LAM YEE HUNG v. CHINACHEM CHARITABLE FOUNDATION LTD

HCA 764/2015

[2018] HKCFI 2404

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 764 OF 2015

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J U D G M E N T

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1.  The plaintiff’s claim as originally set out in the Statement of Claim was based upon a loan. By the proposed amendments in paragraphs 12 to 14 of the Amended Statement of Claim, the plaintiff seeks to introduce a new cause of action based upon restitution for mistake. Other non-controversial amendments are also made elsewhere.

2.  Leave to the plaintiff to make such amendments was given bythe Master on 30 April 2018.  The defendant now appeals against the part of that decision identified above.  As is well understood, the application before me is a hearing de novo, but with due regard paid to the decision of the Master.

3.  The relevant facts need only briefly be stated. It is the plaintiff’s case that it loaned money to the defendant at a time in which the defendant was, and was known to be, in financial difficulties.  Perhaps unusually in view of the sums involved, the loan arrangements were said to have been agreed orally in meetings between individuals representing the parties.  For its part, the defendant contends that there was no discussion of loans to the defendant, but rather the discussion concerned donations to be made to the defendant as a charitable foundation.  There is no dispute between the parties as to the fact of payments, which were made over a period of time to the defendant.  The defendant says that it “pooled” that money, and applied those payments to its charitable activities.

4.  The recent amendment proposed on behalf of the plaintiff seeks to bring an alternative basis of claim, namely that, if there was no loan agreement reached, then the monies paid by the plaintiff to the defendant were paid under a mistake of fact and, as such, are recoverable by way of a restitutionary claim.

5.  With or without the amendments there is, therefore, an issue between the parties as to what if, anything was agreed in the meetings in February and March 2009 referred to in the Statement of Claim.

Amendment principles

6.  The ‘usual’ principles on the grant of leave to amend are well understood and, in the ordinary run of cases, the court will be inclined towards permitting an amendment to be made, providing that the timing of any application, and the surrounding circumstances are such as to indicate that there will be little or no procedural prejudice to the other party once costs considerations have been addressed.

7.  The factual circumstances relevant to the present application introduce potential limitation considerations however.  The discussions and payments which lie at the heart of the plaintiff’s claim took place over a period leading up to June 2009.  The plaintiff’s writ was issued on 13 April 2015.  The defendant submits therefore that the provisions of the Limitation Ordinance and Order 20, rule 5(5) are of relevance since prima facie, transactions before April 2009 would be susceptible to a limitation defence.  However, the Rules of the High Court permit amendments to be made notwithstanding the fact that the relevant limitation period has expired in certain circumstances, including where a claim which is ostensibly ‘out of time’ for limitation purposes is permitted by virtue of section 35 of the Limitation Ordinance.

8.  In particular, section 35(6)(a) of that Ordinance permits a claim which involves a new cause of action to be brought and maintained if it arises out of the same facts or substantially the same facts as a cause of action advanced in an existing action by the party seeking to bring the new claim.

The relevant approach

9.  There have been decisions which have adopted different approaches to the grant of leave to amend where limitation considerations are relevant, and these differences in approach were described in Akai Holdings Ltd (in comp liq) v Everwin Dynasty Ltd [2012] 4 HKLRD 248:

“ The difference between the approaches is this—the English approach is to refuse an amendment where there is an arguable limitation defence, unless the new cause(s) of action arise out of the same or substantially the same facts as those on which existing causes of action are based, whereas the approach apparently taken in Extramoney Ltd v Chan, Lai, Pang & Co isto allow the amendment where the limitation defence is arguable.”

10.  The “English approach” to which the judge made reference was that in Welsh Development Agency v Redpath Dorman Long Ltd [1994]1 WLR 1409.  In the Court of Appeal, in Global Bridge Assets v Sun HungKai Financial[2012] 4 HKLRD 474 (at paragraph 20) Kwan JA referred to that judgment and stated:

“ … Barma J did say in para.32 he was of the provisional view that the approach in Welsh Development Agency v Redpath Dorman Long Ltd is preferable and observed that the Court in Extramoney does not appear to have considered the effect of the relation-back rule in s.35(1)(b) and its impact on the question of prejudice being caused to a defendant by allowing an amendment to plead an arguably time-barred claim.

