DDK TRADING & DEVELOPMENT CO. LTD. v. MULTI BEST MANUFACTURERS LTD. AND ANOTHER

Procedure - application of limitation periods - amendment of writ to add new defendant - whether general principle that amendments date back to the date of the original pleading apply where an additional party is added - consideration of relation back and no useful purpose theories - conflict of English authority - effect of changes in Rules of Supreme Court - fundamental principle and practical considerations do not support relation back principle - Held: 1. That when an original writ is amended by adding a defendant the action is deemed to have begun as against the person added at the date of the amendment and not at the date of issue of the original writ; 2. Appeal from Master dismissed.  Section 9 Transfer of Businesses (Protection of Creditors) Ordinance, Cap. 49; Section 35 Limitation Ordinance, Cap. 347; Rules of Supreme Court Orders 15, 18, 20.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

----------------------

___________

JUDGMENT

___________

1. The present appeal against an order of a Master, granting leave to the plaintiff to amend the statement of claim, was heard in Chambers but because of the legal issues raised,   judgment is being delivered in open Court. The appeal raises the narrow but important procedural question whether an amendment of a statement of claim introducing a new cause of action against a subsequently joined defendant dates back to the issue of the writ or merely from the date the latter defendant was joined to the action. The law and certainly the practice was, until recently, well established that all amendments date back to the issue of the writ. This simple and often acted on principle can have important and far reaching consequences in practice as is highlighted by the present appeal.

2. The factual background to the present procedural question, commences with the issue of a writ on 22nd May 1982 by the plaintiff solely against the 1st defendant claiming damages raising out of the sale of alleged defective video tapes. According to the affidavit evidence, the 1st defendant agreed on 1st May 1983 to sell its business to the 2nd defendant with settlement then intended to be effected on 30th June 1983. The plaintiff became aware of the transfer of business during May 1984 and has pleaded that the actual transfer took place in or about October 1983. It is common ground that the transfer of the business was effected well after the date of the issue of the writ.  On 7th June 1984 the plaintiff was granted leave to amend the writ by joining the 2nd defendant.

3. The amended writ also included an amended endorsement of claim under which damages were claimed against the 2nd defendant pursuant to the Transfer of Businesses (Protection of Creditors) Ordinance, Cap. 49. Later, on 31st May 1985, the plaintiff sought leave to amend the statement of claim, consequential to the joinder of the 2nd defendant particularising, inter alia, the nature of its claim against the 2nd defendant as transferee of the 1st defendant's business within the meaning of the Transfer of Businesses (Protection of Creditors) Ordinance.

4. The 2nd defendant's solicitor did not object to the amendment which was granted by the Master in terms. The solicitor for the 2nd defendant now deposes by affidavit that in deciding not to object to the amendment, it was overlooked at the time that the statutory cause of action against the 2nd defendant had not arisen until after the date of the issue of the writ. On the plaintiff's amended pleadings that cause of action arose in October 1983. The cause of action hence did not exist at the date of the issue of the writ. It was therefore submitted, in accordance with the principle of relation back, that the 2nd defendant must cease to be a party to the action on two grounds. First, that the plaintiff sought to add a cause of action which had not accrued at the date of issue of the writ. Secondly, the statement of claim disclosed no cause of action against the 2nd defendant.

5. I record that neither ground was raised before the learned Master and are now argued for the first time. If the grounds advanced are sound, they are fatal to the plaintiff's claim against the 2nd defendant. This follows from the fact that under Section 9 of the Transfer of Businesses (Protection of Creditors) Ordinance, the statutory liability of the transferee ceases on the expiration of 1 year from the date on which the transfer took effect. If the 2nd defendant ceases to be a party to the present action it is now too late, because of the expiration of the 1 year limitation period imposed by Section 9, for the plaintiff to initiate a new separate action against the 2nd defendant based on he Transfer of Businesses (Protection of Creditors) Ordinance.

