LI TIN SANG v. POON BUN CHAK

CACV 119/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 119 OF 2003

(ON APPEAL FROM HCA NO. 9296 OF 2000)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from a decision of Burrell J given on 7 April this year, with the reasons handed down on 11 April, whereby he dismissed the defendant's appeal against the decision of the master giving leave to amend the statement of claim. At the conclusion of the hearing this court dismissed the appeal with reasons to be given in writing.

Background

2. The writ in this action was issued on 30 September 2000 with a statement of claim endorsed thereon. The prayer for relief claimed damages for breach of contract and/or procurement of breach of trust and specific performance to cause or procure 21,705,600 shares in Texwinca Holdings Limited to be "returned" to the plaintiff. There was other consequential relief. The statement of claim identified the parties as the plaintiff, on the one hand, who was said to have been skilled and reputable as a dyeing technician with good connections in the textile business, and the defendant, who from July 1992 was the managing director of Texwinca Holdings Limited. That company became the holding company of a large group of companies, which were all controlled by the defendant. Against that background paragraph 6 of the statement of claim read:

"In 1989 and before the Defendant had acquired Texwinca as the holding company for the Group, the plaintiff was invited by the Defendant to join the Group with a view that he should become an important member thereof and when a public listing would be achieved (which eventually took place in the form of Texwinca), the Plaintiff should be given shares and a directorship in the listed company."

3. Although paragraph 6 does not, in terms, refer to an agreement it is clear from paragraph 9 that the pleader intended paragraph 6 to refer to an agreement. Indeed, it is implicit from the fact that the pleading goes on to refer to the plaintiff becoming a director of different companies within the Group and in particular of Texwinca, that the plaintiff accepted such an invitation. Whereas it might be said that any consideration coming from the plaintiff was not spelt out, again, it does not stretch the imagination to appreciate that if, as pleaded, the plaintiff became an "important member" of the Group, what the pleader must have intended to convey was that the plaintiff devoted his skill and energy to the business of the Group and, when it was formed, in particular Texwinca.

4. Paragraph 8 of the statement of claim then pleaded that:

"When Texwinca was formed the parties agreed that the Plaintiff should be given 31,924,200 shares therein. The Plaintiff was appointed as a director of Texwinca at its onset in July 1992."

5. As already stated, paragraph 9 refers to the agreement as set out in paragraphs 6 and 8. In both paragraphs 8 and 9 reference is made to the agreement being made by "the parties". That in my view must be the parties to the action. The agreements were alleged to be between the plaintiff and the defendant. Paragraph 9 reads as follows:

"Pursuant to the parties agreement as set out in paragraphs 6 and 8 hereof the Defendant caused the said 31,924,200 shares to be given to the Plaintiff in the following manner:

(a)	10,218,600 in the Plaintiff's own name.
(b)	21,705,600 in a company incorporated in the British Virgin Islands known as Giant Wizard Corporation (hereinafter called 'Giant Wizard') on trust for the Plaintiff."

Then paragraph 11 goes further. That says that:

"In arranging the said 21,705,600 shares to be held by Giant Wizard on trust for the Plaintiff, the Plaintiff and the Defendant agreed expressly and/or implied that the Defendant would not through Giant Wizard deprive or appropriate the Plaintiff's said shares and/or further that the Defendant would cause Giant Wizard to transfer the Shares to the Plaintiff upon request."

6. The pleading goes on to plead that although the plaintiff received the dividends in respect of the shares during the time that he was still a director of Texwinca, after he had resigned, in October 1994, he ceased to receive the dividends and by about 1995 the defendant had denied that Giant Wizard was holding the 21,705,600 shares on trust for the plaintiff and had refused to cause or procure those shares to be transferred to the plaintiff. That is then pleaded as being a breach of the agreement arrived at as pleaded in paragraph 11.

The strike out application

7. In January 2001 Master Kwan dismissed the defendant's application under Order 18, rule 19 to strike out the plaintiff's statement of claim. The grounds upon which that had been sought were that the statement of claim was frivolous and vexatious and an abuse of the process. The matter was then taken on appeal before Deputy Judge Woolley who permitted an amendment to the summons to raise the ground that the statement of claim did not disclose a reasonable cause of action as required under Order 18 rule 19(1)(a). By his decision dated 1 August 2002 Deputy Judge Woolley acceded to that application. Nevertheless, he considered that it would not be right to shut out the plaintiff from proceeding with the action and that the plaintiff should be given an opportunity to amend. In his decision Deputy Judge Woolley said, in paragraph 6, that it was clear that throughout the plaintiff had claimed an agreement with the defendant and a right to the shares. In paragraph 11 he referred to the fact that the plaintiff relied on an agreement with the defendant that had been made in 1989 and a further agreement that the plaintiff would not be deprived of the shares held by Giant Wizard which would be transferred on request. Pausing there, it would be correct to say that the plaintiff was relying on three agreements namely those pleaded in paragraphs 6, 8 and 11 of the statement of claim. After noting the defendant's submission that paragraph 6 referred to an invitation but did not refer to any consideration, Deputy Judge Woolley went on to note in paragraph 12 that:

"It is clear on the authority of Clarke v. Gray (1805) 6 East 564, that where a contract not under seal is relied on, consideration must be pleaded. This is not just a defect in pleading here, as on any reading of the paragraphs set out above, and upon which the plaintiff relies here to found a case of contract, it is not possible to discern the nature of the contract, or indeed, if there was any contract at all. Applying the test of whether, if the plaintiff was able to prove all the matters pleaded in the statement of claim, he could succeed for the relief claimed, the answer must be in the negative, as no clear case of agreement and breach is there stated."

However, it was then that Deputy Judge Woolley went on to say that it was for that reason only that he found that the defendant was entitled to the order on the amended summons on the basis that the statement of claim did not show a reasonable cause of action but that the plaintiff should be allowed an opportunity to amend. In summary, therefore, the original claim was a claim in respect of the 21,705,600 Texwinca shares, which had been put into the name of Giant Wizard and which the plaintiff claimed he had been allotted following the original invitation in 1989, the allotment in 1992 and the arrangement arrived at after the allotment that the shares would be put in the name of Giant Wizard.

The amended statement of claim

8. Following the order of Master Ho dated 6 January 2003 the statement of claim was amended. The claim in respect of procurement of breach of trust was dropped but the claim for damages for breach of contract was maintained. Burrell J characterised the amended claim as being entirely recognisable as the original (defectively pleaded) claim which had been clarified. In my view he was correct. The amended statement of claim follows the format of the original. There is now included clear and precise allegations relating to consideration. It may be noted that apart from a pleading that the plaintiff agreed to render his services as a technical adviser and an executive of the Group, paragraph 6 of the amended statement of claim also refers to the fact that the plaintiff resigned his position as a manager and director of his previous employer. As already indicated, I consider that the question of his working and providing his services to the Group was something which was virtually obvious from the original pleading.

9. The original paragraph 8 has been expanded to include explicit reference again to the consideration of the plaintiff providing his services. Paragraph 9 amounts, in my view, to much the same as the original paragraph 9 save that it, also, has been expanded. There is now an explanation as to how the arrangement to use Giant Wizard came about. Again, paragraph 11 has been expanded and there is also now included a plea as to consideration.

The objection taken by the defendant

10. The objection taken on behalf of the defendant to the amendment was that the amended statement of claim was not allowable under the terms of section 35 of the Limitation Ordinance, Cap. 347. Subsection (1) of section 35, insofar as it is relevant to the present case, provides that any new claim made in the course of an action should be deemed to be a separate action and to have commenced on the date of the original action. Subsection (3) reads:

"Except as provided by section 30 or by rules of court, the court shall not allow a new claim within subsection (1)(b), other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Ordinance which would affect a new action to enforce that claim."

The power to make rules is referred to in subsection (5) which provides that:

"Rules of court may provide for allowing a new claim to which subsection (3) applies to be made as there mentioned, but only if the conditions specified in subsection (6) are satisfied, and subject to any further restrictions the rules may impose."

Relevant for this application is subsection (6)(a) which reads:

"The conditions referred to in subsection (5) are-

(a)	in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment;"

11. Burrell J considered that there were two questions which needed to be answered. In the first place, do the proposed amendments add a new cause of action? If they do, in the second place, does the new cause of action arise out of the same facts or substantially the same facts as those in the original statement of claim. Burrell J, first of all, came to the conclusion that there was no new cause of action and secondly, that, even if there were a new cause of action, both the original and the amended statements of claim concerned substantially the same shares, the same parties, the same agreements, the same transactions, the same breaches and the same relief: see paragraph 15 of his decision. On that basis he considered that the second point was, if anything, even stronger than the first point.

12. In this court Mr Kwok SC, on behalf of the defendant, emphasised the undoubted fact that a limitation point is a matter of right and not a matter of discretion. If a claim is statue-barred the court has no discretion to exercise to permit it to be raised. In essence he raised two points. In the first place, relying on statements made in such cases as Central Electricity Board v Halifax Corporation [1963] AC 785 and Coburn v Colledge [1897] 1 QBD 702, he argued that "cause of action" in section 35 should be construed as meaning "every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right of the judgment of the court": see e.g. Lord Esher MR in Coburn v Colledge at 706. In short, the argument was that since the original statement of claim failed to plead a cause of action, primarily because the matter of consideration was not adequately pleaded, it could not be said that there was not a new cause of action because there had been no original cause of action.