I respectfully agree with his observations. The approach in Welsh Development Agency and Sun Focus Investment [1] gives effect to and accords with s.35(1)(b) and 35(3). Leave to amend should not be given if the effect of this would be to deprive the defendant of an accrued limitation defence, which would be lost as a result of the operation of the relation-back rule in s.35(1)(b). In that situation, the correct approach is to refuse leave to amend, unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation or that the new claim arises out of the same or substantially the same facts as a cause of action in respect of which relief has already been claimed in the existing action. ‘By this means the injustice to the defendant of depriving him of an arguable limitation defence is avoided without denying the plaintiff the right to bring a fresh action to which, if he is correct, there is no limitation defence.’

…

For the above reasons, I am satisfied that the approach in Extramoney Ltd v Chan, Lai, Pang & Co (a firm), which is to give leave to amend where there is a triable issue on limitation and leaving this issue to be resolved at trial, is incorrect.”

11.  The Court of Appeal went on to hold that there was a burden on a plaintiff seeking leave to amend in circumstances in which limitation was an issue to “show that the defendant has no reasonably arguable defence of limitation to the new claim and so would not be prejudiced by the relation-back rule, irrespective of whether the limitation period is to run from the time provided under s.4(1) or s.26(1).”  See paragraph 24 of the judgment.

12.  The rationale underpinning this approach is that, where there is a dispute as to the applicability of the “relation-back rule in s.35(1)(b)”, the better course of action is to refuse to allow the amendment so as to allow the question of the applicability of that section to be determined in a separate action, which the plaintiff would be entitled to bring (subject to the limitation point) were leave to amend to be refused.

13.  The decision of the Court of Appeal in Global Bridge was applied by Ng J in Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd [2016] HKEC 1969 (HCA 2114/2007, 18 July 2016), in which the judge adopted the ‘three-stage test’ described in Ballinger v Mercer [2014] 1 WLR 3597 and Michael Agapios Diamandis v Sir David Seton Wills [2015] EWHC 312 (Ch).  In summary (see paragraph 16) this involves consideringwhether it is reasonably arguable that the proposed amendments fall outside the limitation period.  If not the ‘usual’ principles on amendment apply, but if limitation appears to be in issue, then it is necessary to consider whether a new cause of action is added by the amendments (stage 2).  If a new cause of action is added or substituted, then (stage 3) does it arise out of the same or substantially the same facts?  If it does not, then the amendment cannot be allowed, but if it does, then it is an exercise of discretion as to whether the amendment should be allowed.

Submissions

14.  The defendant/appellant submits that the appropriate starting point is that any transactions (payments to the defendant) made prior to 14 April 2009 are, prima facie, time-barred as having taken place more thansix years prior to the issue of the writ.  The plaintiff accepts for the purposeof the appeal that there is an arguable limitation defence shown prima facie, and that the relevant amendments constitute a new cause of action.

15.  [The plaintiff does not contend that “concealment” / section 26 applies, but if it does, there are no particulars and its applicability is disputed, so that the better course is to require the plaintiff to start a fresh action.]

16.  The focus therefore is on the “stage 3” question above, namely whether the proposed amendment arises out of the same or substantially the same facts as the existing claim.

17.  The defendant refers the court to the decision of the Court of Appeal (citing Bharwaney J) in WDA Architects v MHS Planners CACV 116/2014, 21 July 2015 (at 20C, para 68):

“ The reason why an amendment is only permitted if it is based onthe same facts, or substantially the same facts, pleaded to supportthe original cause of action, is to avoid putting a defendant in theposition where, if the amendment is allowed, he will be obliged, after the expiry of the time period, to investigate facts, and other evidence, relating to matters which are completely outside the ambit of, and unrelated to, those facts which he could reasonably be assumed to have investigated for the purpose of defending the claim as originally pleaded without the amendment. The exception in sub-paragraph (5) is based on the assumption that the party, against whom the proposed amendment is directed, would not be prejudiced because that party, for the purposes of the pre-existing matters in issue, will already have had to investigate the same or substantially the same facts.”

18.  The better course of action, it is submitted, is that the plaintiff be required to commence a fresh action setting out through the process of pleadings its case as to why any limitation defence to be pleaded by the defendant is incorrect.  The defendant submits that allowing the fresh cause of action to proceed within the present action would prejudice the defendant, because it would then be required to investigate facts and mattersrelevant to the alleged mistake which would not have required investigation in respect of the existing contractual claim.

19.  On behalf of the plaintiff, counsel submits that the focus should be placed on whether or not the new claims are properly to be described as arising out of substantially the same facts as the existing claims.  This is to be considered, it is submitted, by taking a broad approach, with an emphasis on the substantiality of the similarity of facts.