6. Counsel for the 2nd defendant strongly relied on the general principle that an amendment takes effect from the date of the issue of the writ and not from the date when the amendment is made. I was referred to 1 'The Supreme Court Practice' (1985) page 338 para. 20/5 - 8/2 where that principle is set out and the relevant authorities collected. In particular I was referred to the judgment of Swift J. in Eshelby v. Federated European Bank Ltd. (1932) 1 KB 254, affirmed by the Court of Appeal at page 423, as the explanation and the authority for why a plaintiff may not amend his writ to add a cause of action which has only accrued to him since the date of the issue of the writ. On the instant facts I am satisfied that the sole statutory cause of action against the 2nd defendant only arose after the issue of the writ.

7. Eshelby v. Federated European Bank Ltd. was concerned with the plaintiff's attempt to amend the writ by adding a cause of action which arose after issue. In upholding that judgment on appeal, Scrutton L.J., at page 429, observed that to allow an amendment to introduce a cause of action which did not exist at the date of issue was "contrary to the universal practice." Certainly the principle enunciated in relation to the facts of that case has continued to be widely applied. However, it should be noted that those facts were limited to the amendment of the cause of action between the original parties. Neither Court considered if the position remained the same, if the amendment sought to join an additional defendant in relation to a subsequent cause of action.

8. Counsel for the 2nd defendant also pointed out that the Court of Appeal had held in Read v. Brown (1889) 22 QBD 128 that where a debt is assigned, the assignment itself forms part of the cause of action in favour of the assignee. Accordingly, it was not open to the plaintiff to argue that the statutory liability of a transferee under the Ordinance, is deemed to have arisen when the cause of action against the transferor arose. To the contrary, the later date of transfer is the relevant date, in respect of the cause of action arising against the transferee.

9. Counsel for the 2nd defendant while maintaining that the long established principle of relation back still applied, recognised that in recent years there have been some English decisions which in certain circumstances have qualified that principle by holding that an amendment to add a new defendant as a party to an existing action, does not have retrospective effect. In those particular circumstances, there is authority that it would be sufficient if the cause of action against the added defendant existed at the date of joinder.

10. Counsel for the plaintiff relied on these latter decisions to oppose the appeal. If those decisions represent the law in Hong Kong, the appeal would fail for it is common ground that when the 2nd defendant was joined to the action on 28th May 1984, the cause of action against the 2nd defendant had already arisen. Both Counsel referred to the Court of Appeal decision of Liff v. Peasley (1980 1 WLR 781 where this issue is examined. The Court of Appeal was able to dispose of the appeal by ordering that the 2nd defendant should cease to be a party to the action on the ground that at the date of joinder the plaintiff would have been time barred from bringing a fresh action against him.

11. However, in view of the fact that the question had been fully argued, Brandon L.J. went on to consider whether the principle of relation back applies to an amendment, joining an additional defendant. If the case law were disregarded Brandon L.J. was of the view that both principle and the current English High Court and County Court rules, favoured the view that the action should be deemed to have begun against the new defendant only at the date of joinder. Seabridge v. H. Cox & Sons (Plant Hire) Ltd. (1968) 2 QB 46 had earlier held that, under R.S.C. Order 15 r.8(4)(a), where a defendant is added the action is deemed to have begun against him on the date of amendment and not, as had been the position under the prior rule, at the date of service.

12. Against this background, Brandon L.J. was of the view that the practice of not allowing a defendant to be added, where limitation periods would have prevented a separate new action being brought, was based not on any relation back principle but because to do so would be to serve no useful purpose. However, Brandon L.J. went on to recognise that the majority of the case law supported the relation back principle as being the juridical basis of the practice and not "his preferred no useful purpose theory. However, there were cases to the contrary. In Gawthrop v. Boulton (1979) 1 WLR 268, which concerned the joinder of a defendant, the relation back principle was rejected and it was pointed out by Walton J. that the widely applied statement of Scrutton L.J. in Mabro v. Eagle Star and British Dominions Insurance Co. Ltd. (1932) 1 KB 485 in favour of relation back, involved the very different question of adding a plaintiff. Thus at page 274:

"I think that this statement has been relied upon as covering both cases, plaintiff and defendant, without adverting to the very real distinction between the two cases. In any event, one must always read any judge's language in the light of the problems with which he was dealing, and Scrutton L.J. was indutiably dealing with the proposed addition of a plaintiff. Moreover, of course, the statement of law is impeccable. It is only the logical deduction therefrom which is out of line."

