected paragraph 6,which include. allegations that the defendants took unwarranted risks with creditors’ monies and made fraudulent representations,all constitute part of the case on fraud. Sensibly no argument has been addressed to us in relation to the relief sought in the prayer.At trial it will fall to the judge “to consider what was the directors’ view of WMI’s position at the time they obtained the credit”as pointed out by Buckley J in Re White and Osmond (Parkstone) Ltd at p 13. It will be open to the defendants to demonstrate that the line between taking a legitimate business risk and dishonestywas not crossed and that “the proper inference” should not be drawn. To adapt further words of Templeman J in Re Cooper Chemicals Ltd at p 269 : –
10. In my opinion the judge so exercised his discretion as to reach the correct conclusion on the Summonses before him. I would dismissthese appeals accordingly.
11. I would also make an order nisi that the plaintiffs should have their costs of these appeals.
Macdougall, JA :
12. I agree.
13. I also agree.
Michael Thomas, QC and John Scott (M/s Richards Butler) for D1/Appellants
A Barma (M/s Alsop Wilkinson & Driver) for D2-D10, D12/Appellants
Terence Cullen, QC and Clifford Smith (M/s Holman Fenwick & Willan) for Plaintiffs/Respondents