CACV 312/2005 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 312 OF 2005 (ON APPEAL FROM HCA NO. 11077 OF 1994) BETWEEN ESQUIRE (ELECTRONICS) LIMITED Plaintiff And THE HONG KONG AND SHANGHAI 1st Defendant BANKING CORPORATION LIMITED WAYFOONG PROPERTY LIMITED 2nd Defendant (formerly known as HS PROPERTY MANAGEMENT LIMITED) AND BETWEEN MAGIC SCORE LIMITED Plaintiff And THE HONG KONG AND SHANGHAI 1st Defendant BANKING CORPORATION LIMITED WAYFOONG PROPERTY LIMITED 2nd Defendant (formerly known as HS PROPERTY MANAGEMENT LIMITED) (by original writ and order to carry on) Before: Hon Rogers VP, Stock and Tang JJA in Court Date of Hearing: 5-8 & 11-13 September 2006 Date of Handing Down Judgment: 12 October 2006 ______________________ J U D G M E N T ______________________ Hon Rogers VP: 1. This was an appeal from the judgment Waung J given on 19 July 2005. The claims in the case arose out of the sale of a commercial property, Li Fung House, Kowloon, (also referred to below as “the property”) which was effected as part of a restructuring agreement directed to bringing to an end the protracted period during which the plaintiff, Esquire (Electronics) Ltd (“Esquire”) had been insolvent and had had to be “rescued” by a consortium of banks of which the first defendant (“the Bank”) was the lead bank. In the judgment the judge held that the plaintiff had established liability against the Bank on its claims in respect of breach of fiduciary duty, economic duress and undue influence. Decisions as to remedies and reliefs to which the plaintiff might be entitled were left to be decided as a separate matter. 2. At the conclusion of the hearing of this appeal this court did not consider it necessary to hear argument on the question of limitation, thus, in effect, indicating that the appeal would be allowed. The reasons for so doing were that, on any footing, the Bank had not acted in breach of any fiduciary duty, it had not inflicted economic duress and it had not been guilty of exerting any undue influence. 3. In his judgment, the judge set out at some length, an analysis of the various authorities relevant to each head of claim. Before considering the law in relation to each aspect it is important to ascertain the facts. In this respect, the first matter which must be observed is the length of time which elapsed between the conclusion of the trial of the action on 12 March 2004 and the delivery of judgment, more than 16 months later, on 19 July 2005. 4. The Court of Final Appeal has in other cases made clear that such a lengthy period of delay is unacceptable. It has done so for very good reasons. Quite apart from the effect on the parties and the adverse effect on the public confidence in the due administration of justice which such a delay has, a period of delay, even considerably shorter than 16 months, immediately raises the question as to how much of what transpired at trial could have been remembered by the judge. Unfortunately in this case there are factors which indicate that the judge must have forgotten important events and aspects of the trial. 5. Comparing the transcript and the judgment there are areas which clearly lead to the conclusion that the judge must have forgotten important conclusions to which he had arrived in the course of hearing the case. What a judge says in the course of argument cannot be taken to be his final view on a matter, but it is entirely different if a judge, in effect, stops counsel in the course of submissions on a particular point. He then might be said to be exercising a case management function. If a judge does stop counsel from addressing him on a particular point, although it cannot bind him irrevocably in respect of that point, the better course may be to give the party concerned an opportunity of addressing the court further should the judge, on reflection, form a different view. At the very least, the party concerned would be entitled to an acknowledgment of the change in the judge’s conclusion on the point and a full explanation as to the judge’s thinking. The lapses in this case, in this regard, are almost certainly attributable to the delay in the preparation of the judgment having led the judge to forget important factors and the conclusions to which he arrived as a result of them. 6. The importance of the delay goes further. A trial which lasts 24 working days, of itself, puts a strain on the memory of the judge as to what took place. Nevertheless, where there has been no significant delay in giving judgment, an appellate court is entitled to assume that the mere failure to refer to a part of the evidence does not mean that the judge has overlooked it or that other forms of error have occurred. But delay in preparation of a judgment complicates matters because, as was said by the Full Court of the Federal Court of Australia in the case of Expectation Pty Ltd v PRD Realty Pty Ltd 209 ALR 568 at paragraph 72: “However, where there is significant delay, no favourable assumptions can be made. In such circumstances, it is up to the trial judge to put beyond question any suggestion that he or she has lost an understanding of the issues.” 7. This case is made even more complicated in this respect by the fact that the events in question took place some 17 years before the trial of the action. In such circumstances contemporaneous documentation is usually of the highest importance. In a number of important respects, the judge did not accept contemporaneous documents as being accurate. That rejection must fall to be considered carefully in the light of all the relevant facts and evidence. One of the matters to which this court has had to give consideration was as to how far the judge’s rejection of contemporaneous documentation can be sustained, particularly if the documentation of one party has been said to be inaccurate but the judge has not referred to the fact that the documentation from the opposing party supports the accuracy of the documentation that has not been accepted. BACKGROUND 8. The starting point of an analysis of the facts in this case is the purchase of Li Fung House by Esquire in September 1981. At the time Esquire was involved in trading in consumer electronics as an importer and exporter and a retailer as well as a wholesaler. It had been founded sometime prior to the purchase of the property by Sabahagchand Choithramanni Gurdas (“Gurdas”) who held 50% of the shares, the other 50% of the Esquire shares was held by his brother Sabahagchand Choithramani Arajan (“Arjan”). Gurdas’ witness statement puts the commencement of business by Arjan and himself as 1965. 9. In August 1981 Esquire obtained a valuation of the property at $151 million. It was at the time the tenant of part of the ground floor of the building and the first floor. Despite the valuation Esquire purchased the property in September 1981 for $180 million. It is possible that at the time inflation was running high: the best lending rate reached 20% in October 1981. The prevalence of inflation at the time might have influenced the thinking of Gurdas as to the advisability of the purchase at what at the time might have been considered a high price. Esquire obtained a loan of $180 million from the Bank for the purchase. The loan was to be repayable as to the first $30 million by 31 December 1982 as to the next $30 million by 1 June 1983 and the remainder over a five-year period. 10. The property was, of course, subject to a mortgage and for banking purposes that was calculated at a value of $166 million. It is noteworthy that the first tranche of repayments (the two repayments of $30 million each) were to be made from the sale of other property assets and the General Manager of the Bank at the time indicated his serious concern as to those sales happening. The annual turnover of Esquire was said to have been $565 million with a net profit of $16.2 million and that was sufficient to enable consent for the loan to be given. The further charge and mortgage which was dated 30 October 1981 provided for banking facilities up to $300 million and was in standard form of an assignment by way of first legal mortgage of amongst other things Li Fung House; the monies secured were repayable on demand. The 1984 restructuring 11. All did not go well for Esquire in subsequent years. Possibly associated with the difficulties which arose in Hong Kong commencing in 1982, financial difficulties arose which necessitated Esquire first of all seeking further facilities and subsequently a restructuring arrangement with its bankers. There were altogether five banks involved including the Bank. By far the largest amount owing was that to the Bank namely $309 million. This was divided notionally into the Bank’s non- property portion of something over $127 million and the property portion, which was something over $182 million. The Bank’s non-property portion, on its own, represented some 62% of the money owing to all the banks. 12. By an agreement dated 22 February 1984 Esquire, Gurdas, Arjan and the banks entered what has been termed a restructuring agreement. The effect of the agreement was that the debts owing to the banks would be treated as frozen debt.