Brandon L.J. after referring to the 19th Century House of Lords decision in Byron v. Cooper 11 C1. & Fin 556, as being inconsistent with the relation back theory, went on to assert:

"There is, in my view a high degree of artificiality and unreality about the relation back theory. There is no reason to quarrel with the general proposition that an amendment of a writ or a pleading relates back to the original date of the document amended, as stated by Lord Collins M.R. in Sneade v. Wotherton Barttes & Lead Minim Co. (1904) 1 KB 295, 297. This seems tome to be an entirely sensible preposition so long as the amendment concerned does not involve the addition of a new party, either as plaintiff or defendant, or the raising of a new cause of action, but involves only the modification, by addition, deletion or substitution of pleas ort averments made between existing parties in respect of a cause or causes of action already raised. Where, however, the amendment concerned involves the addition of a new party or the raising of a new cause of action, it appears to me to be unrealistic and contrary to the common sense of the matter to treat it as relating back in the same way."

13. These, if obiter remarks go much further than Walton J. was prepared to go in Gawthrop v. Boulton where he distinguished the position of a joinder of a defendant from the joinder of a plaintiff. Brandon L.J. not only makes no such distinction but is also, prepared to exclude new causes of action between even existing parties from the relation back principle.

14. Later in Zea Star Shipping Co. S.A. v. Parley Augustsson (Invest) A/S (1984) 2 Lloyd's Rep. 605, Sheen J. considered two summonses for the addition of a new cause of action between existing parties which arose after the issue of the writ. After considering the authorities against leave to amend being granted, he preferred the approached suggested by Brandon L.J. in Liff v. Peasley and granted leave to amend.   ''However, just over 2 months later, the same issue arose before Neill J. in The "C" and "J" (1984) 2 Lloyd's Rep. 601. Having considered the various competing authorities, Neill J. started that the principle in Eshelby accorded with "practice of long standing." In view of the fact that the observations in Liff v. Peasley were obiter the learned judge held that there was "no binding precedent of the Court of Appeal precisely in point" and he did not feel able to accept "or to follow the persuasive decision of Mr. Justice Sheen."

15. The final English decision I was referred to was the recent Court of Appeal judgment in Ketteman v. Hansel properties Ltd. (1984) 1 WLR 1274 where cross appeals were allowed against the trial jduge's orders, that claims against the 3rd and 4th added defendants were time barred. The Court of Appeal held that because the amendment joining those defendants related back to the date of issue of the writ, the claims against them were not time barred. No doubt on the facts of that particular case that was a very just conclusion.

16. The leading judgment of the Court of Appeal was delivered by Lawton L.J. who refers in some depth to the doctrine of relation back. After citing the statement of Megaw L.J. in Lucy v. W.T. Henley's Telegraph Works Co. Ltd. (1970) 1 WB 393 that the relation back principle recognised in Mabro v. Eagle Star and British Dominuons Insurance Co. Ltd. had nev er been challenged and had been as right then as it was 37 years earlier, Lawton L.J. refers to the contrary view expressed in Liff v. Peasley and Byron v. Cooper.