13. In my view that argument fails at the first hurdle. There was a cause of action which was pleaded. It was a cause of action in contract, as indeed, was referred to by Deputy Judge Woolley in paragraph 6 of his decision. The fact is that it was defectively pleaded. It was not a matter that the action was commenced in respect of something which did not constitute a cause of action, it was a situation where there was a defect in the pleading, which was recognised by the Deputy Judge as being curable.

14. That, in my view, also disposes of the second point relied upon by Mr Kwok, that there is issue estoppel arising from Deputy Judge Woolley's decision and order that the original statement of claim did not disclose a cause of action. The short answer is that it sought to plead a cause of action namely, specifically, one in contract but the pleading was not sufficient and failed to plead consideration. In my view Burrell J was correct in his approach. Without even going to the authorities one can see that all the plaintiff has sought to do is to add additional averments to its original claim, which remains the same claim namely one in contract, for the exactly the same shares, and the claim is based on exactly the same reasons. These sentiments are precisely the same as for example those expressed by Holroyd Pearce LJ in Robinson v Unicos Property Corporation Ltd [1962] 1 WLR 520 at page 525, which was quoted by Burrell J there he said:

"By 'a new cause of action' he meant a new claim made on a new basis."

Lord Esher's dictum, which was formulated in the course of, and has been applied by the courts in, determining when a cause of action arose. As Holroyd Pearce LJ said just before the quotation above, Lord Esher cannot have intended to state that no material averment could be added after the limitation period had expired.

15. Although Mr Kwok sought to draw a distinction in relation to the Robinson case on the basis that it was decided under the Limitation Act 1939 that does not, in my view, detract from the logic of the statement. Finally on this aspect I would mention the fact that Mr Kwok invited this court to hold that this court had reached its decision per incuriam in the case of Red Sea Insurance Ltd. and Bouygues S.A. and Others [1993] 2 HKLR 161. That was a decision relying on the Robinson case. The judgment in that case was a judgment of the court given by Sir Derek Cons VP. Far from being made incuriam in my view that decision was correctly decided.

Not arising out of the same facts

16. As was discussed during the course of the hearing it is clear from section 35(12), as well as the note attached to the draft Bill which introduced the amendment when the present section 35 was enacted, that section 35(6)(a) was introduced in order to cure a defect which had been held to exist in the rules. Section 35(6)(a) was formulated in the same terms as the existing Order 20 rule 5(5). That was deliberately so. Shortly, prior to the enactment of the new section 35, this court, in Gohind Mohan and Another v Brian Shane McElney and Others [1983] HKLR 308, had held that the Order 20 rule 5(5) had been ultra vires. In order to avoid any further difficulty the new section was enacted. The question which thus needs to be determined is whether, if there is a claim which involves a new cause of action, the new cause of action arises out of the same facts, or substantially the same facts, as the cause of action in respect of which relief has already been claimed in the action. Again, in my view, it does not assist the defendant to argue that there was no cause of action in the original statement of claim. There was clearly relief claimed in the action and it was based on a claim in contract. Albeit defectively pleaded, that claim is recognisable as being the same claim in the amended statement of claim.

17. I have already referred to what has been said by Burrell J in paragraph 15 of his judgment and that, in my view, is sufficient to conclude the matter. If there were any doubt I would refer to what was said by Glidewell LJ in giving the judgment of the court in Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409 at page 1418D:

"Nevertheless as Judge Hicks said whether or not the new cause of action arises out of substantially the same facts as that already pleaded is substantially a matter of impression."

18. I can only say that the impression which I have is the same as that which Burrell J evidently had.

19. If further authorities are needed one might refer to Litton VP, as he then was, in Leung Kin Fook & Others v Eastern Worldwide Co. Ltd (No. 2) [1997] 1 HKC 524 at 528C-E he said:

"The words in O 20 r 5(5) are not to be narrowly construed: they should be given a broad and liberal interpretation in order to attain the objective of the rules. By focusing attention on the additional averments which the plaintiffs need to make to establish the new causes of action, the judge has, in my judgment, applied the provisions of O 20 r 5(5) too narrowly.

If one looks at the issue broadly, what does one see? The contractual duties which are now pleaded arise from the original contract; the duty of care likewise arises from the relationship of owner and charterer of the barge as originally pleaded. There is no complete overlap of facts because, in the new causes of action, additional facts have to be pleaded. This does not, however, take the case out of O 20 r 5(5)."

20. In those circumstances, I have no hesitation in saying that the amendments sought were permissible under the terms of section 35 of the Limitation Ordinance and Order 20 rule 5(5).

Hon Le Pichon JA:

21. I agree.