20.  The existing claim is summarised by the plaintiff as involving a concluded oral loan agreement made in meetings between certain representatives of the parties.  To that assertion the plaintiff seeks to add, as a fallback, the contention that the conclusion drawn by the plaintiff fromthe meetings (that he would be making a loan to the defendant) was mistaken, and that it was pursuant to that mistaken understanding that he made the payments to the defendant.

21.  The plaintiff accepts that there is no complete overlap in the essential facts, but submits that there is more than enough to meet the requirement of substantial identify.  The plaintiff accepts also that an amendment which would require the defendant to investigate facts which are completely outside the ambit of the existing factual investigation would likely not be sufficiently congruous to the existing claim as to be said to arise out of substantially the same facts.

Inconsistent pleading

22.  The defendant further submits that the case which the plaintiff now seeks to advance, that of a mistaken payment, is inconsistent with the existing contractual loan claim.  The defendant accepts, naturally, that alternative pleas may be made, but contends that it is necessary for the plaintiff to set out the “reasonable grounds” upon which it advances alternative claims which are inconsistent as to their underlying facts.  The existence, or otherwise, of a contract is said to be a matter which is, firstly, factual, and secondly, within the knowledge of the plaintiff, such that there could be no justification here for pleading inconsistent alternative cases.

Discussion

23.  The central issue between the parties is as to what was said by the parties in the various meetings on which the plaintiff relies.  The pleadings (with or without the proposed amendment) do not set out any detail of this, but this will be the ‘core’ of the evidence at the trial.  As analleged oral agreement, the factual background will no doubt also be relevant, including perhaps the circumstances in which the plaintiff obtained and provided the funds.

24.  The proposed restitutionary claim will require the investigation of the “mistake” made, including, perhaps, when this was discovered by the plaintiff, and whether it could, with reasonable diligence, have been discovered earlier.  Moreover, investigation will be required as to what the defendant has done with the monies received and whether (assuming this to be pleaded in due course), the defendant is able to rely on a ‘change of position’ defence in consequence.  This, it is submitted, will be a complex exercise requiring consideration of the various separate payments made to the defendant, and the consequential transactions by the defendant. This is an exercise which would be wholly unnecessary in regard to the contractual claim.

25.  There are three elements to this: (1) whether it can be shown that the proposed limitation defence is bound to fail; (2) if not, whether thisfactual investigation is of such nature as to render the claim other than one based on substantially the same facts; and (3) if the facts are substantially the same, does this investigation militate against the amendment being allowed simply as a matter of discretion?

26.  The plaintiff is not able to show, at this stage, that the limitation defence is ‘bound to fail’.  The circumstances of the payments to the defendant and the plaintiff’s own understanding of what had been discussed and agreed is still to be investigated.

27.  The restitutionary claim does, however, in my judgment arise out of substantially the same facts as the ‘loan’ claim, notwithstanding the more complex defence issues that may be engendered.  This may also giverise to limitation issues which cannot be decided as the materials before me.  The commonality of issues, in my judgment, far outweighs the implicationsof the potential need for additional evidence regarding the use of the (pooled) funds received, and the broadening of issues in dispute.

28.  Nor do I accept that there is any impermissible pleading of factually inconsistent alternatives.  Inconsistent factual assertions are, ordinarily, not permissible, whereas inconsistent legal conclusions drawn from consistent factual assertions ordinarily will be permissible.  See Yiu Ka Fung v Info-Vantage CACV 96/2014, 3 July 2015, at para 63.  The existence, or otherwise, of a concluded contractual agreement, while based upon facts, is fundamentally a question of law.  It appears to me entirely reasonable as a matter of principle for the plaintiff to contend that certain oral discussions resulted in a contractual agreement, but that, if not, then a mistake existed pursuant to which the relevant payments were made.

29.  For these reasons I do not accept that the defendant’s objections to the plaintiff’s proposed amendment are valid.  The appeal against the decision of the Master is accordingly dismissed.  I order the costs of the appeal to be to the plaintiff, on a nisi basis.

The amendments to the reply

30.  The plaintiff seeks leave to amend the reply as per a draft supplied to the court.  These amendments were not opposed by the defendant.  The parties, pragmatically, agreed that, since some amendments are to be made to the statement of claim irrespective of the outcome of the appeal, that there should be just one round of amendments.  Thus the defendant is to respond to the amended statement of claim with consequential amendments within 21 days of the date of this decision, and the plaintiff is to be at liberty to make necessary consequential amendments to the reply within a further 21 days.

31.  There is, accordingly, no other order to be made on the plaintiff’s ‘reply’ summons.