17. The treatment of the latter two decisions by Lawton L.J. is, with respect, intriguing. The learned judge would have preferred to adopt the obiter reasoning of Brandon L.J. if there were not other Court of Appeal decisions binding upon him. Those Court of Appeal decisions, in his view, obliged him to accept the relation back theory. The only House of Lords decision cited, which apparently supported the obiter remarks of Brandon L.J., would, of course, have been a contrary and superior authority to the Court of Appeal decisions. Lawton L.J. disposed of the House of Lords decision largely on the ground that the matters involved before the House of Lords were outside his professional experience.   For completeness it is desirable to cite that portion of the judgment of Lawton L.J.,  at page 1287, in full:

"The House of lords adjudged that the suit as against these latter defendants must be taken to have been commenced at the date at which they were actually introduced into the bill; and that they could not, by relation back, be treated-as defendants to the original bill and that they were consequently entitled to the protection of the statute. The only speech was that of Lord Brougham. I have found difficulty in following his reasoning, largely because the subject matter of the case, titles, and the procedure to which he referred is outside my professional experience. Brandon L.J. thought this case was inconsistent with the relation back theory. The mystery is why it was never referred to before 1980 and was overlooked when the relation back theory was developing. Had there not been a long line of authority, which includes a number of decisions of this court which are binding on us I would have adopted the reasoning of Brandon L.J., albeit it was obiter; but the binding precedents oblige me to accept the 'relation back' theory. It follows that the action against the third and fourth defendants must be deemed to have started when the writ was issued."

18. Lawton L.J., went on to accept that a Court had a discretion under R.S.C. Ord. 15 r.6(2)(b)(ii) to allow a joinder of a new defendant on express terms that it take effect only from the date of amendment of the writ which had earlier been recognised in Liptons Cash Registers and Business Equipment Ltd. v. Hugin (G.B.) Ltd. (1982) 1 All ER 595. In the instant case I am faced with the different position that the joinder was unconditional.

19. I am grateful to both Counsel for their assurance that the only reported reference in Hong Kong to the relation back principle is in Shing Tak v. Lee Yun Sang (1949) HKLR 150 where the Full Court held that the principle in Eshelby did not apply in proceedings before the Tenancy Tribunal. This was because that now defunct Tribunal was invested with a wide discretion and was designed to be free from technicality. That decision being concerned with the special position of the former Tenancy Tribunal, does not assist in ascertaining the position in the High Court.

20. Counsel for the plaintiff submitted that whether the relation back principle applies in Hong Kong remains open. In those circumstances I was invited to adopt the obiter remarks of Brandon L.J. in Liff v. Peasley. I was also reminded that Lawton L.J., if he had not considered himself otherwise bound by authority, would also have preferred to adopt the same views of Brandon L.J. in Liff v. Peasley. In Counsel's submissions Lawton L.J. should properly have considered himself bound by the House of Lords decision in Byron v. Cooper rather than other Court of Appeal decisions which had in any event been distinguished by Brandon L.J.

21. Faced with the judgment of Neill J. in The "C" and "J", Counsel for the plaintiff sought to demonstrate that because of material changes to the relevant Rules of the Supreme Court Eshelby was of, reduced authority. Unfortunately the effect of these important Rule changes, it was submitted, had not been explained to Neill J. I was referred to R.S.C. Order 24 r.1 in the form it existed in 1931 when Eshelby was decided and the much wider present provisions of R.S.C. Order 18 r.9. In 1931, it was submitted that matters arising after the commencement of an action could only be pleaded by way of defence subject to the conditions imposed by Order 24. However, the current Order 18 r.9 is much wider allowing any party in any pleading to plead any matter which has arisen at any time, whether before or since the issue of the writ.

22. Counsel for the plaintiff's further submitted that the relation back theory was also inconsistent with the provisions of R.S.C. Order 15 r.8(4) reference being made to Seabridge v. H. Cox & Sons (Plant Hire) Ltd. Finally, Counsel submitted that the earlier cases required to be considered in the light of the Rules of the Supreme Court which then applied. Subsequent rule changes resulted in cases such as Eshelby no longer being good law.

23. Counsel for the 2nd defendant in reply submitted that while the English authorities were strictly only persuasive, the well settled principle of relation back had been recently reaffirmed by the Court of Appeal in Ketteman v. Hansel Properties Ltd. and by Neill J. in in The "C" and "J". In both those cases the judges had fully considered but rejected the cases cited in support of the present plaintiff. In addition, there was a clear indication by the Legislature in Section 35 of our Limitation Ordinance, Cap. 347 enacted as recently as 1984, that the principle of relation back applied in Hong Kong. This Section commences:

"35.(1) For the purposes of this Ordinance, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced-

 

24. The plaintiff's reply to that submission was that Section 35 is not of general effect but is expressly limited in application to the purposes of that particular Ordinance. Furthermore, the Section does not extend to the special limitation provisions of the Transfer of Businesses (Protection of Creditors) Ordinance.

25. Counsel for the 2nd defendant rejected the relevance of the provisions of the present R.S.C. Order 15 to whether the principle of relation back exists. It was submitted that Order 15 is not concerned with relation back but simply with the procedural mechanics which apply if joinder is allowed. The Order does not assist in a determination of the different question whether joinder is proper. In relation to the limited relevance of Seabridge v. H. Cox & Sons (Plant) Hire Ltd., it was pointed out that it was considered by Stephenson L.J. in Liff v. Peasley where at pages 794, 795 he held that it cannot be reconciled with Lucy v. W.T. Henleys Telegraph Works Co. Ltd. but that in any event it was only concerned with the issue whether the writ dated from when the defendant was added or served with the amended writ.

26. Finally, Counsel for the 2nd defendant submitted that the changes to the Rules since 1931 did not reduce the authority of Eshelby. The scope of Order 18 r.9 may, I record, be subject to the qualifications asserted in 1 'The Supreme Court Practice' (1985) 275. These include the notation that Order 18 r.9 does not permit a new cause of action to be raised, which has only arisen since the issue of the writ. Counsel admitted that whatever the detail of subsequent Rule changes, the principle of Eshelby, as for example Neill J., has recently recognised, is now long established as a rule of law. In any event, the submission concluded, even if the authority of Eshelby were eroded, the principle of relation back continues to exist quite independently of that judgment. The learned editors of 'The Supreme Court Practice' make it clear that they do not accept that Liff v. Peasley has altered the law and observe that the later judgment is directly contrary to Section 35 of the English Limitation Act 1980.

27. I recognise that Section 35 of the Limitation Act 1980, on which our Section 35 is also based, was enacted after the judgments in Liff v. Peasley were delivered. These subsequent statutory provisions do provide, for the purposes of their respective enactments, for relation back where a new party is added. The effect of those later enactments, to the observations of Brandon L.J., may be an interesting question. However, I am not directly concerned with that question for the only limitation provision relevant to this appeal is that imposed under the Transfer of Businesses (Protection of Creditors) Ordinance. I hold that under that Ordinance there is no statutory relation back. I am not therefore, faced with any statutory obstacle, which may have arisen, if the limitation period were under the Limit at Limitation Ordinance. I note that in the English cases Section 35 was referred to by Neill J., but did not appear to concern Sheen J.

28. In any event, the general principle that an amendment dates back to the original pleading remains. As Brandon L.J. in Liff v. Peasley at page 803 emphasised it is only where a defendant is added or other amendments are within the limited class he specifies, that the general principle would not apply. The general intention of limitation statutes, as both Brandon L.J. and Sheer. J. have pointed out, would also be better, and more justly served by the addition of a new defendant not dating back to the issue of the writ.

29. Notwithstanding this conflict of English authority there exists in principle, at least at a Court of Appeal level, a measure of agreement. Brandon L.J. in Liff v. Peasley, after a detailed reasoned judgment considered that he was free to reach his own opinion and even if in the event his conclusion was obiter, he rejected the relation back theory. With respect, his reasons for reaching that conclusion appear to be far more compelling than the contrary view. Lawton L.J., in the only other recent Court of Appeal judgment dealing with the current conflict, would have preferred similarly to have rejected the relation back theory but felt bound by earlier Court of Appeal decisions to the contrary.

30. Counsel for the plaintiff has persuasively argued that some of those earlier decisions are no longer good law because of subsequent material changes in the relevant Rules of the Supreme Court while others may be distinguished on the facts. Proper regard must also be give to the effect in Hong Kong of the House of Lords judgment in Byron v. Cooper. In terms of the Privy Council's advice in De Lasala v. De Lasala (1979) HKLR 214, 219, Byron v. Cooper falls within the first classification of cases in which Hong Kong Courts should accept that, on the same issue, the Privy Council is unlikely to diverge from a decision which its members have reached in their alternate capacity unless the law in Hong Kong has developed differently.

31. I have paused to remind myself that while our Order 20 r.5(5) is the same as its English equivalent, in 1983 the former was held by the Court of Appeal in Mohan v. McElney Civil Appeal No. 51/1983, because of the then provisions of the Limitation Ordinance, to be ultra vires. The Court of Appeal recognised that no question could arise in England of their Order 20 r.5(5) being ultra vires because of the different provisions of the Limitation Act. Following the Court of Appeal's judgment our Section 35 was amended in 1984 and now corresponds with the English legislation. The amendment was retrospective. Order 20 r.5(5) is therefore no longer ultra vires. That previously important Court of Appeal judgment, is therefore now of historical interest. I am consequently able to hold that in this procedural and limitation area, Hong Kong lava is now not different to English law.

Proceeding on this basis I nevertheless appreciate that Byron v. Cooper is an old decision delivered in 1844. I appreciate too, that until cited in Liff v. Peasley it appears to have remained unnoticed during the development of the relation back principle. On the other hand, Brandon L.J. clearly considered that the House of Lords judgment was inconsistent with the relation back theory. It might also be interpolated that Brandon L.J. had no difficulty in distinguishing contrary Court of Appeal decisions which Lawton L.J. considered, with apparent reluctance, were binding on him. The express reasons given by Lawton L.J. for not being bound by the house of Lords decision, with respect, may not be considered as overwhelming. In addition at a Court of Appeal level the differing views of Brandon and Lawton L.JJ., do not stand alone. For in Liff v. Peasley Stephenson L.J. devoted more than a page of his judgment to Byron v. Cooper. Counsel for the 1st defendant apparently criticised the relevance of the House of Lords decision because of its special facts. To that Stephenson L.J. stated that he approached the case with caution but, unlike the hesitancy Lawton L.J. was later to show, he was not persuaded:

"...that there was anything in the peculiarities of a title suit or in the rules of procedure and practice in the 1840's which weakens the authority of that decision for the proposition which appears to support that when a defendant has a separate defence he should not be added after the relevant period of limitation has expired because the date of his being added to a suit commenced in time is the date of the suit's commencement quoad him."

32. It is true that Stephenson L.J. did not go on to consider the second issue because of the Court's decisive finding on the first issue. However, the observations of Stephenson L.J. are important indicating in his view the soundness of that part of the House of Lords judgment relevant to the first issue.

33. I am of the opinion, that I am not merely entitled to adopt the obiter view of Brandon L.J. but that it is strongly arguable that it is not open to this Court to come to a conclusion inconsistent with the House of Lords judgment which supports the rejection of the relation back theory. Further I am well satisfied, for the reasons set out by Brandon L.J., that this would also be the more just, practical and logical course to follow.

34. After taking all these factors into account I hold that upon the writ being amended to join the second defendant to the present action, the amendment against the second defendant does not relate back to the issue of the writ. The action is deemed to have begun against the second defendant at the date of joinder.

35. In view of the fact that the plaintiff's cause of action against the 2nd defendant arose before the date of joinder it follows that both the 2nd defendant's grounds of appeal fail. The appeal is accordingly dismissed. I am obliged to both Counsel for their very clear and comprehensive submissions on a procedural point of some difficulty.